<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANSYS DIAGNOSTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2835 33-0316510
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
25200 COMMERCENTRE DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 770-9381
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN K. SCHULTHEIS
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
ANSYS DIAGNOSTICS, INC.
25200 COMMERCENTRE DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 770-9381
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
PATRICK ARRINGTON, ESQ. RODD M. SCHREIBER, ESQ.
ELLEN S. BANCROFT, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
MATTHEW L. STEIMEL, ESQ. 333 W. WACKER DRIVE, SUITE 2100
BROBECK, PHLEGER & HARRISON LLP CHICAGO, ILLINOIS 60606
38 TECHNOLOGY DRIVE (312) 407-0700
IRVINE, CALIFORNIA 92618
(949) 790-6300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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- ----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par
value....................... 2,875,000 $12.00 $34,500,000 $9,591
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</TABLE>
(1) Includes 375,000 shares that the underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 19, 1999
2,500,000 SHARES
ANSYS LOGO
COMMON STOCK
- --------------------------------------------------------------------------------
This is the initial public offering of ANSYS Diagnostics, Inc., and we are
offering 2,500,000 shares of our common stock. We anticipate that the initial
public offering price will be between $10.00 and $12.00 per share. We have
applied to list our common stock on the Nasdaq National Market under the symbol
"ANSD."
- --------------------------------------------------------------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discounts and commissions................... $ $
Proceeds to ANSYS........................................ $ $
</TABLE>
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
ANSYS Diagnostics, Inc. has granted the underwriters the right to purchase up to
375,000 additional shares of common stock to cover any over-allotments.
---------------------
Vector Securities International, Inc. Sutro & Co. Incorporated
PROSPECTUS DATED , 1999
<PAGE> 3
FRONT COVER
Depicts four captions where products are used:
1) Clinical laboratories -- person pipetting liquid into
container.
2) Workforce safety-person wearing a hardhat talking on a
walkie-talkie.
3) Department of Transportation -- truck rolling down the
highway.
4) Law enforcement -- police officer in patrol car.
INSIDE FOLD COVER
Onsite product being held in a hand
Testcup product held in a hand
Toxilab compendium
INSIDE COVER
SPEC products displayed:
1) 96-Well plate
2) Pipette tip tray
3) SPEC column
TESTSTIK HELD IN A HAND
ANSYS(R), DRUGSTAT(TM), DRUGSTAT RA(TM), LTD-Opiate(TM), ON-SITE(R),
ON-SITE Alcohol(R), SPEC(R), SPEC-NEWS(TM), TOXI-LAB(R) and TOXI-NEWS(TM) are
trademarks of ANSYS. TesTcup(R), TesTcup ER(TM) and TesTstik(TM) are trademarks
of Roche Diagnostic Systems, Inc. This prospectus also refers to trademarks of
other companies.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights the information contained elsewhere in this
prospectus. Because this is only a summary, it does not contain all of the
information that may be important to you. You should read the entire prospectus
carefully, and you should consider the information under "Risk Factors" and in
our Consolidated Financial Statements and Notes before deciding to invest in the
shares of our common stock.
OUR BUSINESS
We develop, manufacture and market drug testing products and specialty
laboratory and research products. Our drug testing products detect the presence
of drugs of abuse and alcohol, primarily in on-site testing applications. These
applications include pre-employment screening, random employee testing,
government mandated testing, parole and probation monitoring and hospital-based
testing. We currently manufacture eight on-site drug testing products, all of
which are self-contained, disposable and easy to use. These products yield
highly accurate results in less than five minutes and are intended to be
cost-effective. We also offer a laboratory-based drug testing product called
TOXI-LAB(R), a broad spectrum screening system that detects more than 500 drugs
and drug byproducts in urine, blood, tissue and other specimens. In addition, we
intend to develop additional drug testing products to include tests that will
enable physicians to monitor their patients' compliance with a prescribed
therapeutic drug regimen. We have one such product, a test for Ritalin(R), under
development. In the specialty laboratory and research products market, we
manufacture and sell our SPEC(R) solid phase extraction products. We also
manufacture and sell nucleic acid isolation products, and are co-developing a
series of rapid nucleic acid separation and detection products.
OUR DRUG TESTING PRODUCTS
We have applied our core competencies in product design, engineering and
manufacturing to bring to market a series of drug testing products for on-site
and laboratory testing applications. For the on-site drug testing market, we
manufacture TesTcup(R), TesTstik(TM) and ON-SITE Alcohol(R). TesTcup and
TesTstik, which we developed and currently manufacture exclusively for Roche
Diagnostic Systems, Inc., are urine-based testing devices that detect the
presence of drugs of abuse in approximately five minutes. TesTcup tests for up
to five substances simultaneously, and integrates sample collection, detection
and storage features into one simple to use device. TesTstik, a dipstick device,
detects the presence of a single drug of abuse and comes in five different
versions, each of which tests for a different commonly abused drug. ON-SITE
Alcohol, a pocket-sized test for detecting ethanol in urine or saliva, provides
results in approximately two minutes. We are currently developing new on-site
drug tests to broaden the range of substances detected and to expand the use of
our products into additional markets. For example, we and Roche are developing
new versions of TesTstik, and have completed development of TesTcup ER(TM), a
version of TesTcup that Roche will sell to hospital emergency rooms beginning in
the first quarter of 1999. We are also applying our technology expertise to
develop rapid, disposable tests for use in monitoring therapeutic drugs. For the
laboratory market, we manufacture and sell the TOXI-LAB drug screening system,
which incorporates our proprietary membranes into a bench-top, thin layer
chromatography system. TOXI-LAB uses a comprehensive, standardized set of
reference materials and offers built-in quality control and consistent and
reproducible procedures.
Our on-site and laboratory drug testing products address the in vitro
diagnostic testing market. In vitro diagnostic testing is the process of
analyzing blood, urine, saliva and other specimens to detect the presence of and
monitor certain substances, diagnose diseases and other medical conditions or to
determine the chemical and microbiological constituents of the specimen. The
drugs of abuse testing segment of the United States in vitro diagnostic testing
market was approximately $628 million in 1996, and is estimated to grow to
approximately $900 million by 2002. The majority of drugs of
3
<PAGE> 5
abuse testing has historically been performed in reference laboratories, where
skilled technicians must process the specimens and document test procedures and
results. On-site drug testing, however, has become increasingly accepted as an
alternative to laboratory testing with the emergence of rapid, easy to use tests
that produce precise and accurate results comparable to those achieved using
laboratory analyzers. We believe that on-site drug testing will be increasingly
used in the workplace (including pre-employment screening and random employee
testing), government mandated applications, hospital/emergency rooms,
therapeutic drug monitoring, drug treatment centers and the over-the-counter
market.
We have collaborated with Roche for more than six years, and we continue to
work with Roche both contractually and informally on developing new on-site drug
testing products. We have an exclusive manufacturing relationship with Roche,
under which we manufacture the TesTcup and TesTstik product lines for them.
Roche owns all rights to and is responsible for selling and marketing the
TesTcup and TesTstik product lines. In addition, we are co-developing TesTcup ER
with Roche, and we will manufacture TesTcup ER for Roche under the same
arrangement as TesTcup.
OUR SPECIALTY LABORATORY AND RESEARCH PRODUCTS
Our specialty laboratory and research products are used for solid phase
extraction and for nucleic acid separation and detection. Solid phase extraction
is a technique for removal of a target substance from a liquid onto a solid
surface and the subsequent release of that substance for analysis. We market our
solid phase extraction products under the name SPEC. Our SPEC products use our
proprietary membranes to isolate a substance of interest from urine, blood,
plasma or any other liquid sample. SPEC products are used for a variety of
analytical applications, including drugs of abuse confirmation testing,
therapeutic drug monitoring and sample preparation in drug discovery, drug
metabolism studies and environmental testing. We have also integrated our SPEC
products into two versions of our TOXI-LAB drug screening system.
Nucleic acid separation involves isolating nucleic acids from other soluble
contaminants. Nucleic acids, including DNA and RNA, are the fundamental
regulatory molecules of life. Over the past 20 years, an increased understanding
of nucleic acid structure and function has led to the use of nucleic acids in a
broad array of therapeutic and diagnostic applications. All of these
applications require highly purified nucleic acids. Pure nucleic acids are
essential for reliability and reproducibility of molecular biology experiments
in both academic and industrial research laboratories, as well as for the
accuracy of results in nucleic acid-based clinical diagnostics. We produce two
custom nucleic acid isolation products for Promega Corporation. In addition, we
are developing a series of rapid nucleic acid separation and detection products
in conjunction with Molecular Innovations, Inc.
Our specialty laboratory and research products are marketed primarily to
clinical and environmental testing laboratories, pharmaceutical and
biotechnology companies and DNA testing and research organizations.
OUR STRATEGY
We seek to strengthen our competitive market position in the drug testing
and specialty laboratory and research markets. To achieve this objective, we are
pursuing the following strategies:
- Employ market driven product development;
- Focus on strategic relationships;
- Accelerate development of new drug testing products;
- Increase emphasis on specialty laboratory and research products;
- Achieve manufacturing efficiencies through automation; and
- Pursue strategic acquisitions.
4
<PAGE> 6
THE OFFERING
Common stock offered....................... 2,500,000 shares
Common stock to be outstanding after this
offering................................... 8,016,512 shares(1)
Use of proceeds............................ For redemption of preferred stock
and payment of cumulative
dividends; for repayment of
indebtedness; for the acquisition
of complementary businesses,
products and technologies; and
for working capital and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol..... ANSD
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $6,589 $6,447 $8,126 $10,698 $18,964
Gross profit................................ 4,588 4,178 5,068 5,599 9,261
Operating expenses.......................... 3,117 3,364 3,204 3,649 4,749
Operating income............................ 1,471 814 1,864 1,950 4,512
Net income.................................. $ 971 $ 494 $1,201 $ 1,206 $ 2,691
Earnings per share(2):
Basic..................................... $ 0.34 $ 0.14 $ 0.46 $ 0.54 $ 1.33
Diluted................................... $ 0.15 $ 0.08 $ 0.19 $ 0.20 $ 0.45
Weighted average shares outstanding(2):
Basic..................................... 2,307 2,307 2,230 1,901 1,890
Diluted................................... 6,039 6,076 6,057 5,864 5,942
Pro forma earnings per share(2):
Basic..................................... $ 0.16 $ 0.08 $ 0.20 $ 0.21 $ 0.47
Diluted................................... $ 0.16 $ 0.08 $ 0.19 $ 0.20 $ 0.44
Pro forma weighted average shares
outstanding(2):
Basic..................................... 6,154 6,154 6,077 5,748 5,737
Diluted................................... 6,244 6,282 6,262 6,069 6,147
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,176 $ 916 $24,047
Working capital........................................... 5,053 2,793 26,148
Total assets.............................................. 11,891 9,631 32,762
Total long-term debt...................................... 1,894 1,894 --
Total stockholders' equity................................ 7,664 5,404 30,429
</TABLE>
- -------------------------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of January 31, 1999, and
does not include 997,380 shares of common stock issuable upon the exercise
of options outstanding as of January 31, 1999, at a weighted average
exercise price of $1.65 per share.
(2) See Notes 10 and 11 of Notes to Consolidated Financial Statements for
information regarding the determination of per share calculations.
(3) Pro forma to give effect to: (a) the payment of all undeclared cumulative
dividends on our preferred stock; (b) the redemption of our outstanding
Series A redeemable preferred stock; and (c) the conversion of our
outstanding Series B convertible preferred stock, all of which will occur
upon consummation of this offering.
(4) Pro forma as described in footnote (3) and as adjusted to give effect to the
receipt and application of the estimated net proceeds from the sale of the
2,500,000 shares offered by this prospectus. See "Use of Proceeds."
5
<PAGE> 7
OUR COMPANY
ANSYS was incorporated in 1988 in California and will be reincorporated in
Delaware in March 1999. Our executive offices are located at 25200 Commercentre
Drive, Lake Forest, California 92630, and our telephone number is (949)
770-9381.
-------------------------
In this prospectus, "ANSYS," the "Company," "we," "us" and "our" refer to
ANSYS Diagnostics, Inc. The use of the term "our" in phrases such as "our
products" is not intended to infer that we hold any intellectual property or
other ownership rights to the TesTcup and TesTstik product lines. Unless
otherwise indicated, all information in this prospectus assumes that:
- the initial public offering price will be $11.00 per share;
- we will redeem all of our outstanding Series A redeemable preferred
stock;
- we will convert all of our outstanding Series B convertible preferred
stock into 3,641,328 shares of our common stock;
- we will declare a 1.2-for-1 stock split of our common stock in February
1999;
- we will reincorporate ANSYS in Delaware in March 1999; and
- the underwriters will not exercise their over-allotment option and no
other person will exercise any other outstanding options.
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<PAGE> 8
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
ONES THAT WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US
OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO ADVERSELY AFFECT OUR BUSINESS
OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THEY COULD SERIOUSLY
HARM OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS. IN THIS CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE.
WE DEPEND ON REVENUES FROM SALES TO ROCHE.
We derive a substantial portion of our revenues and earnings from the sale
of TesTcup, TesTstik and ON-SITE Alcohol to Roche. These products together
accounted for approximately 17% of our net sales during 1996, 42% of our net
sales during 1997 and 65% of our net sales during 1998. We expect our revenues
and profitability in the foreseeable future to depend substantially on our
relationship with Roche.
We currently manufacture the TesTcup and TesTstik product lines for Roche
pursuant to manufacturing agreements and other arrangements with Roche. Roche
owns or has licensed from other parties all patent, intellectual property and
other trademark rights to these products. We have no rights to the TesTcup and
TesTstik product lines except our right to manufacture these products for Roche
under our exclusive manufacturing agreements. Roche also owns the rights to any
new versions of TesTcup and TesTstik which we may develop in the future. Under
our agreements with Roche, we must offer Roche the first opportunity to
exclusively market any and all new antibody-based drugs of abuse products which
we develop. Roche also owns the rights to TesTcup ER, a version of TesTcup
designed for use in hospital emergency rooms. Roche has full responsibility for
and complete control over the introduction and launch of this product. As a
result, the successful introduction of TesTcup ER will depend on the efforts of
Roche and is beyond our effective control.
Our agreements with Roche give Roche complete control over all aspects of
marketing the TesTcup and TesTstik product lines, including product pricing,
sales force composition and promotional activities. We cannot be certain that:
(1) Roche will continue to devote sufficient resources to market and sell the
TesTcup and TesTstik products effectively; (2) that Roche will devote sufficient
resources in the future to market and sell TesTcup ER, either due to a lack of
consumer demand or otherwise; or (3) that Roche will market any of these
products at prices that can achieve market acceptance. Under our agreements with
Roche, we have the exclusive right to manufacture TesTcup and TesTcup ER for
Roche until January 2003 and to manufacture TesTstik for Roche until October
2002. These agreements do not require Roche to purchase any minimum amounts of
products, and we do not have the right to sell or market these products
directly. Roche may use another vendor to manufacture TesTcup or TesTstik if
Roche gives us notice that the products we are manufacturing do not meet the
specifications of the agreement or that we are not providing sufficient
quantities on a timely basis, and we are unable to promptly correct the problem
or produce sufficient quantities. We cannot be certain that our agreements with
Roche will not be terminated, or that they will be renewed or extended. Our
business, financial condition and results of operations will be materially and
adversely affected if Roche does not devote sufficient resources to marketing
TesTcup, TesTstik, ON-SITE Alcohol or TesTcup ER, if Roche stops buying any of
these
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<PAGE> 9
products from us, either due to lack of consumer demand or otherwise, or if
Roche terminates or does not renew or extend our agreements with them.
WE DEPEND ON SOLE SOURCE SUPPLIERS FOR RAW MATERIALS.
We use certain essential raw materials in our manufacturing processes which
are currently available only through a single source. These raw materials
include:
- the nitrocellulose membranes used in the TesTcup and TesTstik products;
- the glass membranes used in our TOXI-LAB and SPEC products; and
- certain liquid reagents used in the manufacture of TesTcup and TesTstik.
We experienced a shortage of nitrocellulose membranes in 1998 because
demand for the TesTcup and TesTstik products was greater than we had
anticipated. Some of our membranes are custom made for us by single suppliers,
and Roche is the only custom manufacturer of all of the liquid reagents used in
the TesTcup and TesTstik products. We do not have any long-term supply
agreements with any of these suppliers, and we have not qualified alternative
suppliers for any of these raw materials. If we were to lose any of our current
suppliers of these materials, we would have to qualify a new supplier for that
material. We would also have to repeat product testing using the raw materials
from the new supplier and may have to seek additional regulatory approvals. We
cannot be certain that these raw materials will continue to be available on
acceptable terms, or at all, or that alternative suppliers will be available.
Any delays or reductions in product shipments by our suppliers could damage our
relationships with our customers. Further, a significant increase in the price
of one or more of these raw materials could adversely affect our gross margins
or operating results.
WE NEED TO MANAGE OUR RAPID GROWTH EFFECTIVELY.
Over the past few years, our business has grown rapidly and we have
significantly expanded our operations to accommodate this growth. This expansion
has placed, and continues to place, a significant strain on our limited
personnel, management, operating systems and other resources. Our net sales
increased 77.3% over the past year, from $10.7 million in 1997 to $19.0 million
in 1998. This rapid growth has:
- made it difficult to forecast supply requirements accurately;
- required us to implement new and upgraded operational and financial
systems, procedures and controls; and
- increased the responsibilities of management personnel.
To manage growth effectively, we must continue to implement and improve our
operational, financial and management information systems. We must also hire,
train and manage additional employees, especially the highly skilled employees
needed to operate our manufacturing facility, especially as it becomes
increasingly automated. Our future financial performance will be adversely
affected if we are unable to manage our growth effectively.
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<PAGE> 10
WE DEPEND ON KEY PERSONNEL FOR OUR SUCCESS.
Due to the specialized nature of our business, we are highly dependent on
the continued service of our executive officers and other key management,
scientific and technical personnel, particularly Stephen K. Schultheis, our
Chairman, President and Chief Executive Officer, Steven P. Sidwell, our
Executive Vice President -- Operations, and Dr. Dennis D. Blevins, our Vice
President -- Research and Development. We do not have employment contracts with
any of our officers or key employees. The loss of any of these persons would
adversely affect our business. Our success will also depend in large part upon
our ability to continue to attract, retain and motivate qualified scientific and
technical personnel with advanced degrees, and technical research and
manufacturing skills. The competition for qualified personnel is intense. If we
cannot attract, retain and motivate such qualified personnel, our business will
be adversely affected.
WE ARE SUBJECT TO MANY RISKS RELATED TO MANUFACTURING AND OUR CONTINUING EFFORTS
TO INCREASE AUTOMATION.
We have historically manufactured products using manual assembly processes.
To increase manufacturing capacity and improve operating margins, we have begun
automating certain portions of our assembly lines. We intend to continue this
automation process, but it involves a number of risks, including:
- automation is costly because much of our equipment must be custom made
and delays are beyond our control;
- automation does not guarantee improved operating margins or increased
manufacturing capacity;
- automation is likely to increase responsibilities for management
personnel;
- automation can result in quality control issues; and
- necessary qualification and validation processes may delay the
implementation of automation.
We may not succeed in automating our manufacturing facility or increasing
its capacity in a timely manner, at a commercially reasonable cost, or at all.
Provided that we finish the planned automation of our facility, our
manufacturing processes will be sensitive to many different factors, including
raw material variations, manufacturing process variances, and manufacturing
equipment performance.
As we increase production, we will have to use our equipment more hours
each day. This additional use increases the potential for down-time resulting
from equipment failure. Also, only a few employees will be trained to operate
and maintain the manufacturing equipment. Our ability to operate and service
this equipment effectively could be impaired by the loss of those employees. In
addition, we manufacture all products at a single facility in Lake Forest,
California. A disaster such as an earthquake or fire that damages this facility
could interrupt our manufacturing process. Our business would be adversely
affected by the interruption of our manufacturing operations or the loss of
employees who maintain or service the manufacturing facility.
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<PAGE> 11
OUR QUARTERLY OPERATING RESULTS FLUCTUATE AS A RESULT OF MANY FACTORS.
Our quarterly operating results have fluctuated and are likely to continue
to fluctuate due to a number of factors, many of which are not within our
control. Factors that could affect our operating results include the following:
- the resources Roche dedicates to the marketing of products we develop and
manufacture;
- ANSYS' and Roche's ability to develop, introduce, market and gain market
acceptance for new products and product enhancements in a timely manner;
- changes in pricing policies by us, Roche, suppliers or competitors;
- the availability of raw materials used to manufacture our products;
- our ability to forecast demand for products accurately;
- unanticipated changes in inventory requirements of our customers;
- variations in the mix of products we sell;
- the introduction of new products or product enhancements by competitors;
- our ability to automate our manufacturing processes successfully;
- our ability to expand capacity or achieve further manufacturing
efficiencies;
- the timing and increased costs associated with increased sales and
marketing, and research and development activities;
- changes in government regulation of our products;
- changes in the legal status or procedural requirements for employment
drug testing;
- international economic conditions and currency fluctuations; and
- general economic and market conditions.
Our sales in any quarter typically include a few large orders from key
customers such as Roche, and our business could be adversely affected by the
timing of any of these orders or the loss of any significant customer. Because
of the factors listed above and other risks discussed in this prospectus, our
future operating results could be below the expectations of securities analysts
and/or investors. If that happens, our business and the trading price of our
common stock could be adversely affected.
OUR INDUSTRY IS HIGHLY COMPETITIVE.
We compete with numerous other companies, and we expect competition to
increase due to the increased acceptance of drug testing and technological
advancements. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share. Any of these results could
adversely affect our business. Our principal competitors include companies that
manufacture disposable tests that can be conducted on-site, such as in the
workforce, as well as companies that manufacture products used in clinical
settings, such as hospitals and reference laboratories. We believe independent
reference and hospital laboratories currently perform the majority of diagnostic
tests. We expect that these laboratories will compete vigorously to maintain
their competitive position. To achieve broad market acceptance for the products
we manufacture, we, together with Roche, will need to demonstrate that our
products are an attractive alternative to laboratory testing. In
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<PAGE> 12
order for us to be successful, these laboratories may need to change their
current means of testing.
We typically compete principally on the basis of accuracy, ease of use,
distribution capabilities and price. Some of our competitors have much greater
financial, technical, research and other resources than we have. These
competitors may also:
- have larger, more established sales and marketing, distribution and
service organizations;
- offer broader product lines and test for more substances;
- have greater name recognition;
- offer discounts as a competitive tactic; and
- have invested in competing technologies that may be more effective than
our technologies.
In addition, our competitors may develop and market technologies or
products that are more effective or commercially attractive than our products.
As a result, we may experience increased competition, reduced sales and slower
growth in the future. These new technologies and products could render our
products obsolete. We cannot be certain that we will have the technical
expertise, or the financial, marketing or distribution resources to compete
effectively in the future.
WE DEPEND ON DISTRIBUTORS AND HAVE LIMITED DIRECT SALES RESOURCES.
We rely upon third party distributors, as well as our own sales force, to
distribute our products. We may also rely upon distributors to distribute
products currently under development. If we lose one or more of these
distributors and cannot arrange suitable alternatives, our business could be
adversely affected. We may not be able to enter into new distribution or
marketing agreements on satisfactory terms, or at all. We cannot be certain that
our distributors will devote sufficient resources to effectively market and sell
the products manufactured by us, that they will devote sufficient resources in
the future to market and sell any new products manufactured by us, or that they
will market these products at prices that can achieve market acceptance. In
addition, our distributors may give higher priority to the products of similar
suppliers or their own products, thus reducing their efforts to sell products
manufactured by us. If any of our distributors become unwilling or unable to
promote, market and sell products manufactured by us, our business could be
adversely affected. We currently have limited resources in direct sales, and in
the marketing and distribution of our products. If we decide to distribute new
products directly, we will have to invest in additional sales and marketing
resources, particularly to add more field sales personnel. Our direct sales,
marketing and distribution efforts may not be successful, and revenue from these
efforts may not exceed our increased expenses.
WE DEPEND IN PART ON THE DEVELOPMENT, INTRODUCTION AND MARKET ACCEPTANCE OF NEW
PRODUCTS.
We are in various stages of development of new products, both independently
and in collaboration with third parties. We believe our revenue growth and
future operating results will depend, in part, on our ability to complete
development of these products and
11
<PAGE> 13
successfully introduce them. In order to successfully introduce and sell these
products, we must, among other things:
- undertake time-consuming and costly development, manufacturing and other
activities;
- obtain necessary regulatory clearance or approvals in a timely manner;
- establish and maintain reliable, cost-efficient, high-volume
manufacturing capacity for these products;
- ensure that our products comply with government and regulatory testing
guidelines;
- develop new products or modify existing products to detect the presence
of new substances; and
- obtain approval from our strategic partners.
Each stage of this process involves inherent difficulties. We may not be
able to successfully develop, introduce, cost-effectively manufacture or achieve
market acceptance for new products or enhancements to existing products.
We may from time to time invest in new products or product enhancements
that may not ultimately achieve broad market acceptance. We have recently
invested significant resources into the development of TesTcup ER, TesTstik 2
and TesTstik 3. We cannot be sure that any of these products will achieve broad
market acceptance. It is possible that Roche may decide not to launch, market or
sell these products, and we have no right to market or sell these products
ourselves.
WE MUST COMPLY WITH VARIOUS GOVERNMENT REGULATIONS AND CANNOT BE ASSURED OF
OBTAINING REGULATORY APPROVAL.
SECTION 510(K) NOTIFICATION AND PREMARKET APPROVAL. We cannot market or
commercially sell new products unless the FDA has exempted them from its market
clearance requirements or, if the products are not exempt, until the FDA either
clears a notification under Section 510(k) of the Federal Food, Drug and
Cosmetic Act or approves an application for premarket approval. The process of
obtaining either 510(k) clearance or premarket approval can be lengthy,
expensive and uncertain. All of our drug testing products and some of our
specialty laboratory and research products are currently marketed pursuant to
510(k) notifications. It is also possible that modifications or enhancements to
existing products will require clearance of new 510(k) notifications. New
products may, however, require the more time consuming and costly premarket
approval.
We or our strategic partners may not be able to obtain new clearances or
approvals for new products or new applications, particularly for products we
intend to produce for over-the-counter sales. Nor can we be certain that FDA
review will not delay or adversely affect the marketing and sale of our
products. Government regulations depend heavily on interpretation and could be
applied retroactively. Future interpretations by the FDA or other regulatory
bodies could adversely affect our business. If previously unknown problems with
a cleared or approved product are discovered, we or our strategic partners may
be required to restrict the product's marketing or withdraw the product from the
market entirely. Our business could be adversely affected by the loss of
previously obtained clearances or the failure to comply with existing or future
regulatory requirements.
12
<PAGE> 14
QUALITY SYSTEM REGULATIONS. We are also subject to the FDA's Quality System
Regulations because we manufacture medical devices marketed in the United
States. These regulations include detailed requirements for testing, quality
control, complaint and failure investigations, corrective and preventive
actions, product labeling, process and procedure documentation, and design
controls.
ROUTINE INSPECTIONS. We are subject to routine inspection by the FDA and
other federal and state regulatory agencies for compliance with Quality System
Regulations, Medical Device Reporting requirements and other applicable
regulations. We cannot be certain that we will remain in compliance with all of
such regulations. Noncompliance with applicable requirements can result in,
among other things:
- warning letters;
- fines;
- injunctions;
- civil penalties;
- recall or seizure of products;
- total or partial suspension of production;
- failure of the government to grant 510(k) clearance or premarket approval
for devices;
- withdrawal of marketing clearances or approvals; and
- criminal prosecution.
OTHER REGULATIONS. The Clinical Laboratory Improvement Amendments (CLIA) of
1988, as amended, and related federal and state regulations govern quality
control, proficiency testing, personnel standards and federal inspections. Our
ability to market our products, and our business, financial condition and
results of operations could be adversely affected by future amendments of this
legislation or the issuance of additional regulations for laboratory testing. We
are also subject to numerous environmental and safety laws and regulations,
including those governing the use and disposal of hazardous materials.
We may incur significant costs in the future in complying with FDA
mandates, the Quality System Regulations, CLIA and environmental regulations.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS.
Our ability to compete effectively depends in part upon our ability to
develop and maintain the proprietary aspects of our technology and to operate
without infringing the proprietary rights of others. We hold two United States
patents pertaining to ON-SITE Alcohol. We are currently pursuing two pending
patent applications for other new products, but we cannot be certain that we
will receive the patents. In addition, even if patents are issued, our existing
or future patents may not protect us from competitors with similar technology.
Our existing or future patents could still be challenged, invalidated or
circumvented. If we are not able to adequately protect our technology, our
competitors can more easily offer similar products.
Roche holds all of the intellectual property and other ownership rights to
TesTcup and TesTstik, two of the largest volume product lines that we
manufacture. Under our agreements with Roche, we have exclusive manufacturing
rights to TesTstik until October
13
<PAGE> 15
2002 and to TesTcup until January 2003. If we develop a new patentable invention
relating to either of these products during the term of these agreements, Roche
will own any and all patentable rights. We cannot be certain that Roche will
aggressively protect its patents or licenses on the products we manufacture. Our
business could be adversely affected by Roche's failure to protect its rights.
To develop and maintain our competitive position, particularly with respect
to our membrane technologies, we rely principally on trade secrets, technical
know-how and continuing innovation. We generally enter into confidentiality
agreements with our employees and strategic partners. We also attempt to control
access to and distribution of our documentation and other proprietary
information. It may, however, be possible for a third party to:
- copy or otherwise obtain and use our products, services or technology
without authorization;
- develop similar technology independently; or
- design around our intellectual property or the intellectual property of
our strategic partners.
Because of these possibilities, we cannot be certain that we can achieve
meaningful protection of our proprietary technology.
In addition, effective copyright, trademark and trade secret protection may
be unavailable or limited in certain foreign countries. We may also be required
to litigate to enforce our or our strategic partners' intellectual property
rights or protect our trade secrets. We may also need to litigate to determine
the validity and scope of proprietary rights of others, including our customers.
Any time we are involved in litigation, we will likely incur significant costs.
Litigation can also divert management's efforts and other resources from our
business. In addition, litigation could result in the issuance of an injunction
which could require us or our strategic partners to withdraw certain products
from the market or redesign certain products currently offered for sale or under
development. We may also be required to obtain a license to continue producing a
product, which may not be available on reasonable terms, or at all.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL.
We believe that the net proceeds of this offering, together with the cash
generated from our operations and the funds available under our credit facility,
should satisfy our capital requirements for at least the next 12 months. Our
future capital requirements will depend on many factors, including:
- market acceptance of our products;
- increased research and development funding;
- increased sales and marketing expenses;
- potential acquisitions of businesses and product lines;
- inventory levels; and
- progress of our planned automation.
If our capital requirements are materially different from those currently
planned, we may need additional capital sooner than anticipated. Additional
financing may not be
14
<PAGE> 16
available on acceptable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, we may be unable to develop or enhance
our products, expand our sales and marketing programs, take advantage of future
opportunities or respond to competitive pressures. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
our stockholders will be reduced and the equity securities may have rights,
preferences and privileges senior to our common stock.
WE MAY HAVE PRODUCT LIABILITY EXPOSURE NOT COVERED BY INSURANCE AND
UNANTICIPATED EXPOSURE UNDER WARRANTIES.
The manufacture and sale of medical diagnostic devices entails an inherent
risk of product liability claims. We face financial exposure to product
liability claims if the use of our products results in an improper diagnosis. To
date, we have not experienced any material product liability claims. Potential
product liability claims may exceed the amount of our insurance coverage or may
be excluded from coverage under the terms of the policy. Product liability
insurance is expensive, and we cannot be certain that our existing insurance can
be renewed at an acceptable cost, or at all, or that it would adequately protect
us against these types of claims.
We also may face warranty exposure which could adversely affect our results
of operations. Our products typically carry a one year warranty against defects
in materials and workmanship. For the TesTcup and TesTstik product lines, we are
responsible for all costs, expenses and consequential damages under our
contracts with Roche for all product recalls, returns and defects attributable
to manufacturing. Based on our prior warranty experience, we have not
established any reserves for the liability associated with product warranties.
Accordingly, any unforeseen warranty exposure could adversely affect our
operating results.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY YEAR 2000 COMPLIANCE ISSUES.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies may need to be upgraded to comply with such year
2000 requirements or risk system failure or miscalculations, potentially causing
disruptions of normal business activities. We rely on our systems and
applications to operate and monitor all major aspects of our business, including
our financial systems. Although we believe our internal systems are year 2000
compliant, we cannot know for certain all of the problems that may arise until
the turn of the century. Any disruption in our information systems could cause
shipment errors, make it difficult to forecast adequately, harm our customer
relationships and in general, adversely affect our business. We also rely on
computer systems of other entities, both domestic and international, for the
accurate exchange of data. These entities include customers, suppliers,
creditors and financial organizations. Even if our internal systems are not
affected by the year 2000 issue, our business could be materially disrupted by
year 2000 problems within these other entities.
In 1997, we developed a three-phase program for year 2000 information
systems compliance. In Phase I, we conducted an internal review of our systems
and contacted our software suppliers to determine our major areas of exposure to
year 2000 issues. In Phase II, we developed and implemented action plans to be
year 2000 compliant in all
15
<PAGE> 17
areas by late 1998. In Phase III, we are testing each major area of exposure to
ensure compliance. We expect Phase III to be completed by mid-1999.
In Phase I of our compliance program we identified three major areas
determined to be critical for successful year 2000 compliance:
- financial and informational system applications;
- manufacturing applications; and
- third party relationships.
We determined that our financial and information system applications are
year 2000 compliant because they were recently implemented. We believe that we
will not incur any additional material expenditures to replace our core
financial and reporting and manufacturing systems. We have also contacted most
of the entities with which we have a material third party relationship. To date,
those who have responded have indicated that they intend to be year 2000
compliant by the turn of the century. We have not determined what costs will be
incurred in connection with our third party relationships, but such costs could
be substantial. We do not currently have any contingency plans for unforeseen
year 2000 issues.
THERE HAS BEEN NO PRIOR MARKET FOR OUR STOCK AND ITS TRADING PRICE MAY BE
VOLATILE.
There has been no public market for our common stock prior to this
offering. The initial public offering price will be determined by negotiation
with the representatives of the underwriters, based upon factors that may be
unrelated to future market performance. We cannot be certain that an active
public market for our common stock will develop or be sustained after this
offering. Nor can we be certain that the market price of our common stock will
not decline below the initial public offering price. The trading price of our
common stock could fluctuate widely due to:
- quarter to quarter variations in results of operations;
- announcements of technological innovations;
- new products offered by us or our competitors;
- changes in earnings estimates or buy/sell recommendations by securities
analysts;
- additions or departures of key personnel;
- changes in the legal status of drug testing;
- announcements of strategic relationships or acquisitions; or
- other events or risk factors.
In addition, the securities markets in general have experienced extreme
price and trading volume volatility in the past, particularly in the diagnostic
and specialty laboratory and research products markets. The trading prices of
securities of many companies in these markets have fluctuated broadly, often for
reasons unrelated to the operating performance of the specific companies. These
broad market and industry factors may adversely affect the trading price of our
common stock, regardless of our actual operating performance. If the market
price of our common stock declines, we may be subject to costly and time
consuming litigation.
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<PAGE> 18
ANTI-TAKEOVER PROVISIONS MAY AFFECT THE PRICE OF OUR COMMON STOCK.
Certain provisions of our certificate of incorporation, bylaws and Delaware
law could make it difficult for a third party to acquire us, even though an
acquisition might be beneficial to our stockholders.
CHARTER DOCUMENTS. Under our certificate of incorporation, our Board of
Directors has the authority, without stockholder action, to issue up to
5,000,000 shares of preferred stock in one or more classes or series. Our Board
of Directors determines when we will issue preferred stock. It also determines
the rights, preferences and privileges of any preferred stock we issue. Our
certificate of incorporation also provides for staggered terms for Board members
and does not permit stockholders to act without a meeting. In addition, our
bylaws establish an advance notice procedure for stockholder proposals and for
nominating candidates for election as directors.
DELAWARE LAW. Delaware corporate law contains provisions that can affect
the ability to take over a company. With certain exceptions, we cannot engage in
any "business combination" with a person or group of persons who own 15% or more
of our common stock. This restriction is in effect for three years after the
time that the person or persons acquired 15% of our common stock. However, if we
follow certain procedures in connection with approving a proposed business
combination, the restriction does not apply. Our Board of Directors has the
power to determine if we will follow these procedures.
These provisions of our certificate of incorporation and bylaws and of
Delaware law may have the effect of:
- delaying, deterring or preventing a change in control;
- discouraging bids for our common stock at a premium over the market
price;
- adversely affecting the market price of our common stock; and
- adversely affecting voting and other rights of our stockholders.
A SIGNIFICANT NUMBER OF SHARES ARE AVAILABLE FOR SALE AND THEIR SALE COULD
DEPRESS OUR STOCK PRICE.
Sales of substantial amounts of our common stock, including shares issued
upon the exercise of outstanding options, in the public market after this
offering, could adversely affect the market price of our common stock. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. Upon
completion of this offering, we will have 8,016,512 shares of common stock
outstanding. Of these shares, the 2,500,000 shares sold in this offering will be
freely tradeable in the public market. In addition, 18,400 shares will be
available for sale in the public market 90 days following the date of this
prospectus. All of the remaining 5,498,112 shares will be eligible for future
sale in the public market 180 days from the date of this prospectus. Of these
shares, 5,165,348 will be eligible for sale under SEC Rule 144. This rule
contains volume, manner of sale and other restrictions on the ability to sell
these shares.
The holders of 5,498,112 shares of our common stock have certain rights
with respect to registration of those shares for sale in the public market. We
also intend to file a registration statement covering the sale of 1,329,780
shares of our common stock granted or authorized for grant under our option
plans. As of January 31, 1999, we had outstanding
17
<PAGE> 19
options to purchase a total of approximately 997,380 shares of our common stock.
Sales of large amounts of these shares in the public market or the prospect of
such sales could adversely affect the market price of our common stock. We
cannot predict what impact, if any, that future sales of shares or the
availability of shares for sale will have on the market price of our common
stock.
WE ARE CONTROLLED BY INSIDERS.
Upon completion of this offering, our directors, executive officers and
their affiliates will beneficially own approximately 65.9% of our common stock,
or approximately 63.1% if the underwriters' over-allotment option is exercised
in full. Following this offering, Ronald J. Hall, one of our directors, and his
affiliates, will beneficially own an aggregate of 47.5% of our common stock. As
a result of this concentration of ownership, our directors, executive officers
and their affiliates have the ability to significantly influence our company and
our affairs and business, including the election of a majority of the Board and
approval of significant corporate transactions. As a result, certain
transactions may not be possible or may be delayed without the approval of these
stockholders, including:
- proxy contests;
- mergers;
- tender offers;
- open market stock purchase programs or other purchases of our common
stock; and
- other transactions that could give our stockholders the opportunity to
realize a premium over the then prevailing market price of our common
stock.
WE DO NOT PAY DIVIDENDS.
We have never paid cash dividends on our common stock and do not anticipate
paying any cash dividends on our common stock in the foreseeable future.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The assumed initial public offering price is substantially higher than the
pro forma net tangible book value per share of our common stock after this
offering. Purchasers of our common stock in this offering will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of approximately $7.22 per share from the initial public offering
price. Purchasers will experience additional dilution upon the exercise of
outstanding options and in the event we issue additional common stock in
connection with future acquisitions or other financing needs.
18
<PAGE> 20
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify
forward-looking statements. These statements include, but are not limited to,
statements under the captions "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus concerning, among other things:
- our ability to maintain current strategic relationships;
- our ability to achieve cost reductions and automate our manufacturing
processes;
- our ability to develop, introduce and market new products in a timely
manner;
- the timing and availability of products under development;
- our ability to commercialize new products;
- the market acceptance of our products;
- our ability to make sales to new customers or form strategic alliances;
- our ability to provide sufficient customer support;
- the adequacy of our capital resources;
- our ability to address year 2000 issues adequately;
- future fluctuations in our operating expenses;
- our future capital expenditures and cash resources; and
- the use of the net proceeds from this offering.
These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected. The
cautionary statements made in this prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
prospectus. We assume no obligation to update such forward-looking statements
publicly for any reason, or to update the reasons actual results could differ
materially from those anticipated in such forward-looking statements, even if
new information becomes available in the future.
19
<PAGE> 21
USE OF PROCEEDS
The net proceeds to ANSYS from the sale of the 2,500,000 shares of common
stock offered by ANSYS are estimated to be approximately $25.0 million ($28.9
million if the underwriters exercise their over-allotment option in full),
assuming an initial public offering price of $11.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by ANSYS.
We intend to use approximately $2.3 million of the net proceeds of this
offering to redeem all of our outstanding Series A redeemable preferred stock
and to pay all cumulative dividends that have accrued on all of the outstanding
shares of our preferred stock through the closing of this offering. We also plan
to use approximately $1.9 million of the net proceeds of this offering to repay
our bank debt, which was used for tenant improvements associated with our
relocation to our new facilities in February 1998. Interest on the bank debt
accrues at a fixed rate of 8.42% and the bank debt matures on June 30, 2005.
We may use a portion of the net proceeds of this offering to acquire
businesses, products and technologies that are complementary to ours. As of the
date of this prospectus, we are not engaged in any agreements or negotiations
regarding any material acquisition. We intend to use the balance of the net
proceeds of this offering for general corporate purposes, including the funding
of working capital requirements, increasing research and development
expenditures and investing in automation equipment for our manufacturing
facility. We currently have an option to purchase our facility in February 2000
for an aggregate purchase price of $5.6 million. We may use a portion of the net
proceeds of this offering to purchase this facility.
Pending the use of the net proceeds of this offering, we intend to invest
the net proceeds in short-term, investment grade, interest bearing securities.
Other than as described above, we have no specific plans for the net proceeds of
this offering. Our management will have broad discretion concerning the
allocation and use of a significant portion of the net proceeds of this offering
to be received by us. The principal purposes for conducting this offering are to
create a public market for our common stock and to increase our financial
flexibility and working capital.
The foregoing represents our best estimate of the allocation of the net
proceeds from the sale of the common stock offered by this prospectus, based
upon the current state of our business operations, our current plans for
expansion and the current economic and industry conditions. This estimate is
subject to reallocation among the categories stated above. The amount or timing
of actual expenditures will depend on numerous factors, including our
profitability, the availability of alternative financing, our business
development activities and competition.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to finance the growth and
development of our business. Therefore, we do not anticipate that we will
declare or pay any cash dividends on our common stock in the foreseeable future.
Any future determination to pay cash dividends will be at the discretion of our
Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements, restrictions under any existing
indebtedness and such other factors as the Board of Directors deems relevant. In
addition, our bank debt contains restrictions on the payment of cash dividends
without the lender's prior written consent.
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<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of ANSYS at December 31,
1998. The Pro Forma column gives effect to the payment of all undeclared
cumulative dividends on our preferred stock, the redemption of our outstanding
Series A redeemable preferred stock and the conversion of our outstanding Series
B convertible preferred stock into shares of our common stock. The Pro Forma As
Adjusted column additionally reflects the issuance of 2,500,000 shares of common
stock offered by this prospectus and the receipt and application of the
estimated net proceeds of this offering, assuming an initial public offering
price of $11.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses payable by ANSYS. This table should
be read in conjunction with our Consolidated Financial Statements and the Notes
thereto included elsewhere in this prospectus. See "Use of Proceeds" and
"Description of Capital Stock."
<TABLE>
<CAPTION>
DECEMBER 31, 1998(1)
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total long-term debt.......................... $1,894 $1,894 $ --
Stockholders' equity:
Preferred stock, $.0001 par value; 5,000,000
shares authorized; 18,000 shares issued
and outstanding, actual; no shares issued
and outstanding, pro forma and pro forma
as adjusted.............................. -- -- --
Common stock, $.0001 par value; 30,000,000
shares authorized; 1,875,184 shares
issued and outstanding, actual; 5,516,512
shares issued and outstanding, pro forma;
8,016,512 shares issued and outstanding,
pro forma as adjusted.................... -- -- --
Additional paid-in capital.................. 1,834 1,434 26,459
Retained earnings........................... 5,830 3,970 3,970
------ ------ -------
Total stockholders' equity............... 7,664 5,404 30,429
------ ------ -------
Total capitalization................ $9,558 $7,298 $30,429
====== ====== =======
</TABLE>
- -------------------------
(1) Excludes 997,380 shares of common stock issuable upon the exercise of
options outstanding as of January 31, 1999, at a weighted average exercise
price of $1.65 per share. See "Management -- Stock Options" and Notes 9 and
11 of Notes to Consolidated Financial Statements.
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<PAGE> 23
DILUTION
The pro forma net tangible book value of ANSYS as of December 31, 1998 was
approximately $5.3 million, or $0.96 per share of common stock. Pro forma net
tangible book value per share represents the amount of ANSYS' pro forma total
tangible assets less pro forma total liabilities divided by the pro forma number
of shares of common stock outstanding as of December 31, 1998. Without taking
into account any other changes in pro forma net tangible book value other than
to give effect to the sale by ANSYS of the 2,500,000 shares of common stock
offered by this prospectus and the receipt and application of the net proceeds
of this offering, the pro forma net tangible book value of ANSYS as of December
31, 1998, would have been $30.3 million, or $3.78 per share of common stock.
This represents an immediate increase in pro forma net tangible book value of
$2.82 per share to existing stockholders and an immediate dilution in pro forma
net tangible book value of $7.22 per share to investors purchasing common stock
in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....... $11.00
Pro forma net tangible book value per share as of
December 31, 1998................................ $0.96
Increase per share attributable to new investors.... 2.82
-----
Pro forma net tangible book value per share after this
offering............................................ 3.78
------
Dilution per share to new investors................... $ 7.22
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, the difference between the number of shares of common stock purchased from
ANSYS, the total consideration paid and the average price per share paid by
existing stockholders and by new investors, assuming an initial public offering
price of $11.00 per share and before deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by ANSYS:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders.............. 5,516,512 68.8% $ 1,850,000 6.3% $ 0.34
New investors.......... 2,500,000 31.2 27,500,000 93.7 11.00
--------- ----- ----------- -----
Total............. 8,016,512 100.0% $29,350,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options. As of January 31, 1999, options
to purchase 997,380 shares of our common stock were outstanding at a weighted
average exercise price of $1.65 per share. To the extent that these options are
exercised, new investors will experience further dilution. See
"Management -- Stock Option Plans" and Note 9 of Notes to Consolidated Financial
Statements.
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<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1997
and 1998 and for each of the years ended December 31, 1996, 1997 and 1998 was
derived from, and should be read in conjunction with, ANSYS' Consolidated
Financial Statements and Notes thereto audited by McGladrey & Pullen, LLP,
independent auditors, included elsewhere herein. Selected consolidated financial
data as of December 31, 1994, 1995 and 1996 and for the years ended December 31,
1994 and 1995 has been derived from ANSYS' unaudited consolidated financial
statements not included herein. The following data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto,
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 6,589 $ 6,447 $ 8,126 $10,698 $18,964
Cost of goods sold......................... 2,001 2,269 3,058 5,099 9,703
------- ------- ------- ------- -------
Gross profit............................... 4,588 4,178 5,068 5,599 9,261
Operating expenses:
Research and development................. 663 561 434 773 700
Selling, general and administrative...... 2,454 2,803 2,770 2,876 4,049
------- ------- ------- ------- -------
Total operating expenses................. 3,117 3,364 3,204 3,649 4,749
------- ------- ------- ------- -------
Operating income........................... 1,471 814 1,864 1,950 4,512
Interest income (expense).................. (100) 20 55 59 (46)
------- ------- ------- ------- -------
Income before income taxes................. 1,371 834 1,919 2,009 4,466
Provision for income taxes................. 400 340 718 803 1,775
------- ------- ------- ------- -------
Net income................................. $ 971 $ 494 $ 1,201 $ 1,206 $ 2,691
======= ======= ======= ======= =======
Earnings per share(1):
Basic.................................... $ 0.34 $ 0.14 $ 0.46 $ 0.54 $ 1.33
Diluted.................................. $ 0.15 $ 0.08 $ 0.19 $ 0.20 $ 0.45
Weighted average shares outstanding(1):
Basic.................................... 2,307 2,307 2,230 1,901 1,890
Diluted.................................. 6,039 6,076 6,057 5,864 5,942
Pro forma earnings per share(1):
Basic.................................... $ 0.16 $ 0.08 $ 0.20 $ 0.21 $ 0.47
Diluted.................................. $ 0.16 $ 0.08 $ 0.19 $ 0.20 $ 0.44
Pro forma weighted average shares
outstanding(1):
Basic.................................... 6,154 6,154 6,077 5,748 5,737
Diluted.................................. 6,244 6,282 6,262 6,069 6,147
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
DECEMBER 31, ------------------------------------------
----------------------------------------------------- PRO PRO FORMA
1994 1995 1996 1997 ACTUAL FORMA(2) AS ADJUSTED(3)
----------- ----------- ----------- ----------- ----------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $1,535 $1,247 $1,784 $1,515 $ 3,176 $ 916 $24,047
Working capital........... 1,553 2,242 3,120 3,002 5,053 2,793 26,148
Total assets.............. 4,041 3,668 4,855 6,893 11,891 9,631 32,762
Total long-term debt...... -- -- -- -- 1,894 1,894 --
Total stockholders'
equity.................. 2,609 3,083 3,973 4,957 7,664 5,404 30,429
</TABLE>
- -------------------------
(1) See Notes 10 and 11 of Notes to Consolidated Financial Statements for
information regarding the determination of per share calculations.
(2) Pro forma to give effect to: (a) the payment of all undeclared cumulative
dividends on our preferred stock; (b) the redemption of our outstanding
Series A redeemable preferred stock; and (c) the conversion of our
outstanding Series B convertible preferred stock, all of which will occur
upon consummation of this offering.
(3) Pro forma as described in footnote (2) and as adjusted to give effect to the
receipt and application of the estimated net proceeds from the sale of the
2,500,000 shares offered by this prospectus. See "Use of Proceeds."
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ANSYS SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO,
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
ANSYS was organized in 1988 to acquire the Analytical Systems division of
Marion Laboratories, Inc. Since our inception, we have financed our working
capital requirements primarily from cash provided by operations. In 1995, we
completed the repayment of indebtedness incurred in connection with the
acquisition from Marion Laboratories.
We commenced our collaborative relationship with Roche in 1992, and began
developing products for the on-site drug testing markets. We believe on-site
testing represents the principal opportunity for growth in the drug testing
market. In 1991, we introduced our first on-site product, ON-SITE Alcohol, a
self-contained, disposable, pocket-sized test for the detection of ethanol in
urine or saliva. TesTcup, introduced in 1995, and TesTstik, introduced in 1997,
were developed in collaboration with Roche as disposable, rapid screening tests
for certain drugs of abuse in urine. We manufacture both of these products for
Roche under exclusive agreements. During 1996, 1997 and 1998, our sales of
on-site diagnostic products (including our proprietary product, ON-SITE Alcohol,
which is also distributed by Roche) accounted for 17%, 42% and 65% of our total
net sales, respectively. TOXI-LAB, our first laboratory-based drug testing
product, was introduced by our predecessor in 1978. TOXI-LAB is a broad spectrum
drug screening system that uses our proprietary membranes.
We introduced SPEC, our first specialty laboratory and research product, in
1990. In addition, we began manufacturing nucleic acid isolation products for
Promega in 1996. Since 1997, we have also been developing rapid nucleic acid
separation and detection products in conjunction with Molecular Innovations.
RESULTS OF OPERATIONS
The following table sets forth certain income statement items expressed as
a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0%
----- ----- -----
Gross profit........................................... 62.3 52.3 48.8
Operating expenses:
Research and development............................. 5.3 7.2 3.7
Selling, general and administrative.................. 34.1 26.9 21.3
Total operating expenses............................... 39.4 34.1 25.0
Operating income....................................... 22.9 18.2 23.8
Interest income (expense).............................. 0.7 0.6 (0.2)
Income before income taxes............................. 23.6 18.8 23.6
Provision for income taxes............................. 8.8 7.5 9.4
Net income............................................. 14.8 11.3 14.2
</TABLE>
24
<PAGE> 26
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET SALES. Net sales for the year ended December 31, 1998 were $19.0
million compared to $10.7 million for 1997, representing an increase of 77.3%.
The increase in net sales of $8.3 million was primarily attributable to unit
volume increases in on-site products, primarily higher sales of TesTstik, which
was introduced in October 1997.
GROSS PROFIT. Gross profit for the year ended December 31, 1998 was $9.3
million compared to $5.6 million for 1997, representing an increase of 65.4%. As
a percentage of net sales, gross profit decreased to 48.8% in the year ended
December 31, 1998 compared to 52.3% for 1997. The decrease as a percentage of
net sales reflects an increasing percentage of total net sales of on-site
products, which generally carry lower gross margins than our laboratory
products.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
primarily consists of payroll and related expenses, material expenses and
facility costs associated with our development of new technologies and products.
Research and development expense for the year ended December 31, 1998 was
$700,000 compared to $773,000 for 1997, representing a decrease of 9.4%. As a
percentage of net sales, research and development expense decreased to 3.7% for
the year ended December 31, 1998 from 7.2% for 1997. We anticipate that research
and development expense will increase significantly in future periods, both in
dollar amount and as a percentage of net sales, as we begin to implement a more
active product development strategy.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense primarily consists of compensation and related expenses
for sales and marketing, technical support, executive, accounting and
administrative personnel, travel expenses, advertising and product promotion
costs, insurance costs, facilities costs, and accounting, legal and other
general corporate expenses. Selling, general and administrative expense for the
year ended December 31, 1998 was $4.0 million compared to $2.9 million for 1997,
representing an increase of 40.8%. The increase in selling, general and
administrative expense was due to increased compensation expense associated with
the growth of our workforce. As a percentage of net sales, selling, general and
administrative expense decreased to 21.3% for the year ended December 31, 1998
from 26.9% for 1997. The decrease as a percentage of net sales was due to the
effective use of our infrastructure to support higher volumes of net sales, the
realization of improved operating efficiencies and proportionately lower selling
expenses associated with increased sales of products marketed by Roche.
INTEREST INCOME (EXPENSE). Interest expense for the year ended December 31,
1998 was $46,000 compared to interest income of $59,000 for 1997, reflecting our
increased borrowings during 1998 for the purchase of equipment and leasehold
improvements in our new corporate headquarters and manufacturing facility, which
we occupied in February 1998.
PROVISION FOR INCOME TAXES. Provision for income taxes for the year ended
December 31, 1998 was $1.8 million compared to $803,000 for 1997. The increase
in provision for income taxes was due to our increased profitability.
NET INCOME. Net income for the year ended December 31, 1998 was $2.7
million compared to $1.2 million for 1997, representing an increase of 123.1%.
As a percentage of net sales, net income increased to 14.2% for the year ended
December 31, 1998 from 11.3% for 1997.
25
<PAGE> 27
YEARS ENDED DECEMBER 31, 1997 AND 1996
NET SALES. Net sales for the year ended December 31, 1997 were $10.7
million compared to $8.1 million for 1996, representing an increase of 31.7%.
The increase in net sales of $2.6 million was principally attributable to
increased on-site product unit volume, primarily associated with higher sales of
TesTcup.
GROSS PROFIT. Gross profit for the year ended December 31, 1997 was $5.6
million compared to $5.1 million for 1996, representing an increase of 10.5%. As
a percentage of net sales, gross profit decreased to 52.3% in the year ended
December 31, 1997 compared to 62.3% for 1996. The decrease as a percentage of
net sales reflects an increasing percentage of total net sales of on-site
products, which generally carry lower gross margins than our laboratory
products. The decrease as a percentage of net sales also reflects certain raw
material and production process problems that occurred in the second quarter of
1997.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense for the
year ended December 31, 1997 was $773,000 compared to $434,000 for 1996,
representing an increase of 78.1%. As a percentage of net sales, research and
development expense increased to 7.2% for the year ended December 31, 1997 from
5.3% for 1996. The increase in research and development expenses was due to
expense associated with the development of the TesTstik product that was
introduced in October 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the year ended December 31, 1997 was $2.9 million
compared to $2.8 million for 1996, representing an increase of 3.8%. As a
percentage of net sales, selling, general and administrative expense decreased
to 26.9% for the year ended December 31, 1997 from 34.1% for 1996. The decrease
as a percentage of net sales was due to the effective use of our infrastructure
to support higher volumes of net sales, the realization of improved operating
efficiencies, and proportionately lower selling expenses associated with
increased sales of products marketed by Roche.
INTEREST INCOME (EXPENSE). Interest income for the year ended December 31,
1997 was $59,000 compared to $55,000 for 1996, representing an increase of 7.3%.
PROVISION FOR INCOME TAXES. Provision for income taxes for the year ended
December 31, 1997 was $803,000 compared to $718,000 for 1996. The increase in
the provision for income taxes was due to our increased profitability.
NET INCOME. Net income for each of the years ended December 31, 1997 and
1996 was $1.2 million. As a percentage of net sales, net income decreased to
11.3% for the year ended December 31, 1997 from 14.8% for 1996.
26
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly results of operations, in
dollar amounts and as a percentage of net sales, for the last eight quarters,
that have been derived from the unaudited consolidated financial statements of
ANSYS. The information has been prepared by us on a basis consistent with our
audited financial statements and includes all adjustments, consisting only of
normal recurring adjustments, which management considers necessary for a fair
presentation of the information for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
1997 1998
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $2,400 $2,395 $2,551 $3,352 $4,427 $4,597 $4,883 $5,057
Gross profit................ 1,426 1,087 1,356 1,730 2,263 2,307 2,471 2,220
Operating expenses:
Research and
development............ 173 178 215 207 174 163 179 184
Selling, general and
administrative......... 732 705 694 745 902 991 1,216 940
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............. 905 883 909 952 1,076 1,154 1,395 1,124
------ ------ ------ ------ ------ ------ ------ ------
Operating income............ 521 204 447 778 1,187 1,153 1,076 1,096
Interest income (expense)... 18 26 7 8 (4) (14) (14) (14)
------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes..................... 539 230 454 786 1,183 1,139 1,062 1,082
Provision for income
taxes..................... 214 99 181 309 467 482 417 409
------ ------ ------ ------ ------ ------ ------ ------
Net income.................. $ 325 $ 131 $ 273 $ 477 $ 716 $ 657 $ 645 $ 673
====== ====== ====== ====== ====== ====== ====== ======
Earnings per share:
Basic..................... $ 0.14 $ 0.05 $ 0.12 $ 0.23 $ 0.36 $ 0.32 $ 0.32 $ 0.33
Diluted................... $ 0.05 $ 0.02 $ 0.05 $ 0.08 $ 0.12 $ 0.11 $ 0.10 $ 0.11
AS A PERCENTAGE OF NET SALES:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------
Gross profit................ 59.4 45.4 53.2 51.6 51.1 50.2 50.6 43.9
Operating expenses:
Research and
development............ 7.2 7.4 8.4 6.2 3.9 3.5 3.7 3.6
Selling, general and
administrative......... 30.5 29.5 27.3 22.2 20.4 21.6 24.9 18.6
Total operating
expenses............. 37.7 36.9 35.7 28.4 24.3 25.1 28.6 22.2
Operating income............ 21.7 8.5 17.5 23.2 26.8 25.1 22.0 21.7
Interest income (expense)... 0.8 1.1 0.3 0.2 (0.1) (0.3) (0.3) (0.3)
Income before income
taxes..................... 22.5 9.6 17.8 23.4 26.7 24.8 21.7 21.4
Provision for income
taxes..................... 9.0 4.1 7.1 9.2 10.5 10.5 8.5 8.1
Net income.................. 13.5 5.5 10.7 14.2 16.2 14.3 13.2 13.3
</TABLE>
Our quarterly operating results have fluctuated in the past and may
continue to fluctuate in the future based on a number of factors, not all of
which are in our control. For example, during the second quarter of 1997, we
experienced a decline in gross profit largely as a result of raw material and
production process problems. See "Risk Factors -- Our Quarterly Operating
Results Fluctuate as a Result of Many Factors" and "Risk Factors -- We Depend on
Sole Source Suppliers for Raw Materials."
27
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
The primary source of liquidity for ANSYS has been cash generated from
operations and borrowings under our revolving credit facility and secured term
note payable.
Cash flows from operating activities were $1.1 million, $625,000 and $3.1
million for the years ended December 31, 1996, 1997 and 1998, respectively.
During the year ended December 31, 1998, expenditures for equipment and
leasehold improvements at our new manufacturing and corporate headquarters
facility, where we commenced occupancy in February 1998, were $2.4 million.
Expenditures for leasehold improvements were financed by a seven-year term loan
in the principal amount of $2.0 million, which bears interest at the rate of
8.42% per annum and is secured by our accounts receivable, inventories,
equipment and intangible assets. We also have a revolving line of credit of $1.0
million to provide for short-term financing. At December 31, 1998, we had no
outstanding balance under this line of credit.
Working capital at December 31, 1998 amounted to $5.1 million, compared to
$3.0 million at December 31, 1997. Cash and cash equivalents amounted to $3.2
million at December 31, 1998, compared to $1.5 million at December 31, 1997.
Our primary short-term capital requirements are for increasing the level of
automation of our production lines and increased research and development
activity. We currently plan to spend approximately $1.0 million annually over
the next several years for the expansion and development of our manufacturing
capabilities. We expect our research and development expenses to increase
significantly over the next several years as we expand our product development
activity. Our future liquidity and capital funding requirements will depend on
numerous factors. See "Risk Factors -- We May Need to Raise Additional Capital."
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, as well as other control
devices, use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless corrected
so that they can process data related to the year 2000. We rely on our systems
and applications in operating and monitoring all major aspects of our business,
including our financial systems. While we believe our internal systems are year
2000 compliant, we will not know the full extent of the impact of those issues
until the turn of the century. Any disruption in our information systems could
cause shipment errors, make it more difficult to obtain certain raw materials or
to forecast adequately, cause business interruptions, harm our customer
relationships, and in general, adversely affect our business. We also rely,
directly and indirectly, on external systems of our customers, suppliers,
creditors and financial organizations, both domestic and international, for the
accurate exchange of data. Even if the year 2000 issue does not affect our
internal systems, we could be affected through disruptions in the operations of
the enterprises with which we interact. Despite our efforts to address the
impact of the year 2000 issues on our own internal systems, the impact of year
2000 issues on other enterprises could adversely affect our business.
In 1997, we developed a three-phase program for year 2000 information
systems compliance. Phase I was to identify those systems with which we have
exposure to year 2000 issues. Phase II is the development and implementation of
action plans to be year
28
<PAGE> 30
2000 compliant. Phase III, to be completed by mid-1999, is the final testing of
each major area of exposure to ensure compliance. We have identified three major
areas determined to be critical for successful year 2000 compliance: (1)
financial and informational system applications; (2) manufacturing applications;
and (3) third party relationships.
In accordance with Phase I of the program, we have conducted an internal
review of all systems and have contacted all software suppliers to determine
major areas of exposure to year 2000 issues. In the financial and information
system area, a number of applications have been identified as being year 2000
compliant due to their recent implementation. We believe that our financial
reporting and manufacturing systems are year 2000 compliant. In the third party
area, we are also in the process of contacting most of the entities with which
we have a material third party relationship. To date, those who have responded
state that they intend to be year 2000 compliant by year 2000. We have not yet
determined what costs may be incurred in connection with our third party
relationships, but such costs could be substantial.
To date, we believe our expenses to address the year 2000 problem have
totaled less than $100,000. We believe there will be no additional material
expenditures necessary to replace our core financial, reporting and
manufacturing systems. We currently have no contingency plans to address any
unforeseen year 2000 problems.
29
<PAGE> 31
BUSINESS
GENERAL
ANSYS develops, manufactures and markets drug testing products for both
on-site and laboratory settings, as well as specialty laboratory and research
products. Our on-site drug testing products are self-contained, easy to use,
disposable tests which detect the presence of drugs of abuse and alcohol, and
provide highly accurate results in less than five minutes. These products are
used in a variety of applications, including pre-employment screening, random
employee testing, government mandated testing and parole and probation
monitoring, as well as in other applications that require rapid, accurate
results. Our laboratory-based drug testing product line, sold under the name
TOXI-LAB, can accurately detect more than 500 drugs and drug byproducts in
urine, blood, tissue and other specimens. TOXI-LAB is primarily used by hospital
and forensic laboratories.
ANSYS also develops, manufactures and markets specialty laboratory and
research products. Our SPEC products are used for a variety of analytical
applications, including drugs of abuse confirmation testing, therapeutic drug
monitoring and sample preparation in drug discovery and drug metabolism studies.
Our nucleic acid separation and detection products are used by clinical and
environmental testing laboratories, pharmaceutical and biotechnology companies
and DNA testing and research organizations.
STRATEGY
We seek to strengthen our competitive position in the drug testing and
specialty laboratory and research markets by pursuing the following strategies:
EMPLOY MARKET DRIVEN PRODUCT DEVELOPMENT. Our product development strategy
is to adapt and enhance our diagnostic testing technologies, our engineering,
production and chemistry capabilities and our product formats in response to
customer demands. To accomplish this, we monitor existing markets, maintain a
continuing dialogue with our current customers through workshops and technical
consultation hotlines, and assist our customers in identifying new needs as they
develop.
FOCUS ON STRATEGIC RELATIONSHIPS. We seek to enhance our present
relationships with companies such as Roche and Molecular Innovations, as well as
to develop new strategic relationships. We have collaborated with Roche for more
than six years, and continue to work with Roche both contractually and
informally in developing new products, such as TesTcup ER, for the drug testing
markets. In addition, we have formed a strategic relationship with Molecular
Innovations to develop rapid nucleic acid separation and detection products. We
believe we are in a position to attract and develop additional strategic
relationships because of our innovative design and development expertise and
efficient manufacturing capability. We intend to target licensing and
distribution partners whose strong sales and marketing capabilities will enable
them to promote and sell our products more effectively.
ACCELERATE DEVELOPMENT OF NEW DRUG TESTING PRODUCTS. We emphasize
innovation in the design and development of products that address the needs of
our target markets. We intend to accelerate new drug testing product development
by hiring additional scientific and technical personnel, investing additional
resources in research and development, and pursuing joint research and
development arrangements with companies that offer complementary resources.
30
<PAGE> 32
INCREASE EMPHASIS ON SPECIALTY LABORATORY AND RESEARCH PRODUCTS. We intend
to focus a significant portion of our product development effort on expanding
our specialty laboratory and research product line. We believe a substantial
market exists for these products in a variety of diagnostic applications. We
plan to develop additional nucleic acid purification and separation products, as
well as complete kits for performing the laboratory work required to isolate and
purify nucleic acids. We also plan to expand our sample preparation product line
to accommodate a wider variety of automated sample processing equipment.
ACHIEVE MANUFACTURING EFFICIENCIES THROUGH AUTOMATION. We are currently
incorporating sophisticated automation equipment into our manufacturing facility
in order to automate certain portions of our production processes. We are
continually evaluating our manufacturing processes to identify additional
automation opportunities. By installing custom-designed, state of the art
manufacturing systems, we believe we can further enhance productivity and
improve cost-efficiency while maintaining our high level of product quality.
PURSUE STRATEGIC ACQUISITIONS. We intend to examine opportunities to
acquire, license or enter into supply arrangements to obtain innovative
diagnostic testing technologies, product formats and products that complement
our existing operations and address the needs of our target customer base. We
regularly identify and review strategic acquisition opportunities through our
industry contacts and recognized position in the industry, as well as through
dialogue with our strategic partners.
THE DRUG TESTING MARKET
According to an independent research company, the market for drugs of abuse
testing products in the United States was approximately $628 million in 1996,
and will increase to approximately $900 million by 2002. Drug testing has
historically consisted primarily of urine-based screening performed in reference
laboratories. Specimens are collected and sent to these laboratories, where
skilled technicians process the specimens and document test procedures and
results. Laboratory testing is typically carried out on sophisticated analyzers,
which use automated liquid handling mechanisms for the addition of chemical
solutions and rely on absorption or fluorescence of light, or other detection
methods to determine the presence and amount of substances in the specimen.
Laboratory instruments are generally capable of detecting multiple
substances from a large number of specimens, and provide accurate and highly
sensitive test results. Laboratory testing, however, has several limitations.
Laboratory instruments are generally large, complex and costly. They require
high specimen throughput to justify the required investment in equipment,
training and staffing, as well as the costs required to operate and support
these instruments. Generally, the turnaround time for test results in reference
laboratories is measured in hours and days. In addition, laboratory testing in
which a large number of samples must be handled creates special challenges in
meeting chain of custody requirements. Chain of custody refers to the
documentation of the transportation and handling of the specimen from the time
of collection until the specimen is analyzed in a laboratory and ultimately
discarded. Chain of custody requirements are primarily designed to ensure that a
specimen is correctly associated with a given individual and has not been
adulterated. All specimens must be accompanied by chain of custody forms and be
in specially sealed, tamper-evident containers.
31
<PAGE> 33
The limitations of laboratory testing, combined with technological advances
permitting accurate testing outside the laboratory, have resulted in a
continuing shift to simple, rapid, self-contained, disposable diagnostic tests
that can be performed in a variety of on-site settings. On-site tests have been
developed in a number of formats, including lateral flow and flow-through
membrane devices, dipsticks and test tubes. These tests are intended to generate
accurate results that provide either a yes/no answer or a quantitative result,
primarily through a color change. When an on-site drug test indicates the
presence of a drug, the samples are routinely subjected to confirmation testing,
typically performed in an off-site laboratory. We believe that the on-site
segment of the drug testing market has experienced substantially higher growth
in recent years than the traditional laboratory-based market segment. While we
believe that laboratory testing will continue to play an important role in drug
testing, particularly confirmation testing, we also believe that on-site testing
will be increasingly used in the following applications:
WORKPLACE DRUG TESTING. Drugs of abuse testing in the workplace includes
pre-employment screening, random employee testing and government mandated
testing. According to the United States Substance Abuse Mental Health Services
Administration, over 13 million people in the United States in 1996 were illicit
drug users. The U.S. Department of Labor estimates that over 70% of illegal drug
users are employed. In addition, the Society for Human Resources Management
estimates that approximately 95% of Fortune 500 companies conduct pre-employment
drug screening. Corporations are using drug screening in the workplace with the
intention of reducing workers' compensation claims, absenteeism, employee
turnover, accidents, health care costs and generally creating a safer workplace.
Drugs of abuse testing in the workplace has experienced significant growth in
recent years due to various factors, including: (1) government regulations which
mandate testing in certain job categories; (2) the Federal Drug-Free Workplace
Act of 1988; (3) court decisions recognizing a private sector employer's right
to test both employees and job applicants; (4) efforts by insurance carriers to
reduce accident liability and control health care costs; and (5) corporate
requirements that vendors and contractors certify that their workplaces are drug
free.
Historically, workplace drug testing has been performed primarily in
reference laboratories or hospital-based laboratories. Recently, however, an
increasing portion of workplace drug testing has been performed using tests that
can be easily administered on-site. The SmithKline Beecham Drug Testing Index
indicated that only 5% of the nearly 5 million workplace drug tests performed in
1997 by SmithKline's clinical laboratories were positive for illegal substances.
On-site drug tests are particularly valuable in settings like this because they
enable employers to permit the large number of employees whose test results are
negative to enter or return to the workforce without undue delay.
GOVERNMENT MANDATED DRUG TESTING. Several government agencies screen their
workers for drugs of abuse, while others mandate drug testing of certain persons
subject to monitoring. For example, the United States Department of
Transportation has established mandatory guidelines for random drug testing of
workers involved in the transportation industry, including airline pilots, truck
drivers and rail employees. The Department of Transportation's regulations
currently require 50% of its regulated workers, or approximately four million
persons, to be randomly tested for drugs each year. State parole and probation
agencies test subjects for suspected drug and alcohol abuse if there is
behavioral evidence of abuse. According to the U.S. Department of Justice,
approximately 3.8 million people are on parole or probation in the United
States, and one-third of them are subject to mandatory drug testing.
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Other government agencies have implemented extensive pre-employment drug
screening programs. For example, the United States Postal Service has
implemented a pilot drug screening program using TesTcup that will require
approximately 250,000 on-site drug tests. The United States military also
routinely performs drug screens on all recruits, as well as random tests and
testing for cause.
HOSPITAL/EMERGENCY ROOM DRUG TESTING. Drug abuse plays a role in many
emergency room visits, either as a primary cause such as an overdose, or as a
contributing factor such as in an accident. When an emergency room physician
receives a patient with symptoms that may or may not be drug related, that
physician must quickly determine the presence of drugs in order to prescribe the
correct treatment. Currently, most emergency room drugs of abuse testing
procedures are performed away from the patient at the hospital laboratory, a
process which can take several hours to produce a result. Tests have also been
developed for on-site use in the emergency room, but most of these tests require
multiple steps, are time-sensitive and are cumbersome to use. We believe that a
diagnostic test that could be easily performed by nontechnical personnel in
order to rapidly diagnose drugs of abuse in the emergency room would be of
substantial benefit in determining the appropriate course of treatment.
THERAPEUTIC DRUG MONITORING. We believe that a significant opportunity
exists for rapid, easy to use on-site diagnostic products in therapeutic drug
monitoring, an area also traditionally addressed by laboratory testing products.
Many therapeutic drugs require complicated dosing regimens in order for the drug
to be effective. The failure of patients to take their medications as prescribed
could lead physicians to improperly prescribe treatment in an effort to achieve
the desired effect. As a result, physicians may desire to periodically monitor
their patients to validate compliance with prescribed treatment. Currently, most
physicians monitor therapeutic drugs by sending a urine or blood sample to a
central laboratory for analysis. This process can be time consuming and can add
significant cost to the overall treatment. Thus, physicians may be unable to
employ monitoring as frequently as they might desire. The ability to rapidly
monitor the presence of therapeutic drugs or their byproducts while the patient
is in the physician's office would provide the physician with real-time
information that could improve patient treatment.
OTHER DRUG TESTING APPLICATIONS. We believe there is a growing demand for
rapid, accurate, easy to use drug testing products in drug treatment centers. We
also believe there is a substantial over-the-counter market for rapid drug
screening devices that will be used by small employers, academic institutions,
private counselors, physicians and concerned parents.
THE SPECIALTY LABORATORY AND RESEARCH PRODUCTS MARKET
Clinical and environmental testing laboratories, pharmaceutical and
biotechnology companies and DNA testing and research organizations frequently
conduct research on samples that must be isolated and purified prior to
analysis. This isolation and purification process is known as sample
preparation. Sample preparation is important in these specialty laboratory and
research settings because impurities in a sample can cause test results that are
inaccurate, unreliable or cannot be reproduced. Historically, sample preparation
has been a labor and time-intensive process. In recent years, however,
traditional sample preparation methods have begun to be replaced with reliable,
fast and high quality technologies and products. Two important segments of the
specialty laboratory and research products market are solid phase extraction and
nucleic acid separation.
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SOLID PHASE EXTRACTION. Sample preparation products are used to separate
both solid and liquid components using various techniques including filtration,
chromatography (chemical separation), centrifugation (physical separation by
rotational force), solid phase extraction and liquid extraction techniques.
Solid phase extraction is a technique for removal of a target substance from a
liquid onto a solid surface and the subsequent release of the substance for
analysis. Solid phase extraction techniques are employed for sample preparation
in drug discovery and drug metabolism studies in the pharmaceutical and clinical
laboratory industries. Biomedical laboratories use solid phase extraction to
prepare samples for drugs of abuse confirmation, therapeutic drug monitoring and
other applications. Environmental testing laboratories also use solid phase
extraction for sample preparation of drinking water and waste water analysis
under the guidelines of the EPA. Biotechnology laboratories also use solid phase
extraction for isolating DNA from biological matrices.
NUCLEIC ACID SEPARATION. Nucleic acid separation involves isolating nucleic
acids from other soluble contaminants. Nucleic acids, including DNA and RNA, are
the fundamental regulatory molecules of life. Over the past 20 years, an
increased understanding of nucleic acid structure and function has led to the
use of nucleic acids in a broad array of therapeutic and diagnostic
applications. All of these applications require highly purified nucleic acids.
Pure nucleic acids are essential for reliability and reproducibility of
molecular biology experiments in both academic and industrial research
laboratories, as well as for the accuracy of results in nucleic acid-based
clinical diagnostics. Most nucleic acid separation and purification occurs in
laboratories using specialized equipment. In addition, because the results of
nucleic acid testing can be compromised due to contamination of the testing
environment, and because handling requirements must be strictly followed,
individuals specially trained in molecular biology typically conduct these
procedures. In addition to a need for improved nucleic acid separation products
in the laboratory, we believe there are a number of potential applications for
on-site nucleic acid testing. For example, on-site nucleic acid tests could be
used to detect microorganisms in drinking water and other liquids, or viral or
bacterial contamination in environmental samples.
ANSYS PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
DRUG TESTING PRODUCTS
We develop products that we believe address many of the limitations of
traditional laboratory and on-site testing products. We have applied our core
competencies in product design, engineering and manufacturing to bring to market
products for drugs of abuse and alcohol testing and are developing new products
for these applications as well as for new applications such as therapeutic drug
monitoring. We intend to continue to develop, manufacture and sell products
which are designed to meet the changing needs of the diagnostic testing markets
and offer some or all of the following attributes:
- EASE OF USE. TesTcup, TesTstik, ON-SITE Alcohol and the on-site products
under development are designed to be easy to use, read and interpret.
These tests are portable, self-contained and disposable, and eliminate
the need to handle the specimen and/or mix and dispense chemical
solutions. Test results from these products are provided in a
"positive/negative" color change format that is designed to be clear and
easy to read and interpret. In addition, TesTcup features specimen
collection and testing in a single, integrated device, which effectively
addresses strict chain of custody requirements.
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- IMMEDIATE RESULTS. TesTcup, TesTstik, ON-SITE Alcohol and the on-site
products under development are designed to offer complete test results in
under five minutes, allowing employers, government testing
administrators, health care professionals and other customers to take
appropriate action immediately. By contrast, processing of tests in
reference or hospital laboratories can require hours or days to obtain
results. In addition, our products do not require refrigeration and
remain stable at room temperature, making them immediately available for
use. TesTcup ER, a version of TesTcup designed specifically for the
hospital emergency room, is intended to be a cost-effective means to
shorten time to medical intervention and to minimize the need for
additional patient follow-up.
- ANALYTICAL ACCURACY. The on-site products developed by ANSYS are
designed to provide accurate and reproducible results, comparable to
results obtained in a reference or hospital laboratory using complex
laboratory analyzers. In addition, our TOXI-LAB system is designed to
provide high analytical accuracy and identifying power similar to
instrument based methods.
- MULTI-SUBSTANCE TESTING CAPABILITY. TesTcup and TOXI-LAB, as well as
certain other products under development, are designed to measure
multiple target substances simultaneously without sacrificing the quality
of the individual analysis. We believe that when multiple substance
screening is required, simultaneous detection capability provides
significant time and cost savings. TesTcup offers simultaneous testing
for amphetamines, cocaine, morphine, THC and PCP. TesTcup ER is designed
to simultaneously detect the presence of amphetamines, cocaine, morphine,
barbiturates and benzodiazepines. The TOXI-LAB system has the ability to
detect over 500 drugs and drug byproducts.
- QUALITY. We endeavor to maintain high standards of quality in all aspects
of our operations. All of the products developed by ANSYS incorporate
high quality biological and chemical solutions. Our manufacturing
facility is designed to comply with Quality System Regulations and other
government guidelines. In addition, we employ extensive quality control
procedures at all stages of the manufacturing process, from receipt of
raw materials to shipping of finished products. We continuously monitor
compliance with our quality standards in order to ensure product
reliability.
- COST-EFFECTIVENESS. TesTcup, TesTstik, ON-SITE Alcohol and the on-site
products under development are designed to eliminate the need for highly
trained technicians and significant outlays for laboratory equipment,
making them cost-effective alternatives to laboratory analyzers. Unlike
automated sample processing instruments, TOXI-LAB does not require
significant capital expenditures.
Our drug testing products and products under development include the
following:
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<TABLE>
- -------------------------------------------------------------------------------
OUR DRUG TESTING PRODUCTS
- -------------------------------------------------------------------------------
PRODUCT
OWNERSHIP
PRODUCT DESCRIPTION/USE STATUS RIGHTS(1)
- ----------------- --------------------------------- ------------ -----------
<S> <C> <C> <C>
TesTcup 4/5 Collection and testing device for Commercial Roche
simultaneous screening of
multiple drugs of abuse:
amphetamines, cocaine, morphine,
THC (marijuana metabolite) and
PCP (TesTcup5 version only)
TesTcup ER Hospital emergency room version Launch Roche
of TesTcup configured to
simultaneously screen for
amphetamines, cocaine, morphine,
barbiturates and benzodiazepines
TesTstik Family of products in a dipstick
format that each test for a
single abused drug:
- Amphetamines, cocaine, Commercial Roche
morphine, THC, PCP
- Barbiturates, benzodiazepines Launch Roche
TesTstik 2 Version of TesTstik configured to Development Roche
test for two substances (cocaine
and THC) simultaneously
TesTstik 3 Version of TesTstik configured to Development Roche
test for three substances
(cocaine, THC and either
amphetamines or morphine)
simultaneously
ON-SITE Alcohol Pocket-sized device that screens Commercial ANSYS
for alcohol (ethanol) in saliva
or urine
TOXI-LAB Drug Bench-top system that detects Commercial ANSYS
Screening over 500 drugs and drug
System byproducts, with built-in quality
control
TOXI-LAB THC II Extension of the TOXI-LAB system Commercial ANSYS
System used to test for evidence of
marijuana usage
TOXI-LAB LTD Extension of the TOXI-LAB system Commercial ANSYS
Opiate(TM) used to test for evidence of
System opiate usage
DRUGSTAT RA(TM) Lateral flow device designed to Development ANSYS
monitor the ritalinic acid
metabolite of Ritalin, a
therapeutic drug used to treat
attention deficit disorder
- ---------------
(1) See "Business -- Agreements with Roche" for a description of our
manufacturing and development agreements with Roche.
- -------------------------------------------------------------------------------
</TABLE>
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TESTCUP 4/5. TesTcup is a self-contained, disposable urine collection and
testing device designed to detect the presence of up to five drugs of abuse
simultaneously. TesTcup provides easily interpreted results in approximately
five minutes and is designed to be simple to use. Once the urine specimen is
collected in the TesTcup, the lid is secured to the cup and the cup is tilted
forward for ten seconds, allowing urine to flow through a valve into a sample
reservoir in the cup. The cup is righted and left undisturbed for approximately
three minutes, until distinct blue lines appear on the side of the cup in the
"TEST VALID" windows indicating that results are ready. At that point, a cover
label is peeled off to reveal the test results. A white plus (+) sign indicates
the presence of a drug and a blue minus (-) sign indicates the absence of a
drug.
By integrating sample collection, detection and storage features into one
device, TesTcup eliminates the need to handle samples, mix chemical solutions,
calibrate and maintain instruments, and other aspects of most drug testing
methods. We believe that TesTcup provides enhanced convenience and exceptional
testing flexibility and reliability. When test results are negative, immediate
action can be taken without the need to wait for laboratory results. In the
workplace setting, these immediate results enable employees to return to or
enter the workforce without delay. When test results are positive, the TesTcup
device acts as a shipping container to transport the specimen to the laboratory
for confirmation testing. TesTcup's innovative sealing mechanism and labeling
system ensure that all chain of custody requirements are met in the event any
disputes arise regarding the integrity of the test.
TesTcup is used primarily in pre-employment screening, random employee
testing, criminal justice testing and clinical applications. For example, the
United States Postal Service is using TesTcup exclusively for its recently
implemented pilot drug screening program.
TESTCUP ER. ANSYS and Roche co-developed TesTcup ER, a new version of the
TesTcup product specifically designed to meet the requirements of hospital
emergency rooms. TesTcup ER tests for five substances simultaneously, including
barbiturates and benzodiazepines, substances which are often encountered in drug
related emergency room visits. We believe that TesTcup ER will offer a number of
advantages in the emergency room setting, including ease of use, rapid, accurate
results and cost-effectiveness. Roche has begun advertising and is currently
taking orders for TesTcup ER. We intend to begin shipments of TesTcup ER to
Roche in the first quarter of 1999.
TESTSTIK. TesTstik is a self-contained, easy to use, disposable dipstick
designed to detect the presence of a single drug of abuse in approximately three
minutes. We currently manufacture separate versions of TesTstik for five common
drugs of abuse, and we expect to ship to Roche new versions for detection of
barbiturates and benzodiazepines in the first quarter of 1999. The test is
conducted by submersing the sample pad in the urine specimen for five to seven
seconds, after which the slide cover is closed. Once the distinct blue line
appears indicating "TEST VALID," a plastic tab is broken off and results can be
read. A white plus (+) sign indicates the presence of a drug and a blue minus
(-) sign indicates the absence of a drug. TesTstik requires no mixing or
dispensing of chemical solutions, no pipetting of urine and no refrigeration.
TesTstik is used primarily for parole and probation testing, workplace testing
and drug treatment programs.
TESTSTIK 2 AND TESTSTIK 3. ANSYS and Roche are currently developing
TesTstik 2 and TesTstik 3, new versions of the TesTstik product designed
primarily to meet the requirements of parole and probation agencies and drug
treatment programs. TesTstik 2 is
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designed to test for two substances simultaneously and TesTstik 3 is designed to
test for three substances simultaneously. We believe that these products, if
successfully developed, could offer a number of advantages in parole and
probation settings, including ease of use, rapid, accurate results and
cost-effectiveness. We have produced prototypes of these products for Roche and
Roche is currently conducting marketing evaluations of the products.
ON-SITE ALCOHOL. ON-SITE Alcohol is a self-contained, easy to use,
disposable, pocket-sized device designed to test for ethanol in urine or saliva.
Using a small pipette included in the test kit, a drop of reagent is transferred
from the built-in reagent well to the detection pad. A drop of the specimen is
transferred to the sample well using either the kit's pipette or its saliva
swab, and the result appears in approximately two minutes. A purple plus (+)
sign indicates the presence of ethanol while no color change indicates the
absence of ethanol. ON-SITE Alcohol is primarily used for parole and probation
testing, workplace testing and drug treatment programs. ON-SITE Alcohol
qualifies under the Department of Transportation's regulations for mandatory
random testing of transportation industry workers, including airline pilots,
truck drivers and rail employees.
TOXI-LAB DRUG SCREENING SYSTEM. The TOXI-LAB drug screening system is a
unique, bench-top, thin layer chromatography system that detects over 500 drugs
and drug byproducts. TOXI-LAB uses a comprehensive, standardized set of
reference materials and offers built-in quality control, and consistent and
reproducible procedures. TOXI-LAB incorporates disposable extraction and
evaporation components which prevent cross-contamination and eliminates the
spraying of hazardous chemical solutions, thus creating a safer working
environment for the technician. TOXI-LAB is primarily used by small or mid-sized
hospitals and forensic laboratories. In emergency room applications, TOXI-LAB is
used to detect or rule out many drugs quickly in suspected poisoning cases, and
to substantiate drug overdoses or drug interactions. TOXI-LAB is used prior to
hospital admission or surgery to guard against harmful drug interactions.
TOXI-LAB is also used to monitor patient and employee compliance in substance
abuse programs, psychiatric centers, employee assistance programs and in
geriatric medicine. Law enforcement agencies, forensic laboratories and prisons
use TOXI-LAB to monitor compliance with probation and parole requirements, as
well as to analyze certain types of contraband.
TOXI-LAB THC II SYSTEM. The TOXI-LAB THC II System is an extension of the
TOXI-LAB drug screening system, and is designed to be a rapid, easy to use urine
test to detect for evidence of marijuana usage. THC II is primarily used in
reference laboratories. THC II allows the laboratory to process multiple samples
simultaneously and incorporates our SPEC solid phase extraction columns, which
provide rapid and selective substance extraction and a reduction in sample
preparation time. The level of sensitivity achieved with THC II satisfies the
most stringent drug screening and confirmation requirements.
TOXI-LAB LTD-OPIATE SYSTEM. The TOXI-LAB LTD-Opiate System is an extension
of the TOXI-LAB drug screening system designed to be a rapid, easy to use test
for screening or confirmation of opiates in urine. LTD-Opiate is primarily used
in reference laboratories to detect low levels of opiate alkaloids and their
byproducts. This system differentiates each of the opiates, providing a specific
analytical result without the need for sophisticated instrumentation. LTD-Opiate
also includes our SPEC solid phase extraction columns, which provide rapid and
selective substance extraction and a reduction in sample preparation time.
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DRUGSTAT RA. We are in the early stage of development of a lateral flow
immunoassay device for the detection of ritalinic acid in urine. Ritalinic acid
is a metabolite of Ritalin, which is a prescription drug used to treat attention
deficit disorder. Currently, dosage compliance by the patient is not frequently
monitored. DRUGSTAT RA would be used outside a laboratory setting to detect the
presence of ritalinic acid and would provide a noninvasive alternative to a
blood test so that patient compliance could be monitored quickly and appropriate
treatments could be prescribed immediately.
SPECIALTY LABORATORY AND RESEARCH PRODUCTS
Our specialty laboratory and research products include products for solid
phase extraction and for nucleic acid separation and detection. The specialty
laboratory and research products and products under development by ANSYS include
the following:
<TABLE>
- ------------------------------------------------------------------------------------
OUR SPECIALTY LABORATORY AND RESEARCH PRODUCTS
- ------------------------------------------------------------------------------------
PRODUCT
OWNERSHIP
PRODUCT DESCRIPTION/USE STATUS RIGHTS
- -------------------- ------------------------------ ----------- -----------------
<S> <C> <C> <C>
SPEC Solid Phase Family of sample preparation Commercial ANSYS
Extraction products marketed in four
Products primary formats: SPEC Columns,
SPEC 96-Well Plates, SPEC
Pipette Tips and SPEC
Extraction Discs
Nucleic Acid Sample preparation products Commercial Promega
Isolation that isolate nucleic acids
Products
XtraAMP(TM) Sample preparation tubes Development Molecular
incorporating DNA binding Innovations
material for rapid isolation
of nucleic acids
SCIP(TM) DNA testing cartridge that Research Molecular
integrates isolation, Innovations
amplification and detection to
screen for environmental
toxins and microorganisms
- ------------------------------------------------------------------------------------
</TABLE>
SPEC SOLID PHASE EXTRACTION PRODUCTS. Our SPEC solid phase extraction
products use proprietary membrane technology for preparing samples for trace
analysis. The SPEC products isolate substances of interest from urine, blood,
plasma or any other liquid sample. Unlike conventional solid phase extraction
products, our SPEC products use a proprietary small extraction disc, thereby
reducing solvent usage and hazardous waste generation, and reducing sample size
requirements for more efficient laboratory sample preparation. We currently
market the SPEC products in four primary formats: SPEC Columns, SPEC 96-Well
Plates, SPEC Pipette Tips and SPEC Extraction Discs. We believe that these four
formats satisfy the needs of various types of laboratories with
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respect to sample size, number of samples processed and compatibility with
existing laboratory instrumentation. The primary markets for our SPEC products
are pharmaceutical companies and clinical testing laboratories performing drug
discovery and drug metabolism studies and confirmations, as well as
biotechnology companies engaged in DNA testing.
NUCLEIC ACID ISOLATION PRODUCTS. We exclusively manufacture two custom
nucleic acid isolation products for Promega using our proprietary membrane
technology. These products are packaged into kits by Promega and sold through
their biological research catalog.
XTRAAMP. In collaboration with Molecular Innovations, we are finalizing the
development of XtraAMP, which incorporates DNA binding material into sample
preparation tubes. The resulting XtraAMP tube is intended to be used for the
rapid extraction of DNA prior to amplification and detection. We have the
exclusive worldwide right to manufacture XtraAMP. We also have the exclusive
worldwide right to market and distribute XtraAMP to the bloodbanking market, and
the non-exclusive right to market and distribute XtraAMP in other markets.
SCIP. ANSYS, in conjunction with Molecular Innovations, is conducting late
stage research of an on-site DNA testing device known as the SCIP
(Self-Contained Isothermal Particle) cartridge. This device integrates sample
preparation, DNA amplification and lateral flow detection into a single
cartridge. Incorporation of the multiple steps into an individual cartridge
simplifies the process and reduces the potential for contamination. We believe
potential applications for SCIP include testing environmental samples for viral
contamination or the presence of other microorganisms.
TECHNOLOGY
Our technology integrates creative scientific concepts with innovative
product designs. Our research and development program applies our core
technology expertise to research projects and is currently performed in
accordance with the Quality System Regulations. We have expertise in several
core scientific disciplines, including membrane technologies, surface
chemistries and molecular interactions, all of which have enabled us to develop
innovative devices for both on-site and laboratory testing applications.
MEMBRANE TECHNOLOGIES. All of our products rely upon specialized membranes.
We have significant expertise in the manufacturing and processing of both
inorganic and organic membranes. Our inorganic membranes are used as the
separation media in our TOXI-LAB system, and the SPEC solid phase extraction
membranes are an extension of the TOXI-LAB membrane technology. We also have
expertise in processing organic membranes, such as the nitrocellulose-based
membranes used in the TesTcup and TesTstik product lines.
SURFACE CHEMISTRIES AND MOLECULAR INTERACTIONS. Our technical expertise
includes the chemical modification of surfaces. By changing the surface
characteristics of the membrane through chemical modifications and other
techniques, we can control interactions between the membrane and the substance
of interest. We have developed 15 surface chemistries targeted at specific
product separations. We apply our understanding of surface chemistries and
molecular interactions between the substance and the surface of the membrane to
customize membranes for specific applications.
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RESEARCH AND DEVELOPMENT
We principally focus our research and development efforts on responding to
market demands through the integration of creative scientific concepts with
innovative product designs. As of January 31, 1999, we had ten employees in
research and development, all of whom are dedicated to the development of new
drug testing products and specialty laboratory and research testing products, as
well as new applications for our current products. Our scientific personnel
utilize expertise in several core scientific disciplines, including membrane
technologies, surface chemistries and molecular interactions. We also have a
core competency in design engineering. The engineering staff uses computer aided
design and rapid prototype techniques for the design and development of new
diagnostic devices and manufacturing processes which incorporate biological and
chemical solutions into our products. Our engineering abilities enable us to
design products rapidly. For example, we provided Roche with working prototypes
of TesTstik 2 and TesTstik 3, each in approximately two weeks.
SALES AND MARKETING
As of January 31, 1999, we employed 11 persons in various sales and
marketing functions, including technical support. We sell our on-site drug
testing products primarily to Roche. Roche is entirely responsible for the
marketing and distribution of TesTcup and TesTstik as well as the marketing and
distribution of ON-SITE Alcohol in specific market segments. We sell our
laboratory drug testing products direct in the United States to hospitals,
laboratories and universities, and through independent distributors
internationally. We sell our specialty laboratory and research products through
a combination of direct sales and distributors. See "Risk Factors -- We Depend
on Distributors and Have Limited Direct Sales Resources."
Our Technical Support department operates a customer hotline 24 hours a
day, seven days a week in order to assist our customers in the use of our
products. Technical Support also publishes the SPEC-NEWS and TOXI-NEWS product
newsletters. These newsletters keep our customers informed of new developments
in areas of interest relevant to their industries. We also conduct numerous
TOXI-LAB customer training workshops throughout the year, and participate in
annual product trade shows and technical presentations.
MANUFACTURING
As of January 31, 1999, we had 205 employees involved in manufacturing,
assembly, process engineering, quality control and materials management. We
believe we comply with all aspects of the Quality System Regulations in the
production of our products and we maintain strict quality control regimens in
order to ensure high standards of quality.
Several of our manufacturing processes are automated. We are currently in
the process of automating additional manufacturing processes. We expect the
implementation of these manufacturing changes to allow for increased production
volumes while reducing per unit cost of goods sold. Our new automated equipment
is custom designed by manufacturers working closely with our engineering
department to ensure that our high quality standards are maintained. See "Risk
Factors -- We are Subject to Many Risks Related to Manufacturing and Our
Continuing Efforts to Increase Automation."
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We obtain all raw materials for the manufacture of our products from
outside sources. We endeavor to keep a three-month supply of critical raw
materials and component parts on hand to avoid manufacturing interruptions. See
"Risk Factors -- We Depend on Sole Source Suppliers for Raw Materials." Our
quality control department inspects and tests all raw materials, subassemblies
and finished goods against established acceptance standards.
COMPETITION
Our target markets are intensely competitive. We believe the principal
factors for competition include accuracy, reproducibility, ease of use,
distribution capabilities and price. Our competitors include diagnostic
companies that manufacture on-site and laboratory-based drug testing products,
as well as those that manufacture specialty laboratory and research products.
Some of our competitors have substantially greater financial, technical,
research and other resources and larger, more established sales, marketing,
distribution and service organizations than we have. Moreover, a number of these
competitors offer broader product lines, have greater name recognition than we
do and offer discounts as a competitive tactic. In addition, several smaller
companies are currently making or developing products that compete with or will
compete with our products.
We believe independent reference and hospital-based laboratories perform
the majority of diagnostic tests. We expect that these laboratories will compete
vigorously to maintain their position in our target markets. To achieve broad
market acceptance for our products, we, together with Roche, will be required to
demonstrate that our products are an attractive alternative to testing performed
by reference and hospital-based laboratories, which may require changes to their
established means of testing. Our products may not be able to compete with the
testing services provided by these laboratories.
Our competitors may develop or market technologies or products that are
more effective or commercially attractive than our current or future products or
that would render our technologies and products obsolete. Such technologies may
limit or interfere with our ability to make, use or sell our products. In
addition, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future. See "Risk Factors -- Our Industry is Highly Competitive."
AGREEMENTS WITH ROCHE
In April 1993, we entered into a commercial agreement (the "TesTcup
Agreement") with Roche. Pursuant to this agreement, Roche paid us a development
fee to develop, in collaboration with Roche, a multiple substance drugs of abuse
testing device that ultimately became TesTcup. Under the TesTcup agreement, we
assigned to Roche in perpetuity all of our ownership rights to TesTcup and to
any modifications and improvements of these products, such as TesTcup ER. In
exchange for this assignment, we were given the exclusive right to manufacture
and supply TesTcup to Roche for the term of the agreement. Roche also has the
right of first refusal to exclusively market any and all new antibody-based
drugs of abuse products developed by us. The initial TesTcup Agreement
terminates on December 31, 1999 and gives Roche an option to renew for
additional three-year periods. In May 1998, the TesTcup Agreement was amended to
extend the termination date to January 1, 2003. The TesTcup Agreement also
provides that any patentable inventions relating to TesTcup, whether developed
by us or by Roche,
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or jointly, are the sole and exclusive property of Roche. Roche agreed to pay or
reimburse all reasonable costs and expenses we incur related to the filing of
patent applications concerning TesTcup. Roche also agreed to pay for all
equipment and supply all reagents and other materials necessary to manufacture
TesTcup, and owns all such equipment and reagents. Roche's proprietary reagents
are used in TesTcup. We have the right to use such equipment and reagents during
the term of the TesTcup Agreement and are required to return all such equipment
and reagents to Roche upon expiration or termination of the agreement.
The TesTcup Agreement provides that we will manufacture TesTcup according
to defined specifications, subject to modification of quality control
specifications at Roche's sole discretion, and in accordance with all applicable
laws. Roche may use another vendor to manufacture TesTcup if Roche gives us
notice that the TesTcup products we are manufacturing do not meet the
specifications of the agreement, or that we are not providing sufficient
quantities of TesTcup on a timely basis, and we are unable to promptly cure the
problem or manufacture a sufficient quantity of products. We are responsible for
all costs, expenses and consequential damages under our contract with Roche for
all product recalls, returns and defects attributable to our manufacturing.
Production of TesTcup is based upon a "rolling forecast" of four three-calendar
month periods provided to us on a quarterly basis. Roche is not required to
forecast a minimum number of units, provided that the number of units for the
initial three-calendar month period of any rolling forecast may not vary in
excess of 20%. The agreement provides maximum order limitations, subject to the
our maximum production capacity. Orders for TesTcup are based upon written
purchase orders delivered by Roche. The unit price of TesTcup is to be
determined by a formula derived in part from our cost of production.
The TesTcup Agreement provides that Roche will offer to license TesTcup to
us in those markets or market segments in which Roche has determined that it
will not sell the product. In such event, we have no right to sublicense, assign
or transfer our rights under any such license without the prior written approval
of Roche. If we do not accept such an offer within the time period allotted
under the TesTcup Agreement, then Roche may offer such license to third parties
without any further obligation to us. The TesTcup Agreement also gives Roche a
right of first refusal to exclusively market any and all new antibody-based
drugs of abuse products we develop. The TesTcup Agreement also provides that we
and Roche each indemnify the other against damages resulting from our respective
performances under the agreement and certain other matters.
The TesTcup Agreement allows either party to terminate the agreement upon
certain breaches by the other party, or the bankruptcy or insolvency of the
other party, and allows Roche to terminate the agreement upon the occurrence of
certain FDA actions or objections. In the event that Roche does not renew its
agreement with us at the end of its term for reasons other than as a result of a
breach by us, Roche will pay us a fee to be negotiated by the parties, not to
exceed 3% of the net sales price of TesTcup, for each unit sold by Roche
following such termination. Neither Roche nor ANSYS may assign its rights under
the TesTcup Agreement to a third party without the prior written consent of the
other.
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In September 1996, we entered into a development and manufacturing
agreement with Roche (the "TesTstik Agreement") pursuant to which Roche paid us
a development fee to develop, in collaboration with Roche, a single substance
drug of abuse testing device that ultimately became TesTstik. The TesTstik
Agreement terminates in October 2002, and gives Roche an option to extend the
agreement for additional three-year terms, or portions thereof. The TesTstik
Agreement contains material terms substantially identical to the TesTcup
Agreement, including:
- terms relating to Roche's ownership of all rights to TesTstik, including
rights to related patents, and the equipment and reagents used to
manufacture TesTstik;
- payment by Roche of patent related fees and expenses;
- our exclusive manufacturing and supply rights;
- forecasting, ordering and licensing provisions;
- specifications; and
- quality control.
The TesTstik Agreement also contains certain terms which differ from those
of the TesTcup Agreement, including:
- Roche will receive product discounts based upon volume of purchases and
levels of automation;
- Roche does not have to pay us any fee in respect of Roche's net sales of
TesTstik if Roche does not renew its agreement with us after the end of
its term;
- Roche has a right of first refusal to exclusively market any and all new
products we develop using Roche's reagent technology during the term of
the agreement;
- Our financial liability is limited for certain breaches of the TesTstik
Agreement to the price Roche pays us for the TesTstik products;
- Roche and ANSYS each have equitable remedies in the event of a breach by
the other;
- We must pay Roche a license fee not to exceed ten percent (10%) of our
net sales in markets where Roche licenses TesTstik to us for sale because
Roche has decided not to sell TesTstik in that market;
- Roche or ANSYS has the right to assign their rights to an affiliate or a
successor in interest to substantially all of the assigning party's
assets without obtaining the other party's consent, provided that all
other assignments require the prior written consent of the non-assigning
party; and
- Pricing disputes following a modification by Roche of TesTstik
specifications shall be submitted to binding arbitration.
RELATIONSHIP WITH MOLECULAR INNOVATIONS
We have been collaborating with the scientific staff at Molecular
Innovations since 1995 to develop new products such as SCIP and XtraAMP. Under
existing agreements with Molecular Innovations, we have the exclusive right to
manufacture and the non-
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exclusive right to market and distribute SCIP until February 2002. We have the
exclusive right to manufacture XtraAMP, the exclusive right to market and
distribute XtraAMP in the bloodbanking markets, and the non-exclusive right to
market and distribute XtraAMP in all other markets, for five years from the
launch of XtraAMP. Under our agreements, Molecular Innovations holds all
intellectual property and other ownership rights to SCIP and XtraAMP. We have
purchased less than a 5% equity interest in, and have provided convertible debt
financing to, Molecular Innovations. In addition, we have the right to designate
a representative to the Molecular Innovations board of directors.
INTELLECTUAL PROPERTY
Our ability to compete effectively will depend in part upon our ability to
develop and maintain the proprietary aspects of our technology and to operate
without infringing the proprietary rights of others. We hold two United States
patents which expire in 2009 relating to our ON-SITE Alcohol product and are
currently pursuing two pending patent applications. We cannot be certain that
our pending patent applications will result in the issuance of any patents. Even
if any patents are issued, they may not adequately protect our intellectual
property rights against competitors with similar technology. In addition, any
existing or future patents could be challenged, invalidated or circumvented, and
any right granted under the patents may not provide meaningful protection to us.
The failure of any patents to protect our technology would make it easier for
our competitors to offer similar products.
These products also incorporate reagent technologies owned by Roche. Roche
holds all of the intellectual property and other ownership rights of two of the
largest volume products we sell, TesTcup and TesTstik. Pursuant to development
and manufacturing agreements with Roche, we have the exclusive manufacturing
rights to the TesTstik product line until October 2002 and to TesTcup until
January 2003. If during the term of these agreements, or any renewals of these
agreements, an invention is made relating to TesTcup or TesTstik that results in
additional patentable rights to these products, all of those patentable rights
will belong to Roche. Roche may not aggressively protect its patents or licenses
on the products we manufacture. Roche's failure to protect its rights could
adversely affect our business.
We rely principally upon trade secrets, technical know-how and continuing
innovation to develop and maintain our competitive position, particularly with
respect to our membrane technologies. We generally enter into confidentiality
agreements with our employees and strategic partners, and attempt to control
access to and distribution of our confidential documentation and other
proprietary information. Notwithstanding these precautions, it may be possible
for a third party to copy or otherwise obtain and use our products, services or
technology without authorization, develop similar technology independently or
design around our and Roche's intellectual property. Accordingly, we may not be
able to protect our proprietary technology adequately, and our failure or
inability to do so could adversely affect our business. In addition, effective
copyright, trademark and trade secret protection may be unavailable or limited
in certain foreign countries. Moreover, litigation may be necessary in the
future to enforce either our or our strategic partners' intellectual property
rights, to protect their respective trade secrets or to determine the validity
and scope of proprietary rights of others, including its customers. Irrespective
of the validity or success of litigation, we would likely incur significant
costs and that litigation could divert management's efforts and other resources.
In addition, the litigation could result in the issuance of an injunction
against us, requiring us or our strategic partners to withdraw certain products
from the market, redesign certain products currently offered for sale or under
development, or require them to obtain licenses, which
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may not be available on reasonable terms, or at all. Any of the foregoing could
adversely affect our business. See "Risk Factors -- We May Not Be Able to
Adequately Protect or Enforce Our Intellectual Property Rights."
GOVERNMENT REGULATION
FDA MARKET CLEARANCE AND APPROVAL. The testing, manufacture and sale of our
products are subject to regulation by numerous governmental authorities,
principally the FDA and corresponding state and foreign regulatory agencies.
Under the Federal Food, Drug, and Cosmetic Act and its regulations, the FDA
regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices. We may not commence clinical
testing, marketing, or commercial sales in the United States of new products
under development until they receive clearance or approval from the FDA. This
can be a lengthy, expensive and uncertain process. Noncompliance with applicable
requirements can result in, among other things: (1) warning letters; (2) fines;
(3) injunctions; (4) civil penalties; (5) recall or seizure of products; (6)
total or partial suspension of production; (7) failure of the government to
grant premarket clearance or premarket approval for devices; (8) withdrawal of
marketing clearances or approvals; and (9) criminal prosecution. The FDA also
has the authority to request recall, repair, replacement or refund of the cost
of any device manufactured or distributed by us.
In the United States, medical devices are classified into one of three
classes (i.e., Class I, II or III) on the basis of the controls deemed necessary
by the FDA to reasonably ensure their safety and effectiveness. Class I devices
are subject to certain general controls, such as labeling and adherence to the
Quality Systems Regulation. Most Class I devices are exempt from market
clearance requirements, but some Class I devices still require a stock premarket
notification. Class II devices are subject to general controls (including
premarket notification for non-exempt Class II devices) and special controls
(e.g., performance standards, postmarket surveillance, patient registries and
FDA guidelines). Generally, Class III devices are those which must receive
premarket approval by the FDA to ensure their safety and effectiveness. Class
III devices include, for example: (1) life-sustaining, life-supporting and
implantable devices; (2) devices that present a potentially high risk of
illness; or (3) new devices which have been found not to be substantially
equivalent to legally marketed devices.
Unless a device is exempt from premarket notification the manufacturer must
generally obtain FDA clearance or approval through either clearance of a 510(k)
notification or approval of a premarket approval application before the device
can be introduced in the market. A premarket approval application must be filed
if a proposed device is a new device not substantially equivalent to a legally
marketed device, is a classified Class III device or is a preamendment Class III
device for which the FDA has called for premarket approvals. A premarket
approval application must be supported by valid scientific evidence to
demonstrate the safety and effectiveness of the device. This evidence typically
includes the results of clinical investigations, bench tests, laboratory and
animal studies. The premarket approval application must also contain a complete
description of the device and its components and a detailed description of the
methods, facilities and controls used to manufacture the device. In addition,
the submission must include the proposed labeling, advertising literature and,
often, training materials. The pre-market approval process can be expensive,
uncertain and lengthy. A number of devices for which FDA approval has been
sought by other companies have never been approved for marketing.
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Upon receipt of a premarket approval application, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit a
substantive review. If the FDA determines that the premarket approval
application is complete, the FDA will accept the application for filing. Once
the submission is accepted, the FDA begins an in-depth review of the premarket
approval application. The FDA review generally takes one to three years from the
date the application is accepted, but may take significantly longer. The review
time is often significantly extended because the FDA requests more information
or clarification of information already provided in the submission. During the
review period, an advisory committee, typically a panel of experts, usually is
convened to review and evaluate the application. The advisory panel provides
recommendations to the FDA as to whether the device should be approved. The FDA
is not bound by the recommendation of the advisory panel, but the agency usually
follows the panel's recommendations. Toward the end of the premarket approval
review process, the FDA generally will conduct an inspection of the
manufacturer's facilities and manufacturing processes and controls to ensure
that they are in compliance with applicable requirements under the Quality
System Regulation and that they are in conformance with those described in the
premarket approval application. If FDA evaluations of both the pre-market
approval application and the manufacturing facilities and practices are
favorable, the FDA may issue either an approval letter or an approvable letter.
An approvable letter usually contains a number of conditions that must be met in
order to secure final approval of the application. When and if those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue an
approval letter, authorizing commercial marketing of the device for certain
indications. The approval letter also contains requirements that the company
must continue to meet as conditions of approval. If the FDA's evaluation of the
premarket approval application or manufacturing facilities is not favorable, the
FDA will deny approval of the application or issue a non-approvable letter.
Among other things, the FDA may determine that additional clinical
investigations are necessary, in which case the approval may be delayed for one
or more years while additional clinical investigations are conducted and
submitted in an amendment to the pre-market approval application. Modifications
to a device that is the subject of an approved premarket approval application,
or to that device's labeling or manufacturing processes, may require approval by
the FDA of application supplements or new applications. Supplements to an
approved application often require the submission of the same or similar types
of information required for an initial premarket approval application, except
that the supplement is generally limited to that information needed to support
the proposed change from the product covered by the original application.
A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is "substantially equivalent" to a legally marketed
Class I or Class II medical device or a preamendments Class III medical device
for which the FDA has not called for premarket approval. The FDA recently has
been requiring more rigorous demonstration of substantial equivalence than in
the past, including in some cases requiring submission of clinical data. It
generally takes from three to 12 months from submission to obtain 510(k)
premarket clearance, but it may take longer. The FDA may determine that a
proposed device is not substantially equivalent to a legally marketed device or
that additional information is needed before a substantial equivalence
determination can be made. A "not substantially equivalent" determination, or a
request for additional information, could prevent or delay the market
introduction of new products that fall into this category. For any devices that
are cleared through the 510(k) process, modifications or enhancements that (1)
could significantly affect safety or effectiveness, or (2) constitute a major
change in the intended use of the device will require new 510(k) submissions.
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We are uncertain of the regulatory path to market that the FDA will
ultimately apply to our products currently in development. TOXI-LAB, SPEC and
ON-SITE Alcohol received 510(k) clearance. TesTcup and TesTstik received 510(k)
clearance through Roche. We cannot be certain, however that the FDA will not
require us to adhere to the more costly, lengthy and uncertain premarket
approval process for any of our products in development.
We may not be able to obtain necessary regulatory approvals or clearances
for our products on a timely basis, if at all. Our business could be materially
and adversely affected by, for example: (1) delays in receipt of or failure to
receive such approvals or clearances; (2) the loss of previously received
approvals or clearances; (3) limitations on intended use imposed as a condition
of such approvals or clearances; or (4) failure to comply with existing or
future regulatory requirements.
CLINICAL STUDIES. The FDA requires manufacturers to submit the results of
clinical studies of medical devices in humans for most premarket approval
applications and many 510(k) premarket notifications. Many of our products are
in vitro diagnostic products and, for in vitro diagnostic products, the FDA
usually requires testing using specimens taken from humans. This testing may be
classified as a clinical study.
A clinical study in support of a 510(k) premarket notification or a
premarket approval application must follow the FDA's Investigational Device
Exemption regulation unless the study is exempted from the requirements of the
regulation. This regulation provides that, if the study is classified as a
"significant risk" investigation, the FDA must approve an Investigational Device
Exemption application before the study can begin. Significant risk studies are:
(1) those that study devices which present a potential for serious risk to the
health, safety, or welfare of a patient; (2) studies in which the device is used
to support or sustain life; or (3) studies in which the device is of substantial
importance in diagnosing or treating disease or preventing impairment of human
health. If an Investigational Device Exemption application is required, it must
be supported by appropriate data, such as animal testing data and laboratory
testing results.
A significant risk clinical study may begin if the FDA approves an
Investigational Device Exemption application and an appropriate Institutional
Review Board approves the study at each clinical site. An Institutional Review
Board is a committee composed of medical professionals and members of the
community. It is charged with protecting the welfare of human subjects.
If the study is not a significant risk study, the study may begin after the
Institutional Review Board has approved it, without the need for FDA approval.
However, the study still must be conducted under the FDA's Investigational
Device Exemption rules. The rules include recordkeeping and reporting
requirements for the clinical investigator and the company sponsoring the study.
The rules also include a requirement to obtain the informed consent of study
subjects and other requirements designed to protect the integrity of the data
and the health and welfare of patients.
The Investigational Device Exemption regulations prohibit the commercial
sale of investigational devices. The investigational devices may be delivered
only to qualified clinical investigators. However, during a clinical study, a
company is permitted to sell the products used in the study to the investigators
for an amount that does not exceed the costs of research, development,
manufacture and handling.
Clinical investigations of in vitro diagnostic products are exempt from the
FDA's Investigational Device Exemption regulations, including the need to obtain
the FDA's prior
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approval and the regulation's provisions against commercialization, provided the
testing meets the following criteria:
- the testing is non-invasive;
- the specimen is collected without the need for an invasive procedure that
would present a significant risk;
- the testing does not introduce energy into the subject; and
- if the test product is used as a diagnostic device, there is confirmation
of any diagnosis by another medically established procedure.
Products that meet this exemption from the Investigational Device Exemption
regulations may be either in the laboratory phase of development, i.e., they are
not used on humans, or they may be for the testing of specimens taken from
humans prior to full commercial marketing. Products in the laboratory stage of
testing must be labeled, "For research use only. Not for use in diagnostic
procedures," when they are shipped. Products for human use must be labeled, "For
investigational use only. The performance characteristics of this product have
not been established." The FDA has developed detailed guidelines about how to
comply with the "Research Use Only" and "Investigational Use Only" requirements.
The guidelines include requirements for distribution controls and certifications
from customers to assure that tests distributed for research or clinical
investigation are used only for those purposes.
We and/or our strategic partners intend to conduct clinical investigations
of products under development that will include distribution of the products as
"Investigational Use Only" under the exemption described above. There can be no
assurance that the FDA would agree that our "Investigational Use Only"
distribution of our in vitro diagnostic products under development will meet the
requirements of the exemption. The FDA recently has issued new guidelines in
this area. These guidelines describe, among other things, the FDA's intent to
exercise heightened enforcement with respect to "Investigational Use Only" and
"Research Use Only" in vitro diagnostic devices that the FDA believes are
improperly commercialized prior to receipt of FDA clearance or approval. There
can be no assurance that the FDA will believe we meet the new guidelines.
Failure by us or the recipients of our products under development to maintain
compliance with the requirements for the exemption could result in enforcement
action by the FDA. This could include, among other things, the possibility that
the FDA could require us to comply with the full Investigational Device
Exemption regulations or that the FDA could impose other restrictions on our
distribution of our products under development. This would adversely affect our
ability to conduct the clinical investigations necessary to support market
clearance or approval and could increase the costs of product development
substantially.
A failure to adhere to regulatory requirements generally applicable to
clinical studies or to any conditions of a required Investigational Device
Exemption approval could result in a material adverse effect on us, including
the possible refusal of the FDA to grant market clearance or approval for our
products. We cannot be certain that any clinical study we propose will meet the
FDA's guidelines or be approved by the FDA, if FDA approval is necessary. There
can be no assurance that any clinical study we propose will be completed or, if
completed, will provide data and information that will support premarket
approval or 510(k) notification clearance.
QUALITY SYSTEM REGULATION AND MEDICAL DEVICE REPORTING (MDR). Any devices
we manufacture or distribute pursuant to FDA clearance or approvals are subject
to pervasive and continuing regulation by FDA and certain state agencies.
Manufacturers of medical
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devices for marketing in the United States are required to adhere to applicable
regulations setting forth detailed Quality Systems Regulations. These
regulations include detailed requirements for testing, quality control, product
labeling, process and procedure documentation, and design controls.
We also must comply with the FDA's Medical Device Reporting requirements
for our commercially sold products. The Medical Device Reporting regulations
require us to report to the FDA any information we receive that reasonably
suggests one of our medical device products may have caused or contributed to a
death or serious injury. We also must report to the FDA any information that
reasonably suggests one of our medical device products malfunctioned if the
malfunction would be likely to cause or contribute to a death or serious injury
if it were to recur. Medical Device Reporting information sent to the FDA is
used by the agency to make regulatory and investigational decisions. It also is
available to the public under the Freedom of Information Act.
We are subject to routine inspection by the FDA and certain state agencies
for compliance with Quality Systems Regulations requirements, MDR requirements
and other applicable regulations. We may incur significant costs to comply with
laws and regulations in the future. Changes in existing laws and regulations or
adoption of new laws and regulations could adversely affect our business.
THE CLINICAL LABORATORY IMPROVEMENT AMENDMENTS OF 1988 AND RELATED
REGULATIONS. The use of our products is also affected by the Clinical Laboratory
Improvement Amendments of 1988 (CLIA) and related federal and state regulations
which provide for regulation of laboratory testing. The scope of these
regulations includes quality control, proficiency testing, personnel standards
and federal inspections. CLIA categorizes tests as "waived," "moderately
complex" or "highly complex" on the basis of specific criteria. Any future
amendment of CLIA or the promulgation of additional regulations impacting
laboratory testing may adversely affect our business.
OTHER REGULATIONS. We also are subject to numerous other federal, state and
local laws relating to matters such as: (1) safe working conditions; (2)
manufacturing practices; (3) environmental protection; (4) fire hazard control;
and (5) disposal of hazardous or potentially hazardous substances. We may incur
significant costs to comply with these laws and regulations in the future.
EMPLOYEES
As of January 31, 1999, we had 241 full-time employees, including ten
employees engaged in research and development, 11 engaged in sales and
marketing, 205 engaged in manufacturing operations and 15 engaged in general and
administrative activities. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work stoppage. We believe
our employee relations are good.
FACILITIES
Our administrative, engineering and manufacturing facilities are located in
an 84,000 square foot facility in Lake Forest, California. We believe our
existing facility will be sufficient for our needs for the foreseeable future.
We have a fixed-price option to purchase this facility in February 2000 for $5.6
million.
LEGAL PROCEEDINGS
We are not involved in any material litigation and are not aware of any
claims which would give rise to material liability.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides certain information with respect to our
executive officers and directors as of January 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ---------------------------------------
<S> <C> <C>
Stephen K. Schultheis.......... 53 Chairman of the Board, President and
Chief Executive Officer
Steven P. Sidwell.............. 58 Executive Vice President -- Operations
Dennis D. Blevins, Ph.D. ...... 45 Vice President -- Research and
Development
Suzanne M. David............... 32 Chief Financial Officer and Secretary
Darrell J. Adams............... 50 Vice President -- Technical Support
Wilford C. Downs............... 47 Vice President of Operations --
Laboratory Products
Jeffrey G. Uding............... 44 Director of Operations -- On-Site
Products
Ronald J. Hall(1)(2)........... 58 Director
George D. Holmes(1)(2)......... 67 Director
John M. Morris(2).............. 50 Director
C. Michael O'Donnell, Ph.D..... 59 Director
William C. Shepherd............ 60 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
STEPHEN K. SCHULTHEIS has served as our President and Chief Executive
Officer since 1995, and Chairman of the Board since April 1998. Mr. Schultheis
joined ANSYS in 1990 as Director of Research and Development. He was promoted to
Vice President -- Research and Development in 1992 and promoted to Chief
Operating Officer in 1994. From 1986 to 1990, Mr. Schultheis was a professional
Consulting Engineer designing and developing products for various medical
diagnostic and commercial companies. From 1979 to 1986, he was Vice
President -- Engineering and Operations for Orangematic, Inc., a manufacturer of
food processing equipment. From 1974 to 1979, Mr. Schultheis was Vice
President -- Research and Development of Bennett Industries, a manufacturer of
commercial plastic products. From 1968 to 1973, he was a research engineer with
the United States Naval Undersea Center, engaged in weapons development. Mr.
Schultheis currently serves on the Board of Directors of Molecular Innovations,
Inc. Mr. Schultheis received a B.S. from California State University at San Jose
in 1968, and a M.S. in Mechanical Engineering from the University of Southern
California in 1972.
STEVEN P. SIDWELL has served as our Executive Vice President -- Operations
since 1998. From 1990 to 1998, Mr. Sidwell held a variety of positions with
Sensormedics Corporation, which is engaged in pulmonary function, exercise,
nutrition and metabolic function diagnosis, most recently as its Executive Vice
President of Operations. Prior to joining Sensormedics, Mr. Sidwell served as
President of National Service Concepts, a consumer electronics production
company, from 1988 to 1989. Mr. Sidwell received a B.S. in Chemical Engineering
from Purdue University in 1964 and a M.B.A. from the University of Pennsylvania
in 1968. Mr. Sidwell also serves on the board of directors of IOMED, Inc., a
publicly traded drug delivery company.
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DENNIS D. BLEVINS, PH.D. has served as our Vice President -- Research and
Development since 1997. Dr. Blevins joined ANSYS in 1992, and served as Senior
Scientist from 1992 to 1994. From 1994 to 1996, Dr. Blevins served as SPEC
Division Manager. From 1996 to 1997 he served as Director of Research and
Development. From 1990 to 1992, Dr. Blevins was employed by S-CUBED, the
environmental laboratory division of Maxwell Laboratories. Prior to 1990, Dr.
Blevins held a number of research and development positions for laboratory
products and pharmaceutical companies. Dr. Blevins received a Ph.D. in
Analytical Chemistry in 1982 from the University of Arizona.
SUZANNE M. DAVID has served as our Chief Financial Officer and Secretary
since July 1998. Ms. David joined ANSYS in March 1996 as Controller. From 1991
to 1996, Ms. David served as the Accounting Manager for Corona Clipper, a
manufacturer of garden products where she was responsible for the preparation of
all financial reporting documents. Prior to 1991, Ms. David held a number of
finance positions with various manufacturing companies. Ms. David received a
B.A. in Business Administration from California State University Fullerton in
1992.
DARRELL J. ADAMS has served as our Vice President -- Technical Support
since 1988. Mr. Adams joined ANSYS in 1976 as a Technical Representative. From
1977 to 1981, Mr. Adams worked as Chief Technologist and Supervisor and
developed ANSYS' reanalysis and technical consultation services. From 1981 to
1988 Mr. Adams worked as Director of Technical Support. Mr. Adams received a
B.S. in Microbiology from Idaho State University in 1973.
WILFORD C. DOWNS has served as our Vice President of
Operations -- Laboratory Products since 1988. From 1981 to 1988, Mr. Downs was
Manufacturing and Distribution Manager for Marion Laboratories, Inc., a
pharmaceutical company. From 1974 to 1981, Mr. Downs served as Production
Manager for Analytical Systems, Inc., a manufacturer of diagnostic products. Mr.
Downs received a B.S. in Business Administration from the University of La
Verne, California in 1987.
JEFFREY G. UDING has served as our Director of Operations -- On-Site
Products since July 1997. Mr. Uding joined ANSYS in March 1996 as Manager of
On-Site Products. Prior to joining ANSYS, Mr. Uding held management positions
for Pacesetter Systems, a division of St. Jude Medical, and was Group Manager at
Mallinckrodt Medical (formerly Sorin Biomedical). Prior to that, Mr. Uding was
employed at Baxter Healthcare for approximately 12 years, holding positions in
manufacturing and research and development for medical, respiratory, parenterals
and kidney dialysis products. Mr. Uding received a B.S. from Roosevelt
University in Chicago in 1983. He received a M.S. in Management from University
of LaVerne, California in 1988 and a M.B.A. from Pepperdine University in 1991.
RONALD J. HALL has served as a director of ANSYS since 1991. Since 1990,
Mr. Hall has also been the Managing General Partner of Hall Capital Management,
the General Partner of Hall, Morris & Drufva II, L.P., an institutional venture
capital fund. From 1986 to 1990, Mr. Hall was Senior Vice President of First
Interstate Venture Capital Corporation, the venture capital subsidiary of First
Interstate Bank. From 1973 to 1983, Mr. Hall was also a General Partner of
Weiss, Peck & Greer, a New York and San Francisco-based venture capital and
money management firm. Mr. Hall is a director of Encad, Inc., a publicly-traded
manufacturer of wide format color ink-jet printers. He is also a director of six
privately held companies which are part of the Hall, Morris & Drufva II, L.P.
portfolio.
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GEORGE D. HOLMES has served as a director of ANSYS since 1988. Mr. Holmes
is a retired medical industry executive with 22 years of medical systems
management experience. From 1987 to 1996, Mr. Holmes was Chief Executive Officer
of Sensormedics. From 1984 to 1985, Mr. Holmes was Executive Vice President of
ADAC Laboratories, a manufacturer in nuclear medicine diagnostic systems. From
1980 to 1984, Mr. Holmes served as the President of Squibb Vitatek, Inc., a
manufacturer of portable patient monitoring systems. Mr. Holmes also served as
the Chairman of the St. Joseph Hospital Foundation and a director of the Oregon
State March of Dimes. He was also Chairman of the Advisory Board of the
University of Southern California School of Medicine, Department of Physical
Therapy and Biokinesiology. He is currently a director of the American Pulmonary
Medicine Institute.
JOHN M. MORRIS has served as a director of ANSYS since 1988. Mr. Morris has
been a Managing Director in the Corporate Finance Department of Sutro & Co.
Incorporated since 1996. From 1995 to 1996, Mr. Morris was a Managing Director
in the Investment Banking Department of Wedbush Morgan Securities. From 1992 to
1995, Mr. Morris was a Principal at NewCap Partners, a private investment bank.
From 1988 to 1992, he was a partner in Hall, Morris and Drufva Capital
Management, the successor to First Interstate Venture Capital Corporation. From
1984 to 1988, Mr. Morris served in various investment banking capacities with
PaineWebber, Inc. and with Wedbush Morgan Securities. Mr. Morris is a founding
director of the Forum of Corporate Directors in Orange County and served as its
President in 1994.
C. MICHAEL O'DONNELL, PH.D. has served as a director of ANSYS since 1988.
Since 1996, Dr. O'Donnell has been President and Chief Executive Officer of EMS,
Inc., a manufacturer of electronic monitoring devices for parole and probation.
Prior to joining EMS, Dr. O'Donnell served in various capacities with ANSYS,
most recently as our Chairman of the Board, from 1994 to 1998. Prior to that he
served as President and Chief Executive Officer from 1988 to 1994, and served as
our Operations Manager from 1984 to 1988. During 1984, Dr. O'Donnell was a
private consultant. From 1982 to 1984, Dr. O'Donnell was President and Chief
Executive Officer of Clinetics Corporation, a manufacturer of immunodiagnostic
reagents.
WILLIAM C. SHEPHERD became a director of ANSYS in 1999. Mr. Shepherd was
previously Chairman of the Board of Allergan, Inc., a leading provider of eye
care and specialty pharmaceutical products throughout the world, from January 1,
1996 to January 1, 1998, and currently serves on Allergan's board of directors.
He was President and Chief Executive Officer of Allergan from 1992 to 1996, and
prior to that, served as the President and Chief Operating Officer of Allergan
from 1984 to 1991.
There are no family relationships among any of our directors or executive
officers. All directors hold office until the next annual meeting of the
stockholders and until their successors have been elected and qualified or until
their earlier resignation or removal. Executive officers are appointed to serve
at the discretion of the Board of Directors.
COMMITTEES OF THE BOARD
The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee consists of Ronald
J. Hall and George D. Holmes. The Audit Committee recommends the appointment of
independent public accountants for the annual audit of our financial statements
to the Board of Directors. The Audit Committee reviews the scope of the annual
audit and other
53
<PAGE> 55
services the auditors are asked to perform. This committee also reviews the
report on our financial statements prepared by the auditors following the audit,
and our accounting and financial policies in general. The Audit Committee also
reviews management's procedures and policies with respect to our internal
accounting controls.
The Compensation Committee consists of Ronald J. Hall, George D. Holmes and
John M. Morris. The Compensation Committee reviews and approves salaries,
benefits and bonuses for all executive officers. It reviews and recommends to
the Board of Directors on matters relating to employee compensation and benefit
plans. The Compensation Committee also administers our 1990 Stock Option Plan
and the 1997 Stock Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Board of Directors or
Compensation Committee and the board of directors of any other company.
DIRECTOR COMPENSATION
We currently pay our nonemployee directors $1,000 per board meeting
attended and reimburse out-of-pocket expenses incurred by our directors in
connection with attendance of board and committee meetings.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
We do not currently have any employment contracts with any of our executive
officers. Accordingly, the Board of Directors may terminate the employment of
any executive officer at any time in its discretion. We provide incentives such
as salary, benefits and option grants (which are typically subject to a three to
five year vesting schedule) to attract and retain executive officers and other
key employees. The Compensation Committee has the authority to provide for an
accelerated vesting of any outstanding options if an individual's employment is
terminated following an acquisition or certain hostile changes in control of
ANSYS.
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<PAGE> 56
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION. The following table summarizes the
compensation earned by, and paid to, our Chief Executive Officer and our four
most highly compensated executive officers, other than the Chief Executive
Officer, who received compensation in excess of $100,000 for the year ended
December 31, 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
------------------------------------- SHARES OF
OTHER ANNUAL COMMON STOCK
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION(2) UNDERLYING OPTIONS(#)
- --------------------------------- --------- ------- --------------- ---------------------
<S> <C> <C> <C> <C>
Stephen K. Schultheis............ $180,909 $51,923 $4,609 60,000
Chairman, President and Chief
Executive Officer
Dennis D. Blevins, Ph.D.......... 92,259 21,037 2,580 --
Vice President -- Research and
Development
Darrell J. Adams................. 92,683 21,218 3,449 --
Vice President -- Technical
Support
Wilford C. Downs................. 88,470 20,254 840 --
Vice President of Operations --
Laboratory Products
Jeffrey G. Uding................. 89,690 19,846 2,714 --
Director of
Operations -- On-Site
Products
</TABLE>
- -------------------------
(1) We provide our officers with certain non-cash group life and health benefits
generally available to all salaried employees. These benefits are not
included in the above table pursuant to applicable Securities and Exchange
Commission rules. No Named Executive Officer received aggregate personal
benefits or perquisites that exceed the lesser of $50,000 or 10% of his
total annual salary and bonus.
(2) Represents our matching contribution under our 401(k) Plan to the respective
accounts of the Named Executive Officers.
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<PAGE> 57
STOCK OPTION GRANTS. The following table sets forth certain information
regarding options granted to the Named Executive Officers during 1998. We have
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS MARKET
UNDERLYING GRANTED TO EXERCISE PRICE ON
OPTIONS EMPLOYEES IN PRICE PER DATE OF EXPIRATION
NAME GRANTED(#)(2) 1998(3) SHARE GRANT DATE
- -------------------------- ------------- ------------ --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Stephen K. Schultheis..... 60,000 34.2% $3.83 $4.74 04/08/08
Dennis D. Blevins,
Ph.D. .................. -- -- -- -- --
Darrell J. Adams.......... -- -- -- -- --
Wilford C. Downs.......... -- -- -- -- --
Jeffrey G. Uding.......... -- -- -- -- --
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM($)(1)
--------------------------------------
NAME 0% 5% 10%
- -------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Stephen K. Schultheis..... $54,600 $233,458 $507,860
Dennis D. Blevins,
Ph.D. .................. -- -- --
Darrell J. Adams.......... -- -- --
Wilford C. Downs.......... -- -- --
Jeffrey G. Uding.......... -- -- --
</TABLE>
- -------------------------
(1) The potential realizable value is calculated by assuming that (a) the stock
option price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire ten year term of the options, and (b) the
option is exercised and the underlying common stock sold on the last day of
its term for the appreciated stock price. The potential realizable value of
each option at 0% is based on the fair market value of the common stock on
the date of grant, $4.74 per share, minus the exercise price times the
number of shares underlying the option. The potential realizable value of
each option at 5% and 10% are based on the term of the option at its time of
grant (ten years). Each is calculated by assuming that the stock price on
the date of the grant appreciates at 5% or 10%, as applicable, compounded
annually for the entire term of the option, and that the option is exercised
and sold on the last day of its term for the appreciated stock price. Actual
gains, if any, on stock option exercises will depend on the future
performance of the common stock and the date at which the options are
exercised.
(2) All options were granted under the 1997 Plan. Options granted in 1998 vest
over three years in 36 equal monthly installments.
(3) Based on an aggregate of 175,200 options granted to employees in 1998,
including the Named Executive Officers.
YEAR-END OPTION HOLDINGS. The following table sets forth certain aggregated
option information for the Named Executive Officers for the year ended December
31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS(#) OPTIONS(2)
--------------------------- ---------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen K. Schultheis......................... 351,600 76,800 $3,616,800 $633,400
Dennis D. Blevins, Ph.D. ..................... 44,000 4,000 $ 464,971 $ 39,729
Darrell J. Adams.............................. -- -- -- --
Wilford C. Downs.............................. -- -- -- --
Jeffrey G. Uding.............................. 17,600 18,400 $ 175,071 $183,129
</TABLE>
- -------------------------
(1) No options were exercised by the above Named Executive Officers during the
fiscal year ended December 31, 1998.
(2) The value of unexercised options represents the difference between the
exercise price of the options and an assumed initial public offering price
of $11.00 per share.
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<PAGE> 58
STOCK OPTION PLANS
1990 STOCK OPTION PLAN. Our Stock Option Plan for Employees was adopted by
the Board of Directors and approved by the stockholders on October 10, 1990. A
total of 780,000 shares of common stock have been authorized for issuance under
the 1990 Plan. As of January 31, 1999, options for 639,780 shares were
outstanding under the 1990 Plan, and no shares remained available for future
option grant.
Option grants under the 1990 Plan are made at the discretion of the plan
administrator. Eligible individuals (including officers and directors), in the
case of nonqualified stock options, may be granted options to purchase shares of
common stock at an exercise price not less than 85% of the fair market value of
the common stock, determined by the plan administrator on the grant date. Option
grants have a maximum term of ten years, subject to earlier termination if the
optionee's service with us ends.
The Compensation Committee administers the 1990 Plan. This committee has
complete discretion, within the scope of its administrative jurisdiction, to
determine: (1) which eligible individuals are to receive option grants; (2) the
time or times when such option grants are to be made; (3) the number of shares
subject to each such grant; (4) the fair market value of the option at the date
it is granted provided that the common stock is not publicly traded; (5) the
exercise or vesting schedule to be in effect for the option grant; (6) the
maximum term for which any granted option is to remain outstanding; and (7) the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the Federal tax laws.
Optionees may pay the exercise price for their options in cash or with the
consent of the Compensation Committee, in shares of common stock. If the
exercise price is paid in shares of common stock, those shares are valued at
fair market value on the exercise date.
The plan administrator may cancel options outstanding under the 1990 Plan
in return for the grant of new options for the same or different number of
option shares. In that case, the exercise price per share is based on the fair
market value per share of common stock on the new grant date.
If we are acquired by merger or asset sale, each outstanding option under
the 1990 Plan not otherwise assumed by the successor company will immediately
vest. Such options will then be exercisable for all of the shares subject to
that option at the time, unless the option is assumed by the successor
corporation in the acquisition.
The Board of Directors may amend, modify or terminate the 1990 Plan at any
time. The 1990 Plan will terminate on October 11, 2000, unless sooner terminated
by the Board. No options may be granted under the 1990 Plan after it is
terminated.
1997 STOCK INCENTIVE PLAN. Our 1997 Stock Incentive Plan was adopted by the
Board of Directors and approved by the stockholders on January 23, 1998. A total
of 600,000 shares of common stock have been authorized for issuance under the
1997 Plan, and as of January 31, 1999 that 332,400 option shares remained
available for grant under the 1997 Plan.
The 1997 Plan is divided into two separate components: the Option Grant
Program and the Stock Issuance Program. Under the Option Grant Program, eligible
individuals (including officers, non-employee Board members and consultants) may
be granted options to purchase shares of common stock at an exercise price not
less than 100% of their fair
57
<PAGE> 59
market value on the grant date as determined by the plan administrator. Under
the Stock Issuance Program, these individuals may be issued shares of common
stock directly. The individual may purchase the shares at a price not less than
100% of their fair market value at the time of issuance; however, the purchase
price per share issued to a 10% stockholder may not be less than 110% of the
fair market value of the underlying common stock. Shares of common stock may
also be granted as a bonus tied to the performance of services.
The Compensation Committee administers the 1997 Plan. The plan
administrator has complete discretion to determine: (1) which eligible
individuals are to receive option grants or stock issuances under those
programs; (2) the time or times when such option grants or stock issuances are
to be made; (3) the number of shares subject to each such grant or issuance; (4)
the fair market value of the option at the date it is granted provided that the
common stock is not publicly traded; (5) the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws; (6) the vesting schedule to be in effect for the option grant
or stock issuance; and (7) the maximum term for which any granted option is to
remain outstanding.
Optionees may pay the exercise price for their options in cash or in shares
of common stock. If the exercise price is paid in shares of common stock, those
shares are valued at fair market value on the exercise date.
Once the common stock subject to the 1997 Plan has been registered under
Section 12 of the Securities Exchange Act of 1934, as amended, the options may
also be exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the plan administrator may provide financial assistance
to one or more optionees in the exercise of their outstanding options or the
purchase of their unvested shares. The plan administrator may allow these
optionees to deliver a full-recourse, interest-bearing promissory note in
payment of the exercise price. The note would also cover any associated
withholding taxes incurred in connection with such exercise or purchase.
If we are acquired by merger or asset sale, options outstanding under the
Option Grant Program which are not to be assumed by the successor corporation or
otherwise continued will automatically accelerate. All unvested shares under the
Option Grant and Stock Issuance Programs will immediately vest, unless our
repurchase rights with respect to those shares will be assigned to the successor
corporation. The plan administrator may grant options under the Option Grant
Program which accelerate upon an acquisition of ANSYS, whether or not those
options are assumed or continued. The plan administrator may also grant options
which accelerate if the optionee's service terminates within the 18 months
following an acquisition in which (1) those options are assumed or otherwise
continued and (2) the applicable repurchase rights do not terminate. The vesting
of outstanding shares under the Stock Issuance Program may be accelerated on
similar terms and conditions.
The Board of Directors may amend or modify the 1997 Plan at any time.
However, certain amendments to the 1997 Plan may require shareholder approval.
The 1997 Plan will terminate on the earliest of: (1) January 22, 2008; (2) the
date on which all shares available for issuance under the 1997 Plan have been
issued as fully-vested shares; or (3) the termination of all outstanding options
in connection with an acquisition of ANSYS.
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<PAGE> 60
OTHER OPTIONS. In December 1996, Stephen K. Schultheis, our Chairman,
President and Chief Executive Officer, was granted options to purchase 90,000
shares of common stock at an exercise price of $1.07 per share. These options
were nonqualified stock options and were not granted pursuant to the 1990 Plan
or the 1997 Plan.
401(k) PLAN
We have an employee savings and retirement plan that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
The 401(k) Plan allows eligible employees to defer up to 15% of their pre-tax
earnings, subject to the Internal Revenue Service annual contribution limit
($10,000 in 1998). Eligible employees must be 20 1/2 years of age and have
worked at least 1,000 hours in a 12 consecutive month period. Employees may
first participate on the first day of the month following three months of
service.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in these
capacities, including liabilities under the Securities Act. Our bylaws provide
that we will indemnify our directors and officers to the fullest extent
permitted by law. The bylaws require ANSYS to advance litigation expenses, but
the director or officer must agree to repay such advances if he or she is not
entitled to indemnification. These rights do not exclude any other right such
persons may have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
Our certificate of incorporation provides that, pursuant to Delaware Law,
directors are not liable for money damages for breach of their fiduciary duty of
care to ANSYS and its stockholders. This provision does not eliminate the duty
of care. In certain circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware Law. In
addition, each director will still be subject to liability for (1) breach of the
duty of loyalty to ANSYS or its stockholders, (2) acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, (3)
actions leading to improper personal benefit to the director, and (4) payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware Law. The provision also does not affect a director's
responsibilities under any other law, such as the Federal securities laws or
state or federal environmental laws.
In addition to the indemnification provided for in our bylaws, we have
entered into agreements to indemnify our executive officers and all of our
directors. This indemnification includes indemnity for certain expenses,
including attorneys' fees. It also includes indemnity for judgments, fines and
settlement amounts incurred in any action or proceeding. The indemnification
includes: (1) actions by or for ANSYS; (2) actions on account of services as an
executive officer or a director of ANSYS; and (3) actions on account of services
as an officer or a director of another company or enterprise if the services
were provided at our request.
The Securities and Exchange Commission is of the opinion that
indemnification of directors, officers and persons controlling ANSYS for
violations of the Securities Act is against public policy as expressed in the
Securities Act and is therefore unenforceable.
We have also obtained directors' and officers' liability insurance for our
directors and executive officers.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of January 31, 1999
regarding the ownership of our common stock by: (a) each person who is known by
us to own more than 5% of such shares of common stock; (b) each Named Executive
Officer; (c) each of our directors; and (d) all of our directors and executive
officers as a group.
The number of shares beneficially owned and the percentage of shares
beneficially owned are based on (1) 5,516,512 shares of common stock outstanding
as of January 31, 1999, and (2) 8,016,512 shares of common stock outstanding
upon consummation of this offering. Beneficial ownership is determined in
accordance with the rules and regulations of the Securities and Exchange
Commission. Shares subject to options that are exercisable currently or within
60 days following January 31, 1999 are deemed to be outstanding and beneficially
owned by the optionee for the purpose of computing share and percentage
ownership of that optionee. They are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Except (1) as
indicated in the footnotes to this table, and (2) as affected by applicable
community property laws, all persons listed have sole and voting investment
power with for all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
--------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Ronald J. Hall(2)(3)....................... 3,808,844 69.0% 47.5%
Hall, Morris & Drufva II, L.P.(3).......... 3,616,620 65.6 45.1
C. Michael O'Donnell, Ph.D. ............... 509,808 9.2 6.4
Stephen K. Schultheis...................... 450,150(4) 7.7 5.4
Darrell J. Adams........................... 345,516 6.3 4.3
Wilford C. Downs........................... 345,516 6.3 4.3
George D. Holmes........................... 54,000(5) * *
Dennis D. Blevins, Ph.D. .................. 44,660(5) * *
Jeffrey G. Uding........................... 22,400(5) * *
John M. Morris(6).......................... -- * *
William C. Shepherd........................ -- * *
All executive officers and directors as a
group
(12 persons)(7).......................... 5,623,200 93.2 65.9
</TABLE>
- -------------------------
* Less than one percent.
(1) The address for each of Messrs. O'Donnell, Schultheis, Adams and Downs is
c/o ANSYS at 25200 Commercentre Drive, Lake Forest, California 92630.
(2) Includes (a) 3,616,620 shares of common stock held by Hall, Morris & Drufva
II, L.P. and (b) 192,224 shares of common stock held by Mr. Hall's IRA. Mr.
Hall is the Managing General Partner of Hall Capital Management, which is
the General Partner of Hall, Morris & Drufva II, L.P. Mr. Hall disclaims
beneficial ownership of all of the shares held by Hall, Morris & Drufva II,
L.P.
(3) The address for Hall, Morris & Drufva II, L.P. and Mr. Hall is 26161 La Paz
Road, Suite E, Mission Viejo, California 92691.
(4) Includes 356,550 shares of common stock issuable upon exercise of vested
stock options.
(5) Consists solely of shares of common stock issuable upon exercise of vested
stock options.
(6) Excludes the shares of common stock that Mr. Morris may have a right to
receive in the event of the dissolution of Hall, Morris & Drufva II, L.P.
See "Underwriting."
(7) Includes 519,916 shares of common stock issuable upon exercise of vested
stock options.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
The following summary of the capital stock of ANSYS and certain provisions
of our certificate of incorporation and bylaws does not purport to be complete.
It is qualified in its entirety by the provisions of the certificate and bylaws.
Copies of the certificate and bylaws have been filed as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
ANSYS is authorized to issue 30,000,000 shares of common stock. At December
31, 1998, 5,516,512 shares of common stock were deemed outstanding and held of
record by approximately 12 holders. Under the certificate and bylaws, holders of
common stock will not have cumulative voting rights after the common stock is
listed for trading on the Nasdaq National Market. Holders of shares representing
a majority of the voting power of common stock can elect all of the directors.
The holders of the remaining shares will not be able to elect any directors. The
shares of common stock offered pursuant to this offering, when issued, will be
fully paid and nonassessable and will not be subject to any redemption or
sinking fund provisions. Holders of common stock do not have any preemptive,
subscription or conversion rights.
Holders of common stock are entitled to receive those dividends the Board
declares, subject to the rights of preferred stockholders and the terms of any
existing or future agreements between ANSYS and its debtholders. Since its
inception, we have not declared or paid any cash dividends on our common stock.
We presently intend to retain future earnings, if any, for use in the operation
and expansion of our business. We do not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of ANSYS, common stockholders are entitled to share
ratably in all assets legally available for distribution (1) after payment of
all debts and other liabilities and (2) subject to the prior rights of any
holders of outstanding shares of preferred stock.
PREFERRED STOCK
Our certificate of incorporation authorizes 5,000,000 shares of preferred
stock. The preferred stock may be issued in series from time to time as the
Board of Directors determines. The Board of Directors determines the
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions of the preferred stock, unless they are fixed in
our certificate of incorporation. The characteristics of different series of
preferred stock may differ with respect to: (1) dividend rates; (2) amounts
payable on liquidation; (3) voting rights; (4) conversion rights; (5) redemption
provisions; (6) sinking fund provisions; and (7) other matters. The Board may
authorize preferred stock senior to the common stock with respect to dividends
and the distribution of assets on liquidation. The Board may also set
limitations and restrictions on payment of common stock dividends while any
shares of preferred stock are outstanding. No stockholder approval is required
for the Board to issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of common stock.
We believe that the ability to issue preferred stock without the expense
and delay of a special stockholders' meeting will provide us with increased
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs that might arise. This also permits the Board of
Directors to issue preferred stock containing terms which could impede the
completion of a takeover attempt, subject to certain
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<PAGE> 63
limitations imposed by the securities laws. The Board of Directors will make any
determination to issue such shares based on its judgment as to the best
interests of ANSYS and its stockholders at the time of issuance. This could
discourage an acquisition attempt or other transaction which stockholders might
believe to be in their best interests or in which they might receive a premium
for their stock over the then market price of the stock.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation and bylaws contain provisions that may
make it more difficult to acquire control of ANSYS by various means. These
provisions could deprive the stockholders of opportunities to realize a premium
on the shares of common stock owned by them. In addition, they may adversely
affect the prevailing market price of the stock. These provisions are intended
to: (1) enhance the likelihood of continuity and stability in the composition of
the Board and in the policies formulated by the Board; (2) discourage
transactions which may involve an actual or threatened change in control of
ANSYS; (3) discourage tactics that may be used in proxy fights; (4) encourage
persons seeking to acquire control of ANSYS to consult first with the Board to
negotiate the terms of any proposed business combination or offer; and (5)
reduce our vulnerability to an unsolicited proposal for a takeover that does not
contemplate the acquisition of all outstanding shares of ANSYS or that is
otherwise unfair to our stockholders.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL; FILLING VACANCIES AND
AMENDMENT. Our certificate of incorporation provides that the Board will consist
of between five and nine members, the exact number to be fixed from time to time
by resolution adopted by a majority of the directors then in office. Currently,
the number is set at six. The certificate and bylaws provide for the Board to be
divided into three classes of directors serving staggered, three-year terms. The
classification of the Board has the effect of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of members of the
Board. Subject to the rights of the holders of any outstanding series of
preferred stock, the certificate authorizes only the Board to fill vacancies,
including newly created directorships. Accordingly, this provision could prevent
a stockholder from obtaining majority representation on the Board by enlarging
the Board and filling the new directorships with its own nominees. The
certificate also provides that directors may be removed by stockholders only for
cause and only by the affirmative vote of holders of two-thirds of the
outstanding shares of voting stock.
SPECIAL STOCKHOLDER MEETINGS. The certificate of incorporation provides
that special meetings of the stockholders for any purpose or purposes, unless
required by law, shall be called by: (1) the President or Secretary pursuant to
a request in writing of the President; (2) a majority of the entire Board; or
(3) stockholders owning not less than 50% of the entire voting stock of ANSYS
then issued and outstanding. A special meeting may not be held absent such a
written request. The request shall state the purpose or purposes of the proposed
meeting. This limitation on the right of stockholders to call a special meeting
could make it more difficult for stockholders to initiate actions that are
opposed by the Board. These actions could include the removal of an incumbent
director or the election of a stockholder nominee as a director. They could also
include the implementation of a rule requiring stockholder ratification of
specific defensive strategies that have been adopted by the Board with respect
to unsolicited takeover bids. In addition, the limited ability of the
stockholders to call a special meeting of stockholders may make it more
difficult to change the existing board and management.
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<PAGE> 64
WRITTEN CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS. Our certificate of
incorporation prohibits the taking of stockholder action by written consent
without a meeting. These provisions will make it more difficult for stockholders
to take action opposed by the Board.
AMENDMENT OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION. Our
certificate of incorporation generally requires the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock in order to amend
any provisions of the certificate concerning: (1) the removal or appointment of
directors; (2) the authority of stockholders to act by written consent; (3) the
required vote to amend the certificate; (4) calling a special meeting of
stockholders; (5) procedure and content of stockholder proposals concerning
business to be conducted at a meeting of stockholders; and (6) director
nominations by stockholders. These voting requirements will make it more
difficult for minority stockholders to make changes in the certificate that
could be designed to facilitate the exercise of control over ANSYS. On the other
hand, the requirement for approval by at least a two-thirds stockholder vote
will enable minority stockholders to prevent the majority stockholders from
amending these provisions of the certificate. Following the completion of this
offering, our present directors and executive officers and their respective
affiliates will beneficially own approximately 65.9% of our common stock. This
gives them veto power with respect to any stockholder action or approval
requiring either a two-thirds vote or a simple majority.
REGISTRATION RIGHTS
Following this offering, the holders of approximately 5,498,112 shares of
common stock (the "Registrable Securities") will be entitled to certain rights
with respect to the registration of their shares under the Securities Act. If
ANSYS proposes to register securities under the Securities Act, either for its
own account or the account of other securityholders, it must give notice of the
registration to the holders of Registrable Securities. These holders are
entitled to include their Registrable Securities in the registration, subject to
certain marketing and other limitations. We generally must bear the expenses,
other than underwriting discounts and sales commissions, of these registrations.
We may in certain circumstances defer such registrations. The underwriters have
the right, subject to certain limitations, to limit the number of Registrable
Securities included in such registrations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation.
63
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, ANSYS will have 8,016,512 shares of common
stock outstanding (8,391,512 shares if the underwriter's over-allotment option
is exercised in full), assuming no exercise of options after January 31, 1999.
Of this amount, the 2,500,000 shares offered by this prospectus will be
available for immediate sale in the public market as of the date of this
prospectus. All of the remaining 5,516,512 shares are "restricted securities" as
that term is defined by Rule 144 of the Securities Act. Our directors, executive
officers and certain other stockholders who collectively hold an aggregate of
5,498,112 shares of common stock, together with ANSYS, have agreed pursuant to
the underwriting agreement and other agreements that they will not sell any
common stock without the prior written consent of Vector Securities
International, Inc. for a period of 180 days from the date of this prospectus
except that we may, without this consent, grant options and sell shares pursuant
to the 1997 Plan. Following the 180 day period, 332,764 shares of common stock
will be eligible for sale in the public market without restriction, including
shares eligible for sale under Rule 144(k). An additional 5,165,348 shares will
be eligible for sale under Rule 144, subject to certain volume, manner of sale
and other restrictions of Rule 144. In addition, 18,400 shares will be available
for sale in the public market 90 days following the date of this prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this prospectus a number of shares that does not exceed the greater
of (1) 1% of the then outstanding shares of common stock (approximately 80,165
shares immediately after this offering) or (2) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of ANSYS at any time
during the 90 days immediately preceding the sale and who has beneficially owned
his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after this offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
Any employee or consultant who purchased his or her shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of January 31, 1999, the holders of options to purchase
approximately 997,380 shares of common stock will be eligible to sell their
shares upon the expiration of the 180-day Lockup Period, subject in certain
cases to vesting of such options.
64
<PAGE> 66
We intend to file a registration statement on Form S-8 under the Securities
Act as soon as practicable after the completion of this offering to register
1,329,780 shares of common stock subject to outstanding stock options or
reserved for issuance under our 1990 Plan and our 1997 Plan. This registration
will permit the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act, upon completion of the 180-day
Lockup Period. Shares held by affiliates registered under such registration
statement will be subject to Rule 144 volume limitations. See "Management --
Executive Compensation" and "-- Stock Option Plans."
In addition, some stockholders have registration rights with respect to
5,498,112 shares of common stock. Registration of these securities would render
them freely tradeable without restriction under the Securities Act. See "Risk
Factors -- A Significant Number of Shares are Available for Sale and Their Sale
Could Depress Our Stock Price."
65
<PAGE> 67
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom Vector Securities International, Inc. and
Sutro & Co. Incorporated are acting as representatives, have severally agreed to
purchase and we have agreed to sell to the underwriters, the following
respective number of shares of common stock.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Vector Securities International, Inc...................
Sutro & Co. Incorporated...............................
---------
Total........................................ 2,500,000
=========
</TABLE>
John M. Morris, a director of ANSYS, is a Managing Director of Sutro & Co.
Incorporated, one of the representatives of the underwriters. Mr. Morris has an
equity interest in Hall, Morris & Drufva II, L.P. which, upon its liquidation
will result in Mr. Morris receiving approximately 125,000 of ANSYS common stock.
The underwriting agreement makes the obligations of the underwriters
subject to a number of conditions, including the absence of any material adverse
change in our business and the receipt of certificates, opinions and letters
from us, our counsel and our experts. If any of the shares are purchased, the
underwriters' must purchase all shares of common stock being offered. If any
underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the defaulting underwriters do not exceed 10% of the shares
offered, some or all of the remaining underwriters must assume the obligations
of the defaulting underwriters.
The underwriters propose to offer the shares of common stock directly to
the public at the offering price set forth on the cover page of this prospectus.
They propose to offer shares to certain dealers at that price less a concession
not in excess of $ per share. The underwriters may allow to certain dealers
and the dealers may reallow a concession not in excess of $ per share to
other dealers. After the initial public offering of the shares, the offering
price and other selling terms may be changed by the representatives of the
underwriters.
We have granted the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 375,000 additional
shares of common stock at the public offering price, less underwriting discounts
and commissions. The underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
Subject to a number of conditions, if this option is exercised, each underwriter
must purchase approximately the same percentage of over-allotment shares as the
number of shares set forth next to each underwriter's name in the preceding
table bears to the total number of shares listed in the table above. We must
sell these shares to the underwriters if the option is exercised.
The following table summarizes the compensation we will pay to the
underwriters:
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Total underwriting discounts and
commissions..................... $ $ $
</TABLE>
66
<PAGE> 68
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
this offering if the syndicate repurchases previously distributed common stock
in syndicated covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities, and may end any of these activities at any time.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make with respect to these liabilities.
The officers, directors and certain other of our stockholders have agreed
that they will not, without the prior consent of Vector Securities
International, Inc., offer, sell or otherwise dispose of: (1) any shares of
common stock; (2) options or warrants to acquire shares of common stock; or (3)
securities exchangeable for or convertible into shares of common stock owned by
them for a period of 180 days after the date of this prospectus. We have agreed
not to offer, sell or otherwise dispose of any of the above securities for a
period of 180 days after the date of this prospectus. See "Shares Eligible for
Future Sale."
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares of common
stock included in this offering will be determined by negotiations between us
and the representatives of the underwriters. Among the factors considered in
determining the price will be:
- the history of, and the prospects for, our business and the industry in
which we compete;
- an assessment of our management and the present state of our development;
- our past and present revenues and earnings;
- the prospects for growth of our revenues and earnings;
- the current state of the economy in the United States;
- the current level of economic activity in the industry in which we
compete and in related or comparable industries; and
- currently prevailing conditions in the securities markets, including
current market valuations of publicly traded companies that are
comparable to ANSYS.
We have applied to list our common stock on the Nasdaq National Market
under the symbol "ANSD."
67
<PAGE> 69
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for ANSYS by Brobeck, Phleger & Harrison LLP,
Irvine, California. Certain legal matters relating to this offering will be
passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois.
EXPERTS
The consolidated financial statements of ANSYS as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998,
included in this prospectus and the registration statement have been audited by
McGladrey & Pullen, LLP, independent auditors, as set forth in their report
appearing on page F-2 of this prospectus and in the registration statement. The
financial statements are included in reliance upon that report given upon the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
ANSYS has filed a registration statement on Form S-1 with the Securities
and Exchange Commission under the Securities Act with respect to the common
stock offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to ANSYS and the common
stock, please see the registration statement and the exhibits and schedules
filed with the registration statement. Statements contained in this prospectus
concerning the contents of any contract of other document referred to are not
necessarily complete. Please refer to the copy of such contract or other
document filed as an exhibit to the registration statement. Each such statement
is qualified in all respects by such reference. The registration statement,
including the exhibits and schedules thereto, may be inspected without charge at
the principal office of the Commission in Washington, D.C. Copies of all or any
part of the registration statement may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Such copies may also be inspected and copied
at the Commission's Regional Offices located at:
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and
- 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained at prescribed rates by mail from
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Securities and Exchange Commission
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants,
including ANSYS, that file electronically.
68
<PAGE> 70
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
ANSYS Diagnostics, Inc.
Lake Forest, California
We have audited the accompanying consolidated balance sheets of ANSYS
Diagnostics, Inc. and subsidiary as of December 31, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ANSYS
Diagnostics, Inc. and subsidiary as of December 31, 1997 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
The above form of auditor's report represents the form of report that
McGladrey & Pullen, LLP would be willing to issue assuming the consummation of
the reorganization as described in Note 1 had taken place. The reorganization is
expected to occur prior to the effective date of the Company's planned offering
of 2,500,000 shares of common stock.
McGladrey & Pullen, LLP
Anaheim, California
January 29, 1999
F-2
<PAGE> 72
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- DECEMBER 31, 1998
1997 1998 (NOTE 11)
---------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (Note 4)
Current Assets
Cash and cash equivalents......................... $1,515,000 $ 3,176,000 $ 916,000
Accounts receivable, less allowance for doubtful
accounts 1997 $20,000; 1998 $20,000 (Note 8)... 1,707,000 2,093,000 2,093,000
Income taxes receivable........................... -- 420,000 420,000
Inventories (Note 2).............................. 1,528,000 1,581,000 1,581,000
Prepaid expenses.................................. 99,000 40,000 40,000
Deferred income taxes (Note 7).................... 89,000 120,000 120,000
---------- ----------- ----------
Total current assets......................... 4,938,000 7,430,000 5,170,000
Equipment and Leasehold Improvements, net (Note
3)................................................ 1,567,000 4,199,000 4,199,000
Intangibles and Other Assets........................ 160,000 262,000 262,000
Deferred Income Taxes (Note 7)...................... 228,000 -- --
---------- ----------- ----------
Total assets................................. $6,893,000 $11,891,000 $9,631,000
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank line of credit (Note 4)...................... $ 733,000 $ -- $ --
Current maturities of long-term debt (Note 4)..... -- 224,000 224,000
Accounts payable.................................. 553,000 1,439,000 1,439,000
Accrued liabilities............................... 121,000 433,000 433,000
Accrued compensation.............................. 311,000 281,000 281,000
Income taxes payable.............................. 218,000 -- --
---------- ----------- ----------
Total current liabilities.................... 1,936,000 2,377,000 2,377,000
---------- ----------- ----------
Deferred Income Taxes (Note 7)...................... -- 180,000 180,000
---------- ----------- ----------
Long-term Debt, net of current maturities (Note
4)................................................ -- 1,670,000 1,670,000
---------- ----------- ----------
Commitments and Contingencies (Notes 6 and 8)
Stockholders' Equity (Notes 4, 5, 9 and 11)
Preferred stock, par value $.0001 per share;
5,000,000 shares authorized: 18,000 issued and
outstanding in 1997 and 1998, none outstanding
pro forma ($3,600,000 aggregate liquidation
preference including $1,800,000 of undeclared
cumulative dividends at December 31, 1998
amounting to $100 per share)................... -- -- --
Common stock, par value $.0001 per share;
30,000,000 shares authorized: issued and
outstanding 1,880,784 shares in 1997; 1,875,184
shares in 1998; 5,516,512 shares pro forma..... -- -- --
Additional paid-in capital........................ 1,818,000 1,834,000 1,434,000
Retained earnings................................. 3,139,000 5,830,000 3,970,000
---------- ----------- ----------
Total stockholders' equity................... 4,957,000 7,664,000 5,404,000
---------- ----------- ----------
Total liabilities and stockholders' equity... $6,893,000 $11,891,000 $9,631,000
========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 73
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Net sales (Note 8)..................... $8,126,000 $10,698,000 $18,964,000
Cost of goods sold..................... 3,058,000 5,099,000 9,703,000
---------- ----------- -----------
Gross profit.................... 5,068,000 5,599,000 9,261,000
---------- ----------- -----------
Operating expenses:
Research and development............. 434,000 773,000 700,000
Selling, general and administrative
(Notes 6 and 9)................... 2,770,000 2,876,000 4,049,000
---------- ----------- -----------
3,204,000 3,649,000 4,749,000
---------- ----------- -----------
Operating income....................... 1,864,000 1,950,000 4,512,000
Interest income (expense).............. 55,000 59,000 (46,000)
---------- ----------- -----------
Income before income taxes............. 1,919,000 2,009,000 4,466,000
Provision for income taxes (Note 7).... 718,000 803,000 1,775,000
---------- ----------- -----------
Net income (Note 9)............. $1,201,000 $ 1,206,000 $ 2,691,000
========== =========== ===========
Less preferred stock dividends (Note
5)................................... 180,000 180,000 180,000
---------- ----------- -----------
Income available to common
stockholders................. $1,021,000 $ 1,026,000 $ 2,511,000
========== =========== ===========
Earnings per share (Note 9):
Basic................................ $ 0.46 $ 0.54 $ 1.33
========== =========== ===========
Diluted (Note 10).................... $ 0.19 $ 0.20 $ 0.45
========== =========== ===========
Weighted average shares outstanding:
Basic................................ 2,230,408 1,900,951 1,890,204
========== =========== ===========
Diluted (Note 10).................... 6,057,018 5,863,517 5,941,534
========== =========== ===========
Pro forma earnings per share (Note 11):
Basic................................ $ 0.20 $ 0.21 $ 0.47
========== =========== ===========
Diluted.............................. $ 0.19 $ 0.20 $ 0.44
========== =========== ===========
Pro forma weighted average shares
outstanding (Note 11):
Basic................................ 6,077,191 5,747,734 5,736,987
========== =========== ===========
Diluted.............................. 6,262,473 6,068,972 6,146,989
========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 74
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ------------------ ADDITIONAL
NUMBER NUMBER PAID-IN RETAINED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL EARNINGS
--------- ------ --------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... 18,000 $ -- 2,307,408 $ -- $$2,011,000 $1,072,000
Exercise of stock options.... -- -- 4,080 -- 1,000 --
Common stock purchased for
retirement................ -- -- (250,704) -- (195,000) (117,000)
Net income................... -- -- -- -- -- 1,201,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1996..... 18,000 -- 2,060,784 -- 1,817,000 2,156,000
Common stock purchased for
retirement................ -- -- (180,000) -- (1,000) (223,000)
Compensation expense related
to stock options (Note
9)........................ -- -- -- -- 2,000 --
Net income................... -- -- -- -- -- 1,206,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1997..... 18,000 -- 1,880,784 -- 1,818,000 3,139,000
Exercise of stock options.... -- -- 18,400 -- 19,000 --
Common stock purchased for
retirement................ -- -- (24,000) -- (111,000) --
Compensation expense related
to stock options (Note
9)........................ -- -- -- -- 108,000 --
Net income................... -- -- -- -- -- 2,691,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1998..... 18,000 $ -- 1,875,184 $ -- $1,834,000 $5,830,000
====== ====== ========= ====== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 75
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income............................... $1,201,000 $ 1,206,000 $ 2,691,000
Depreciation and amortization............ 328,000 315,000 395,000
Deferred taxes........................... (42,000) (17,000) 377,000
Noncash compensation (Note 9)............ -- 2,000 108,000
Changes in operating assets and
liabilities:
Accounts receivable................... (371,000) (626,000) (386,000)
Income taxes receivable............... -- -- (420,000)
Inventories........................... (279,000) (513,000) (53,000)
Prepaid expenses...................... (18,000) (63,000) 59,000
Accounts payable and accrued
liabilities......................... 328,000 148,000 541,000
Income taxes payable.................. (29,000) 173,000 (218,000)
---------- ----------- -----------
Net cash provided by operating
activities....................... 1,118,000 625,000 3,094,000
---------- ----------- -----------
Cash Flows from Investing Activities
Purchase of equipment and leasehold
improvements.......................... (270,000) (1,231,000) (2,377,000)
Purchase of intangibles and other
assets................................ -- (172,000) (125,000)
---------- ----------- -----------
Net cash (used in) investing
activities....................... (270,000) (1,403,000) (2,502,000)
---------- ----------- -----------
Cash Flows from Financing Activities
Borrowings on line of credit............. -- 883,000 --
Payments on line of credit............... -- (150,000) (733,000)
Common stock purchased for retirement.... (312,000) (224,000) (111,000)
Common stock issued...................... 1,000 -- 19,000
Long-term borrowings..................... -- -- 2,000,000
Payments on long-term debt............... -- -- (106,000)
---------- ----------- -----------
Net cash provided by (used in)
financing activities............. (311,000) 509,000 1,069,000
---------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................. 537,000 (269,000) 1,661,000
Cash and Cash Equivalents
Beginning of period...................... 1,247,000 1,784,000 1,515,000
---------- ----------- -----------
End of period............................ $1,784,000 $ 1,515,000 $ 3,176,000
========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 76
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
ANSYS Diagnostics, Inc. and its wholly owned subsidiary, ANSYS
International, Inc., a foreign sales corporation (together, the Company),
develops, manufactures and markets drug testing products and specialty
laboratory and research products. The Company's drug testing products are used
for pre-employment screening, random employee testing, government mandated
testing, parole and probation monitoring and hospital-based testing. The
Company's specialty laboratory and research products are used for sample
preparation, including solid phase extraction and nucleic acid isolation. The
Company's products are subject to approval and regulation by the Federal Drug
Administration (FDA) and other state and foreign regulatory agencies.
Reorganization:
In connection with a planned public offering of its common stock, the
Company is undertaking a restructuring and reorganization. As a result of the
restructuring and reorganization, the Company will (1) reincorporate in
Delaware, (2) increase the number of authorized common shares to 30,000,000
shares, (3) increase the number of authorized preferred shares to 5,000,000
shares, (4) reduce the par value of the common and preferred stock to $.0001 per
share and (5) effect a 1.2-for-one stock split. This proposed reorganization has
been accounted for as if it occurred as of the beginning of the earliest period
presented in these consolidated financial statements.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All material intercompany balances
and transactions are eliminated in consolidation.
Cash and cash equivalents:
The Company classifies all highly liquid investments with original
maturities of less than 90 days at the time of purchase as cash and cash
equivalents.
The Company, periodically throughout the year, has amounts on deposit that
exceed the insured limit.
F-7
<PAGE> 77
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts receivable:
Most of the Company's business activity is with distributors of medical
products who are primarily located in the United States and Europe. The Company
grants normal trade credit to creditworthy customers without requiring
collateral or other security.
Inventories:
Inventories are stated at the lower of average cost or market.
Equipment and leasehold improvements:
Equipment and leasehold improvements are carried at cost. Depreciation and
amortization are provided on a straight-line method over (1) five to ten years
for manufacturing equipment, (2) five years for office equipment, and (3) the
lesser of (a) the asset life, (b) ten years, or (c) the remaining term of the
facility lease for leasehold improvements.
Intangibles and other assets:
Intangibles and other assets consist primarily of a licensing agreement
which is being amortized on a straight-line basis over its estimated useful life
of five years.
Revenue recognition:
The Company recognizes revenue when goods are shipped to the customer.
Research and development:
The Company expenses research and development costs as they are incurred.
The Company incurs research and development costs in developing new products.
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax
assets and liabilities are recognized for deductible temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Stock-based compensation:
The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does not
F-8
<PAGE> 78
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
require compensation to be recorded if the consideration to be received is at
least equal to fair value at the measurement date. Nonemployee stock-based
transactions are accounted for under the requirements of the Financial
Accounting Standards Board's (FASB) Statement of Financial Accounting Standard
(SFAS) No. 123, Accounting for Stock Based Compensation, which requires
compensation to be recorded based on the fair value of the securities issued or
the services received, whichever is more reliably measurable. The Company
estimates market value at the measurement date by utilizing a combination of the
discounted cash flows method, comparison to comparable publicly traded companies
and book value. In addition the Company periodically uses an outside valuation
specialist to validate its estimation of fair value.
Earnings per share:
Basic earnings per share is computed as net income available to common
stockholders divided by the weighted average number of common shares outstanding
for the period.
Diluted earnings per share is computed as net income available to common
stockholders plus dividends on Series B convertible preferred stock divided by
the weighted average number of common shares outstanding for the period plus
potential dilutive common shares issuable through convertible preferred stock
and stock options.
Fair value of financial instruments:
The Company's financial instruments consist of cash, the bank line of
credit and long term debt. The carrying value of these instruments is considered
to be representative of their fair value.
Determining impairment on long-term assets:
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.
Segment information:
In accordance with FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company has determined the products are
all classified as in vitro diagnostic products that are produced using similar
methods and are regulated by the Food and Drug Administration. In addition, the
Company has analyzed the type and class of customers, and the product
distribution methods, and has determined that the Company has one reportable
segment.
F-9
<PAGE> 79
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVENTORIES
Inventories consisted of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Raw materials......................................... $ 633,000 $ 754,000
Work in process....................................... 363,000 433,000
Finished goods........................................ 532,000 394,000
---------- ----------
$1,528,000 $1,581,000
========== ==========
</TABLE>
NOTE 3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following at December
31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Manufacturing equipment............................. $ 989,000 $ 1,045,000
Office equipment.................................... 985,000 1,134,000
Leasehold improvements.............................. 1,302,000 2,181,000
----------- -----------
3,276,000 4,360,000
Depreciation and amortization....................... (2,796,000) (1,850,000)
----------- -----------
480,000 2,510,000
Construction in progress............................ 1,087,000 1,689,000
----------- -----------
$ 1,567,000 $ 4,199,000
=========== ===========
</TABLE>
NOTE 4. BANK LINE OF CREDIT AND LONG-TERM DEBT
Bank line of credit:
The Company has a revolving credit agreement with a bank to provide for
short-term financing. Under the terms of this agreement, the Company may borrow
up to $1,000,000. Borrowings under this line are restricted to a certain
percentage of accounts receivable and inventories and bear interest at the
bank's prime rate plus 0.125% (totaling 7.875% as of December 31, 1998). There
were no borrowings under this line of credit agreement at December 31, 1998.
Borrowings under the agreement at December 31, 1997 totaled $733,000. The
agreement is secured by the Company's accounts receivable, inventories,
equipment and intangibles. It also contains certain financial covenants,
restricts the payment of dividends and redemption of stock, and expires in May
1999. As of December 31, 1998, the Company had approximately $1,000,000 in
availability under this credit facility.
Long-term debt:
At December 31, 1998, the Company has an 8.42% term loan that is secured by
inventory, equipment and intangibles and is due in monthly installments of
$32,000 through June 2005. Aggregate future annual maturities on this debt as of
December 31,
F-10
<PAGE> 80
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. BANK LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
1998 are as follows: 1999 $224,000; 2000 $245,000; 2001 $266,000; 2002 $290,000;
2003 $316,000; 2004 $345,000; and 2005 $208,000 (total $1,894,000).
NOTE 5. CAPITAL STOCK
The following summarizes the capitalization of the Company as of December
31, 1998:
<TABLE>
<CAPTION>
ISSUED AND ADDITIONAL
AUTHORIZED OUTSTANDING PAID-IN
CAPITAL STOCK SHARES SHARES PAR VALUE CAPITAL
------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Preferred Series A.................. 4,000 4,000 $0.0001 $ 400,000
Preferred Series B.................. 14,000 14,000 0.0001 1,400,000
Preferred, undesignated............. 4,982,000 -- -- --
Common.............................. 30,000,000 1,875,184 0.0001 34,000
----------
$1,834,000
==========
</TABLE>
Preferred dividends on the Series A and B preferred stock are cumulative at
a rate of $10 per annum and are payable, if declared, on a quarterly basis. No
dividends shall be paid to common stockholders until the preferred stockholders
have received all unpaid accumulated dividends. The Company has not declared any
preferred stock dividends. Such accumulated dividends totaled $1,800,000 ($100
per share) at December 31, 1998 and $1,620,000 ($90 per share) at December 31,
1997.
In the event of liquidation, the holders of the Series A and Series B
preferred stock are entitled to receive an amount per share equal to $100
(carrying value is also $100 per share) plus any unpaid accumulated dividends,
prior to any distribution of the assets of the Company to the common
stockholders.
Series A Redeemable Preferred Stock -- Upon consent of the holders of the
majority of common shares, the Company may redeem the outstanding shares of
Series A redeemable preferred stock at a per share price of $100 plus all unpaid
accumulated dividends.
Series B Convertible Preferred Stock -- Each share of Series B convertible
preferred stock is convertible, at the option of the holder, into a number of
common shares determined by dividing $100 by the conversion price as defined.
The conversion price at December 31, 1998 is $0.384475 per common share. Each
share of Series B convertible preferred stock shall automatically be converted
into common shares, at the then effective conversion price, in the event of a
public offering. Series B convertible preferred stock carries full voting rights
and powers, with the exception of voting on the redemption of Series A
redeemable preferred stock. Each holder of Series B convertible preferred stock
is entitled to 164.7 votes per share held. The Company has reserved 3,641,328
shares of common stock for issuance upon conversion of Series B preferred stock.
The Company is prohibited from repurchasing any common stock (other than
the shares originally issued to employees of the Company which the Company has
the right to
F-11
<PAGE> 81
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. CAPITAL STOCK (CONTINUED)
repurchase at the original issuance price or the fair market value, under
certain circumstances) prior to redeeming all the Series A preferred stock and
paying all accumulated dividends. Holders of the Series A preferred stock have
no voting rights or powers except in certain circumstances as defined in the
Company's articles of incorporation.
Preferred stock, undesignated -- The Board of Directors has the authority,
without action by the stockholders, to designate and issue any authorized but
unissued shares of preferred stock in one or more series and to designate the
rights, preferences and privileges of each such series.
NOTE 6. OPERATING LEASE
The Company leases its facilities under the terms of an operating lease
agreement that expires in December 2007. The agreement calls for initial monthly
lease payments of approximately $48,000 plus the payment of insurance, property
tax and normal maintenance. The Company has the option to purchase these
facilities for $5,578,000 in February 2000.
The approximate future minimum annual lease payments as of December 31,
1998 are as follows: 1999 $575,000; 2000 $605,000; 2001 $634,000; 2002 $634,000;
2003 $699,000; thereafter $2,976,000 (total $6,123,000).
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$557,000, $580,000 and $697,000, respectively.
NOTE 7. INCOME TAXES
The income tax provision for the years ended December 31, 1996, 1997 and
1998 consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Federal
Current................................. $590,000 $623,000 $1,820,000
Deferred................................ (37,000) (13,000) (315,000)
-------- -------- ----------
553,000 610,000 1,505,000
-------- -------- ----------
State
Current................................. 170,000 197,000 332,000
Deferred................................ (5,000) (4,000) (62,000)
-------- -------- ----------
165,000 193,000 270,000
-------- -------- ----------
Total income tax provision........... $718,000 $803,000 $1,775,000
======== ======== ==========
</TABLE>
F-12
<PAGE> 82
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES (CONTINUED)
A reconciliation of income tax expense recorded to the amount of income tax
expense that would result from applying the federal statutory rate to income
before income taxes for the years ended December 31, 1996, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................. 35% 35% 35%
State taxes, net of federal benefit............... 6 6 6
Foreign sales corporation benefit................. (1) (1) (1)
Benefit of income taxed at lower rates............ (1) (1) (1)
Other............................................. (2) 1 1
-- -- --
Effective tax rate........................... 37% 40% 40%
== == ==
</TABLE>
The major components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Deferred tax assets
Equipment and leasehold improvements.......... $228,000 $ --
State taxes................................... 65,000 63,000
Inventories................................... 19,000 58,000
Accounts receivable reserves.................. 8,000 8,000
Other......................................... (3,000) (9,000)
-------- ---------
Total deferred tax assets.................. $317,000 $ 120,000
======== =========
Deferred tax liabilities
Equipment and leasehold improvements.......... $ -- $(180,000)
======== =========
</TABLE>
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of December 31 as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Current assets.................................. $ 89,000 $ 120,000
Noncurrent assets............................... 228,000 --
Noncurrent liabilities.......................... -- (180,000)
</TABLE>
NOTE 8. FOREIGN SALES, MAJOR CUSTOMERS AND DEPENDENCE ON SUPPLIERS
Foreign sales:
Net sales for the years ended December 31, 1996, 1997 and 1998 included
$1,255,000, $1,261,000 and $1,227,000, respectively, in sales to customers
located outside the United States (primarily Europe).
F-13
<PAGE> 83
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. FOREIGN SALES, MAJOR CUSTOMERS AND DEPENDENCE ON SUPPLIERS (CONTINUED)
Major customers:
Net sales for the years ended December 31, 1996, 1997 and 1998 include
sales to the following customers:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Customer A...................... $1,387,000 $4,503,000 $12,276,000
Customer B...................... 1,560,000 * *
</TABLE>
Accounts receivable balance due from these customers as of December 31,
1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Customer A...................... $ 224,000 $1,169,000 $ 889,000
Customer B...................... -- * *
</TABLE>
- -------------------------
* Net sales to this customer are less than 10% of the total net sales for 1997
and 1998.
Dependence on Roche Diagnostic Systems, Inc.:
The Company is highly dependent on its arrangement with Roche Diagnostic
Systems, Inc. (Roche) (Customer A above) for the distribution and marketing of
three of its principal products, which accounted for 17%, 42% and 65% of the
Company's net sales during the years ended December 31, 1996, 1997 and 1998,
respectively. Two of these three products were jointly developed by the Company
in collaboration with Roche. The Company's agreements with Roche, which expire
in 2002 and 2003 by their terms, provide that the Company has exclusive
manufacturing rights to the products. These agreements do not require Roche to
purchase any minimum amounts of product, and the Company does not have the
ability to sell or market these products directly. Roche holds all intellectual
property and other ownership rights to these products, and has no obligation to
renew or extend the Company's manufacturing rights upon expiration of the
Company's agreements with Roche.
Dependence on suppliers:
The Company currently relies on several third party suppliers for the
manufacture of certain key components used in its products. In particular, the
Company purchases all of its requirements for the nitrocellulose membranes used
in the TesTcup and TesTstick products from a single supplier. Under the Roche
agreement, Roche provides all of the Company's requirements for certain liquid
reagents in the TesTcup and TesTstick products. Such components are custom made
biomaterials manufactured specifically for the Company's products. The Company
does not have any long-term supply agreement with either of these suppliers or
an alternate supplier for these components. In addition, the Company also has
additional single source suppliers for other components used in the manufacture
of certain products.
F-14
<PAGE> 84
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. STOCK OPTION PLANS
During 1998 the Company adopted the 1997 Stock Option Plan. The Company has
reserved 1,329,780 shares of common stock for issuance under the 1997 Stock
Incentive Plan, the Stock Option Plan for Employees of ANSYS, Inc. (1990) and
certain officer and employee nonqualified stock options (the Plans). The options
vest immediately or over a three- to five-year period.
The 1997 Plan is divided into two separate components; the Option Grant
Program and the Stock Issuance Program. Under the Option Grant Program, eligible
individuals (including officers, non-employee board members and consultants) may
be granted options to purchase shares of common stock at an exercise price not
less than 100% of their fair market value on the grant date as determined by the
plan administrator. Under the Stock Issuance Program, these individuals may be
issued shares of common stock directly. The individual may purchase the shares,
at a price not less than 100% of their fair market value as determined by the
plan administrator at the time of issuance; however, the purchase price per
share issued to a 10% stockholder may not be less than 110% of the fair market
value of the underlying common stock. Shares may also be granted as a bonus tied
to the performance of services. At December 31, 1998, there were 388,800
remaining options available under the 1997 Plan and no remaining options
available under the 1990 Plan.
A summary of the status of the Plans and changes during the years ended
December 31, 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------- ------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
------------- ------- --------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
period............... 483,180 $0.43 723,780 $0.64 777,780 $0.74
Granted.............. 244,800 1.05 54,000 2.13 211,200 3.97
Exercised............ (4,080) 0.29 -- -- (18,400) 1.05
Forfeited............ (120) 0.29 -- -- (29,600) 1.05
------- ----- ------- ----- ------- -----
Outstanding at end of
period............... 723,780 $0.64 777,780 $0.74 940,980 $1.45
======= ===== ======= ===== ======= =====
Exercisable at end of
period............... 332,969 $0.38 486,186 $0.51 688,920 $0.94
======= ===== ======= ===== ======= =====
Remaining options
available under the
Plans................ 75,744 21,744 388,800
======= ======= =======
Weighted average
minimum value per
option granted during
the period:
At market price...... 244,800 $0.68 -- $ -- -- $ --
======= ===== ======= ===== ======= =====
Below market price... -- $ -- 54,000 $1.29 211,200 $2.22
======= ===== ======= ===== ======= =====
</TABLE>
F-15
<PAGE> 85
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. STOCK OPTION PLANS (CONTINUED)
A further summary of options outstanding at December 31, 1998, is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING OPTIONS
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.29 318,780 3.32 years 318,780
0.52 40,200 2.10 years 40,200
0.75 120,000 6.50 years 120,000
1.04 36,000 7.20 years 17,600
1.07 160,800 7.91 years 107,202
2.13 54,000 8.96 years 18,003
3.83 175,200 9.32 years 49,135
4.64 36,000 9.83 years 18,000
------- -------
940,980 688,920
======= =======
</TABLE>
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations to account for the stock options issued
to employees and directors. Had compensation cost for the stock option plans
been determined based on the fair value at the date consistent with the method
of FASB Statement No. 123, Accounting for Stock-Based Compensation, the
Company's net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported.................... $1,201,000 $1,206,000 $2,691,000
Pro forma...................... 1,178,000 1,153,000 2,451,000
Basic earnings per share:
As reported.................... 0.46 0.54 1.33
Pro forma...................... 0.45 0.51 1.20
Diluted earnings per share:
As reported.................... 0.19 0.20 0.45
Pro forma...................... 0.19 0.19 0.41
</TABLE>
The minimum value of options granted under the Company's Stock Option Plan
was estimated on the date of grant with the following assumptions: no dividend
yield, risk-free interest 6.4% to 6.5% in 1996, 6.6% in 1997 and 6.3% 1998, and
expected lives of ten years. The effects of applying SFAS No. 123 are not
indicative of future amounts since, among other reasons, the requirements of the
Statement have been applied only to options granted after December 1994.
The 54,000 stock options granted by the Company in 1997 and the 211,200
stock options granted by the Company in 1998 were granted at an exercise price
that was less than the fair value of common stock per share. The Company
recorded related compensation expense during the years ended December 31, 1997
and 1998 of $2,000 and $108,000, respectively, based on an estimated fair value
per share of $2.98 for 54,000 shares $4.74 for 175,200 shares and $7.38 for
36,000 shares.
F-16
<PAGE> 86
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. STOCK OPTION PLANS (CONTINUED)
In January 1999, the Company issued an additional 56,400 stock options with
an option price of $4.97 per share to employees of the Company.
NOTE 10. DILUTED EARNINGS PER SHARE
Diluted earnings per share is computed as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Income available to common
stockholders........................... $1,021,000 $1,026,000 $2,511,000
Plus impact of assumed conversion of
Series B preferred stock............... 140,000 140,000 140,000
---------- ---------- ----------
Income available to common stockholders
plus assumed conversion................ $1,161,000 $1,166,000 $2,651,000
========== ========== ==========
Weighted average shares outstanding...... 2,230,408 1,900,951 1,890,204
Plus incremental shares from Series B
preferred stock conversion............. 3,641,328 3,641,328 3,641,328
Stock options............................ 185,282 321,238 410,002
---------- ---------- ----------
Diluted weighted average shares
outstanding............................ 6,057,018 5,863,517 5,941,534
========== ========== ==========
</TABLE>
NOTE 11. PRO FORMA INFORMATION
The Company plans to redeem the Series A preferred stock, convert the
Series B preferred stock into common stock and pay the cumulative dividends on
the preferred stock in connection with a planned public stock offering. The
objective of the pro forma financial information included in these financial
statements is to show what the significant effects might have been on the
historical stockholders' equity and earnings per share.
Pro forma balance sheet at December 31, 1998:
The following pro forma balance sheet adjustments have been made assuming
the following transactions occurred as of December 31, 1998:
- Series A preferred stock has been redeemed for $400,000 in cash.
- Series B preferred stock has been converted into 3,641,328 shares of
common stock.
- An estimated $1,860,000 in cumulative dividends on the Series A and B
preferred stock is paid in cash.
Pro forma earnings per share:
Pro forma basic earnings per share is computed as net income divided by the
pro forma weighted average number of common shares outstanding for the period.
Pro forma common shares outstanding for all periods presented in the computation
of pro forma basic earnings per share include (1) the number of shares of common
stock that the Series B
F-17
<PAGE> 87
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. PRO FORMA INFORMATION (CONTINUED)
preferred stock will be converted into upon the completion of the initial public
offering and (2) the number of equivalent common shares to be issued in the
initial public offering necessary to redeem the Series A preferred stock and pay
the cumulative dividends on the Series A and B preferred stock through the
estimated effective date of the initial public offering at the assumed public
offering price per share.
Pro forma diluted earnings per share is computed as net income divided by
the pro forma weighted average number of common shares outstanding for the
period as computed above plus dilutive potential common shares that could occur
from common shares issuable through stock options.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Basic:
Weighted average shares outstanding....... 2,230,408 1,900,951 1,890,204
Pro forma conversion of Series B preferred
stock.................................. 3,641,328 3,641,328 3,641,328
Pro forma common shares to be issued
necessary to:
Redeem Series A preferred stock........... 36,364 36,364 36,364
Pay cumulative dividends on preferred
stock.................................. 169,091 169,091 169,091
--------- --------- ---------
Pro forma weighted average shares
outstanding............................... 6,077,191 5,747,734 5,736,987
========= ========= =========
Diluted:
Pro forma weighted average shares
outstanding............................ 6,077,191 5,747,734 5,736,987
Stock options............................. 185,282 321,238 410,002
--------- --------- ---------
Pro forma diluted weighted average shares
outstanding............................... 6,262,473 6,068,972 6,146,989
========= ========= =========
</TABLE>
NOTE 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Cash paid for:
Interest.................................. $ -- $ 16,000 $ 148,000
======== ======== ==========
Income taxes.............................. $618,000 $646,000 $2,002,000
======== ======== ==========
</TABLE>
F-18
<PAGE> 88
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS DATED , 1999
ANSYS LOGO
2,500,000 SHARES
COMMON STOCK
Vector Securities International, Inc. Sutro & Co. Incorporated
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 7
Use of Proceeds.............................. 20
Dividend Policy.............................. 20
Capitalization............................... 21
Dilution..................................... 22
Selected Consolidated Financial Data......... 23
Management's Discussion and Analysis of
Financial Condition and Results
of Operations.............................. 24
Business..................................... 30
Management................................... 51
Principal Stockholders....................... 60
Description of Capital Stock................. 61
Shares Eligible for Future Sale.............. 64
Underwriting................................. 66
Legal Matters................................ 68
Experts...................................... 68
Additional Information....................... 68
Index to Consolidated Financial Statements... F-1
</TABLE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO PROVIDE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES OF COMMON
STOCK IN JURISDICTIONS WHERE IT IS UNLAWFUL TO DO SO. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS.
-------------------
UNTIL , 1999 (25 DAYS AFTER DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD registration fees. All of
the expenses below will be paid by ANSYS.
<TABLE>
<CAPTION>
ITEM
----
<S> <C>
Registration fee............................................ $ 9,591
NASD filing fee............................................. 3,950
Nasdaq National Market listing fee.......................... 70,000
Blue sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 100,000
Transfer Agent and Registrar fees........................... 30,000
Miscellaneous............................................... 51,459
--------
Total............................................. $550,000
========
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Our bylaws provide that we will indemnify our directors
and officers to the fullest extent permitted by law and require us to advance
litigation expenses upon our receipt of an undertaking by the director or
officer to repay such advances if it is ultimately determined that the director
or officer is not entitled to indemnification. Our bylaws further provide that
rights conferred under such bylaws do not exclude any other right such persons
may have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Our certificate of incorporation provides that, pursuant to Delaware law,
our directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty of care to ANSYS and our stockholders. This provision
in the certificate of incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company or our stockholders, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemption's that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
In addition, our certificate of incorporation (Exhibit 3.1 to this
registration statement) provides that we shall indemnify our directors and
officers if such persons acted: (1) in good
II-1
<PAGE> 90
faith; (2) in a manner reasonably believed to be in or not opposed to our best
interests; and (3) with respect to any criminal action or proceeding, with
reasonable cause to believe such conduct was lawful. The certificate of
incorporation also provides that, pursuant to Delaware law, our directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to our company and our stockholders. This provision in the certificate
of incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to ANSYS for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemption's that are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under any
other law, such as the federal securities laws or state or federal environmental
laws. The certificate of incorporation further provides that we are authorized
to indemnify our directors and officers to the fullest extent permitted by law
through the bylaws, agreement, vote of stockholders or disinterested directors,
or otherwise. We intend to obtain directors' and officers' liability insurance
in connection with this offering.
In addition, we have has entered or, concurrently with this offering, will
enter, into agreements to indemnify our directors and certain of our officers in
addition to the indemnification provided for in the certificate of incorporation
and bylaws. These agreements will, among other things, indemnify our directors
and certain of our officers for certain expenses (including attorneys fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in our right, on account of services by
that person as a director or officer of ANSYS or as a director or officer of any
subsidiary of ANSYS, or as a director or officer of any other company or
enterprise that the person provides services to at the request of ANSYS.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of ANSYS and its officers and directors, and
by ANSYS of the underwriters, for certain liabilities arising under the
Securities Act or otherwise.
II-2
<PAGE> 91
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by ANSYS since January 1, 1996
involving sales of our securities that were not registered under the Securities
Act of 1933, as amended.
Since January 1, 1996, the Registrant has issued stock options under its
1990 Plan and 1997 Plan to certain eligible officers, directors and employees to
purchase an aggregate of 566,400 shares of Common Stock (after giving effect to
the 1.2 for 1 stock split). In addition, on December 12, 1996 the Registrant
issued options to purchase 90,000 shares of Common Stock to Stephen K.
Schultheis, then its President and Chief Executive Officer, which options were
not granted pursuant to any plan.
None of the optionees paid any cash consideration for such options. Such
options did not involve a "sale" of securities; and, accordingly, registration
was not required. The following table sets forth the grant date, number of
options, current exercise price and class of optionees for all of such options.
All data gives effect to the 1.2 for 1 stock split.
<TABLE>
<CAPTION>
GRANT DATE NO. OF OPTIONS EXERCISE PRICE CLASS OF OPTIONEES
---------- -------------- -------------- ------------------
<S> <C> <C> <C>
01/01/96 to 05/31/96 72,000 $1.04 Employee
03/01/96 to 12/31/96 172,800 $1.07 Employee
12/18/97 54,000 $2.13 Employee
04/08/98 108,000 $3.83 Employee
07/01/98 67,300 $3.83 Officer
10/16/98 18,000 $4.64 Director
11/16/98 18,000 $4.64 Director
01/22/99 56,400 $4.97 Employee
</TABLE>
In addition, in April 1998 the Registrant issued 18,400 shares (after
giving effect to the 1.2 for 1 stock split) to a former employee upon exercise
of his vested options.
The sale and issuance of securities in the above transactions were deemed
to be exempt from registration under the Securities Act by virtue of Section
4(2) or Rule 701 thereof, or Regulation D, as transactions by an issuer not
involving a public offering. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.
II-3
<PAGE> 92
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<S> <C>
1.1 *Form of Underwriting Agreement
3.1 *Certificate of Incorporation of ANSYS to be filed with the
Delaware Secretary of State in March 1999
3.2 *Bylaws of ANSYS
4.1 *Specimen certificate representing shares of common stock of
the Company
5.1 *Form of Opinion of Brobeck Phleger & Harrison LLP
10.1 Form of Indemnification Agreement
10.2 Stock Option Plan for Employees of Toxi-Lab, Inc., together
with form of Stock Option Agreement (and related Notice of
Grant of Option), Stock Purchase Agreement and Stock
Issuance Agreement
10.3 1997 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Grant of Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.4 Commercial Agreement dated as of April 1, 1993 by and
between Roche Diagnostic System, Inc. and ANSYS
10.5 Amendment to Commercial Agreement between Roche Diagnostic
Systems, Inc. and ANSYS dated May 1, 1998
10.6 Development and Manufacturing Agreement dated as of
September 1, 1996 by and between Roche Diagnostic Systems,
Inc. and ANSYS
10.7 First Amendment to Development and Manufacturing Agreement
10.8 Lease Agreement
10.9 Distributorship Agreement for Ansys, Inc.
10.10 Distributorship Agreement for Ansys Diagnostics, Inc.
10.11 Registration Rights Agreement
10.12 Management Subscription Agreement
21.1 Subsidiaries
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors
23.2 Consent of Brobeck Phleger & Harrison LLP (contained in
Exhibit 5.1)
24.1 Power of Attorney (contained on signature page on page II-4)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for
II-4
<PAGE> 93
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit, or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
California, on the 19th day of February, 1999.
ANSYS DIAGNOSTICS, INC.
By: /s/ STEPHEN K. SCHULTHEIS
-----------------------------------
Stephen K. Schultheis,
Chairman of the Board, President
and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint Stephen K. Schultheis and Suzanne M. David , and each of them, his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, or any related registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN K. SCHULTHEIS Chairman of the Board, February 12, 1999
- ------------------------------------------ President and Chief
Stephen K. Schultheis Executive Officer
(principal executive
officer)
/s/ SUZANNE M. DAVID Chief Financial Officer February 16, 1999
- ------------------------------------------ (principal financial and
Suzanne M. David accounting officer)
/s/ RONALD J. HALL Director February 12, 1999
- ------------------------------------------
Ronald J. Hall
</TABLE>
II-6
<PAGE> 95
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE D. HOLMES Director February 12, 1999
- ------------------------------------------
George D. Holmes
/s/ JOHN M. MORRIS Director February 12, 1999
- ------------------------------------------
John M. Morris
/s/ C. MICHAEL O'DONNELL, PH.D. Director February 12, 1999
- ------------------------------------------
C. Michael O'Donnell, Ph.D.
/s/ WILLIAM C. SHEPHERD Director February 16, 1999
- ------------------------------------------
William C. Shepherd
</TABLE>
II-7
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
1.1 *Form of Underwriting Agreement.............................
3.1 *Certificate of Incorporation of ANSYS to be filed with the
Delaware Secretary of State in March 1999...................
3.2 *Bylaws of ANSYS............................................
4.1 *Specimen certificate representing shares of common stock of
the Company.................................................
5.1 *Form of Opinion of Brobeck Phleger & Harrison LLP..........
10.1 *Form of Indemnification Agreement..........................
10.2 Stock Option Plan for Employees of Toxi-Lab, Inc., together
with form of Stock Option Agreement and amendments..........
10.3 1997 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Grant of Option),
Stock Purchase Agreement and Stock Issuance Agreement.......
10.4 *Commercial Agreement dated as of April 1, 1993 by and
between Roche Diagnostic System, Inc. and ANSYS.............
10.5 *Amendment to Commercial Agreement between Roche Diagnostic
Systems, Inc. and ANSYS dated May 1, 1998...................
10.6 *Development and Manufacturing Agreement dated as of
September 1, 1996 by and between Roche Diagnostic Systems,
Inc. and ANSYS..............................................
10.7 *First Amendment to Development and Manufacturing
Agreement...................................................
10.8 Lease Agreement.............................................
10.9 Form of Distributorship Agreement (Domestic)................
10.10 Form of Distributorship Agreement (International)...........
10.11 Registration Rights Agreement...............................
10.12 Form of Management Subscription Agreement...................
10.13 *$2,000,000 Promissory Note Change in Terms Agreement dated
June 1, 1998 by and between Southern California Bank and
ANSYS.......................................................
10.14 *$1,000,000 Promissory Note Change in Terms Agreement dated
May 28, 1998 by and between Southern California Bank and
ANSYS.......................................................
21.1 Subsidiaries................................................
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors....
23.2 Consent of Brobeck Phleger & Harrison LLP (contained in
Exhibit 5.1)................................................
24.1 Power of Attorney (contained on signature page on page
II-4).......................................................
27.1 Financial Data Schedule.....................................
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.2
THE STOCK OPTION PLAN
FOR EMPLOYEES OF TOXI-LAB, INC.
Toxi-Lab, Inc., a corporation organized under the laws of the State of
California, hereby adopts this Stock Option Plan for Employees of Toxi-Lab, Inc.
The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to certain of its Employees who have
been or will be given responsibility for the management or administration of
the. Company's business affairs, by assisting them to become owners of capital
stock of the Company and thus to benefit directly from its growth, development
and financial success.
(2) To enable the Company to obtain and retain the services of the type
of professional, technical and managerial employees considered essential to the
long-range success of the Company by providing and offering them an opportunity
to become owners of capital stock of the Company under options, including
options that are intended to qualify as "incentive stock options" under Section
422A of the Internal Revenue Code of 1986, as amended.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
"Committee" shall mean the Stock option Committee of the Board,
appointed as provided in Section 6.1.
<PAGE> 2
Section 1.4 - Company
"Company" shall mean Toxi-Lab, Inc. In addition, "Company" shall mean
any corporation assuming, or issuing new employee stock options in substitution
for, Incentive Stock Options, outstanding under the Plan, in a transaction to
which Section 425(a) of the Code applies.
Section 1.5 - Director
"Director" shall mean a member of the Board.
Section 1.6 - Employee
"Employee" shall mean any employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Parent Corporation
or a Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan.
Section 1.7 - Incentive Stock Option
"Incentive Stock Option" shall mean an option which qualifies under
Section 422A of the Code and which is designated as an Incentive Stock Option by
the Committee.
Section 1.8 - Non-Qualified Option
"Non-Qualified Option" shall mean an option which is not an Incentive
Stock Option and which is designated as a Non-Qualified option by the Committee.
Section 1.9 - Officer
"Officer" shall mean an officer of the Company, any Parent corporation
or any Subsidiary.
Section 1.10 - Option
"Option" shall mean an option to purchase capital stock of the Company,
granted under the Plan. "Options" includes both Incentive Stock options and
Non-Qualified Options.
Section 1.11 - Optionee
"Optionee" shall mean an Employee to whom an Option is granted under the
Plan.
<PAGE> 3
Section 1.12 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
Section 1.13 - Plan
"Plan" shall mean this Stock Option Plan for Employees of Toxi-Lab, Inc.
Section 1.14 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Shares
"Shares" shall mean shares of the Company's $.01 par value Common Stock.
Section 1.17 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
Section 1.18 - Termination of Employment
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary.
The Committee, in its absolute discretion, shall determine the effect of all
other matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge for good cause, and all questions of
<PAGE> 4
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for the purposes of Section
422A(a)(2) of the Code and the then applicable Regulations and Revenue Rulings
under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
The Shares of stock subject to options shall be shares of the Company's
$.01 par value Common Stock. Subject to Section 3.3(d), the aggregate number of
such Shares which may be issued upon exercise of Options shall not exceed
200,000.
Section 2.2 - Unexercised Options
If any option expires or is cancelled without having been fully
exercised, the number of Shares subject to such Option but as to which such
option was not exercised prior to its expiration or cancellation may again be
optioned hereunder, subject to the limitations of Section 2.1.
Section 2.3 - Changes in Company's Shares
In the event that the outstanding Shares of the Company are hereafter
changed into or exchanged for a different number or kind of shares or other
securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares, appropriate adjustments shall
be made by the Committee in the number and kind of shares for the purchase of
which Options may be granted, including adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued on
exercise of options.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any Employee of the Company or of any corporation which is then a Parent
Corporation or a Subsidiary shall be eligible to be granted Options, except as
provided in subsection (b), Sections 3.2 and 6.4(a). However, no option shall be
granted to any
<PAGE> 5
Employee who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, any
Parent Corporation or any Subsidiary.
Section 3.2 - Qualification of Incentive Stock Options
No Incentive Stock Option shall be granted unless such option, when
granted, qualifies as an "incentive stock option" under Section 422A of the
Code.
Section 3.3 - Granting of Options
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Select from among the Employees (including those to
whom Options have been previously granted under the Plan) such of them
as in its opinion should be granted Options; and
(ii) Determine the number of Shares to be subject to such
Options granted to such selected Employees, and determine whether such
options are to be Incentive Stock Options or Non-Qualified options; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan.
(b) Upon the selection of an Employee to be granted an Option,
the Committee shall instruct the Secretary to issue such Option and may impose
such conditions on the grant of such option as it deems appropriate. Without
limiting the generality of the preceding sentence, the Committee may, in its
discretion and on such terms as it deems appropriate, require as a condition on
the grant of an Option to an Employee that the Employee surrender for
cancellation some or all of the unexercised options which have been previously
granted to him. An Option the grant of which is conditioned upon such surrender
may have an option price lower (or higher) than the option price of the
surrendered option, may cover the same (or a lesser or greater) number of Shares
as the surrendered Option, may contain such other terms as the Committee deems
appropriate and shall be exercisable in accordance with its terms, without
regard to the number of Shares, price, option period or any other term or
condition of the surrendered Option.
(c) Options may not be granted by the Committee to Employees who
are then Directors or officers unless such grants have been recommended by the
Special Committee. Such recommendation shall be in writing and shall specify the
<PAGE> 6
Directors or Officers to whom such grants are recommended and the recommended
number of Shares to be covered by such Options.
(d) Notwithstanding subsection (a), with respect to any Option
to-be granted before the Company becomes subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on
the date of grant:
(i) Either,
a the aggregate offering price of the Shares to
be subject to such option shall not exceed the
greater of
i the dollar amount equal to $500,000,
less the sum of (1) the aggregate
offering price of Shares subject to
outstanding options (and securities of
the Company subject to outstanding
offers made by the Company, other than
options, in reliance on Rule 701
promulgated by the securities and
Exchange Commission, 17 CFR 230.701
(hereinafter referred to as "Rule
70111)), and (2) the aggregate offering
price of Shares sold within the next
preceding twelve months pursuant to the
exercise of Options (and securities of
the Company sold by the Company within
the next preceding twelve months, other
than pursuant to Options, in reliance on
Rule 701); and
ii the dollar amount equal to 15% of the
total assets of the Company measured as
at the end of the Company's last fiscal
year, less the sum of (1) the aggregate
offering price of Shares subject to
outstanding Options (and securities of
the Company subject to outstanding
offers made by the Company, other than
options, in reliance on Rule 701), and
(2) the aggregate offering price of
Shares sold within the next preceding
twelve months pursuant to the exercise
of options (and securities of the
Company sold by the Company within the
next preceding twelve months,
<PAGE> 7
other than pursuant to options, in
reliance on Rule 701); or
b the number of Shares to be subject to such
option shall not exceed 15% of the number of
outstanding Shares, less the sum of
i the number of Shares subject to
outstanding options (and Shares subject
to outstanding offers made by the
Company, other than options, in reliance
on Rule 701), and
ii the number of Shares sold within the
next preceding twelve months pursuant to
the exercise of Options (and Shares sold
by the Company within the next preceding
twelve months, other than pursuant to
options, in reliance on Rule 701); and
(ii) the aggregate offering price of the Shares to be
subject to such Option shall not exceed the dollar amount equal to
$5,000,000, less the sum of
a the aggregate offering price of Shares subject
to outstanding options (and securities of the
Company subject to outstanding offers made by
the Company, other than Options, in reliance on
Rule 701), and
b the aggregate offering price of Shares sold
Within the next preceding twelve months
pursuant to the exercise of Options (and
securities of the Company sold by the Company
within the next preceding twelve months, other
than pursuant to options, in reliance on Rule
701).
For the purpose of clause (i) b, the term "Shares" shall include Shares issuable
pursuant to the exercise of outstanding options, warrants, rights or conversion
of convertible securities unless such options, warrants, rights or convertible
securities were issued under Rule 701, and if securities of the Company offered
or sold under Rule 701 are convertible securities, the number of Shares subject
to outstanding offers or sold shall be deemed to be the Shares into which such
securities may be converted.
<PAGE> 8
ARTICLE IV
TERMS OF OPTIONS
Section 4.1 - Option Agreement
Each Option shall be evidenced by a written Stock Option Agreement,
which shall be executed by the Optionee and an authorized officer of the Company
and which shall contain such terms and conditions as the Committee shall
determine I consistent with the Plan. Stock Option Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to qualify such options as "incentive stock options" under Section
422A of the Code.
Section 4.2 - Option Price
(a) The price of the Shares subject to each option shall be set
by the Committee; provided, however, that, in the case of any Incentive Stock
Option, the price per Share shall be not less than 100% of the fair market value
of such Shares on the date such option is granted; provided, further, that, in
the case of any Non-Qualified Option, the price per Share shall be not less than
85% of the fair market value of such Shares on the date such Option is granted.
(b) For purposes of the Plan, the fair market value of a Share of
the Company's stock as of a given date shall be: (i) the closing price of a
Share on the principal exchange on which Shares are then trading, if any, on the
day previous to such date, or, if Shares were not traded on the day previous to
such date, ' then on the next preceding trading day during which a sale
occurred; or (ii) if such stock is not traded on an exchange but is quoted on
NASDAQ or a successor quotation system, (1) the last sales price (if the stock
is then listed as a National Market Issue under the NASD National Market System)
or (2) the mean between the closing representative bid and asked prices (in all
other cases) for the stock on the day previous to such date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for the stock, on the
day previous to such date, as determined in good faith by the Committee; or (iv)
if the Company's stock is not publicly traded, the fair market value established
by the Committee acting in good faith.
Section 4.3 - Commencement of Exercisability
<PAGE> 9
(a) Except as the Committee may otherwise provide, no Option may
be exercised in whole or in part during the first year after such Option is
granted.
(b) Subject to the provisions of Sections 4.3(a), 4.3(c), 4.3(d)
and 7.3, Options shall become exercisable at such times and in such installments
(which may be cumulative) as the Committee shall provide in the terms of each
individual Option; provided, however, that by a resolution adopted after an
Option is granted the Committee may, on such terms and conditions as it may
determine to be appropriate and subject to Sections 4.3(a), 4.3(c), 4.3(d) and
7.3, accelerate the time at which such Option or any portion thereof may be
exercised.
(c) No portion of an Option which is unexercisable at Termination
of Employment shall thereafter become exercisable.
(d) To the extent that the aggregate fair market value of stock
with respect to which "incentive stock options" (within the meaning of Section
422A of the Code, but without regard to Section 422A(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company, any
Subsidiary and any Parent Corporation) exceeds $100,000, such options shall be
taxed as Non-Qualified Options. The rule set forth in the preceding sentence
shall be applied by taking options into account in the order in which they were
granted. For purposes of this Section 4.2(d), the fair market value of stock
shall be determined as of the time the option with respect to such stock is
granted.
Section 4.4 - Expiration of Options
(a) No option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) Except as required by Section 422A(c)(6) of the Code,
in the case of an Incentive Stock Option, the expiration of ten years from the
date the Option was granted; or
(ii) In the case of a Non-Qualified Option, the
expiration of ten years from the date the option was granted; or
(iii) Except in the case of any Optionee who is disabled
(within the meaning of Section 22(e)(3) of the Code), the expiration of three
months from the date of the Optionee's Termination of Employment for any reason
other than such Optionee's death unless the Optionee dies within said
three-month period; or
<PAGE> 10
(iv) In the case of an Optionee who is disabled (within
the meaning of Section 22(e)(3) of the Code), the expiration of one year from
the date of the Optionee's Termination of Employment for any reason other than
such Optionee's death unless the Optionee dies within said one-year period; or
(v) The expiration of one year from the date of the
Optionee's death.
(b) Subject to the provisions of Section 4.4(a), the Committee
shall provide, in the terms of each individual Option, when such Option expires
and becomes unexercisable; and (without limiting the generality of the
foregoing) the Committee may provide in the terms of individual Options that
said Options expire immediately upon a Termination of Employment for any reason.
Section 4.5 - Employment by the Company
Nothing in this Plan or in any Stock Option Agreement hereunder shall
confer upon any Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge any Optionee at any time for
any reason whatsoever, with or without cause.
Section 4.6 - Adjustments in Outstanding Options
In the event that the outstanding Shares of the stock subject to Options
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which all outstanding Options,
or portions thereof then unexercised, shall be exercisable, to the end that
after such event the Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in an outstanding Option
shall be made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of Share quantities or prices) and with any
necessary corresponding adjustment in option price per Share; provided, however,
that, in the case of Incentive Stock Options, each such adjustment shall be made
in such manner as not to constitute a "modification" within the meaning of
Section 425(h)(3) of the
<PAGE> 11
Code. Any such adjustment made by the Committee shall be final and binding upon
all Optionees, the Company and all other interested persons.
Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
The Committee shall provide by the terms of each Option that, upon or in
connection with the merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock or the liquidation or dissolution of the Company, such
option shall either (a) be (i) assumed or (ii) replaced by a substitute option
granted by any successor corporation or (b) be or become exercisable, for a
minimum of 30 days prior to such event, as to all Shares covered thereby,
notwithstanding anything to the contrary in Section 4.3(a), Section 4.3(b)
and/or any installment provisions of such option, but subject to section 4.3(d).
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise an Option
granted to him, or any portion thereof. After the death of the Optionee, any
exercisable portion of an option may, prior to the time when such portion
becomes unexercisable under Section 4.4 or Section 4.7, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
Section 5.2 - Partial Exercise
At any time and from time to time prior to the time when
any exercisable option or exercisable portion thereof becomes unexercisable
under Section 4.4 or Section 4.7, such option or portion thereof may be
exercised in whole or in part; provided, however, that the Company shall not be
required to issue fractional Shares and the Committee may, by the terms of the
Option, require any partial exercise to be with respect to a specified minimum
number of Shares.
<PAGE> 12
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such option or such portion becomes
unexercisable under Section 4.4 or Section 4.7:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such option or portion, stating that such option or portion
is exercised, such notice complying with all applicable rules established by the
Committee; and
(b) (i) Full payment (in cash or by check) for the Shares with
respect to which such Option or portion is thereby exercised; or
(ii) With the consent of the Committee, shares of any
class of the Company's stock owned by the Optionee duly endorsed for transfer to
the Company with a fair market value (as determinable under Section 4.2(b)) on
the date of delivery equal to the aggregate Option price of the shares with
respect to which such option or portion is thereby exercised; or
(iii) A combination of the consideration provided in the
foregoing subsections (i) and (ii); and
(c) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and
(d) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to exercise
the Option or portion thereof.
Section 5.4 - Conditions to Issuance of Stock Certificates
The Shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
Shares or issued Shares which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates
<PAGE> 13
for Shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such Shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of
all amounts which it is required to withhold under federal, state or local law
in connection with the exercise of the option; and
(e) The lapse of such reasonable period of time following the
exercise of the option as the Committee may establish from time to time for
reasons of administrative convenience.
Section 5.5 - Rights as Shareholders
The holders of options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any Shares purchasable
upon the exercise of any part of an option unless and until certificates
representing such Shares have been issued by the Company to such holders;
provided, however, that the Company shall provide to Optionees, on an annual
basis, such financial and other information as it provides to its shareholders.
Section 5.6 - Transfer Restrictions
The Committee, in its absolute discretion, may impose such restrictions
on the transferability of the Shares purchasable upon the exercise of an option
as it deems appropriate. Any such restriction shall be set forth in the
respective Stock Option Agreement and may be referred to on the certificates
evidencing such Shares. The Committee may require the Employee to give the
Company prompt notice of any disposition of Shares of stock, acquired by
exercise of an Incentive Stock Option, within two
<PAGE> 14
years from the date of granting such Option or one year after the transfer of
such Shares to such Employee. The Committee may direct that the certificates
evidencing Shares acquired by exercise of an Incentive Stock Option refer to
such requirement to give prompt notice of disposition.
ARTICLE VI
ADMINISTRATION
Section 6.1 - Stock Option Committee
The Stock Option Committee shall consist of at least three Directors,
appointed by and holding office during the pleasure of the Board. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee shall be filled by the Board.
Section 6.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the options and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock options"
within the meaning of Section 422A of the Code. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan.
Section 6.3 - Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 6.4 - Special Committee
(a) The Special Committee shall consist of three persons
appointed by and holding office during the pleasure of the Board. No Options may
be granted to any member of the Special Committee during the term of his
membership on the Special Committee. No person shall be eligible to serve on the
Special Committee unless he is then a "disinterested person" within the meaning
of paragraph (d) (3) of Rule 16b-3 which has been adopted
<PAGE> 15
by the securities and Exchange Commission under the securities Exchange Act of
1934, if and as such Rule is then in effect.
(b) All members of the Special Committee shall be Directors;
provided, however, that if less than three Directors are eligible to serve on
the Special Committee, eligible persons who are not Directors shall be appointed
by the Board to fill such vacancies on the Special Committee. Members of the
Special Committee (who are not Directors) may also serve as members of the Stock
Option Committee.
(c) Appointment of Special Committee members shall be effective
upon acceptance of appointment. Special Committee members may resign at any time
by delivering written notice to the Board. Vacancies in the Special Committee
shall be filled by the Board.
Section 6.5 - Compensation; Professional Assistance; Good Faith Actions
Members of the Committee or the Special Committee shall receive such
compensation for their services as members as may be determined by the Board.
All expenses and liabilities incurred by members of the Committee or the Special
committee in connection with the administration of the Plan shall be borne by
the Company. The Committee and the Special Committee may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons. The Committee, the Special Committee, the Company and its
officers and Directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee or the Special Committee in good faith
shall be final and binding upon all Optionees, the Company and all other
interested persons. No member of the Committee or the Special Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the options, and all members of the Committee
and the Special Committee shall be fully protected by the Company in respect to
any such action, determination or interpretation.
ARTICLE VII
OTHER PROVISIONS
Section 7.1 - Options Not Transferable
No Option or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition
<PAGE> 16
by transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by operation
of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect; provided, however, that nothing
in this Section 7.1 shall prevent transfers by will or by the applicable laws of
descent and distribution.
Section 7.2 - Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board or the
Committee. However, without approval of the Company's shareholders given within
12 months before or after the action by the Board or the Committee, no action of
the Board or the Committee may, except as provided in Section 2.3, increase any
limit imposed in Section 2.1 on the maximum number of Shares which may be issued
on exercise of Options, modify the eligibility requirements of Section 3.1,
amend Section 3.3(c) to permit the grant of Options to officers or Directors
other than upon the written recommendation of the Special Committee, reduce the
minimum option price requirements of Section 4.2(a) or extend the limit imposed
in this Section 7.2 on the period during which options may be granted. Neither
the amendment, suspension nor termination of the Plan shall, without the consent
of the holder of the Option, impair any rights or obligations under any Option
theretofore granted. No Option may be granted during any period of suspension
nor after termination of the Plan, and in no event may any Option be granted
under this Plan after the first to occur of the following events:
(a) The expiration of ten years from. the date the Plan is
adopted by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's shareholders under Section 7.3.
Section 7.3 - Approval of Plan by Shareholders
This Plan will be submitted for the approval of the Company's
shareholders within 12 months after the date of the Board's initial adoption of
the Plan. Options may be granted prior to such shareholder approval; provided,
however, that such Options shall not be exercisable prior to the time when the
Plan is approved by the shareholders; provided, further, that if such approval
has not been obtained at the end of said 12-month period, all options previously
granted under the Plan shall thereupon be cancelled and become null and void.
<PAGE> 17
Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or any Subsidiary (a) to establish any other
forms of incentives or compensation for employees of the Company, any Parent
Corporation or any Subsidiary or (b) to grant or assume ,options otherwise than
under this Plan in connection with any proper corporate purpose, including, but
not by way of limitation, the grant or assumption of options in connection with
the acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.
Section 7.5 - Titles
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.
* * * *
1 I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Toxi-Lab, Inc. on ___________, 1998.
Executed on this ___ day of ____________, 1998.
___________________________________
Secretary
* * * *
I hereby certify that the foregoing Plan was duly approved by the
shareholders of Toxi-Lab, Inc. on ___________________, 1998.
Executed on this _____ day of ______________, 1998.
___________________________________
Secretary
<PAGE> 1
EXHIBIT 10.3
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated _______________, 19_, is made by and between
Toxi-Lab, Inc., a California corporation hereinafter referred to as "Company,"
and ________________________, an employee of the Company or a Subsidiary of the
Company, hereinafter referred to as "Employee":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Stock Option Plan for
Employees of Toxi-Lab, Inc. (the terms of which are hereby incorporated by
reference and made a part of this Agreement); and
WHEREAS, the Stock Option Committee of the Company's Board of Directors
(hereinafter referred to as the "Committee"),, appointed to administer said
Plan, has determined that it would be to the advantage and best interest of the
company and its shareholders to grant the Incentive Stock Option provided for
herein to the Employee as an inducement to remain in the service of the Company,
its Parent Corporations or its Subsidiaries and as an incentive for increased
efforts during such service, and has advised the Company thereof and instructed
the undersigned officers to issue said Option; and
WHEREAS, if the Employee is a Director or an Officer of the company, the
grant of said Option has been recommended by the Special Committee;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE> 2
Section 1.2 - Company
"Company" shall mean Toxi-Lab, Inc. In addition, "Company" shall mean
any corporation assuming, or issuing a new incentive stock option in
substitution for, the Option in a transaction to which Section 425(a) of the
Code applies.
Section 1.3 - Option
"Option" shall mean the incentive stock option to purchase common stock
of the Company granted under this Agreement.
Section 1.4 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.5 - Plan
"Plan" shall mean the Stock Option Plan for Employees of Toxi-Lab, Inc.
Section 1.6 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.7 - Securities Act
"Securities Act" shall mean the Securities Act of 1933,, as amended.
Section 1.8 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.9 - Termination of Employment
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Employee and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding any termination where there is a
simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary.
The Committee, in its absolute discretion, shall determine the effect of all
other matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge
<PAGE> 3
for good cause, and all questions of whether particular leaves of absence
constitute Terminations of Employment; provided, however, that a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for purposes of Section 422A(a)(2)
of the Code and the then applicable Regulations and Revenue Rulings under said
Section.
ARTICLE II
GRANT OF OPTION
Section 2.1 - Grant of Option
For good and valuable consideration, on the date hereof the Company
irrevocably grants to the Employee the option to purchase any part or all of an
aggregate of shares of its $.01 par value Common Stock upon the terms and
conditions set forth in this Agreement.
Section 2.2 - Purchase Price
The purchase price of the shares of stock covered by the option shall be
$ per share without commission or other charge.
Section 2.3 - Employment by the Company
Nothing in this Agreement or in the Plan shall confer upon the Employee
any right to continue in the employ of the Company, any Parent Corporation or
any Subsidiary or shall interfere with or restrict in any way the rights of the
Company, its Parent corporations and its Subsidiaries, which are hereby
expressly reserved, to discharge the Employee at any time for any reason
whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
In the event that the outstanding shares of the stock subject to the
option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Employee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 425(h) (3) of the Code. Any such adjustment made by the
Committee
<PAGE> 4
shall be final and binding upon the Employee, the Company and all other
interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
(a) Subject to Sections 3.5 and 5.6, the Option shall become
exercisable as described in Exhibit A, which shall provide that options shall
become exercisable at a minimum of 20% per year and shall be fully exercisable
no later then at the end of 5 years from the date the Option is granted.
(b) No portion of the Option which is unexercisable at
Termination of Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
The Option may not be exercised to any extent by anyone after the first
to occur of the following events:
(a) Except as required by Section 422A(c) (6) of the Code, the
expiration of ten (10) years from the date the option was granted; or
(b) The time of the Employee's Termination of Employment unless
such Termination of Employment results from his death, his retirement, his
disability (within the meaning of Section 22 (e) (3) of the Code) or his being
discharged not for good cause; or
(c) The expiration of three (3) months from the date of the
Employee's Termination of Employment by reason of his retirement or his being
discharged not f or good cause, unless the Employee dies within said three-month
period; or
(d) The expiration of one (1) year from the date of the
Employee's Termination of Employment by reason of his disability (within the
meaning of Section 22 (e) (3) of the Code); or
(e) The expiration of one (1) year from the date of the
Employee's death.
<PAGE> 5
Section 3.4 - Merger, Consolidation, Acquisition or Dissolution of the Company
In the event of the merger or consolidation of the Company with or into
another corporation, or the acquisition by another corporation or person of all
or substantially all of the Company's assets or eighty percent (80%) or more of
the Company's then outstanding voting stock, or the liquidation or dissolution
of the Company, either:
(a) The option shall be assumed or an equivalent option
substituted by any successor corporation to the Company. The Company undertakes
to make reasonable and adequate provision for such assumption or substitution of
the option upon or in connection with such merger, consolidation, acquisition,
liquidation or dissolution; or
(b) The Committee shall provide that the Option shall become
exercisable, for a minimum of thirty (30) days prior to such event, as to all
the shares covered hereby, notwithstanding that this Option may not yet have
become fully exercisable under Section 3.1(a), but subject to Section 3.5.
Section 3.5 - Special Tax Consequences
The Employee acknowledges that, to the extent that the aggregate, fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422A of the Code, but without regard to Section 422A(d)
of the Code), including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other incentive stock
option plans of the Company, any Subsidiary and any Parent Corporation) exceeds
$100,000, such options shall be treated as not qualifying under Section 422A of
the Code but rather shall be taxed as non-qualified options. The Employee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted.
For purposes of these rules, the fair market value of stock shall be determined
as of the time the option with respect to such stock is granted.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Employee, only he may exercise the option or
any portion thereof. After the death of the Employee, any exercisable portion of
the option may, prior to the time when the option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Employee's will or under the then applicable laws
of descent and distribution.
<PAGE> 6
Section 4.2 - Partial Exercise
Any exercisable portion of the option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
ten (10) shares (or minimum installment set forth in Section 3.1, if a smaller
number of shares) and shall be for whole shares only.
Section 4.3 - Manner of Exercise
The Option, or any exercisable portion thereof, may be exercised solely
by delivery to the Secretary or his office of .all of the following prior to the
time when the option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Employee or the other person
then entitled to exercise the Option or portion, stating that the option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is exercised; or
(ii) With the consent of the Committee, Shares of any
class of the Company's stock owned by the Employee duly endorsed for transfer to
the Company with a fair market value (as determinable under Section 4.2 (b) of
the Plan) on the date of delivery equal to the aggregate purchase price of the
shares with respect to which such option or portion is exercised; or
(iii) A combination of the consideration provided in the
foregoing paragraphs (i) and (ii) and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Employee or other person then
entitled to exercise such option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on
<PAGE> 7
exercise of this option shall bear an appropriate legend referring to the
provisions of this subsection (c) and the agreements herein. The written
representation and agreement referred to in the first sentence of this
subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; (d) Full payment
to the Company (or other employer corporation) of all amounts which, under
federal, state or local tax law, it is required to withhold upon exercise of the
Option; and
(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Employee,
appropriate proof of the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Shareholder
The holder of the option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
Notwithstanding the foregoing provision, the company shall
<PAGE> 8
provide to the Employee, on an annual basis, such financial and other
information as it provides to its shareholders for so long as no part of the
Option has been exercised and the Option has not expired by its terms.
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the option. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Plan and this
Agreement.
Section 5.2 - Option Not Transferable
Neither the option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
The Company shall at all times during the term of the option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Employee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Employee shall, if the Employee is
then deceased, be given to the Employee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this
<PAGE> 9
Section 5.4. Any notice shall be deemed duly given when enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, deposited (with postage
prepaid) in a post office or branch post office regularly maintained by the
United States Postal Service.
Section 5.5 - Titles
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Agreement.
Section 5.6 - Shareholder Approval
The Plan will be submitted for approval by the Company's
shareholders within twelve (12) months after the date the Plan was initially
adopted by the Board. This Option may not be exercised to any extent by anyone
prior to the time when the Plan is approved by the shareholders, and if such
approval has not been obtained by the end of said twelve-month period, this
Option shall thereupon be cancelled and become null and void.
Section 5.7 - Notification of Disposition
The Employee shall give prompt notice to the Company of any disposition
or other transfer of any shares of stock acquired under this Agreement if such
disposition or transfer is made (a) within two (2) years from the date of
granting the Option with respect to such shares or (b) within one (1) year after
the transfer of such shares to him. Such notice shall specify the date of such
disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by the Employee in such
disposition or other transfer.
Section 5.8 - Construction
This Agreement shall be administered, interpreted and enforced under the
laws of the State of California.
Section 5.9 - Company's Right to Repurchase Shares
Upon Termination of Employment, the Company shall have the option to
repurchase all (but not less than all) of the shares of stock which have been
purchased by the Employee pursuant to exercise of the option and which the
Employee then holds. The repurchase price payable by the Company if it exercises
its repurchase option shall be the fair market value of the shares (determined
pursuant to Section 4.2(b) of the Plan) on the date of the Termination of
Employment.
The Company's repurchase option shall be exercisable by giving written
notice (accompanied by payment for the shares) to the Employee within thirty
(30) calendar days after the Termination of Employment.
<PAGE> 10
Section 5.10 - Restrictions on Transfer of Shares
(a) There can be no valid transfer (as hereinafter defined) of
any shares of stock purchased on exercise of the option, or any interest in such
shares, by any holder of such shares or interests unless such transfer is solely
for cash consideration and is made in compliance with the following provisions:
(i) Before there can be a valid transfer of any shares or
any interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give ,.written notice (by registered or certified mail)
to the Company. Such notice shall specify the identity of the proposed
transferee, the cash price offered for the offered Shares by the proposed
transferee and the other terms and conditions of the proposed transfer. The date
such notice is mailed shall be hereinafter referred to as the "notice date" and
the record holder of the Offered Shares shall be hereinafter referred to as the
"Offeror."
(ii) For a period of thirty (30) calendar days after the
notice date, the Company shall have the option to purchase all (but not less
than all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(iii) of this Section 5.10. This option shall be exercisable by
the company by mailing (by registered or certified mail) written notice of
exercise to the Offeror prior to the end of said thirty (30) days.
(iii) The price at which the Company may purchase the
Offered Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in the
notice required under subsection (a)(i) of this Section 5.10). The Company's
notice of exercise of such option shall be accompanied by full payment for the
offered Shares and, upon such payment by the Company, the Company shall acquire
full right, title and interest to all of the Offered Shares.
(iv) If, and only if, the option given pursuant to
subsection (a)(ii) of this Section 5.10 is not exercised, the transfer proposed
in the notice given pursuant to subsection (a)(i) of this Section 5.10 may take
place; provided, however, that such transfer must, in all respects, be exactly
as proposed in said notice except that such transfer may not take place either
before the tenth (10th) calendar day after the expiration of said thirty-day
option exercise period or after the ninetieth (90th) calendar day after the
expiration of said thirty-day option exercise period, and if such transfer has
not taken place prior to said ninetieth (90th) day, such transfer may not take
place without once again complying with subsection (a) of this Section 5.10.
(b) As used in this Section 5.10, the term "transfer" means any
sale, encumbrance, pledge, gift or other form of disposition or transfer of
shares of the Company's stock or any legal or equitable interest therein;
provided, however, that the term "transfer" does not include a transfer of such
shares or interests by will or by the applicable laws of descent and
<PAGE> 11
distribution or a gift of such shares if the donee agrees to be bound by the
provisions of this Section 5.10.
(c) None of the shares of the Company's stock purchased on
exercise of the option shall be transferred on the Company's books nor shall the
Company recognize any such transfer of any such shares or any interest therein
unless and until all applicable provisions of this Section 5.10 have been
complied with in all respects. The certificates of stock evidencing shares of
stock purchased on exercise of the Option shall bear an appropriate legend
referring to the transfer restrictions imposed by this Section 5.10 and to the
repurchase option provided for in Section 5.10.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
TOXI-LAB, INC.
By_________________________________
By_________________________________
___________________________________
Employee
___________________________________
___________________________________
Address
Employee's Taxpayer
Identification Number:
___________________________________
<PAGE> 12
Exhibit A
INCENTIVE STOCK OPTION AGREEMENT
OF _____________________________
1. The first installment shall consist of percent (_%) of the shares
covered by the Option and shall become exercisable on the first anniversary of
the date the Option is granted.
2. The second installment shall consist of _____________ percent (_%) of
the shares covered by the option and shall become exercisable on the second
anniversary of the date the option is granted.
3. The third installment shall consist of _______________ percent (_%)
of the shares covered by the option and shall become exercisable on the third
anniversary of the date the option is granted.
4. The fourth installment shall consist of ______________ percent (_%)
of the shares covered by the Option and shall become exercisable on the fourth
anniversary of the date the Option is granted.
5. The fifth installment shall consist of _______________ percent (_%)
of the shares covered by the Option and shall become exercisable on the fifth
anniversary of the date the Option is granted.
<PAGE> 13
SECOND AMENDMENT
TO
THE STOCK OPTION PLAN
FOR EMPLOYEES OF TOXI-LAB, INC.
Pursuant to Section 7.2 of The Stock Option Plan for Employees of
Toxi-Lab, Inc. (the "Plan"), the Plan may be amended at any time by the Board or
the Committee.
The Board of Directors, at their September 20, 1995, meeting approved
amending the name of the Plan to read as follows:
"The Stock Option Plan For Employees of Ansys, Inc."
Pursuant to Section 7.2 of The Stock Option Plan for Employees of Ansys,
Inc. (the "Plan"), the Plan may be amended to increase any limit imposed in
Section 2.1 of the Plan on the maximum number of shares of Common Stock which
may be issued on exercise of options by the Board of Directors or by the
Committee of Ansys, Inc. (formerly Toxi-Lab, Inc.) (the "Company"), with
approval of the Company's shareholders.
The Committee of the Company, at its September 20, 1995 meeting, and a
majority of the Shareholders of the Company, by written consent dated September
20, 1995, approved amending Section 2.1 of Article II of the plan to read in its
entirety as follows:
"Section 2.1 - Shares Subject to Plan
The Shares of stock subject to Options shall be shares of the Company's
$.01 par value Common Stock. Subject to Section 3.3(d),the aggregate number of
such Shares which may be issued upon exercise of Options shall not exceed
650,000."
I hereby certify that the Amendment changing the name of the plan to The
Stock Option Plan for Employees of Ansys, Inc. was adopted by the Board of
Directors on September 20, 1995.
I hereby certify that Section 2.1 of the Plan was also duly approved by
the Committee and shareholders of the Company on September 20, 1995.
Executed at Irvine, California on the _____ day of _________________,
1995.
___________________________________
Michael Beeuwsaert, Secretary
<PAGE> 1
EXHIBIT 10.8
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE" ), dated for reference purposes only,
November 1, 1996, is made by and between Makena Properties, a California
corporation ("LESSOR") and Ansys, Inc. , a California corporation ("LESSEE"),
(collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of See Addendum Section 1.2, located in the County
of Orange State of California and generally described as (describe briefly the
nature of the property) ______________________________________________
_________________________________________________________________("PREMISES").
(See Paragraph 2 for further provisions.)
1.3 TERM: _____________________ years and ______________ months ("ORIGINAL
TERM") commencing See Addendum Section 1.3 ("COMMENCEMENT DATE") and ending
___________________ ("EXPIRATION DATE"). (See Paragraph 3 for further
provisions.)
1.4 EARLY POSSESSION: See Addendum Section 1.4 ("EARLY POSSESSION DATE").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $47,945 per month ("BASE RENT"), payable on the 1st day of
each month commencing See Addendum Section 3.4 (See Paragraph 4 for further
provisions.) If this box is checked, there are provisions in this Lease for the
Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $47,945 as Base rent for the period See
Addendum Section 1.6
1.7 SECURITY DEPOSIT: $47,945 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: See Addendum Section 1.8 (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): Cushman & Wakefield
represents X Lessor exclusively ("LESSOR'S BROKER"); both Lessor and Lessee, and
Voit Commercial Brokerage represents X Lessee exclusively ("LESSEE'S BROKER");
both Lessor and Lessee. (See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by None ("GUARANTOR"). (See Paragraph 37 for further provisions.)
1.12 ADDENDUMS. Attached hereto is an Addendum or Addenda consisting of
Paragraphs _____ through _____ and Exhibits Addendum with Exhibits A-C attached
thereto all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental is an approximation which Lessor and Lessee
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual square footage is more or less.
1
<PAGE> 2
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be at the obligation of Lessee at Lessees sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to electrical and fire sprinkler
systems, security, environmental aspects. compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period. Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
2
<PAGE> 3
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessees interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safely or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "REPORTABLE USE" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the
3
<PAGE> 4
environment against damage, contamination or injury and/or liability therefrom
or therefor, including, but not limited to, the installation (and removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessor shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises, at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.) 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the
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generality of the foregoing, all equipment or facilities serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roofs, floors, windows,
doors, plate glass, skylights landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of the
Premises, the elements surrounding same, or neighboring properties, that was
caused or materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance and/or storage tank brought onto the Premises by or for
Lessee or under its control. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If Lessee occupies the Premises for
seven (7) years or more, Lessor may require Lessee to repaint the exterior of
the buildings on the Premises as reasonably required, but not more frequently
than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
forms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
In Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon; and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lessee shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and
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completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessees
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease form or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall
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include coverage for liability assumed under this Lease as an "Insured
Contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a)
above, in additional to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named an additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lendor(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessees Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1 (c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said Insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said Insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance" premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $ 1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or
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such other rating as may be required by a Lender having a lien on the Premises,
as set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies referred to in this Paragraph 8. If Lessee is the Insuring Party,
Lessee shall cause to be delivered to Lessor certified copies of policies of
such insurance or certificates evidencing the existence and amounts of such
insurance with the insureds and loss payable clauses as required by this Lease.
No such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with evidence
of renewals or "insurance binders" evidencing renewal thereof, or Lessor may
order such insurance and charge the cost thereof to Lessee, which amount shall
be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to
procure and maintain the insurance required to be carried by the Insuring Party
under this Paragraph 8, the other Party may, but shall not be required to
procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents. Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
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(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect: provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and , in such event, Lessor shall make the
insurance proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the data of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in
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insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon
as reasonably possible and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option and provide such funds or assurance
during said Exercise Period, then Lessor may at Lessor's option terminate this
Lease as of the expiration of said sixty (60) day period following the
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within ten (10) days after the expiration of the Exercise
Period, notwithstanding any term or provision in the grant of option to the
contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect; but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) it the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000.
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and affect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TEXAS.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2. applicable to the Premises during the term of this
Lease. Subject to Paragraph 10. 1 (b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that
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such taxes have been paid. If any such taxes to be paid by Lessee shall cover
any period of time prior to or after the expiration or earlier termination of
the term hereof, Lessee's share of such taxes shall be equitably prorated to
cover only the period of time within the tax fiscal year this Lease is in
effect, and Lessor shall reimburse Lessee for any overpayment after such
proration. If Lessee shall fail to pay any Real Property Taxes required by this
Lease to be paid by Lessee, Lessor shall have the right to pay the same, and
Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1 (a), at the option of Lessor, be treated as an additional
Security Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
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(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF
LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or Subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease form shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease. (ii)
release Lessee of any obligations hereunder, or (iii) after the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance or Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness or the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessors considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or
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sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease. Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment or such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all of any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said Default. A "DEFAULT" is defined as a failure
by the Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "BREACH" is defined
as the occurrence of any one or more of the following Defaults, and, where a
grace period for cure after notice is specified herein, the failure by Lessee to
cure such Default prior to the expiration of the applicable grace period, shall
entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or
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non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this Lease, where any
such failure continues for a period of ten (10) days following written notice by
or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) days period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth of the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1 %). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1 (b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1 (b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1 (b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the
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two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of the Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area
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of the Premises taken bears to the total rentable floor area of the building
located on the Premises. No reduction of Base Rent shall occur if the only
portion of the Premises taken is land on which there is no building. Any award
for the taking of all or any part of the Premises under the power of eminent
domain or any payment made under threat of the exercise of such power shall be
the property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages: provided, however, that Lessee shall be entitled to any
compensation separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its net
severance damages received, over and above the legal and other expenses incurred
by Lessor in the condemnation matter, repair any damage to the Premises caused
by such condemnation, except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall be responsible for the
payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $______________ ) for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
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17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. It any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor,
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notwithstanding any qualifying statements or conditions made by Lessee in
connection therewith, with such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably
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incurred. Lessor shall be entitled to attorney's fees, costs and expenses
incurred in the preparation and service of notices of Default and consultations
in connection therewith, whether or not a legal action is subsequently commenced
in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lessor interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the
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case of a corporate Guarantor, a certified copy of a resolution of its board of
directors authorizing the making of such guaranty, together with a certificate
of incumbency showing the signature of the persons authorized to sign on its
behalf, (b) current financial statements of Guarantor as may from time to time
be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation
that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessees part to be observed and performed under this Lease, Lessee
shall have quiet possession of the Premises for the entire term hereof subject
to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the terms of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on the property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2. OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
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Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessees obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
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The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at IRVINE, CA. NET
-------------------------- Executed at
on FEB. 27, 1997 -----------------------------
---------------------------------- on
by LESSOR: --------------------------------------
Makena Properties, a California by LESSEE:
corporation Ansys, Inc., a California corporation
---------------------------------- ----------------------------------------
By By
----------------------------------- --------------------------------------
Name Printed: Norman N. Nowell Name Printed:
----------------------- --------------------------
Title: President Title:
------------------------------ ---------------------------------
By
----------------------------------- By
Name Printed: --------------------------------------
------------------------ Name Printed:
Title: --------------------------
------------------------------- Title:
Address: 23792 Rockfield Blvd., ---------------------------------
Suite 101
---------------------------- Address:
Lake Forest CA 92630
---------------------------- ----------------------------
Tel. No. (714)461-7161
---------------------------- ----------------------------
Fax No. (714)461-7162 Tel. No.
---------------------------- ----------------------------
Fax No.
----------------------------
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<PAGE> 23
ADDENDUM TO
STANDARD INDUSTRIAL/COMMERCIAL SINGLE TENANT LEASE-NET
(AIREA 1990)
This Addendum is made as of November 1, 1996 by and between Ansys, Inc., a
California corporation ("Lessee") and Makena Properties, a California
corporation ("Lessor"), with respect to the Standard Industrial/Commercial
Single Tenant Lease - Net (American Industrial Real Estate Association (1990))
between Lessor and Lessee dated concurrently herewith ("AIREA Lease"). The AIREA
Lease, as amended hereby is hereafter referred to as the "Lease". To the extent
that the provisions of this Addendum are inconsistent with the terms and
conditions of the AIREA Lease, such inconsistencies shall take priority as
follows: (i) printed or written inserts to this Addendum, (ii) typed, printed or
written inserts to the AIREA Lease, (iii) this Addendum, and (iv) the printed
form AIREA Lease. References to "Paragraphs" below means paragraphs in the AIREA
Lease, and references to "Sections" below means the sections of this Addendum.
All capitalized terms not otherwise defined herein shall have the meaning set
forth in the AIREA Lease.
1.2 PREMISES. The Premises consist of Tract 13343, Lot 12, Orange County
("County"), California ("Land"), and the improvements ("Improvements") to be
constructed thereon pursuant to Section 51.
1.3 TERM. The period commencing on the Commencement Date and ending the ten
(10) calendar years after: (i) the Commencement Date, or (ii) if the
Commencement Date is other than on the first day of a calendar months ("Starting
Stub Month"), then the end of the month in which the Commencement Date occurred
(the "Term").
1.4 Lessee shall be entitled up to 30 days early occupancy as provided in
Section 3.4.
1.5 Initially, the Base Rent shall equal $47,945.
1.6 $47,945, to be applied to the first full calendar month after the
Commencement Date, shall be paid within 5 days after notice from Lessor that it
has acquired the Land. Upon the Commencement Date, Lessee shall pay the Base
Rent for the remainder of the calendar month in which the Commencement Date
occurs.
1.7 Initially $47,945, and thereafter maintained at one month's Base Rent.
1.8 Production and sales (provided that such sales are limited to wholesale
transactions which do not be violate applicable zoning and covenants, conditions
and restrictions of record) of substance abuse testing kits and other medical
kits; and all other operations incident to the conduct of such business which is
not in violation of law or covenants, conditions and restrictions of record.
1.9 Lessee is the Insuring Party.
2.4 Lease Section 2.4 is deleted. Lessee shall accept the Improvements when
and as provided in Section 51.4(b). Except as provided in the Lease or this
Addendum, Lessee acknowledges that Lessor and its brokers and agents have made
no representations or warranties to Lessee whatsoever.
3.2 Deleted. Except as provided in Section 3.4, Lessee shall not be
entitled to occupy the Premises prior to the Commencement Date.
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3.3 Deleted.
3.4 COMMENCEMENT DATE. The Commencement Date shall be the earlier of (i)
occupancy of the Premises, or (ii) the later of (A) 30 days after the
Substantial Completion Date, as defined in Section 51.4(b) or (B) January 1,
1998. After the Substantial Completion Date and before the Commencement Date,
and provided Lessee complies with all insurance requirements in this Lease,
Lessee may enter the Premises for utility installations, set-up and
fixturization purposes, but not operating of Lessee's business, without being
deemed to be in occupancy. Upon the Commencement Date, the parties shall execute
the Commencement Date Memorandum in the form attached hereto as Exhibit A.
3.5 OPTION TO EXTEND. Lessee shall have one option ("Extension Option") to
extend the Term of this Lease for a period of five years. The Extension Option
may be exercised only in the event that Lessee is not in default under this
Lease upon the date of exercise. The Extension Option must be exercised by
notice in writing of such exercise, delivered by Lessee to Lessor, not later
than 6 months prior to the end of the Term. The Base Rent for the Option Term
shall be the greater of (i) the Base Rent then in effect (as periodically
adjusted pursuant to the Section 4.1), or (ii) 95% of the "FRV". The "FRV" means
the then fair rental value being charged for similar premises in the vicinity of
the Premises, presuming all terms and conditions of this Lease, such FRV being
determined commencing at the beginning of the month which is two (2) months
prior to the commencement of the Option Term, whereupon Lessor and Lessee shall
attempt to agree upon the FRV. If the parties are unable to agree upon the FRV
prior to the end of such month, then within ten (10) days thereafter each party,
at its cost and by giving notice to the other party, shall appoint a real estate
appraiser with at least ten (10) years full-time industrial appraisal experience
in the Central and Southern Orange County area to appraise and determine such
FRV. If a party does not appoint an appraiser within ten (10) days after the
other party has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall set the FRV. If there are two
appraisers appointed by the parties as stated in this paragraph, they shall met
promptly and attempt to set the FRV. If the two appraisers are unable to agree
within fifteen (15) days after the second appraiser has been appointed, they
shall attempt to elect a third appraiser meeting the qualifications stated in
this section within ten (10) days after the last day the two appraisers are
given to set the FRV. If the two appraisers are unable to agree on the third
appraiser, either of the parties to this Lease, by giving ten (10) days notice
to the other party, can apply to the then president of the County Real Estate
Board, or to the presiding judge of the Superior Court of the County, for the
selection of a third appraiser meeting the qualifications stated in this
section. Each of the parties shall bear one-half of the cost of appointing the
third appraiser and of paying the third appraiser's fee. The third appraiser,
however selected, shall be a person who has not previously acted in any capacity
for either party. Within fifteen (15) days after the selection of the third
appraiser, a majority of the appraisers shall set the FRV. If a majority of the
appraisers are unable to set the FRV, the FRV shall be the two closest
appraisals (unless the appraisals are equidistant, in which case, the middle
appraisal shall be the FRV).
4.4 CPI. The Base Rent shall adjust as set forth herein on the beginning of
the 30th, 60, 90 and 150th months after the Commencement Date or, if applicable,
the end of the Starting Stub Month (each an "adjustment date"). On each
adjustment date, the Base Rent shall be increased, but not decreased, to a sum
equal to the initial Base Rent multiplied by a fraction, the numerator of which
is the Index for the third calendar month prior to the adjustment date and the
denominator of which is the Index for the third calendar month prior to the
Commencement Date. Notwithstanding the foregoing, the increase in the Base Rent
on each adjustment date shall be not less than 10.24% nor more than 20.48%. The
"Index" means the Consumer Price Index - All Urban Consumers (Los Angeles - Long
Beach; Anaheim Area: Base 1967 = 100), as published by the United States
Department of Labor, Bureau of Labor Statistics. Should the Bureau discontinue
the publication of the Index, or publish the same less frequently, or alter the
same in
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some other manner, then Lessor and Lessee shall adopt a substitute index
or procedure which is most similar to the Index (as of the date of execution of
this Lease) in reflecting consumer prices. In the event Lessor and Lessee cannot
agree on such alternative index, then the adjustment as of each adjustment date
shall be 15.36%.
6.2(a) The definition in Lease Section 6.2(a) of "Hazardous Substances" is
deleted and replaced by the following: (A) any hazardous or toxic materials,
pollutants, effluents, contaminants, radioactive materials, flammable
explosives, chemicals known to cause cancer or reproductive toxicity, emissions
or wastes including, without limitation: asbestos, petroleum and petroleum
by-products, urea formaldehyde foam insulation, polychlorinated biphenyl
("Material"); (B) substances defined as "hazardous substances", "hazardous
materials", "toxic substances" or "hazardous wastes" or the like in any
Hazardous Substances Laws; (C) any Material whose presence, nature, quantity
and/or intensity of existence, use, manufacture, disposal, transportation,
spill, release or effect, either by itself or in combination with other
materials expected to be on the Premises, is a basis for liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory; and (D) all substances now or hereafter designated by the Governor
of the State of California pursuant to the Safe Drinking Water and Toxic
Enforcement Act of 1986 as being known to cause cancer or reproductive toxicity.
6.2(c) Add to the end of the first sentence: "or otherwise deposited or
released in, on or under the Premises on or after the Commencement Date by any
person other than Lessor, its employees and agents; provided that Lessor shall
reasonably cooperate with Lessee's prosecution of third parties who have
deposited Hazardous Substances on the Premises."
6.2(d) The term "Hazardous Substances Laws" mean any federal, state or
local law.
3.3 Condition Failure. If Buyer timely disapproves any condition in Section
3.2 or Section 4 in writing, this Agreement shall automatically terminate, and
thereafter the parties shall have no further obligation or liability under this
Agreement, except as provided in this subsection. The Deposit shall be returned
to Buyer. Buyer's failure to provide timely written notice of disapproval shall
be deemed a waiver thereof. Any cancellation fee or other costs of the Escrow
Holder shall be borne equally by Seller and Buyer and each party shall pay its
own expenses.
4. TITLE. Buyer agrees to take title to the property subject to (i) unpaid real
property taxes and assessments relating to the period after the "Commencement
Date" (defined in the Lease), and (ii) Exception Nos. 9-16 in Preliminary No.
00601697 M07 issued by Chicago Title Company dated as of November 16, 1996
("PTR"). If Buyer receives notice from the Escrow Holder that it intends to
revise the PTR to include one or more additional exceptions to title, Buyer may,
within five (5) days of such notice, notify Seller ("Buyer's Title Notice") of
the additional title exceptions to which it objects ("Title Objections"),
provided, however, that Buyer may object only if Buyer reasonably determines
that the exceptions materially and adversely affect the use and enjoyment of the
Property for Buyer's contemplated use. If Buyer fails to deliver timely notice
within the required period, Buyer shall be deemed to have approved the Title
Objections. Seller shall have the shorter of five (5) days after Buyer's Title
Notice, or until two (2) Business Days before the Closing Date, within which to
deliver to Buyer a notice ("Seller's Title Notice") indicating whether Seller
will eliminate or cure such Title Objections by the Closing. If Seller elects to
eliminate or cure a Title Objection, the elimination or curing by Seller of the
Title Objections shall be completed on or before the Closing. If Seller (a) does
not deliver Seller's Title Notice within the required time, or (b) notifies
Buyer that Seller is unable or unwilling to cure such Title Objections, Buyer
shall have three (3) days to elect to waive such Title Objections or deliver to
Seller written notice terminating this Agreement pursuant to Section 3.3. If
Buyer fails to give Seller notice of its
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election within the time set forth in the previous sentence, Buyer shall be
deemed to have elected to waive such Title Objections.
The term "Permitted Exceptions" shall mean (i) all exceptions to title
listed in the PTR, except as noted above; (ii) any additional exceptions to
which Buyer does not object in Buyer's Title Notice; and (iii) the Lease and any
other matter that is approved, caused, permitted or suffered by Buyer, its
employees, agents, representatives or affiliates. Notwithstanding anything to
the contrary in this Section 4, Seller shall eliminate any and all title
exceptions consisting of: mechanics liens for work caused by Seller; judgment
liens against Seller; liens for taxes not required to have been paid by Buyer
under the Lease; monetary liens, mortgages, deeds of trust, security agreements
and fixture filings executed by Seller; and leases or purchase options executed
by Seller other than the Lease.
5. CONDITIONS TO CLOSING
5.1 Buyer's Closing Conditions. Buyer's obligation to purchase the Property
is expressly conditioned on the fulfillment of each of the conditions precedent
at or before Closing described below ("Buyer's Closing Conditions"). Buyer's
Closing Conditions are under Lease Section 8 which perils occur in, on or about
the Premises, whether due to the negligence of Lessor or Lessee or their agents,
employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining
the policies of insurance required hereunder, give notice to the insurance
carrier or carriers that the foregoing mutual waiver of subrogation is contained
in this Lease.
8.8 Add to the end: "except for such injuries or losses to the extent
attributable to Lessor's gross negligence or willful misconduct".
10.5 TAX CONTESTS. Lessee shall not be required to pay, discharge, or
remove any tax (including penalties and interest), assessment, tax lien,
forfeiture, or other imposition or charge against the Premises or any part of
the Premises or any improvements, so long as Lessee diligently and in good faith
contests the validity or the legality of the assessment, levy, or charge by
appropriate legal proceedings; provided however, that Lessee, prior to the date
that the tax, assessment, imposition, or charge is due and payable, shall either
have paid it under protest or shall have, (i) in the case of Real Property
Taxes, posted a bond with Lessor sufficient to cover the amount of the taxes and
penalties and interest and, (ii) in the case of taxes other than Real Property
Taxes, given to Lessor a letter executed by an officer of Lessee assuring Lessor
that the tax, assessment, imposition, or charge will be paid when and to the
extent that the legal proceedings conclude in a final determination that the
tax, assessment, imposition, or charge is valid, legal and owing. Upon such
final determination, Lessee agrees to immediately pay the contested tax,
assessment, imposition, or charge, together with all interest and penalties, if
any, and remove and discharge any lien or forfeiture arising from the prior
nonpayment. Any proceedings for contesting the validity, legality, or amount of
any tax, assessment, imposition, or charge, or to recover any tax, assessment,
imposition, or charge paid by Lessee, may be brought by Lessee in the name of
Lessor or in the name of Lessee, or both, as Lessee deems advisable. Lessor
agrees that Lessor will, upon the reasonable request of Lessee, execute or join
in the execution of any instrument or document necessary in connection with any
proceeding. However, if any proceedings are brought by Lessee, Lessee agrees to
indemnify, defend, protect and hold harmless Lessor for all loss, cost, or
expense that may be imposed on Lessor in connection with the proceeding.
Lessee's right to contest taxes as provided in this Lease shall not extend
beyond the point where Lessor's title to the Premises could be lost. In any
event, Lessee shall notify Lessor in advance of any tax contest proceedings that
Lessee intends to initiate, and shall then inform Lessor of all significant
developments in the proceedings as they may occur. If any assessments for local
improvements become a lien after the Commencement Date, Lessee shall pay only
the installments of the assessments that become due and payable during the Term.
On the request of Lessee,
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Lessor agrees to cooperate or join with Lessee in any application that may be
necessary to permit the payment of the assessments in installments.
10.6 Any reimbursement of Real Property Taxes due from Lessor to Lessee
shall be paid within 10 days of written request therefor.
12.1 LESSOR'S CONSENT REQUIRED. Notwithstanding anything to the contrary in
Lease Section 12.1(a), (b) or (c): Addendum Section 12.1(e) shall prevail.
Notwithstanding Lease Section 12.1(b) Lessor's consent shall not be required for
a change in control resulting from the sale of shares in Lessee pursuant to a
public offering registered pursuant to the federal Securities Act of 1933.
12.1(e) ASSIGNMENT TO AFFILIATES. Lessee shall have the right to assign the
Lease and the Section 50 option to any Affiliate without Lessor's consent.
"Affiliate" means any entity controlling, controlled by or under common control
with Lessee, and any entity acquiring (by way of purchase, merger or
consolidation) all or substantially all of the assets of Lessee.
12.4 SUBLEASE OR ASSIGNMENT PROFITS. Lessor shall be entitled to 50% of all
"Profits" from the assignment or sublease of any or all of the Premises
excluding the Additional Improvements (defined in Section 51.1(a)), for which
Lessor shall be entitled to 0% of the Profits. Profits shall equal (i) the sum
of all consideration received by Lessee from such sublessee or assignee for or
relating to the Premises, less (ii) direct, out-of-pocket costs incurred in
effecting such sublease or assignment. Lessee shall provide all information
reasonably requested by Lessor relating to the determination of such profits. If
the entire Premises (including the Additional Improvements) are assigned or
subleased in a single transaction or series of related transactions, the parties
shall equitably allocate Profits between the Additional Improvements and the
remainder of the Premises.
13. 1(g) Deleted.
13.2(e) OTHER LESSOR REMEDIES.
The parties expressly acknowledge that Section 13.2(a)(iii) is intended to
comply with California Civil Code Section 1951.2(c)(1). Lessor has the remedy
described in California Civil Code Section 1951.4 (Lessor may continue the Lease
in effect after Lessee's breach and abandonment and recover rent as it becomes
due) and Lessee expressly agrees and acknowledges that any and all limitations
this Lease to Lessee's sublease and assignment rights are reasonable.
In any action of unlawful detainer commenced by Lessor against Lessee by
reason of any default hereunder, Lessee acknowledges that the monthly fair
rental value of the Premises for the period of the unlawful detainer shall be
not less than the amount of monthly Base Rent, plus one twelfth of all
additional Rental paid during the most recent calendar year.
Lessee hereby waives any right of redemption or relief from forfeiture
under any present of future law, if Lessee is evicted or Lessor takes possession
of the Premises by reason of any default by Lessee hereunder. The various rights
and remedies reserved to Lessor herein, including those not specifically
described herein, shall be cumulative, and except as otherwise provided by
statutory law in force and effect at the time of the execution hereof, Lessor
may pursue any or all of such rights and remedies, whether at the same time or
otherwise. One or more waivers by Lessor of any breach or default shall not be a
waiver of any other breach or default of the same or any other provision.
Lessor's consent to or approval of any act by Lessee requiring Lessor's consent
or approval shall not be deemed to waive or
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render unnecessary Lessor's consent to or approval of any subsequent similar act
by Lessee. The receipt by Lessor of any Rental with or without knowledge of the
breach of any other provision hereof shall not be deemed a waiver of any such
breach. No partial payment of Rental (and no acceptance of a partial payment,
regardless of any notation on or accompanying the check) shall be effective to
waive the remaining unpaid Rental or constitute an accord and satisfaction
unless Lessor executes a written agreement explicitly waiving any such unpaid
Rental. No delay or omission in the exercise of any right or remedy accruing to
Lessor upon any breach by Lessee under this Lease shall impair such right or
remedy or be construed as a waiver of any such breach theretofore or thereafter
occurring.
13.3 Deleted.
13.5.1 Lessee acknowledges and agrees that in the event of a Lessor
default, Lessee's sole and exclusive remedy shall be to seek monetary damages;
provided however, if Lessor defaults its obligation to execute and deliver the
Sale Agreement pursuant to Section 50, then in lieu of damages, Lessee shall be
entitled to the remedy of specific performance. Lessee expressly waives all
other remedies, including without limitation: specific performance, injunction,
any right to terminate the Lease for any reason whatsoever (including without
limitation California Civil Code Sections 1932(2), 193.3(4) and 1941 or any
other current or future law), and statutory, legal or equitable self help remedy
(including without limitation California Civil Code Section 1942 or any other
current or future law).
15.2 is deleted. Lessor shall pay a total commission of $212,000, 50% to
Lessor's Broker and 50% to Lessee's Broker. Such commission shall be payable,
50% within 45 days after mutual execution of the Lease, and 50% promptly after
occupancy of the Premises by Lessee and the commencement of Base Rent.
15.3 is deleted. No brokers or others shall have any right whatsoever to
any commission or finders' fee in the event of an exercise of the Extension
Option or the Purchase Option.
15.4 Deleted.
17.1 LESSOR PERSONAL LIABILITY. Anything in this Lease to the contrary
notwithstanding, Lessee agrees that it shall look solely to the estate and
property of Lessor in the land and buildings comprising the Premises, subject to
prior rights of the holder of any ground lease, mortgage or deed of trust of the
Premises (such net value being the "equity", and provided that if such equity is
less than $100,000, then Landlord shall be personally liable for the difference,
up to a maximum of $100,000), for the collection of any judgment (or other
judicial process) requiring the payment of money by Lessor in the event of any
default or breach by Lessor with respect to any of the terms, covenants to be
observed or performed by Lessor, and no other assets of Lessor shall be subject
to levy, execution or any procedures as a remedy of Lessee; provided however, if
Lessor sells the Premises and the buyer does not assume all liability arising
prior to the transfer under this Lease, then Lessor shall remain personally
liable up to the amount of the net proceeds from such sale. In the event of any
transfer of Lessor's interest in the Premises and assumption of the Lease by the
buyer, Lessor shall be automatically relieved of any and all obligations and
liabilities on the part of Lessor accruing from and after the date of such
transfer.
21. RENTAL. The term "Rental" means each and every payment required to be
made by Lessee pursuant to this Lease including without limitation Base Rent,
utilities, taxes, insurance premiums, late charges and interest and utility
charges, repairs and maintenance incurred by Lessor on Lessee's behalf. All
Rental shall be paid when due and without notice except as expressly provided to
the contrary in this Lease. Lessee waives any right of offset, demand or
deduction against Rental pursuant to California Code
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of Civil Procedure ("CCP") Section 431.70 or otherwise. All Rental constitutes
"rent" or "rental" under the unlawful detainer statutes (CCP Section 1161 et
seq.)
31.1 BANKRUPTCY FEES. If Lessee files for protection under, or voluntarily
or involuntarily becomes subject to, any chapter of the United States Bankruptcy
Code or similar state insolvency laws, the other party shall be entitled to any
and all Fees incurred to protect such party's interest and other rights under
this Lease, whether or not such action results in a discharge.
26.1 HOLDOVER. Should Lessee holdover with or without the consent of
Lessor, such holdover shall be a tenancy at sufferance upon all of the terms and
conditions set forth herein, except that the Base Rent shall be increased to
200% of the Base Rent in effect at the end of the Term.
32.1 Notwithstanding Lease Section 32, provided Lessee is not then in
default, during the first 24 months after the Commencement Date, Lessor shall
not post For Sale or For Lease signs and shall not enter the Premises for the
purpose of showing the Premises to prospective buyers or tenants.
36(b) Deleted.
39.2 Notwithstanding Lease Section 39.2, the Purchase Option may be
assigned to an "Affiliate" as defined in Addendum Section 12.1(e).
39.4(a)(iv) Deleted.
39.4(c)(ii) and (iii) Deleted.
49. CONTINGENCIES. Lessor's obligations under this Lease are expressly
subject to and contingent upon the conditions below. If one or more of the
conditions are not satisfied of waived when and as required, this Lease shall
automatically terminate.
(a) Lessor has a contract to purchase the real property portion of the
Premises, If such contract fails to close for any reason by March 5, 1997, then
this Lease shall automatically terminate, unless Lessor waives such condition
prior to such date.
(c) If Lessor has not received equity and loan financing to purchase the
real property and build the Improvements in an amount and upon on terms and
conditions acceptable to Lessor on or before March 5, 1997, then this Lease
shall automatically terminate, unless Lessor waives such condition prior to such
date.
50. PURCHASE OPTION. Lessee shall have the option ("Purchase Option") to
purchase the Premises. The Purchase Option may be exercised only by satisfaction
of the following conditions on or before end of the 18th calendar month after
the Commencement Date, or if applicable the end of the Starting Stub Month: the
execution and delivery of two originals of the Sale Agreement in the form
attached as Exhibit B hereto, with the "Effective Date" set no later than the
date delivered to Lessor. Upon receipt, Lessor covenants to execute both
originals, return one to Lessee and deliver one to escrow. Thereafter, upon any
default by Lessee after expiration of any applicable notice and cure periods
under the Sale Agreement. this Option shall automatically and irrevocably
terminate. The Purchase Option is personal to the original Lessee and may not be
assigned to any person or entity, except to an Affiliate, as defined in Section
12.5(e). In the event of an assignment or sublease of this Lease or any portion
of the Premises by Lessee other than to an Affiliate, the Purchase Option shall
terminate. Promptly after purchase of the Land, Lessor shall record
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a Memorandum of Option in the form of Exhibit C. Lessee covenants to record a
quitclaim or termination of the Memorandum of Option is a form acceptable to
Lessor upon expiration of the Purchase Option.
51. IMPROVEMENTS. Lessor shall construct the following "Improvements" on
the Premises as provided herein:
51.1 SPECIFICATIONS.
(a) SHELL. The Improvements shall include an industrial building shell
having the following characteristics:
(i) not more than 65,000 sq. ft. single story, high image, concrete tilt-up
shell with high performance reflective glass in office/entry areas;
(ii) 24 ft. minimum under-beam clearance;
(iii) calculated high hazard sprinkler system (.60 GPM);
(iv) 2400 Amp, 277/480, 3-phase, 4 wire main electrical service;
(v) 6" concrete slab (minimum 3,000 PSI);
(vi) ventilated skylights per code in warehouse area;
(vii) two (2) ground level (12' x 20') doors in warehouse area;
(viii) double truck well with two (2) roll-up doors (10' x 10');
(ix) office area improvements per a mutually agreed space plan with
restrooms per code; and
(x) an additional shell area (without office build-out) of not more than
20,000 sq. ft. as shown on the floor plans to be prepared pursuant to the second
paragraph of Section 51.3(a) ("Additional Improvements") and generally having
the same specifications as provided in subsections (ii)-(vi);
(b) INTERIOR. Lessor shall build shell interior improvements, including
without limitation, the following: plumbing from stubbed in slab, electrical
distribution (main electrical panel provided as part of shell), interior
improvements in the office area to lessee's specifications ("Interior
Improvements"). The parties shall subsequently agree upon detailed plans and
specifications for the Interior Improvements which shall then be attached hereto
and made a part hereof.
(c) EXTERIOR. Curbs, gutters, paving, striping, and base landscaping to
code. No signage.
(d) STANDARDS. Improvements shall be completed in a first-class,
workmanlike manner in compliance with all applicable laws. Lessor shall obtain
customary construction warranties from the contractors.
51.2 INTERIOR ALLOWANCE.
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(a) Lessor shall pay the cost of all Shell and Exterior Improvements, and
up to $1,000,000 of Interior Improvements ("Improvement Allowance"), to be
credited by Lessor toward the "Costs" of constructing the Section 51.1(b)
improvements to be constructed by Lessor for Lessee. As used herein, the term
"Costs" shall mean and refer to all costs expended by Lessor relative to the
construction of the Interior Improvements which shall include, but shall not be
limited to, cost of equipment, material and labor, contractor's field overhead
and fee, architectural and engineering costs related to Interior Improvements,
governmental agency fees, testing and inspection costs, the cost of any
requirements regarding construction which are imposed by any federal, state or
local governmental. entity or agency which are not reflected in the plans and
specifications, Lessor's direct field supervision fees, sales and use taxes (but
not real property taxes), permits, plan check fees, bonds and other costs
directly related to the construction of the Lessee Improvements, but excluding
any of Lessor's overhead expenses or payments to any employees of Lessor except
as specifically set forth above.
(b) In the event that the Costs of the Interior Improvements exceed the
Improvement Allowance, as estimated as part of the Budget approval set forth in
Section 51.3(b) below, or due to additional costs which could not be anticipated
by Lessor, including, but not limited to, those incurred due to "Lessee Delays",
as described in Section 51.3(b) and (c), and due to additional requirements
imposed by governmental entities and agencies, Lessee shall (i) post cash,
letters of credit or other security reasonably acceptable to Lessee for such
excess, and (ii) the pay to Lessor, upon presentation of the invoices therefor,
the difference between the Improvement Allowance and the actual costs of
constructing the Interior Improvements.
Section 51.3 PLANS
(a) PREPARATION. The site plan and floor plans and specifications are
attached hereto as Exhibit D ("Preliminary Plans"). Lessor and Lessee hereby
agree to use their respective best good faith efforts to cause all plans and
specifications and working drawings (the "Plans") with respect to the
Improvements in accordance with the Preliminary Plans to be completed and signed
by the parties as soon as possible. Lessor shall cause the Plans to be prepared
by a California licensed architect, to be selected subject to Lessee's
reasonable approval, working in conjunction with Lessee and its space planner on
the basis of a description of the Improvements provided to Lessor by Lessee and
Lessee shall have ten (10) business days after receipt of the Plans to notify
Lessor of any changes in such Plans required by Lessee. In the event Lessor does
not receive such notice from Lessee within such ten (10) day period, the Plans
shall be deemed approved by Lessee.
(b) INTERIOR BIDS. Lessor shall prepare and deliver to Lessee for Lessee's
approval as soon as reasonably possible a non-binding preliminary estimate of
the Costs of the Interior Improvements (the "Budget"). Upon Lessee's approval of
such Budget, Lessor shall obtain a fixed bid for all of the Interior
Improvements work required pursuant to the Plans. In the event such bid is more
than the Budget, Lessee shall have the right to require new bids on such work in
the manner set forth in this subsection (b) and any delay in the Commencement
Date caused by obtaining such bids shall not be deemed to be a Lessee Delay
hereunder. In the event the bid obtained by Lessor is equal to or less than the
Budget, Lessee shall nevertheless have a right to require new bids on all or a
portion of such work in the manner set forth in this subsection (b) ("Lessee
Elective Bid"), but any delay in the Commencement Date caused by a Lessee
Elective Bid shall be deemed to be a Lessee Delay hereunder. Upon receipt of the
initial bid obtained by Lessor, Lessee shall deliver to Lessor its written
approval, disapproval or modifications thereto or to any particular item
contained therein within five (5) business days after delivery of such bid to
Lessee along with a request for new bids to be obtained if Lessee desires to
exercise its right to obtain new bids. If the bidding procedure is instituted by
Lessee, Lessor shall obtain bids for each bid item so required by Lessee from at
least three (3) contractors (or subcontractors in the event such bid is required
only for particular
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items of such work) approved by Lessor and Lessee. The bid specifications shall
be detailed and shall set forth clearly on an item by item basis the components
of the work to be submitted for bid. Lessee shall be entitled to attend the bid
opening and shall be given reasonable notice thereof. Within five (5) days after
receipt of the bids, Lessee may either approve a bid, disapprove all bids or
approve one or more bids for negotiation. Should Lessee approve any bids for
negotiation, such negotiation shall be concluded as soon as reasonably possible
but in no event later than ten (10) days after commencement of negotiations by
either acceptance of one bid or by rejection of all. If the new bids shall
result in a total bid in excess of the Budget, Lessee shall have the right to
either accept such increased costs or to cause the Plans to be revised in order
to cause the Costs of Interior Improvements to be reduced, and such revised
Plans shall then be submitted to bid. Any delay in the Commencement Date caused
by such revision of the Plans and resubmittal to bid shall not be deemed to be a
Lessee Delay hereunder unless it is as a result of a Lessee Elective Bid.
(c) In the event that Lessee desires to change the plans and specifications
for the Interior Improvements after the Budget has been approved, as provided in
Section 51.3(b), Lessee shall provide notice of such proposed change to Lessor
for Lessor's prior written approval which approval shall not be unreasonably
withheld. Lessor's approval of such proposed change order shall include an
estimate of the additional or decreased Costs resulting from such a change, as
well as an estimate of the delay or time-saving involved in complying with such
change order. Such additional Costs, to the extent that they are in excess of
the Improvement Allowance shall be paid by Lessee to Lessor as set forth in
Section 51.3(b). That part of the actual time delay in the Commencement Date
caused solely by such change shall be considered a "Lessee Delay" hereunder and
any time by which the Commencement Date is accelerated as a result of such
change shall be set off against any other Lessee Delay hereunder. Lessor agrees
to use its best efforts to pursue such change orders without delay and to
reasonably work with the contractor so as to avoid any unreasonable Lessee
Delay.
51.4 COMPLETION OF IMPROVEMENTS.
(a) Upon agreement on the Plans, Lessor shall immediately commence the
Improvements and thereafter diligently prosecute such construction to
completion, subject to force majeure.
(b) The Premises shall be deemed to be "substantially completed" when the
work of construction of the Improvements has been substantially completed in
accordance with the approved working drawings as evidenced by the delivery to
Lessee of a certificate as described herein of Lessor's architect or space
planner, and final inspection has been approved by the appropriate City of Lake
Forest official. Within three business days after receipt of a notice from the
Lessor that the Premises are substantially completed, Lessee shall inspect the
Premises with Lessor and deliver a punchlist of any construction defects and
items to be completed to achieve substantial completion. Upon delivery of the
punchlist, Lessee shall be deemed to have accepted the Premises in an "AS IS"
condition, subject only to completion of the punchlist and any latent
construction defects. The punchlist is deemed to be "minor" if or when the cost
of completing the punchlist (as reasonably estimated by lessor's architect) is
less than $10,000 and such punchlist items do not materially affect Lessee's use
and operation of the Premises. The date the punchlist is determined to be minor
is the "Substantial Completion Date". Lessor shall diligently complete as soon
as reasonably possible any punchlist items.
(c) Lessee's current lease expires December 31, 1997. Provided final
working drawings have been approved by Lessee and the City of Lake Forest by
June 1, 1997, then if substantial completion is not achieved by December 1, 1997
plus periods of force majeure not to exceed 15 days plus Lessee Delays
("Required Delivery Date"), Lessor shall be responsible for the excess, if any,
of Lessee's then current rental costs over the Rental that would have been
payable under the Lease from January 1, 1998 through
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the later of occupancy (excluding moving and fixturization only) or the date
fifteen (15) days after the Substantial Completion Date ("Delay Rents"). Lessee
shall be entitled to offset Delay Rents against Base Rent. If substantial
completion is not achieved by March 1, 1998, Lessee shall have the option to
terminate this Lease on or before March 10, 1998, provided however that Lessee
shall remain liable for all Costs in excess of the Improvement Allowance for
Interior Improvements completed through March 10, 1998.
51.5 LESSEE DELAY. Notwithstanding anything to the contrary contained in
this Lease, upon the Commencement Date, Lessee shall pay to Lessor an additional
payment of a sum calculated by multiplying the per them fixed monthly Base Rent
times the number of days of delay which are due to Lessee Delays.
51.6 BUILDING AREA. Upon substantial completion, Lessor's architect shall
determine the "Building Area", meaning the gross number of square feet of the
shelf, measured to the exterior of the walls.
Makena Properties, a California corporation
By: /s/ Norman N. Nowell
---------------------------------------
Norman N. Nowell, President
Ansys, Inc., a California corporation
By: /s/ Stephen K. Schultheis
---------------------------------------
Title: President
Exhibits: A Commencement Date Memorandum
B Sale Agreement
C Memorandum of Option
D Preliminary Plans
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EXHIBIT B
SALE AGREEMENT
This Lot Sale Agreement (the "Agreement"), dated as of _____________, 199_
("Effective Date"), is made between __________________________________
("Seller") and __________________________________________________ ("Buyer").
RECITALS
Subject to the terms of this Agreement, Seller wishes to sell, and Buyer
wishes to purchase, the Property defined in Section 1.3.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Seller and Buyer agree as follows:
1. PURCHASE AND SALE OF PROPERTY
1.1 Significant Definitions. The terms below are hereby defined as
follows:
"Closing Date": _____________ [24 months after the "Commencement
Date", as defined in the Lease].
"Deposit": $50,000.
"Lease": Standard Industrial/Commercial Single Tenant Lease - Net
(American Industrial Real Estate Association (1990)) between Buyer and Seller
dated as of November 1, 1996.
"Lot": Tract 12 Lot Nos. 13343 in the project commonly known as
Pacific Commercentre, in Lake Forest, California.
"Purchase Price": $5,578,000
1.2 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from
Seller, the Property (as defined in Section 1.3 and Section 1.4) at Closing (as
defined in Section 8.2).
1.3 Description of Property. Subject to Section 1.4, the "Property" shall
consist of the following:
(a) Land and Improvements. The Lot specifically described in Exhibit A,
and any improvements thereon (the "Improvements").
(b) Appurtenances. The interest of Seller in all rights, privileges and
easements appurtenant to the Lot and Improvements, including all minerals, oil,
gas and other hydrocarbon substances on and under the Lot, as well as all
development rights, air rights, water, water rights and water stock relating to
the Lots and Improvements and any other easements, rights-of-way or
appurtenances used in connection with the
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beneficial use or enjoyment of the Lot and Improvements and, to the extent that
they relate to the Lot and Improvements, all of Seller's rights, easements or
other interests, if any, in and to adjacent streets, alleys and rights-of-way,
and water and sewer taps, sanitary or storm sewer capacity or reservations and
rights under utility agreements with any applicable governmental or
quasi-governmental entities or agencies with respect to the providing of utility
services to the Lot, and all permits, development rights and construction
warranties with respect to the Lot and Improvements ("Appurtenances"). The Lot,
Improvements and Appurtenances are collectively referred to as the "Real
Property," The Real Property shall be transferred to Buyer at Closing (as
defined in Section 8.2) pursuant to a grant deed in the form of Exhibit B (the
"Grant Deed").
2. PURCHASE PRICE
2.1 Amount. Buyer shall pay the Purchase Price for the purchase of the
Property, Buyer shall deliver the Purchase Price to Seller through "Escrow" (as
defined in Section 8.1) in immediately available federal funds at Closing, in
accordance with Section 8.4.
2.2 Deposit. Within two (2) Business Days after the full execution of this
Agreement by the parties, Buyer shall deliver the Deposit in cash to the Chicago
Title Company ("Escrow Holder"), which shall be non-refundable except upon a
default by Seller.
3. CONDITION OF PROPERTY.
3.1 Inspection. Buyer has been and through the Closing will be the sole
tenant of the Property. Buyer is fully aware of all aspects of the Property.
Buyer agrees, and represents and warrants, that it will purchase the Property
"as is" and solely in reliance on its own investigation of the Property. Buyer
agrees, and represents and warrants, that it has conducted an investigation and
determine to its satisfaction each and every matter of concern or relevance
relating to the Property, including without limitation the financial, legal
title, physical and environmental condition of the Property, soils, settlement
or subsidence conditions, applicable governmental laws and regulations, zoning,
building code, access, environmental, environmental and land use laws and
regulations and the extent to which the Property complies therewith, and the
fitness of the Property for Buyer's contemplated use, the presence of hazardous
materials on the Property and, in general, its environmental condition, title
matters and contracts to be assumed by Buyer (collectively, the "Condition of
the Property"). Subject to the other provisions of this Agreement, Buyer agrees
and represents and warrants, that (i) it will purchase the Property subject to
each and every Condition of the Property, including adverse conditions that may
not have been revealed by its investigation of the Property, (ii) Seller has no
obligation to repair, correct or compensate Buyer for any Condition of the
Property, and (iii) by acquiring the Property, Buyer shall be deemed to have
waived any and all objections to the Condition of the Property, whether or not
any Condition of the Property would have been disclosed by inspection. Buyer
shall be deemed to agree that no Condition of the Property, whether or not known
or discovered by either Buyer or Seller at a later date, shall affect this
transaction and the Purchase Price paid for the Property hereunder, and that
Buyer shall be obligated to purchase the Property notwithstanding the Condition
of the Property.
Except to the extent provided in Section 9.2, Buyer hereby waives,
releases, acquits, and forever discharges Seller, and Seller's agents,
directors, officers and employees to the maximum extent permitted by law, of and
from any and all claims, actions, causes of action, demands, rights,
liabilities, damages, losses, costs, expenses, or compensation whatsoever,
direct or indirect, known or unknown, foreseen or unforeseen, that it now has or
which may arise in the future on account of or in any way growing out of or
connected with the Condition of the Property. BUYER EXPRESSLY WAIVES ANY OF ITS
RIGHTS
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GRANTED UNDER CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS: "A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
Initials: Buyer:______________ Seller:______________
3.2 Books and Records Contingency Review. Seller shall make available for
inspection, review and copying by Buyer, at Buyer's sole cost and expense, such
documents, plans, records, files and other information respecting the Property
that are in Seller's possession (collectively, the "Books and Records"). Seller
shall make the Books and Records available to Buyer at the offices of Seller for
inspection on reasonable prior notice, which may be written or oral. Seller
makes no representation or warranty regarding the correctness, accuracy or
completeness of the Books and Records. The term "Books and Records" specifically
excludes corporate, financial and accounting records and documents regarding the
operations of Seller or its predecessor in title or their affiliates or
subsidiaries as an entity, as opposed to records concerning only the Property;
attorney-client communications and attorney work product and property valuation
information; loan documents regarding loans no longer encumbering any of the
Property, information regarding potential buyers, marketing records, accounting
data regarding properties formerly owned by Seller or its predecessor in title,
and agreements and records regarding the partnerships that own or formerly owned
any other Property; and Books and Records that have been lost or destroyed or
are in the possession of others. It shall be a condition for Buyer's benefit
that, on or before fifteen (10) days after the Effective Date, Buyer shall
investigate and approve, in its sole discretion, the Section 3.2 Books and
Records.
3.3 Condition Failure. If Buyer timely disapproves any condition in
Section 3.2 or Section 4 in writing, this Agreement shall automatically
terminate, and thereafter the parties shall have no further obligation or
liability under this Agreement, except as provided in this subsection. The
Deposit shall be returned to Buyer. Buyer's failure to provide timely written
notice of disapproval shall be deemed a waiver thereof. Any cancellation fee or
other costs of the Escrow Holder shall be borne equally by Seller and Buyer and
each party shall pay its own expenses.
4. TITLE. Buyer agrees to take title to the property subject to (i) unpaid
real property taxes and assessments relating to the period after the
"Commencement Date" (defined in the Lease), and (ii) Exception Nos. 9-16 in
Preliminary No. 00601697 M07 issued by Chicago Title Company dated as of
November 16, 1996 ("PTR"). If Buyer receives notice from the Escrow Holder that
it intends to revise the PTR to include one or more additional exceptions to
title, Buyer may, within five (5) days of such notice, notify Seller ("Buyer's
Title Notice") of the additional title exceptions to which it objects ("Title
Objections"), provided, however, that Buyer may object only if Buyer reasonably
determines that the exceptions materially and adversely affect the use and
enjoyment of the Property for Buyer's contemplated use. If Buyer fails to
deliver timely notice within the required period, Buyer shall be deemed to have
approved the Title Objections. Seller shall have the shorter of five (5) days
after Buyer's Title Notice, or until two (2) Business Days before the Closing
Date, within which to deliver to Buyer a notice ("Seller's Title Notice")
indicating whether Seller will eliminate or cure such Title Objections by the
Closing. If Seller elects to eliminate or cure an Title Objection, the
elimination or curing by Seller of the Title Objections shall be completed on or
before the Closing. If Seller (a) does not deliver Seller's Title Notice within
the required time, or (b) notifies Buyer that Seller is unable or unwilling to
cure such Title Objections, Buyer shall have three (3) days to elect to waive
such Title Objections or deliver to Seller written notice terminating this
Agreement pursuant to Section 3.3. If Buyer fails to give Seller notice of its
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election within the time set forth in the previous sentence, Buyer shall be
deemed to have elected to waive such Title Objections.
The term "Permitted Exceptions" shall mean (i) all exceptions to title
listed in the PTR, except as noted above; (ii) any additional exceptions to
which Buyer does not object in Buyer's Title Notice; and (iii) the Lease and any
other matter that is approved, caused, permitted or suffered by Buyer, its
employees, agents, representatives or affiliates. Notwithstanding anything to
the contrary in this Section 4, Seller shall eliminate any and all title
exceptions consisting of: mechanics liens for work caused by Seller; judgment
liens against Seller; liens for taxes not required to have been paid by Buyer
under the Lease; monetary liens, mortgages, deeds of trust, security agreements
and fixture filings executed by Seller; and leases or purchase options executed
by Seller other than the Lease.
5. CONDITIONS TO CLOSING
5.1 Buyer's Closing Conditions. Buyer's obligation to purchase the
Property is expressly conditioned on the fulfillment of each of the conditions
precedent at or before Closing described below ("Buyer's Closing Conditions").
Buyer's Closing Conditions are solely for Buyer's benefit and any and all of
Buyer's Closing Conditions may be waived in writing by Buyer in whole or in part
without prior notice.
(a) Title. Title to the Real Property shall be conveyed to Buyer by Grant
Deed subject to the Permitted Exceptions. It shall be a Buyer's Closing
Condition that the Escrow Holder shall be irrevocably and unconditionally
committed to issue to Buyer a CLTA standard coverage Owner's Policy ("Title
Policy") insuring title to the Real Property in an amount equal to the Purchase
Price, subject only to the Permitted Exceptions.
(b) Delivery of Closing Documents. It shall be a Buyer's Closing Condition
that Seller shall deliver through escrow the documents specified in Section 8.3.
(c) Performance of Covenants. It shall be a Buyer's Closing Condition that
Seller shall perform the material covenants of Seller under this Agreement to be
performed by Seller before Closing.
5.2 Seller's Closing Conditions. Seller's obligation to sell the Property
is expressly conditioned upon the fulfillment of each of the conditions
precedent at or before Closing described below ("Seller's Closing Conditions").
Seller's Closing Conditions are solely for Seller's benefit and any or all of
Seller's Closing Conditions may be waived in writing by Seller in whole or in
part without prior notice.
(a) Purchase Price. It shall be a Seller's Closing Condition that Buyer
shall have delivered to Seller through Escrow the Purchase Price, upon
satisfaction of Seller's closing obligations.
(b) Delivery of Closing Documents and Funds. It shall be a Seller's
Closing Condition that Buyer deliver through Escrow the documents and funds
specified in Section 8.4.
(c) Performance of Covenants. It shall be a Seller's Closing Condition
that Buyer shall have performed the material covenants of Buyer under this
Agreement.
5.3 Termination. If Buyer's Closing Conditions or Seller's Closing
Conditions, as the case may be, are not approved or waived (including a deemed
waiver) within the time period allowed, this Agreement may be terminated by the
party in whose favor the Closing Condition runs by written notice to the other.
If this Agreement is so terminated, the parties shall have no further obligation
or liability under this
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Agreement, except as provided in Section 9, and this Section 5.3. Subject to
Buyer's obligations and covenants under Section 3.1, the Deposit shall be
returned to Buyer. Any cancellation fee or other costs of the Escrow Holder
shall be borne equally by Seller and Buyer and each party shall pay its own
expenses.
6. [Not Used]
7. REPRESENTATIONS AND WARRANTIES. Seller hereby warrants and represents as of
the date hereof and as of the Closing as set forth below:
(a) Organization; Authority. Seller is a _________________ duly organized,
validly existing and in good standing under the laws of the State of California.
Seller has full power and authority to enter into and perform under this
Agreement. Upon Buyer's request, Seller shall deliver to Buyer a copy of
corporate resolutions from Seller (if a corporation) or from Seller's corporate
general partners, if applicable.
(b) Foreign Person. Seller is not a foreign person and is a "United States
Person" as such term is defined in Section 7701(a)(30) of the Internal Revenue
Code of 1986, as amended.
(c) Litigation. Except for matters caused by Buyer, Seller has received no
written notice of any pending litigation or arbitration proceeding or threatened
litigation or arbitration directly affecting the Property or this transaction to
which Seller is a party.
(d) Government Action. Except for matters caused by Buyer, Seller has
received no written notice from any governmental agency or private party
concerning any governmental proceeding or investigation of the Property
(including without limitation matters relating to "Hazardous Substances" (as
defined in the Lease), any violation of any laws or covenants, conditions and
restrictions with respect to the Property, any pending condemnation proceeding
or any formal notice of condemnation involving the Property.
(e) Hazardous Substances. Seller has no knowledge of: the use,
installation, generation, production, storage, transportation to or from, or
release on, under or about the Lot of "Hazardous Substances" (as defined in the
Lease) on or prior to the "Substantial Completion Date" (as defined in the
Lease) in violation of applicable law; the existence of underground storage
tanks on the Lot prior to the Substantial Completion Date; and no liens relating
to environmental matters had been filed against the Lot as of the Substantial
Completion Date. Seller has not released any person from liability for
environmental matters relating to the Lot except for the entity and its
affiliates selling the Lot to Buyer.
(f) Options. Except for the rights of Buyer, Seller has not entered into,
and has no actual knowledge of, any options or rights of first refusal to
purchase the Lot or any leases of any or all of the Lot (excepting subleases
entered into by Buyer as sublessor, if any).
8. CLOSING
8.1 Escrow. An escrow ("Escrow") shall be opened with Escrow Holder at its
office in Irvine, California, within two (2) Business Days after the full
execution of this Agreement. Buyer and Seller shall promptly upon request
therefor execute such additional escrow instructions as are reasonably required
to consummate the transaction contemplated by this Agreement and are not
inconsistent herewith.
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8.2 Closing. The "Closing" means the exchange of money and documents as
described herein, and will be deemed to have occurred when Seller's Grant Deed
to Buyer has been recorded. Seller and Buyer agree that the Closing shall occur
on the Closing Date. The Closing will be at the offices of the Escrow Holder or
such other place as the parties may agree.
8.3 Seller's Closing Obligations. Not later than one (1) Business Day
before the Closing Date, Seller shall deliver to the Escrow Holder for delivery
to Buyer (or the party noted below) through Escrow the following:
(a) The Grant Deed, duly executed and acknowledged by the Seller and in
recordable form;
(b) The Assignment and Assumption Agreement in the form of Exhibit C.
(c) Certificates required by Section 1445 of the Internal Revenue Code of
1986, as amended, and California Revenue and Taxation Code Section 18815
executed by Seller and in a form satisfactory to Buyer, to relieve Buyer of any
potential transferee withholding liability under such Section;
(d) Other documents reasonably required to properly consummate this
transaction.
8.4 Buyer's Closing, Obligations. Not later than one (1) Business Day
before the Closing Date, Buyer will deliver to the Escrow Holder for delivery to
Seller (or the party noted below) through Escrow the following:
(a) Immediately available federal funds as are required to be paid by
Buyer under this Agreement in an amount equal to the Purchase Price, minus the
amount of the Deposit paid by Buyer and adjusted for estimated prorations and
closing costs;
(b) Such proof of Buyer's authority and authorization to enter into this
Agreement and perform hereunder, and such proof of power and authority of the
individuals executing and/or delivering any instruments, documents or
certificates on behalf of Buyer to act for and bind Buyer as may reasonably be
required by the Escrow Holder; and
(c) The Assignment and Assumption Agreement in the form of Exhibit C and
the Special tax Disclosure Agreement in the form of Exhibit D.
(d) Other documents reasonably required to properly consummate this
transaction.
8.5 Close of Escrow. If on the Closing Date, (i) the Escrow Holder holds
and can deliver the documents described in Section 8.3 and Section 8.4, (ii) the
Escrow Holder is irrevocably and unconditionally committed to issue the Title
Policy with respect to the Property, (iii) the Buyer has delivered the funds
required under Section 8.4(a), and (iv) the Escrow Holder can record the Grant
Deed for the Property, then the Escrow Holder shall:
(a) Record the Grant Deed;
(b) Deliver the Purchase Price (less Seller's share of any net prorations
and closing costs) as directed by Seller;
(c) Deliver the remaining documents to the parties specified in Section
8.3 and Section 8.4;
6
<PAGE> 40
(d) Deliver the remaining funds to Seller or Buyer, as the case may be,
after taking into account all items chargeable to the account of Seller and
Buyer pursuant to Section 8.7 and Section 8.8; and
(e) Deliver the Special Tax Disclosure Agreement to the County of Orange.
8.6 Termination of Escrow. If Closing does not take place as set forth in
Section 8.2, then the Escrow shall terminate, all documents deposited into
Escrow shall be returned to the respective parties, and, subject to Section 9,
the Deposit shall be returned to Buyer.
8.7 Prorations. Buyer shall be entitled to the prepaid portion of rents on
the Lease and to the amount of the Lease security deposit. Real property taxes
and current installments of assessments applicable to the Property and other
expenses applicable to the Property shall not be prorated.
8.8 Closing Costs. Seller shall pay the real property transfer taxes on
this transaction and the premium for a standard form (CLTA) owner's policy of
title insurance in the amount of the Purchase Price. Buyer shall pay any
additional premiums or charges with respect to the Title Policy, including any
extended coverage and endorsements. Seller and Buyer shall each pay one-half of
the escrow fees. Seller shall pay the costs of recording any necessary releases
or reconveyances, and Buyer shall pay the costs of recording the Grant Deed and
any other documents. All other closing costs shall be divided as is customary in
Orange County. This Section 8.8 shall survive the Closing.
8.9 Commissions. Except for any brokers and commissions specified in the
Lease, Buyer and Seller each represent and warrant to the other that no fee or
commission shall be payable by reason of this transaction either to such party,
or to any broker or finder representing Buyer. Each party agrees to defend,
indemnify and hold harmless the other party harmless from and against any and
all liabilities, claims, demands, damages, or costs of any kind (including
attorneys' fees, costs and expenses) arising from or connected with any broker's
or finder's fee or commission or charge ("Broker Claims") claimed to be due by
any person arising from or by reason of such party's conduct with respect to
this transaction. The provisions of this Section 8.9 shall survive Closing
hereunder.
8.10 Parties to Bear Own Expenses. Each of the parties hereto shall pay all
the costs and expenses incurred or to be incurred by them in negotiating and
preparing this Agreement and in carrying out the transaction contemplated
hereby.
8.11 General Escrow Instructions. The general escrow instructions in
Exhibit E are hereby incorporated herein by this reference. Any conflict between
this Agreement and Exhibit E shall be construed in favor of this Agreement.
9. DEFAULT
9.1 Buyer's Default.
(a) Default. Buyer shall be deemed to be in default hereunder if Buyer
fails, for any reason other than Seller's default hereunder, to meet, comply
with or perform any covenant, agreement or obligation on its part required
within the time limits and in the manner required in this Agreement.
(b) Liquidated Damages. IF THE CLOSING FAILS TO OCCUR BY REASON OF DEFAULT
OF BUYER UNDER THE TERMS OF THIS AGREEMENT, BUYER SHALL BE RESPONSIBLE
7
<PAGE> 41
FOR ALL CANCELLATION CHARGES REQUIRED TO BE PAID TO ESCROW HOLDER AND ANY ESCROW
CHARGES. IN ADDITION, THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES SHALL TERMINATE AND THE DEPOSIT SHALL BE IMMEDIATELY DELIVERED BY ESCROW
HOLDER TO SELLER ON SELLER'S REQUEST. THE DEPOSIT SHALL BE DEEMED LIQUIDATED
DAMAGES FOR BUYER'S FAILURE TO ACQUIRE THE PROPERTY AS SELLER'S SOLE AND
EXCLUSIVE REMEDY AGAINST BUYER (INCLUDING, WITHOUT LIMITATION, SELLER'S RIGHTS
TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT AND TO RECEIVE DAMAGES FOR
FAILURE TO ACQUIRE THE PROPERTY) WHICH SUM SHALL BE PRESUMED TO BE A REASONABLE
ESTIMATE OF THE AMOUNT OF ACTUAL DAMAGES SUSTAINED BY SELLER BY REASON OF
BUYER'S BREACH OF ITS OBLIGATION TO ACQUIRE THE PROPERTY. FROM THE NATURE OF
THIS TRANSACTION, IT IS IMPRACTICABLE AND EXTREMELY DIFFICULT TO FIX THE ACTUAL
DAMAGES THAT SELLER WOULD SUSTAIN, SHOULD BUYER BREACH ANY OF ITS OBLIGATIONS.
THE IMPRACTICABILITY AND DIFFICULTY OF FIXING ACTUAL DAMAGES IS CAUSED BY,
WITHOUT LIMITATION, THE FACT THAT THE PROPERTY IS UNIQUE. GIVEN THE FOREGOING,
AMONG OTHERS, BUYER AND SELLER AGREE THAT LIQUIDATED DAMAGES ARE PARTICULARLY
APPROPRIATE FOR THIS TRANSACTION AND AGREE THAT SAID LIQUIDATED DAMAGES SHALL BE
PAID IN THE EVENT OF BREACH BY BUYER, NOTWITHSTANDING ANY WORDS OR
CHARACTERIZATIONS PREVIOUSLY USED OR HEREIN CONTAINED IMPLYING ANY CONTRARY
INTENT, THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A
FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275
OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO
CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677. NOTHING HEREIN SHALL,
HOWEVER, BE DEEMED TO LIMIT BUYER'S LIABILITY TO SELLER FOR DAMAGES OR
INJUNCTIVE RELIEF FOR BREACH OF ANY OTHER OBLIGATION OF BUYER HEREUNDER (OTHER
THAN ITS OBLIGATION TO ACQUIRE THE PROPERTY), INCLUDING INDEMNITY OBLIGATIONS OF
BUYER, OR FOR ATTORNEYS' FEES AND COSTS AS PROVIDED IN SECTION 11.14.
Buyer's Initials __________ Seller's Initials ___________
9.2 Seller's Default.
(a) Default. Seller shall be deemed to be in default hereunder if Seller
fails, for any reason other than Buyer's default hereunder or the failure of a
condition precedent to Seller's obligation to perform hereunder, to meet, comply
with, or perform any covenant, agreement or obligation on its part required
within the time limits and in the manner required in this Agreement, or there
shall have occurred a material breach of any representation or warranty (made by
Seller); provided, however, no such default shall be deemed to have occurred
unless and until Buyer has given Seller written notice thereof, describing the
nature of the default, and Seller has failed to cure such default within fifteen
(15) days of receipt of such notice (but in any event before the Closing Date,
unless such default occurs after Closing).
(b) Remedies. If Seller shall be deemed to be in default under Section
9.2(a) at or before Closing, and Buyer does not waive such default, Buyer may
pursue any or all remedies to which it may be entitled.
10. RISK OF LOSS. If before Closing any action or proceeding is commenced for
the condemnation or exercise of the rights of eminent domain of the Property or
any portion thereof, or if Seller is notified by the duly authorized officer of
a duly empowered condemning authority, or if any major casualty event
8
<PAGE> 42
occurs, then at Buyer's option either (i) at Closing Seller shall assign and
turn over, and Buyer shall be entitled to keep, all awards for the taking by
eminent domain or insurance proceeds which accrue to Seller and the parties
shall proceed with the Closing, without modifying the terms of this Agreement
and without reducing the Purchase Price; or (ii) Buyer may terminate this
Agreement in which case the Deposit shall be returned to Buyer. Seller shall not
negotiate, resist or stipulate to the condemning action without Buyer's written
consent. In any event, the Closing shall not be affected, delayed or prevented
as a result of such condemning action.
11. MISCELLANEOUS.
11.1 Definition of Business Day. For purposes of this Agreement, "Business
Day" means any day other than Saturday, Sunday or a holiday observed by national
or federally chartered banks. Any event specified to occur on a non-Business Day
shall be extended automatically to the end of the first Business Day thereafter.
11.2 Binding Effect. Subject to the restrictions on assignment contained in
Section 11.3, this Agreement shall be binding on and shall inure to the benefit
of the parties to it and their respective legal representatives, successors and
assigns.
11.3 Assignment. This Agreement may not be assigned by Buyer without
Seller's prior written consent which may be withheld in Seller's sole
discretion.
11.4 Severability. If any term, covenant, provision, paragraph or condition
of this Agreement shall be illegal, such illegality shall not invalidate the
whole Agreement, but, to the extent permitted by law, the Agreement shall be
construed to give effect to the intent manifested by the portion held
inoperative or invalid and the rights and obligations of the parties shall be
construed and enforced accordingly.
11.5 Entire Understanding. This Agreement represents the entire
understanding of Buyer and Seller and supersedes all prior and concurrent
written or oral agreements or representations, if any, relative to the subject
matter involved.
11.6 Amendments. This Agreement may not be modified, changed or
supplemented except by written instrument signed by both parties.
11.7 California Law. The interpretation and performance of this Agreement
shall be governed by the laws of the State of California applied to agreements
to be performed entirely within the State of California by residents of the
State of California.
11.8 Waiver. Other than deemed waivers provided for herein, all waivers by
either party shall be in writing. The waiver by either party of any breach of
any term, covenant or condition of this Agreement shall not be deemed a waiver
of such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition of this Agreement.
11.9 Notices. The notice provisions in the Lease are hereby incorporated
herein by this reference.
11.10 Captions. The captions inserted herein are inserted only as a matter
of convenience and for reference and in no way define, limit or describe the
scope of this Agreement or the intent of any of the provisions hereof.
9
<PAGE> 43
11.11 Exhibit. All exhibits and schedules referred to herein are
incorporated by reference as though fully set forth herein.
11.12 Time of the Essence. Time is of the essence in this Agreement and
failure to comply with this provision shall be a material breach of this
Agreement.
11.13 Attorneys' Fees. Should any party institute any action, proceeding,
suit, arbitration, appeal or other similar proceeding or other non-judicial
dispute resolution mechanism ("Action") to enforce or interpret this Agreement
or of any provision hereof, or for a declaration of rights hereunder, the
prevailing party in such Action shall be entitled to receive from the other
party(s) all reasonable attorneys' fees, accountants' fees, expert witness fees,
and any and all other similar fees, costs and expenses incurred by the
prevailing party in connection with the Action and preparations therefor
("Fees"). If any party files for protection under, or voluntarily or
involuntarily becomes subject to, any chapter of the United States Bankruptcy
Code or similar state insolvency laws, any other party shall be entitled to any
and all Fees incurred to protect such party's interest and other rights under
this Agreement, whether or not such action results in a discharge.
11.14 Counterparts. This Agreement may be executed in counterparts, each of
which when executed shall be deemed an original and all of which counterparts
taken together shall constitute but one and the same instrument. Signature pages
may be detached from the counterparts and attached to a single copy of this
Agreement to form one document.
11.15 Notice of Special Tax. Contemporaneously with the execution of this
Agreement, Buyer shall execute the Notice of Special Tax for Community
Facilities District No. 87-7, County of Orange, California, attached hereto
after the signature page.
11.16 Aircraft Environmental Impact Declaration. Pursuant to the Conditions
of Approval imposed by the County of Orange in connection with the Pacific
Commercentre, Seller makes the following Declaration:
We make this Declaration concerning aircraft environmental impact for the
purpose and subject to the same conditions and limitations as shown in that
certain notice concerning aircraft environmental impacts recorded December 1,
1983, as Instrument No. 83-549335 in the Official Records of Orange County,
California. The Pacific Commercentre property is subject to overflight, sight
and sound of aircraft operating from El Toro Marine Corps Air Station.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
"Buyer"
--------------------------------------------
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
10
<PAGE> 44
"Seller" Makena, Properties, a California corporation
By:
-------------------------------------
Norman Nowell, President
[Parties must initial Section 3.5 and Section 9.1(b) and Buyer execute the
Notice of Special Tax following this page]
Acceptance:
Chicago Title Company
By:
------------------------------------
Margie Wheeler, Escrow Officer
11
<PAGE> 45
NOTICE OF SPECIAL TAX
COMMUNITY FACILITIES DISTRICT NO. 87-7
COUNTY OF ORANGE, CALIFORNIA
TO: THE PROSPECTIVE PURCHASER OF THE REAL PROPERTY KNOWN AS:
Lot 12 of Tract Map No. 13343
THIS IS A NOTIFICATION TO YOU PRIOR TO YOUR ENTERING INTO A CONTRACT TO
PURCHASE THIS PROPERTY. THE SELLER IS REQUIRED TO GIVE YOU THIS NOTICE AND TO
OBTAIN A COPY SIGNED BY YOU TO INDICATE THAT YOU HAVE RECEIVED AND READ A COPY
OF THIS NOTICE.
(1) This property is subject to a special tax, which is in addition to the
regular property taxes and any other charges, fees, special taxes and benefit
assessments on the parcel. It is imposed on this property because it is a new
development, and may not be imposed generally upon property outside of this new
development. If you fail to pay this tax when due each year, the property may be
foreclosed upon and sold. The tax is used to provide public facilities or
services that are likely to particularly benefit the property. YOU SHOULD TAKE
THIS TAX AND THE BENEFITS FROM THE FACILITIES AND SERVICES FOR WHICH IT PAYS
INTO ACCOUNT IN DECIDING WHETHER TO BUY THIS PROPERTY.
(2) Since this parcel is currently Undeveloped Property, the maximum
special tax which may be levied against this parcel to pay for public facilities
and services is $10,432.69 per acre during the 1994-1995 tax year. If this
parcel was Developed Property (i.e., if a building permit had been issued by
March 1, 1994), then the maximum special tax which could have been levied
against this parcel to pay for public facilities and services during the
1994-1995 tax year would have been the greater of (a) $0.27 per square foot of
land or (b) $0.70 per square foot of improvements. This amount will be increased
by 3.5 percent per year after that. The special tax will be levied each year
until all of the authorized facilities are built and all special tax bonds are
repaid and may be levied forever thereafter to pay for ongoing service costs.
(3) The authorized facilities and fees which are being paid for by the
special taxes, and by the money received from the sale of bonds which are being
repaid by the special taxes, are:
Water and sewer acreage fees and the construction, purchase, modification,
expansion, improvement or rehabilitation of a local and regional park, fire
stations, sheriff substation, library, storm drains and the roadway improvements
to be constructed as part of the Foothill Circulation Phasing Program, which
roadway improvements include all related work for grading, paving, drainage,
sewer and water facilities and utilities, together with improvements to
intersections and other appurtenant work.
The facilities may not yet have all been constructed or acquired and it is
possible that some may never be constructed or acquired.
In addition, the special taxes may be used to pay for costs of the
following services:
<PAGE> 46
Police protection, fire protection, ambulance, paramedic, flood and storm
protection, recreation program, library, park and open space services,
including, but not limited to, the operation and maintenance of storm drains,
parks and parkways.
YOU MAY OBTAIN A COPY OF THE RESOLUTION OF FORMATION WHICH AUTHORIZED
CREATION OF THE COMMUNITY FACILITIES DISTRICT AND WHICH SPECIFIES MORE PRECISELY
HOW THE SPECIAL TAX IS APPORTIONED AND HOW THE PROCEEDS OF THE TAX WILL BE USED,
FROM THE COUNTY OF ORANGE COUNTY ADMINISTRATIVE OFFICE BY CALLING (714)
834-3055. THERE MAY BE A CHARGE FOR THIS DOCUMENT NOT TO EXCEED THE REASONABLE
COST OF PROVIDING THE DOCUMENT.
I (WE) ACKNOWLEDGE THAT I (WE) HAVE READ THIS NOTICE AND RECEIVED A COPY OF
THIS NOTICE PRIOR TO ENTERING INTO A CONTRACT TO PURCHASE OR DEPOSIT RECEIPT
WITH RESPECT TO THE ABOVE-REFERENCED PROPERTY. I (WE) UNDERSTAND THAT I (WE) MAY
TERMINATE THE CONTRACT TO PURCHASE OR DEPOSIT RECEIPT WITHIN THREE DAYS AFTER
RECEIVING THIS NOTICE IN PERSON OR WITHIN FIVE DAYS AFTER IT WAS DEPOSITED IN
THE MAIL BY GIVING WRITTEN NOTICE OF THAT TERMINATION TO THE OWNER, SUBDIVIDER
OR AGENT SELLING THE PROPERTY.
DATE: [EFFECTIVE DATE] By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 47
EXHIBIT A
LOT 12 OF TRACT NO. 13343, IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA, AS
SHOWN ON A MAP RECORDED IN BOOK 647, PAGES 23 THROUGH 32 INCLUSIVE OF
MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT AN UNDIVIDED HALF INTEREST IN AND TO ANY AND ALL MINERALS, WITHOUT
LIMITATION, ALL OIL, GAS, HYDROCARBON AND SIMILAR RIGHTS, AND ALL WATER, WATER
RIGHTS, GEOTHERMAL STEAM AND STEAM POWER, WITHIN OR UNDERLYING SUCH REAL
PROPERTY, TOGETHER WITH THE PERPETUAL RIGHT OF DEVELOPMENT THEREOF; PROVIDED,
HOWEVER, THAT THE RIGHTS HEREIN CONVEYED DO NOT INCLUDE THE RIGHT TO ENTER UPON
THE SURFACE AND TOP 500 FEET OF THE SUBSURFACE OF SUCH REAL PROPERTY, AS
PROVIDED IN DEED RECORDED JULY 3,1979 IN BOOK 13215, PAGE 646, OFFICIAL RECORDS,
AS INSTRUMENT NO. 3449.
ALSO EXCEPT AN UNDIVIDED HALF INTEREST IN AND TO ANY AND ALL MINERALS LOCATED
WITHIN THE REAL PROPERTY HEREINAFTER DESCRIBED, INCLUDING, WITHOUT LIMITATION,
ALL OIL, GAS, HYDROCARBON AND SIMILAR RIGHTS, AND ALL WATER, WATER RIGHTS,
GEOTHERMAL STEAM AND STEAM POWER, WITHIN OR UNDERLYING SUCH REAL PROPERTY,
TOGETHER WITH THE PERPETUAL RIGHT OF DEVELOPMENT THEREOF; PROVIDED, HOWEVER,
THAT THE RIGHTS HEREIN CONVEYED DO NOT INCLUDE THE RIGHT TO ENTER UPON THE
SURFACE AND TOP 500 FEET OF THE SUBSURFACE OF SAID REAL PROPERTY, AS PROVIDED IN
DEED RECORDED JULY 3,1979 IN BOOK 13215, PAGE 649, OFFICIAL RECORDS, AS
INSTRUMENT NO. 3450.
<PAGE> 48
EXHIBIT B
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
- -----------------------------------
- -----------------------------------
- -----------------------------------
- --------------------------------------------------------------------------------
(Space above this line for Recorder's use)
Transfer tax not to be shown of public record.
See attached statement submitted herewith.
GRANT DEED
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
____________ ("Grantor"), hereby grants to _________ ("Grantee"), all that
certain real property (the "Land") located in the County of Orange, State of
California, and described on Exhibit A attached hereto and incorporated herein
by this reference; subject, however, to: (a) taxes and assessments, both general
and special, not now due and payable; (b) building and zoning ordinances, laws,
regulations and restrictions by municipal or other governmental authority; (c)
any and all leases, easements, rights-of-way, encumbrances, conditions,
covenants, restrictions, reservations and exceptions of record; and (d) all
other matters affecting title to the Land, whether or not of record including,
but not limited to, road, highway, pipeline, railroad and utility easements
which would be disclosed by a survey and inspection of the Property.
SUBJECT TO the following prohibition: Construction of a "self storage
project" on some or all of the Land is prohibited without the consent of the
owner of Lot 20 of Tract 13343 ("Benefited Lot"). Such prohibition shall
commence on September 5, 1995 and shall terminate on the earlier of (i) the
later of termination of the CC&R or March 22, 2007, or (ii) December 31, 1997 if
a self storage project having not less than 75,000 gross square feet of storage
units has not been constructed on the Benefited Lot and a certificate of
occupancy issued by such date. The term "self storage project" means a project
having more than 10,000 gross square feet of individual storage rental units,
partitioned for the exclusive use of one tenant, with separate secure access.
"CC&R" means the Declaration of Covenants, Conditions and Restrictions for
Pacific Commercentre between LADCO and Pacific Commercentre Partners (the
"Original CC&R"), recorded on January 10, 1991, as Document No. 91-013945 in the
Official Records of Orange County, California (the "Official Records"), as
amended by that First Amendment to the Original CC&R, dated as of October 2,
1991, and recorded as Document No. 91-540892 in the Official Records, that
Second Amendment to the Original CC&R dated as of September 2, 1992, and
recorded as Document No. 92-606715 in the Official Records and that Third
Amendment to the Original CC&R dated as of April 30, 1993, and recorded as
Document No. 93-0666712 in the Official Records.
Dated: 199 .
------------------------ --- --------------------------------------
By:
-------------------------------------
<PAGE> 49
EXHIBIT C
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
- -----------------------------------
- -----------------------------------
- -----------------------------------
- --------------------------------------------------------------------------------
(Space above this line for Recorder's use)
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement ("Agreement") is made as of __________,
199_ , by and between ("Assignee"), and _________________________ ("Assignor").
RECITALS
A. Assignor owns certain real property in Lake Forest, California described
on Exhibit A hereto (the "Property"), being a portion of that development
commonly known as Pacific Commercentre. In connection with the operation of the
Property, Assignor is a party to the certain agreements ("Contracts") described
below.
B. Assignor and Assignee entered into that certain Sale Agreement dated as
of _________________________, 199__, ("Purchase Agreement"), pursuant to which
Assignee has agreed to purchase the Property and assume the Contracts.
AGREEMENT
For valuable consideration, receipt of which is acknowledged, Assignor and
Assignee agree as follows:
1. Assignor grants, sells, transfers and assigns to Assignee, as of the
date hereof, all of Assignor's right, title and interest in and to the following
contracts to the extent they relate to the development, use and operation of the
Property:
a. Obligation to implement a transportation management program complying
with Condition of Approval No. 5, Board of Supervisors Resolution No. 87 1065,
County of Orange.
b. Foothill Circulation Phasing Plan Fee Credit Agreement No. D89-294
between PCP and the County of Orange, approved June 26, 1990.
c. Fee Credit Agreement (Foothill Transportation Corridor) No. D89-305B
between the Foothill/Eastern Transportation Corridor Agency, PCP and the County
of Orange, approved July 17, 1990.
<PAGE> 50
d. The Standard Industrial/Commercial Single Tenant Lease - Net (American
Industrial Real Estate Association (1990)) between Assignor and Assignee dated
as of November 1, 1996, as amended from time to time.
Assignee assumes all of Assignor's obligations arising on and after the
date hereof under, or in connection with, the Contracts to the extent they
relate to the Property, subject to the terms thereof. Assignee agrees to execute
any and all assignment and/or assumption agreements required by public agencies
to evidence Assignee's assumption of such obligations and the release of
Assignor from the duty to perform such obligations. Assignee shall cooperate
with Assignor in acknowledging such notices as may be required by law in
connection with the acquisition of the Property.
2. The Contracts are sold, conveyed and assigned "as is," "where is," "with
all faults" and without any warranty or representation, express or implied, of
any nature or sort, including, without limitation, any warranty of
merchantability, fitness of use for a particular purpose, or otherwise, except
as may specifically be provided otherwise in the Purchase Agreement.
3. Should either party hereto institute any legal action or proceeding to
enforce or interpret any provisions of this Agreement, the prevailing party
shall be entitled to receive from the losing party such amount as the court may
adjudge to be reasonable attorneys' fees for the services rendered to the
prevailing party in such action or proceeding.
4. This Agreement shall be binding on, and inure to the benefit of, the
parties hereto, their successors in interest and assigns, subject, however, to
the provisions of the Contracts regarding assignment.
5. The interpretation and performance of this Agreement shall be governed
by the laws of the State of California applied to agreements to be performed
entirely within the State of California by residents of the State of California.
ASSIGNEE:
------------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
ASSIGNOR:
------------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 51
EXHIBIT D
SPECIAL TAX DISCLOSURE AGREEMENT RE
COMMUNITY FACILITIES DISTRICT NO. 87-7
OF THE COUNTY OF ORANGE (LOS ALISOS)
THIS SPECIAL TAX DISCLOSURE AGREEMENT RE COMMUNITY FACILITIES DISTRICT NO.
87-7 OF THE COUNTY OF ORANGE (LOS ALISOS) (the "Agreement") is entered into and
is effective as of the ____ day of __________ 1995, by and between the COUNTY OF
ORANGE, a political subdivision of the State of California (the "County"), for
itself and on behalf of Community Facilities District No. 87-7 of the County of
Orange (Los Alisos) (the "District"), and _____________________ a
__________________ (the "Company").
RECITALS
A. The Board of Supervisors of the County of Orange (the "Board of
Supervisors") has formed and established the District pursuant to the provisions
of the Mello-Roos Community Facilities Act of 1982, Chapter 2.5 (commencing with
Section 53311) of Part I of Division 2 of Title 5 of the California Government
Code (the "Act"). The parties hereto acknowledge that the District has been
established as a legally constituted governmental entity pursuant to the Act.
The land included within the District is described on the map attached to
Resolution No. 88-750 adopted by the Board of Supervisors on May 24, 1988, and
subsequently recorded with the County Recorder on May 27, 1988, in Book 41, Page
14 of the maps of assessment and community facilities districts.
B. The Company owns a portion of the land within the District and
acknowledges that the land is subject to the levy of a special tax (the "Special
Tax") in accordance with the Rate and Method of Apportionment contained in
Resolution No. 881007 adopted by the Board of Supervisors on June 29, 1988.
C. The purpose of this Agreement is to set forth the provisions under which
the Company will provide for disclosure of the Special Tax to prospective
purchasers of its land.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Recitals. Each of the above recitals is incorporated herein and is
true and correct.
2. Disclosure of Special Tax.
(a) In consideration of the County's and the District's willingness
to permit the financing of certain public improvements through the levy of the
Special Tax, and, in certain cases, through the issuance of bonds by the
District pursuant to the provisions of the Act, the Company agrees to provide
disclosure of the Special Tax in accordance with this Agreement; provided,
however, that nothing herein shall entitle the Company to compel the County or
the District to levy the Special Tax or issue bonds in any particular amount,
which actions shall remain within the sole discretion of the
<PAGE> 52
County and the District. The Company covenants to deliver to each person or
entity buying any land or improvements within the District from the Company the
disclosure notice attached hereto as Attachment I and incorporated by reference
herein (the "Special Tax Notice"). In all cases, the Special Tax Notice shall be
provided prior to the opening of escrow for the purchase of any land or
improvements and shall be signed by all buyers prior to any party becoming
contractually obligated to purchase either land or improvements. The provision
of the Special Tax Notice to buyers of new homes shall be in addition to the
disclosure provided by any applicable Department of Real Estate reports. The
Company shall provide copies of the Special Tax Notices, signed by each buyer of
any land or improvements, to the County promptly upon execution by the buyer.
The Company shall include the Special Tax Notice in all of its applications for
Final Subdivision Reports required by the California Department of Real Estate.
(b) The Company covenants that, with respect to sales of real
property within the District by the Company to persons or entities who intend to
construct residential units or commercial or industrial facilities for sale, the
Company shall require as a condition precedent to its obligation to close an
escrow for the sale of real property that the buyer execute an agreement with
the County regarding disclosure of the Special Tax and that such agreement shall
be in the form of this Agreement.
3. Indemnification and Hold Harmless. The Company hereby assumes the
defense of, and indemnifies and saves harmless the County, the District and each
of their respective officers, directors, employees and agents, from and against
all actions, damages, claims, losses or expenses of every type and description
to which they may be subjected or put, by reason of, or resulting form, the
failure by the Company to comply with this Agreement, provided that nothing in
this Section 3 shall be understood or construed to mean that the Company agrees
to indemnify the County or the District, or any of their respective officers,
directors, employees or agents, for any negligent or wrongful acts or omissions
to act of the County or the District, or any of their respective officers,
directors, employees or agents.
4. Governing Law. This Agreement and any dispute arising hereunder shall
be governed by and interpreted in accordance with the laws of the State of
California.
5. Waiver. Failure by a party to insist upon the strict performance of
any of the provisions of this Agreement by the other party, or the failure by a
party to exercise its rights upon the default of the other party, shall not
constitute a waiver of such party's right to insist and demand strict compliance
by the other party with the terms of this Agreement thereafter.
6. Singular and Plural; Gender. As used herein, the singular of any word
includes the plural, and terms in the masculine gender shall include the
feminine.
7. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original. The delivery of an executed copy of this
Agreement by the Company to an escrow company shall be deemed to be an offer by
the Company to enter into this Agreement and shall be irrevocable by the Company
for a period of forty (40) days. This Agreement shall become binding upon the
County and the District upon execution by the County Administrative Officer or
his designee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written below.
Date: COUNTY OF ORANGE
---------------------------
<PAGE> 53
By:
-------------------------------------
County Administrative Officer
COMMUNITY FACILITIES
DISTRICT NO. 87-7 OF THE
COUNTY OF ORANGE (LOS ALISOS)
By:
-------------------------------------
County Administrative Officer
APPROVED AS TO FORM:
ADRIAN KUYPER,
County Counsel
By:
----------------------------------
Dated: , 19
----------------------- ----
----------------------------------------
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 54
Attachment 1
NOTICE OF SPECIAL TAX
COMMUNITY FACILITIES DISTRICT NO. 87-7
COUNTY OF ORANGE, CALIFORNIA
TO: THE PROSPECTIVE PURCHASER OF THE REAL PROPERTY KNOWN AS:
Lot ___________ of Tract Map No. __________________
THIS IS A NOTIFICATION TO YOU PRIOR TO YOUR ENTERING INTO A CONTRACT TO
PURCHASE THIS PROPERTY. THE SELLER IS REQUIRED TO GIVE YOU THIS NOTICE AND TO
OBTAIN A COPY SIGNED BY YOU TO INDICATE THAT YOU HAVE RECEIVED AND READ A COPY
OF THIS NOTICE.
(1) This property is subject to a special tax, which is in addition to
the regular property taxes and any other charges, fees, special taxes and
benefit assessments on the parcel. It is imposed on this property because it is
a new development, and may not be imposed generally upon property outside of
this new development. If you fail to pay this tax when due each year, the
property may be foreclosed upon and sold. The tax is used to provide public
facilities or services that are likely to particularly benefit the property. YOU
SHOULD TAKE THIS TAX AND THE BENEFITS FROM THE FACILITIES AND SERVICES FOR WHICH
IT PAYS INTO ACCOUNT IN DECIDING WHETHER TO BUY THIS PROPERTY.
(2) Since this parcel is currently Undeveloped Property, the maximum
special tax which may be levied against this parcel to pay for public facilities
and services is $10,432.69 per acre during the 1994-1995 tax year. If this
parcel was Developed Property (i.e., if a building permit had been issued by
March 1, 1994), then the maximum special tax which could have been levied
against this parcel to pay for public facilities and services during the
1994-1995 tax year would have been the greater of ( a) $0.27 per square foot of
land or (b) $0.70 per square foot of improvements. This amount will be increased
by 3.5 percent per year after that. The special tax will be levied each year
until all of the authorized facilities are built and all special tax bonds are
repaid and may be levied forever thereafter to pay for ongoing service costs.
(3) The authorized facilities and fees which are being paid for by the
special taxes, and by the money received from the sale of bonds which are being
repaid by the special taxes, are:
Water and sewer acreage fees and the construction, purchase,
modification, expansion, improvement or rehabilitation of a local and regional
park, fire stations, sheriff substation, library, storm drains and the roadway
improvements to be constructed as part of the Foothill Circulation Phasing
Program, which roadway improvements include all related work for grading,
paving, drainage, sewer and water facilities and utilities, together with
improvements to intersections and other appurtenant work.
The facilities may not yet have all been constructed or acquired and it
is possible that some may never be constructed or acquired.
In addition, the special taxes may be used to pay for costs of the
following services:
<PAGE> 55
Police protection, fire protection, ambulance, paramedic, flood and
storm protection, recreation program, library, park and open space services,
including, but not limited to, the operation and maintenance of storm drains,
parks and parkways.
YOU MAY OBTAIN A COPY OF THE RESOLUTION OF FORMATION WHICH AUTHORIZED
CREATION OF THE COMMUNITY FACILITIES DISTRICT AND WHICH SPECIFIES MORE PRECISELY
HOW THE SPECIAL TAX IS APPORTIONED AND HOW THE PROCEEDS OF THE TAX WILL BE USED,
FROM THE COUNTY OF ORANGE COUNTY ADMINISTRATIVE OFFICE BY CALLING (714)
834-3055. THERE MAY BE A CHARGE FOR THIS DOCUMENT NOT TO EXCEED THE REASONABLE
COST OF PROVIDING THE DOCUMENT.
I (WE) ACKNOWLEDGE THAT I (WE) HAVE READ THIS NOTICE AND RECEIVED A COPY
OF THIS NOTICE PRIOR TO ENTERING INTO A CONTRACT TO PURCHASE OR DEPOSIT RECEIPT
WITH RESPECT TO THE ABOVE-REFERENCED PROPERTY. I (WE) UNDERSTAND THAT I (WE) MAY
TERMINATE THE CONTRACT TO PURCHASE OR DEPOSIT RECEIPT WITHIN THREE DAYS AFTER
RECEIVING THIS NOTICE IN PERSON OR WITHIN FIVE DAYS AFTER IT WAS DEPOSITED IN
THE MAIL BY GIVING WRITTEN NOTICE OF THAT TERMINATION TO THE OWNER, SUBDIVIDER
OR AGENT SELLING THE PROPERTY.
DATE: [EFFECTIVE DATE]
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE> 56
EXHIBIT E
GENERAL ESCROW INSTRUCTIONS
The following instructions to Escrow Holder are applicable:
1. Escrow Holder shall prorate all items as of the Closing Date,
assuming a 30 day month, using the information contained in the last available
tax statement without regard to any reassessments or subsequent changes, and
association statements delivered into escrow for proration purposes.
2. If any check submitted to escrow is dishonored when presented for
payment, Escrow Holder shall notify Buyer and Seller of such non payment.
3. All funds delivered to Escrow shall be deposited with other escrow
funds in a general escrow account or accounts of Escrow Holder with any state or
national bank. Escrow Holder shall have no obligation to account for the value
of any escrow-related accounting services and incidental benefits that may be
provided to Escrow Holder by any depository bank. All disbursements shall be
made by Escrow Holder check, unless otherwise instructed. Escrow Holder shall
not be responsible for any delay in closing if funds received by Escrow Holder
are not available for immediate withdrawal.
4. The phrase "close of escrow" (or COE) as used in this Exhibit means
the date on which documents are recorded, unless otherwise specified.
5. Recordation of any instruments delivered through escrow, if necessary
or proper for the issuance of the policy of title insurance called for, is
authorized.
6. No examination or insurance as to the amount or payment of personal
property taxes is required.
7. If a demand to cancel escrow is submitted after the Closing Date, the
party so requesting Escrow Holder to cancel escrow shall file notice of demand
to cancel in Escrow Holder's office in writing. Escrow Holder shall within three
(3) Business Days thereafter mail by certified mail one copy of such notice to
each of the other parties.
8. In the event Escrow Holder receive or become aware of any conflicting
demands or claims with respect to the escrow or the rights of any of the parties
hereto, or any money or property deposited herein, Escrow Holder shall have the
absolute right at its option to discontinue any or all further acts until such
conflict is resolved.
9. Escrow Holder is released from and shall have no liability,
obligation or responsibility with respect to: withholding of funds pursuant to
Section 1445 of the Internal Revenue Code of 1954 as amended, and to Sections
18805 and 26131 of the California Revenue and Taxation Code; advising the
parties as to the requirements of Section 1445; determining whether the
transferor is a foreign person or a non-resident under such Sections; or
obtaining a non foreign affidavit or other exemption from withholding under said
Sections nor otherwise making any inquiry concerning compliance with such
Sections by any party to the transaction.
<PAGE> 57
10. Escrow Holder is authorized to destroy or otherwise dispose of any
and all documents, papers, instructions, correspondence and other material
pertaining to this escrow at the expiration of six years (6) from the close of
escrow or cancellation thereof, without liability and without further notice.
11. Buyer and Seller acknowledge that Escrow Holder does not provide
legal advice nor has it made any investigation, representations or assurances
whatsoever regarding the legal aspects or compliance of this transaction with
any tax, securities or other state or federal laws. It is recommended that the
parties obtain independent legal counsel as to such matters.
<PAGE> 58
Exhibit C to Lease Addendum
Memorandum of Option
Recording Requested by and when recorded mail to:
________________________________________________________________________________
MEMORANDUM OF OPTION
This MEMORANDUM OF OPTION, is dated for convenience and reference
_________, 1997, by Makena Properties, Inc. a California corporation
("Optionor") for the benefit of Ansys, Inc., a California corporation
(hereinafter "Optionee").
Optioner has granted Optionee an option ("Option") to purchase the real
property described on Exhibit A attached hereto and incorporated herein by this
reference, pursuant to the terms and conditions of that certain Standard
Industrial/Commercial Single Tenant Lease - Net (American Industrial Real Estate
Association (1990)) between Optionor and Optionee dated as of November 1, 1996
("Lease"). The purpose of this Memorandum of Option is to give notice of the
existence of such Option. In the event of any conflict between the provisions of
this Memorandum of Option and the provisions of said incorporated Option, the
provisions of said incorporated Option shall control. Although the expiration of
the Option is currently estimated to be significantly earlier, this Memorandum
of option shall expire automatically and by of no further force or effect upon
December 31, 2000.
IN WITNESS WHEREOF, Optionor has executed this Memorandum of Option as
of the date set forth above.
Makena Properties, Inc., a California
corporation
By:_____________________________________
Title:__________________________________
<PAGE> 59
Exhibit D to Lease Addendum
PRELIMINARY PLANS
<PAGE> 1
EXHIBIT 10.09
DISTRIBUTORSHIP AGREEMENT
THIS DISTRIBUTORSHIP AGREEMENT is made and entered into by and between
ANSYS, INC. (hereinafter referred to as the "Company"), a corporation organized
and existing under the laws of the State of California and having its principal
place of business at 25200 Commercentre Drive, Lake Forest, California
92630-8810, United States of America, and XXXXXXXXXXXXX (hereinafter referred to
as the "Distributor"), a company organized and existing under the laws of
XXXXXXX and having its principal place of business at XXXXXXXXXXXXXXXXXX.
W I T N E S S E T H:
WHEREAS, the Company desires to promote the distribution, sale and use of
the Products (defined in Section 1.2 hereof) in the Territory (defined in
Section 1.3 hereof) and is willing to appoint the Distributor as its exclusive
distributor of the Products in the Territory, on the terms and conditions set
forth hereinafter;
WHEREAS, the Distributor desires to be appointed as such exclusive
distributor, on the terms and conditions set forth hereinafter; and
WHEREAS, the Company and the Distributor have engaged in extensive
negotiations over the terms and conditions set forth hereinafter and each of
them, after careful consideration in conjunction with legal counsel, is willing
and able to enter into an exclusive distributorship arrangement, on such terms
and conditions;
NOW, THEREFORE, in consideration of the premises set forth above and the
mutual promises hereinafter contained, the parties hereto agree as follows:
ARTICLE 1. APPOINTMENT
SECTION 1.1 APPOINTMENT AND ACCEPTANCE OF APPOINTMENT. The Company appoints
the Distributor, and the Distributor accepts appointment, as the Company's
exclusive distributor to promote, distribute and sell the Products (defined in
Section 1.2 hereof) in the Territory (defined in Section 1.3 hereof; provided,
however, that if, at any time during the term hereof, Section 1.6 hereof should
be deemed to be invalid or unenforceable in the Territory, then the Distributor
shall thereafter cease to be an exclusive distributor of the Products and the
Company shall be entitled to make sales itself or to appoint other distributors
of the Products in the Territory.
SECTION 1.2 PRODUCTS. The Distributor is authorized to promote, distribute
and sell in the Territory only those products specified in Schedule A attached
hereto and incorporated herein, as such Schedule A may be amended in writing by
the parties hereto from time to time during the term hereof (all of such
products hereinafter collectively referred to as the "Products"). The Company
reserves the right to make sales itself or to appoint other distributors of any
other of the Company's products in the Territory.
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<PAGE> 2
SECTION 1.3 TERRITORY. The territory in which the Distributor is authorized
to actively solicit customers of the Products is limited to the geographic
area(s) specified in Schedule B attached hereto and incorporated herein, as such
Schedule B may be amended in writing by the parties hereto from time to time
during the term hereof, and does not include any other place in the world
(hereinafter referred to as the "Territory"). The Distributor shall not actively
solicit sales of the Products outside the Territory and shall not establish any
branch or maintain any distribution depot or warehouse outside the Territory for
the Products, except with the prior written consent of the Company.
SECTION 1.4 RESTRICTIONS ON AUTHORITY. For all purposes under this
Agreement, the Distributor is an independent contractor and shall not be deemed
to be an employee, agent, partner or legal representative of the Company. This
Agreement does not grant, and the distributor shall not have, any authority,
express or implied, to create or assume any obligation, enter into any
agreement, make any representation or warranty, file any document with any
governmental body or serve or accept legal process on behalf of the Company, to
settle any claim by or against the Company, or to bind or otherwise render the
Company liable in any way in the Territory or anywhere else in the world,
without the prior express written consent of the Company. The Distributor shall
purchase the Products for its own account from the Company and shall re-sell the
Products for its own account in the Territory.
SECTION 1.5 EMPLOYEES OF DISTRIBUTOR. The Distributor shall be responsible
for the selection, training and supervision of, and the payment of remuneration
and benefits to, its employees who assist it in the performance of its
obligations hereunder and in no event shall the Company have any obligation to,
or authority over, such employees of the Distributor.
SECTION 1.6 NON-COMPETITION.
1.6.1 The Distributor shall use its best efforts to attain and sustain
maximum sales of the Products in the Territory and shall refrain from
diminishing or otherwise weakening the Company's rights by engaging in any
activities whatsoever in the Territory that might reasonably be deemed as
injurious to the sales potential of the Products in the Territory.
1.6.2 The Distributor represents and warrants to the Company that, as
of the Effective Date of this Agreement (as defined in Section 17.1 hereof), the
Distributor is not, directly or indirectly, acting as an agent, representative
or distributor in the Territory for, and is not, directly or indirectly, selling
or distributing in the Territory, any products that are similar to or
competitive with the Products. Products are defined to include not only thin
layer chromatographic products, but also other toxicology products used in
extraction, separation, or detection of drugs, including immunoassays.
Furthermore, during the term of this Agreement, the Distributor shall not,
directly or indirectly, act as an agent, representative or distributor in the
Territory for, and shall not, directly or indirectly, design, develop,
manufacture, license, promote, sell or distribute in the Territory, any products
that are similar to or competitive with the Products.
1.6.3 The Distributor agrees that any breach by it of its obligations
under this Section 1.6 shall be just cause for termination under Section 18.3
hereof.
2
<PAGE> 3
ARTICLE 2. TERMS OF SALE
SECTION 2.1 PURCHASE ORDERS. In making its purchases of the Products from
the Company, the Distributor shall submit written purchase orders to the Company
at the address set forth in Article 15 below, which the Company may, in its sole
discretion, accept or reject, in whole or in part, for any one of the following
reasons: the Company is unable to fill a purchase order due to the needs of its
other customers or other commercial reasons; the Company has experienced an
event of force majeure as defined in Article 14, the Company has decided to
cease manufacturing the Products or to cease selling the Products in the
Territory; and the order(s) contain terms or conditions inconsistent with the
terms of this Agreement or the course of dealing between the parties hereto or
violative of applicable U.S. or California or New Jersey law. If the Company
rejects a purchase order for any of such reasons, the Company shall provide the
Distributor with a written statement thereof. The Company reserves the right to
distribute any unusually large orders over an extended period of time. The
Company may, in its sole discretion, determine whether an order is unusually
large and what extended shipment period is acceptable. The Company may, in its
sole discretion, accept and act on telecopy or telephone purchase orders issued
by the Distributor; provided, however, that, upon the request of the Company,
the Distributor shall promptly confirm telephone purchase orders in writing or
by telecopy. No purchase orders accepted by the Company may be cancelled by
either the Distributor or the Company, unless the parties hereto agree otherwise
in writing.
SECTION 2.2 PRICES TO DISTRIBUTOR.
2.2.1 The purchase prices for the Products shall be the prices
specified in Schedule C attached hereto and incorporated herein, as such
Schedule C may be amended from time to time during the term hereof by the
Company on each January 1, in its sole discretion, on sixty (60) days calendar
days' prior written Notice to the Distributor; provided, however, that, within
the ten (10) calendar days following the date of such Notice by the Company, the
Distributor may order, at the previously prevailing prices, such quantities of
the Products as are reasonably needed by the Distributor during the thirty (30)
calendar day period immediately following the date of such Notice to fill
contracts and outstanding quotations existing on the date of the Company's
Notice of such price changes.
SECTION 2.3 PAYMENT TERMS.
2.3.1 Each purchase order hereunder shall specify the amount, manner
and timing of payment thereunder; provided, however, that, in all cases, the
Company shall be paid in the same currency reflected on the Company's invoices
to the Distributor, and payment shall be made, at the option of the Company, by
one of the following three methods: a bank draft, a wire transfer of immediately
available funds or by an irrevocable letter of credit drawn in favor of the
Company, confirmed by a U.S. banking institution acceptable to the Company and
on terms and conditions acceptable to the Company. In all cases, the following
payment terms shall prevail: 2% discount on those prices specified in Schedule C
attached hereto if paid within thirty (30) calendar days of the date of the
company's invoice, and the full amount of those prices specified in Schedule C
attached hereto if paid within sixty (60) days of the date of the Company's
invoice; provided, however, that the Company may, in its sole discretion, upon
Notice to the Distributor, alter such payment terms at any time during the term
hereof and any such alteration shall be effective with respect to any and all
purchase orders
3
<PAGE> 4
not theretofore accepted by the Company.
2.3.2 Acceptance and endorsement by the Company of any instrument for
less than the full amount that the Company claims to be due and payable to it
under a purchase order or hereunder shall not be deemed to be an admission of
payment in full, and any conditions to the contrary that are noted on such
instrument shall not be binding on the Company.
SECTION 2.4 DELIVERY.
2.4.1 Delivery schedules stated by the Company are estimates only and
are not guaranteed by the Company, but the Company shall, subject to Article 14
hereof, attempt to make delivery within a reasonable time, taking into account
the Distributor's need to obtain the Products, the availability of
transportation, the needs of other customers of the Company, the existence of
special orders and other commercial matters. The Company shall not be obligated
to deliver any Products without timely receipt of shipping instructions from the
Distributor, and the Company shall not be obligated to ship Products that have
been discontinued or that are temporarily out of stock.
2.4.2 Unless the parties hereto otherwise agree in writing or by
telecopy with respect to a given purchase order, the Distributor shall be
responsible for all shipping, freight, duty and customs charges related to the
Products ordered.
SECTION 2.5 PRICING POLICIES OF DISTRIBUTOR. The Distributor and the
Company shall develop and adopt an annual budget for each year during the term
hereof. Any increases in the prices for the Products other than in accordance
with the budget adopted by the parties must be approved in writing by the
Company, which approval shall not be unreasonably withheld. It is the intent of
the parties that the Distributor achieve a fair profit on the sale of the
Products, considering the Distributor's direct and indirect costs of marketing
and advertising the Products, of the product manager assigned to the Products,
and other technical support, all as provided herein. The Distributor shall
determine the other financial terms and conditions under which it will re-sell
the Products in the Territory.
SECTION 2.6 RETURN OF PRODUCTS. Distributor agrees to abide by the terms of
the Company's returned goods policy, and no Product may be returned after
shipment to the Distributor, except as permitted in the Company returned goods
policy as such may be amended from time to time by the Company.
SECTION 2.7 TAXES. Any and all customs, tariffs and duties or excise,
sales, use, value-added or other taxes or levies imposed by any governmental
body in the Territory on the Distributor or the Company in connection with the
sale of the Products to or by the Distributor shall be paid by the Distributor.
The Distributor shall fully reimburse and indemnify the Company for any amount
actually paid by the Company or withheld by the Distributor for any such taxes
or levies within thirty (30) calendar days after the date on which the Company
gives notice thereof to the Distributor or after the date of withholding by the
Distributor, as the case may be.
4
<PAGE> 5
ARTICLE 3. INTELLECTUAL PROPERTY AND TRADEMARKS
SECTION 3.1 CERTAIN DEFINITIONS.
3.1.1 "Company's Property" shall mean any and all confidential
inventions, trade secrets, manufacturing processes, know-how, product designs,
machine designs, technical information, technical designs, engineering data,
specifications, blueprints, drawings, formulae, manuals, customer lists, vendor
and supplier lists and agreements, distributor and sales representative lists
and agreements, marketing and other business strategies, forms, sales aids, and
other confidential information and materials, whether or not in documentary form
and whether or not patented by the Company or its parent, subsidiaries or other
affiliates in the Territory or elsewhere, that are heretofore and hereafter
owned or controlled by the Company or its parent, subsidiaries or other
affiliates and that relate to the design, production, operations, marketing,
sale, distribution and use of the Products or that otherwise relate to the
business, products and services of the Company or its parent, subsidiaries or
other affiliates.
3.1.2 "Company's Trademarks" shall mean any and all of the trademarks,
service marks or trade names, whether or not registered by the Company or its
parent, subsidiaries or other affiliates in the Territory or elsewhere, and all
good will related thereto, that are heretofore and hereafter owned or controlled
by the Company or its parent, subsidiaries or other affiliates and that are
associated with the Products.
SECTION 3.2 OWNERSHIP AND LIMITED LICENSE TO REPRODUCE COMPANY'S
TRADEMARKS. Any and all of Company's Property and Company's Trademarks are and
shall remain the exclusive property of the company or its parent, subsidiaries
or other affiliates. This Agreement gives the Distributor no rights therein; the
Distributor shall have no rights therein; and the Distributor shall never assert
any rights therein; provided, however, that the Company grants the Distributor a
limited, non-exclusive, fully paid-up license to reproduce Company's Trademarks
in advertisements and other promotional materials during the term of this
Agreement. Such license is granted for the sole purpose of assisting the
Distributor in promoting the sale and use of the Products in the Territory under
this Agreement. Subject to Section 18.7 hereof, such license shall expire
immediately upon the expiration of this Agreement or the termination of this
Agreement, with or without cause.
SECTION 3.3 CERTAIN ADDITIONAL RESTRICTIONS.
3.3.1 The Products to be sold to the Distributor hereunder shall bear
Company's Trademarks. The Distributor shall not remove, conceal or alter any of
Company's Trademarks on the Products. The Distributor shall promote and sell all
Products in their original packages and under the original labels provided by
the Company; provided, however, that the Distributor shall fully and timely
advise the Company of all laws and regulations of the Territory governing the
packaging and labelling of the Products and provided further that, upon receipt
of such information, the Company shall ensure that the packaging and labelling
of the Products fully complies with all such laws and regulations. The
Distributor shall make no modifications, alterations, changes, enhancements or
additions in or to the Products or the Company's Trademarks, except for the
addition of the name and address of the Distributor to the Products, displaying
the name and address of the Distributor and the Company in the same-size print
on the Products.
5
<PAGE> 6
3.3.2 The Distributor shall include an appropriate trademark or trade
name notice on its advertisements, sales literature, press releases and all
other marketing materials that use Company's Trademarks.
3.3.3 The Distributor shall not use Company's Trademarks on its
letterhead or in its Company name; provided, however, that the Distributor may
include the following statement on its letterhead and promotional literature:
"Authorized Distributor of Toxi-Lab Products".
3.3.4 The Distributor represents and warrants that it has not sought
or obtained, and agrees that it shall not seek or obtain, in the Territory or
elsewhere, any trademark or tradename registration embodying Company's
Trademarks or any patent or other intellectual property protection for any of
the Company's Property, unless authorized to do so in advance in writing by the
Company.
SECTION 3.5 CONFIDENTIALITY.
3.5.1 During the term of this Agreement at all times after the
expiration of this Agreement or the termination of this Agreement, with or
without cause, the Distributor shall treat all Company's Property disclosed or
supplied to it by the Company as confidential and shall cause, instruct and
oblige its directors, officers, employees and agents and any other person acting
in concert with it or on its behalf and having access to such Company's Property
to keep the same in confidence. The Distributor shall not, at any time, in any
way, directly or indirectly, (i) communicate, disclose, disseminate, lecture
upon or publish articles concerning Company's Property nor (ii) aid anyone else
in such communication, disclosure, dissemination, lecturing or publishing, nor
(iii) use, nor aid anyone else in using, Company's Property, without the prior
express written consent of the Company; provided, however, that the
Distributor's obligation of secrecy and non-use under this Agreement shall not
apply to (a) information that the Distributor is using strictly in accordance
with the terms of this Agreement for the limited purpose of promoting the sale
and use of the Products in the Territory; (b) information that at the time of
the disclosure by the company to the Distributor is in the public domain; (c)
information that, after disclosure by the Company to the Distributor, becomes
part of the public domain by publication or otherwise, through an authorized
source other than the Distributor and without the fault of the Distributor; and
(d) information that the Distributor can show by written records was in the
Distributor's possession prior to the disclosure by the Company to the
Distributor and was not acquired, directly or indirectly, from the Company.
3.5.2 The Distributor shall bear the burden of proving by clear and
convincing evidence the existence of any of the exceptions (a) through (d) in
Section 3.5.1 hereof to the Distributor's obligation of secrecy and non-use
under this Agreement, and shall provide Notice to the Company of the reliance on
any such exception no less than fifteen (15) days prior to the communication,
etc. of any Company's Property.
3.5.3 During the term of this Agreement, the Distributor shall not,
under any circumstances, copy, replicate, imitate, or reverse engineer any
products of the Company, including, but not limited to, the Products.
3.5.4 Upon the expiration of this Agreement or the termination of this
Agreement, with or without cause, the Distributor shall, subject to Section 18.7
hereof, immediately return to the
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<PAGE> 7
Company any and all Company's Property, including, but not limited to, any
documentary embodiment thereof.
SECTION 3.6 INFRINGEMENT. The Distributor shall give immediate Notice to
the Company of any and all infringements of Company's Property Trademarks that
come to the Distributor's attention during the term of this Agreement and shall
assist the Company in taking such action against such infringement as the
Company may, in its sole discretion, decide to take; provided, however, that all
costs and expenses incurred in connection with any such infringement action
shall be borne by the Company. The Company shall hold the Distributor harmless
from, and shall indemnify the Distributor against, any and all claims, losses,
liabilities, damages and costs and expenses (including, but not limited to,
costs of investigation, court costs, arbitrators' fees and attorneys' fees) that
the Distributor may incur by reason of any infringement by the Company of any
trademark or patent or other proprietary right of any third party.
SECTION 3.7 INJUNCTIVE RELIEF. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 3 by the Distributor or any of its employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, the Company shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 3. It is understood that such injunctive relief
is intended solely as provisional relief pending arbitration in accordance with
Article 10 hereof.
SECTION 3.8 INDEMNIFICATION. Each party shall hold the other harmless from,
and shall indemnify the other against, any and all claims, losses, liabilities,
damages and costs and expenses (including, but not limited to, costs of
investigation, court costs, arbitrators' fees and attorneys' fees) that the
indemnified party may incur by reason of any breach of any of the provision of
this Article 3 by the indemnifying party or any of its employees, agents,
officers, or directors or any other person acting in concert with it or on its
behalf.
ARTICLE 4. PROMOTIONAL ACTIVITIES
SECTION 4.1 PROMOTIONAL ACTIVITIES OF THE DISTRIBUTOR. During the term
hereof, the Distributor, at its sole cost and expense, covenants and agrees to:
4.1.1 Use its best efforts to establish and maintain favorable
relations with officials of applicable health ministries;
4.1.2 Monitor closely the activities of sub-distributors;
4.1.3 Participate actively and engage in sufficient advertising and
publicity campaigns, scientific meetings and exhibitions, trade fairs and shows,
and other marketing activities, to promote vigorously and consistently the sale
of the Products throughout the Territory;
4.1.4 Promote vigorously new Toxi-Lab products introduced by Ansys,
provided such products become Products hereunder, all in accordance with
strategies and schedules determined by the Distributor and the Company on a
Product by Product and market by market basis.
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SECTION 4.2 PROMOTIONAL ACTIVITIES OF THE COMPANY. During the term hereof,
the Company, at its sole cost and expense, covenants and agrees to:
4.2.1 Provide at least one (1) technical support specialist on site in
the Territory a minimum of one (1) time per year to (a) conduct appropriate
training sessions and workshops for all employees of the Distributor engaged in
promoting the Products, and (b) conduct in-service support for the Products at
the offices of key purchasers and users of the Product;
4.2.2 Make such contributions to the Distributor's marketing budget as
the Company may determine in its discretion; and
4.2.3 Make such contributions to the Distributor's new product launch
budget as the Company my determine in its discretion, including product
literature, samples and other informational materials.
ARTICLE 5. MINIMUM SALES
SECTION 5.1 MINIMUM SALES. In addition to all of its other obligations
under this Agreement, the Distributor shall achieve the annual minimum sales of
the Products specified on Schedule D attached hereto and incorporated herein, as
such Schedule D may be amended in writing by the parties hereto from time to
time during the term hereof. The Distributor understands and acknowledges that
its strict fulfillment of such minimum sales is an essential condition to this
Agreement and that its failure to make any of such sales shall be just cause for
termination of this Agreement pursuant to Section 18.3 hereof.
SECTION 5.2 REPORTING OBLIGATIONS.
5.2.1 During the term hereof, the Distributor shall provide, monthly
in arrears, a sales report (in U.S. dollars), on a country by country basis.
5.2.2 To underscore that the arrangement contemplated by this
Agreement is an exclusive distributorship and not a sales agency, the parties
hereto agree that under no circumstances shall the Distributor be required to
provide the Company at any time during the term of this Agreement or upon its
expiration or termination, the names and addresses of any of the Distributor's
customers of the Products in the Territory.
ARTICLE 6. WARRANTY COVERAGE
SECTION 6.1 WARRANTY LIMITATION. The sole warranties that the Company
grants with respect to the Products are set forth on the Products or their
packaging. EXCEPT AS STATED IN THE FOREGOING SENTENCE, THE COMPANY DISCLAIMS ANY
AND ALL WARRANTIES ON THE PRODUCTS, WHETHER EXPRESSED OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO, ANY WARRANTIES OF THEIR MERCHANTABILITY OR THEIR FITNESS FOR A
PARTICULAR PURPOSE OR ANY WARRANTY ARISING FROM COURSE OF DEALING OR USAGE OF
TRADE. TO THE EXTENT THAT ANY IMPLIED WARRANTIES MAY NOT BE DISCLAIMED, SUCH
WARRANTIES ARE EXPRESSLY
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LIMITED TO THE DURATION OF THE EXPRESS WARRANTY STATED BY THE COMPANY ON THE
PRODUCTS OR THEIR PACKAGING. The Distributor will have product liability
coverage under the Company's Product Liability Insurance.
SECTION 6.2 WARRANTY CLAIMS.
6.2.1 All of the Products shall be received by the Distributor subject
to the Distributor's visual inspection and may be rejected on the grounds that
the warranties that the Company states on the Products or their packaging have
been breached. The Distributor shall assert all such warranty claims in writing
to the Company as soon as possible but in any event during the warranty period
stated in the warranty on the Products or their packaging. At the Company's
request, the Distributor shall promptly supply such evidence of warranty breach
as the Company may reasonably request.
6.2.2 THE DISTRIBUTOR'S EXCLUSIVE REMEDY AND THE COMPANY'S LIMIT OF
LIABILITY FOR ANY AND ALL WARRANTY CLAIMS HEREUNDER, SHALL BE FOR THE
REPLACEMENT OF THE PARTICULAR PRODUCTS WITH RESPECT TO WHICH SUCH CLAIMS ARE
ASSERTED. THE COMPANY SHALL NOT BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL,
CONSEQUENTIAL, OR PUNITIVE DAMAGES RESULTING FROM THE USE OF THE PRODUCTS OR
ARISING OUT OF ANY BREACH OF ANY OF THE WARRANTIES THAT THE COMPANY STATES ON
THE PRODUCTS OR THEIR PACKAGING OR ANY BREACH BY THE COMPANY OF ANY OF ITS
OBLIGATIONS UNDER THIS AGREEMENT OR APPLICABLE LAW.
SECTION 6.3 INDEMNIFICATION FOR UNAUTHORIZED WARRANTIES. The Company
shall not be responsible for any warranty that the Distributor or any of its
sub-distributors makes concerning the Products other than those warranties made
by the Company as set forth in Section 6.1 hereof. The Distributor shall hold
the Company harmless from and indemnify it against any and all claims, losses,
liabilities, damages, and costs and expenses (including, but not limited to,
costs of investigation, court costs, arbitrators' fees and attorneys' fees) that
the Company may incur arising out of or relating to (i) any such additional
warranty made by the Distributor or any of its agents, employees or
sub-distributors, (ii) the act or omission of the Distributor or any of its
agents, employees or sub-distributors in connection with the transporting,
receiving, handling, storing, advertising, promoting, selling and distributing
any of the Products, and (iii) any breach by the Distributor of any of its
obligations under this Agreement or any purchase order issued by the Distributor
and accepted by the Company hereunder or under applicable law.
SECTION 6.4 PRODUCT LIABILITY INSURANCE. The Distributor shall
maintain adequate product liability insurance with respect to its sale of the
Products and such insurance shall provide that the Distributor's product
liability insurers waive any rights to assert any claims against the Company,
whether by subrogation or otherwise.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES BY THE DISTRIBUTOR
Section 7.1 The Distributor represents and warrants to the Company as
follows:
7.1.1 It is a Trading Corporation duly organized and validly existing
and in
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good standing under the laws of New Jersey and is duly qualified to
conduct its business as presently conducted in all those jurisdictions in which
it presently conducts business.
7.1.2 It has full power and authority to execute and deliver this
Agreement and to perform the terms and conditions hereof.
7.1.3 It has taken all necessary legal action to authorize the
execution and delivery of this Agreement. The representative who has executed
and delivered this Agreement on behalf of the Distributor has been duly and
validly authorized and will bind the Distributor by his action.
7.1.4 This Agreement constitutes the legal, valid and binding
obligation of the Distributor enforceable against the Distributor in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally and
except as the availability of equitable remedies may be limited under applicable
law.
7.1.5 The execution, delivery and performance of this Agreement will
not violate any provision of the Articles of Incorporation or Bylaws of the
Distributor or the New Jersey equivalent of such organizational documents or any
order or decree of any court or arbitrator that is or may be binding upon the
Distributor or any of its assets. The execution, delivery and performance of
this Agreement will not result in the breach of any provision of or any default
under any agreement to which the Distributor is a party or which is or may be
binding upon the Distributor or any of its assets.
7.1.6 There are not pending or, to the knowledge of the Distributor,
threatened legal actions, arbitrations or other proceedings against the
Distributor or any of its assets that, if adversely determined, might have a
material adverse effect on the validity or enforceability of this Agreement or
on the financial condition or the capability of the Distributor to perform its
obligations hereunder.
7.1.7 None of the following is a shareholder of the Distributor: The
Government of New Jersey or the Territory or any political subdivision thereof
or any agency, department or instrumentality of the Government of New Jersey or
the Territory or any political subdivision thereof. No official or
representative of the Government of New Jersey or the Territory or any agency,
department or instrumentality of the Government of New Jersey or the Territory
of political subdivision thereof, or any official of a political party or
candidate for public office in New Jersey, is a shareholder, officer, director,
employee, agent or representative of the Distributor, and no such official is,
directly or indirectly, party to any agreement or understanding, oral or
written, with the Distributor pursuant to which such official could receive
compensation of any type from the Distributor in connection with the sale of the
Products in the Territory.
7.1.8 The Distributor has never been and is not now the subject of any
bankruptcy or insolvency proceeding or other proceeding, voluntary or
involuntary, for the benefit of creditors.
7.1.9 Neither this Agreement nor the appointment of the Distributor
hereunder must be notified to, approved by, or registered with, any governmental
body, agency or instrumentality in the Territory, except as set forth in
Schedule E.
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7.1.10 The Distributor has the capacity under the law of New Jersey to
agree to the choice of law and the choice of forum set forth in Articles X and
XI, respectively, and such choices are enforceable against the Distributor under
the law of New Jersey and the Territory.
7.1.11 Nothing in this Agreement violates the fundamental public
policy of New Jersey or the Territory.
7.2 Each of the representations and warranties set forth in this
Article 7 and in Sections 1.6.2 and 3.3.2 hereof shall be deemed to be confirmed
by the Distributor on each date on which it submits a purchase order to the
Company hereunder.
7.3 The Distributor shall immediately give Notice to the Company if
any of the representations and warranties made by it in this Article 7 or in
Section 1.6.2 or 3.3.2 hereof should prove to have been incorrect, incomplete or
misleading on the date of this Agreement or should become incorrect, incomplete
or misleading during the term of this Agreement.
ARTICLE 8. REPRESENTATIONS AND WARRANTIES BY THE COMPANY
Section 8.1 The Company represents and warrants to the Distributor as
follows:
8.1.1 It is a corporation duly organized and validly existing and in
good standing under the laws of the State of California and is duly qualified to
conduct its business as presently conducted in all those jurisdictions in which
it presently conducts business.
8.1.2 It has full power and authority to execute and deliver this
Agreement and to perform the terms and conditions hereof.
8.1.3 It has taken all necessary legal action to authorize the
execution and delivery of this Agreement. The representative who has executed
and delivered this Agreement on behalf of the Company has been duly and validly
authorized and will bind the Company by his action.
8.1.4 This Agreement constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and except as the
availability of equitable remedies may be limited under applicable law.
8.1.5 The execution, delivery and performance of this Agreement will
not violate any provision of this Articles of Incorporation or Bylaws of the
Company or any order or decree of any court or arbitrator that is or may be
binding upon the Company or any of its assets. The execution, deliver and
performance of this Agreement will not result in the breach of any provision of
or any default under any agreement to which the Company is a party or which is
or may be binding upon the Company or any of its assets.
8.1.6 Each of the representations and warranties set forth in this
Article 8 shall be deemed to be confirmed by the Company on each date on which
it accepts a purchase order from the Distributor hereunder.
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8.1.7 The Company shall immediately give Notice to the Distributor if
any of the representations and warranties made by it in this Article 8 should
prove to have been incorrect, income or misleading on the date of this Agreement
or should become incorrect, incomplete or misleading during the term of this
Agreement.
ARTICLE 9. GOVERNING LAW
This Agreement and each purchase order issued by the Distributor and
accepted by the Company hereunder shall be exclusively governed by and construed
in accordance with the laws of the State of California, United States of
America, without giving effect to the choice-of-law principles thereof;
provided, however, that the United Nations Convention on contracts for the
International Sale of Goods shall in no way apply to the interpretation of this
Agreement or any such purchase order.
ARTICLE 10. DISPUTE SETTLEMENT
SECTION 10.1 ARBITRATION.
10.1.1 Any dispute, controversy or claim arising out of or relating to
this Agreement or any purchase order issued by the Distributor and accepted by
the Company hereunder or a breach hereof or thereof shall be finally resolved by
arbitration in accordance with the Commercial Arbitration Rules and
International Arbitration Procedures of the American Arbitration Association.
10.1.2 Unless otherwise agreed by the parties hereto, the arbitration
panel shall consist of three (3) arbitrators, one to be appointed by each party
hereto and the third to be appointed by the two arbitrators appointed by the
parties hereto. In the event that a party fails to appoint an arbitrator within
fifteen (15) calendar days after any such dispute, controversy or claim has been
referred to arbitration hereunder, then, in such event, the other party may
request the American Arbitration Association to appoint an arbitrator for the
party failing to make such appointment. In the event that the third arbitrator
has not been appointed within thirty (30) calendar days after any such dispute,
controversy or claim has been referred to arbitration hereunder, then, in such
event, either party hereto may request the America Arbitration Association to
appoint such third arbitrator.
10.1.3 The arbitration proceedings, all documents submitted therein
and the award of the arbitral panel shall be in the English language, and all
members of the arbitral penal shall be fluent in the English language. The
arbitral proceedings shall be held in Los Angeles, California. The arbitral
panel shall apply such rules of procedure as it thinks appropriate in the
circumstances; provided, however, that both parties hereto shall be entitled to
representation by counsel, to appear and present written and oral evidence and
argument and to cross-examine witnesses presented by the other party. The
arbitral panel shall not have or exercise the powers of an amiable compositor.
The arbitral award shall be in writing and the arbitral panel shall provide
written reasons for its award. The award of the arbitral panel shall be final
and binding upon the parties hereto.
10.1.4 The provisions of this Article 10 shall survive and bind the
parties hereto, notwithstanding any expiration or termination of this Agreement
or any purchase order, whether by way of the exercise of rights of termination
hereunder or thereunder, passage of time or otherwise. The provisions of this
Article 10 shall be severable and binding on the parties hereto,
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notwithstanding that any other provisions of this Agreement or any purchase
order may be held or declared to be invalid, illegal or unenforceable.
SECTION 10.2 SERVICE OF PROCESS.
10.2.1 The Distributor irrevocably and unconditionally consents to
service of process upon it in any proceeding brought pursuant to Section 3.6 or
10.1 hereof by mailing copies of any Notice or pleading thereof by U.S.
registered mail, postage prepaid, return receipt requested, to it at its address
specified in Article 15 hereof. The foregoing shall not limited the right of the
Company to serve process in any other manner permitted by applicable law and
shall not limited the ability of the Company to bring any such proceeding or to
obtain execution fox any judgment rendered in any such proceeding any other
jurisdiction in which the Distributor or any of its property or assets may be
found.
10.2.2 The Distributor specifically hereby waives any claim or right
it may have by statute, treaty or law to contest the jurisdiction or venue of
any United States state or federal court in any action or proceeding instituted
by the Company pursuant to this Agreement, including, but not limited to, any
claim that the Distributor might assert under the Foreign Sovereign Immunities
Act of the United States, the Hague Convention on the Service Abroad of Judicial
and Extrajudicial Documents in Civil or Commercial Matters and the Hague
Convention on the Taking of Evidence Abroad in Civil or Commercial Matters.
10.2.3 The Distributor specifically waives any claim of forum non
conviens and specifically consents to venue in the United States District Court
for the Central District of California.
SECTION 10.2 ENFORCEMENT OF JUDGMENT.
The Distributor agrees that final judgment on an arbitral award rendered
against it in any action or proceeding relating in any way to this Agreement or
any purchase order issued by the Distributor and accepted the Company hereunder
shall be conclusive and may be enforced, to the extent permitted by applicable
law, in any other jurisdiction within or outside the United States of America by
suit on the judgment, a certified copy of which judgment shall be conclusive
evidence thereof, or by such other means provided by applicable law.
ARTICLE 11. SEVERABILITY AND SURVIVAL
SECTION 11.1 SEVERABILITY. In the event that any provision or part of any
provision of this Agreement or any purchase order issued by the Distributor and
accepted by the Company hereunder is held to be invalid or unenforceable in any
respect, then, unless such provision or part of a provision is material to the
performance of this Agreement or such purchase order, as the case may be, as
determined by the Company or the Distributor or both of them, this Agreement or
such purchase order, as the case may be, shall continue in effect and such
provision or part of the provision shall be excised herefrom or therefrom. In
the event that either party hereto, in its sole discretion, determines that such
provision or part of a provision to the operation or performance of this
Agreement or such purchase order, as the case may be, then either such party
may, in its sole discretion, elect to terminate this Agreement or such purchase
order, as the case may be, or both, upon thirty (30) calendar days'
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prior to notice to the other party.
SECTION 11.2 SURVIVAL. The obligations of the Distributor under Sections
1.4, 1.5, 1.6 and Articles 3, 6, 10, 15 and 16 hereof shall survive the
expiration of this Agreement or the termination of this Agreement, with or
without cause.
ARTICLE 12. ASSIGNMENT
Neither party hereto may assign its rights or obligations under this
Agreement or any purchase order issued by the Distributor and accepted by the
Company hereunder except upon the prior written approval of the other party
hereto; provided, however, that a party may assign its rights and obligations
hereunder or thereunder to its parent or any of its subsidiaries or other
affiliates or the surviving entity in any corporate merger or reorganization,
but shall give prompt Notice thereof to the other party.
ARTICLE 13. WAIVER
The failure or delay of either party hereto to require performance by the
other party hereto or to enforce its rights under any provision of this
Agreement or any purchase order issued by the Distributor and accepted by the
Company hereunder shall not affect the rights of such party to require
performance and to enforce its rights with respect to such provision unless and
until such performance has been waived in writing by such party. No waiver of
any failure or delay in performance hereunder or thereunder shall constitute
waiver of a continuance or reoccurrence of such failure or delay or of any other
failure or delay, except as provided in such waiver. The rights granted to each
party hereunder and under any purchase order issued by the Distributor and
accepted by the Company hereunder and any rights available to it at law or in
equity shall be cumulative and may be exercised in whole or in part from time to
time.
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ARTICLE 14. FORCE MAJEURE
Neither party hereto shall be liable or responsible to the other party
hereto for delay or failure to perform any of its obligations, other than an
obligation to pay money arising under this Agreement or any purchase order
issued by the Distributor and accepted by the Company hereunder, due to events
of force majeure, including, but not limited to, acts of God or of the public
enemy, fire, flood, storm, explosion, earthquake, riots, wars, hostilities,
civil commotion, strikes and labor disputes, interruption of supply, inability
to obtain fuel, power, raw materials or freight or transportation services, any
law or regulation, any decision by any judicial or arbitral tribunal or any
other acts of any government or any agency or instrumentality thereof or persons
purporting to act with governmental authority, or any other cause beyond the
reasonable control of such party or which such party is not able to overcome by
the use of reasonable measures or which such party is able to overcome only at
substantial expense. This Article 14 shall not be interpreted to relieve the
Distributor from its obligation to pay as and when due in the applicable
currency all payments required to be made by the Distributor under this
Agreement or any purchase order issued by the Distributor and accepted by the
Company hereunder. If any such event of force majeure should occur, the affected
party shall promptly give Notice thereof to the other party hereto. If any such
even of force majeure continues, in whole or in substantial part, whether
continuously or intermittently, for a period of sixty (60) calendar days or
more, the other party may terminate this Agreement or any relevant purchase
order or both on thirty (30) calendar days' prior Notice to the affected party.
ARTICLE 15. NOTICES AND OTHER COMMUNICATIONS
All notices ("Notices"), purchase orders, acceptances of purchase orders,
and other communications between the parties hereunder shall be in the English
language and in writing (by mail, telecopy or telegraph), postage or
transmission costs prepaid, and shall be addressed to the parties hereto at
their respective addresses set forth below:
IF TO THE COMPANY: IF TO THE DISTRIBUTOR:
Ansys, Inc.
2 Goodyear
Irvine, California 92718-2002
United States of America
Attention: President
Telecopy: 714/770-0863
All such Notices and communications shall be deemed effective on (i) the date of
transmission, if sent by telecopy, or (ii) the date that is five (5) calendar
days after the date on which deposited or sent, if sent by mail or telegraph.
Each party hereto may change its address for purposes hereof by Notice given to
the other party in the manner prescribed herein.
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ARTICLE 16. COMPLIANCE WITH LAW
SECTION 16.1 COMPLIANCE WITH U.S. LAW. The parties hereto understand and
acknowledge that the export of the Products to the Distributor is subject to the
law of the United States of America and may require, amount other things, prior
approval of the U.S. Government. The Distributor shall use its best efforts to
assist the Company in obtaining, retaining and complying with any export license
that may be granted to the Company with respect to the export of the Products to
the Distributor hereunder. In addition, the Distributor shall comply fully and
timely with all laws of the United States of America that may be applicable to
it in performing its obligations under this Agreement, and the Distributor shall
refrain from taking any action that might cause the Company to be deemed to be
in violation of any law of the Territory or any law of the State of California
or of the United States of America, including, but not limited to, the U.S.
Foreign Corrupt Practices Act, the U.S. expert control laws, and the U.S.
anti-boycott laws.
SECTION 16.2 COMPLIANCE WITH LOCAL LAW
16.2.1 The Distributor shall comply fully and timely with all laws and
regulations of the Territory, including, but not limited to, all laws and
regulations relating to the review or approval of this Agreement and the
registration, approval, promotion, distribution and sale of the Products in the
Territory.
16.2.2 The Distributor shall use its best efforts to obtain and
maintain all approvals of governmental bodies in the Territory necessary or
advisable to render this Agreement valid, binding and enforceable in the
Territory; provided, however, no disclosures, filings and other submissions
cornering this Agreement or the Products may be mae to any such governmental
body without the prior approval of the company. If for any reason, including,
but not limited to, an event of force majeure, the Distributor does not obtain
all such necessary and advisable government registrations and/or approvals of
the Products within six (6) months after the Effective Date (as defined in
Section 17 hereof) or such other time as may be permitted under applicable law,
then this Agreement shall, without any notice or other act by the Company,
terminate, unless the parties hereto agree in writing to extend the deadline by
which the Distributor must obtain all such government registrations and/or
approvals of the Products. Throughout the term of this Agreement, the
Distributor shall immediately give the Company Notice of any revocation of, or
any other action or decision with respect to, any review or approval of this
Agreement or any registration and/or approval of the Products by governmental
bodies in the Territory.
SECTION 16.3 INFORMATION ON LOCAL LAW. The Distributor shall use its best
efforts to promptly and regularly give Notice to the Company of any and all of
the following of which the Distributor has knowledge: laws, ordinances, rules,
regulations or judicial or arbitral decisions in the Territory that might affect
the sale or distribution of the Products in the Territory, the use of the
Company's Trademarks in the Territory, or the protection of the Company's
Property and the Company's Trademarks in the Territory, including, but not
limited to, laws, regulations, or judicial or arbitral decisions relating to
custos duties, import procedures, foreign exchange transactions, tax laws,
product certifications, protection of proprietary information, or the rights and
duties of distributors and foreign manufacturers.
ARTICLE 17. TERM; EFFECTIVE DATE
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This Agreement shall become effective on January 1, 1995 (the "Effective
Date") and shall expire on the fifth anniversary of the Effective Date, unless
terminated earlier in accordance with the terms and conditions hereof. The
parties hereto expressly understand and agree that this Agreement is a fixed
term agreement and shall, unless terminated earlier in accordance herewith,
expire at the end of its term without Notice or any other act by either party
hereto. Subject to Section 18.7 hereof, neither party hereto shall continue with
its performance hereunder after the expiration or termination hereof, unless the
parties agree otherwise in writing.
ARTICLE 18. TERMINATION
SECTION 18.1 TERMINATION DUE TO BANKRUPTCY AND OTHER EVENTS.
This Agreement shall terminate immediately, without Notice or other act by
the Company in the event that:
18.1.1 a voluntary or involuntary case or other proceeding is
initiated seeking liquidation, reorganization or other relief to Distributor
under any bankruptcy, insolvency or similar law now or hereafter in effect, or
seeking appointment of a trustee, receiver, liquidator or other similar official
of it or any of its property, or Distributor shall consent to have any such
relief, or shall make a general appointment for the benefit of its creditors, or
Distributor shall fail generally to pay its debts as they become due, or
Distributor shall take any corporate action in furtherance of any of the
foregoing; or
18.1.2 the Distributor shall be dissolved or its assets liquidated.
SECTION 18.2 TERMINATION FOR BREACH OF CONFIDENTIALITY. If the Distributor
breaches any of its obligations under Article 3 hereof or if any of its
directors, officers, employees, agents or others acting in concert with it or on
its behalf breach any of their obligations under the separate confidentiality
agreements referred to in Section 3.5 hereof, this Agreement shall terminate
immediately, without any Notice or other act by the Company and without
prejudice to any other remedy available to the Company.
SECTION 18.3 TERMINATION BY THE COMPANY FOR CERTAIN OTHER CAUSES. The
Company may, at its option and without prejudice to any other remedy available
to it, terminate this agreement upon the occurrence of any of the following
events:
18.3.1 The Distributor fails to pay any amount that is obligated to
pay under this Agreement or under any purchase order or under any other written
agreement between the Company and the Distributor within thirty (30) calendar
days of the date on which such amount became due and payable:
18.3.2 The Distributor fails to make any of the minimum sales
specified in Schedule D attached hereto; provided, however, that, if such
failure by the Distributor is caused by any decision of the Company under
Section 1.2 hereof, or any rejection of a purchase order by the Company for a
reason other than any of the reasons specified in Section 2.3 hereof, then, in
any such event, such
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failure by the Distributor shall not be deemed to constitute just cause for
termination under this Section 18.3;
18.3.3 A substantial change shall occur in the ownership, control,
organization, personnel or operations of the Distributor, including, but not
limited to, a sale or transfer of all or substantially all of its assets or a
merger between the Distributor and another entity, which in the reasonable
judgment of the Company impairs the Distributor's ability to service this
Agreement, and the Distributor fails to correct such impairment within thirty
(30) calendar days after its receipt of Notice thereof from the Company;
18.3.4 The Distributor breaches any of its other obligations hereunder
(other than its obligations under Article 3 hereof, breach of which is cause for
immediate termination pursuant to Section 19.2 hereof), under any purchase order
issued by the Distributor and accepted by the Company hereunder or any other
written agreement between the Company and the Distributor, and fails to remedy
such breach within thirty (30) calendar days after its receipt of Notice thereof
from the Company;
18.3.5 Any representation or warranty made by the Distributor in this
Agreement or in any other written agreement between the Company and the
Distributor shall prove to have been incorrect, incomplete or misleading in any
material respect at the time it was made or deemed made; or
18.3.6 It becomes unlawful under the law of New Jersey for the
Distributor to perform its obligations hereunder or under any purchase order
issued by the Distributor and accepted by the Company hereunder; or an
enactment, modification or change in the interpretation of the law of New Jersey
subsequent to the date first above written interferes with or prohibits the full
and faithful performance by the Distributor of its obligations hereunder or
under any such purchase order or interferes with or prohibits the full and
complete enforcement of the Company's rights under this Agreement or any such
purchase order.
SECTION 18.4 TERMINATION BY THE DISTRIBUTOR FOR CERTAIN OTHER CAUSES. The
Distributor may, at its option, terminate this agreement upon the occurrence of
any of the following events:
18.4.1 The Company breaches any of its obligations hereunder, and
fails to remedy such breach within thirty (30) calendar days after its receipt
of written notice thereof from the Distributor; or
18.4.2 Any representation or warranty made by the Company in this
Agreement shall prove to have been incorrect, incomplete or misleading in any
material respect at the time it was made or deemed made.
SECTION 18.5 TERMINATION FOR OTHER CAUSES BY EITHER PARTY. Either party
hereto may terminate this Agreement in accordance with Article 14 hereof. This
Agreement shall terminate automatically in accordance with Section 16.2.2
hereof.
SECTION 18.6 NO COMPENSATION. Upon expiration of this Agreement and upon
termination of this Agreement by either party hereto, with or without cause, the
Company shall not be liable or obligated to the Distributor with respect to
future profits, exemplary, special or consequential damages,
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indemnification or other compensation regarding such expiration or termination,
irrespective of whether such obligations or liabilities may be provided for in
the law of the Territory or elsewhere, and the Distributor waives and
relinquishes any rights, pursuant to law or otherwise, to any such
indemnification or compensation; provided, however, that in the event that this
Agreement is terminated, for a reason other than a default by Distributor, prior
to the end of the stated term, then for a period of up to two (2) years
following the date of such termination, the Company shall pay to Distributor a
royalty equal to five percent (5%) of Net Sales of Products in the Territory. In
such event, Distributor shall continue to be bound by all of its
representations, covenants and agreements herein contained.
SECTION 18.7 DUTIES OF THE DISTRIBUTOR UPON TERMINATION. Upon the
expiration of this Agreement or upon the termination of this Agreement by either
party hereto, with or without cause, the Distributor shall (i) cease immediately
all of its efforts to promote the sale of the Products; (ii) cease immediately
use of Company's Trademarks; (iii) discontinue immediately making any statements
or taking any actions ghat might cause third parties to infer that any business
relationship continues to exist between the parties hereto and, where necessary
or advisable, inform third parties that the Distributor no longer has a business
relationship with the Company and is no longer authorized to sell the Products
in the Territory; and (iv) within ten (10) calendar days after the date of
expiration of this Agreement or the termination of this Agreement, with or
without cause, return to the Company, at the Company's expense, any and all
Company's Property, including, but not limited to, promotional material, that
has been furnished to the Distributor by the Company; provided, however, that if
the Distributor has an inventory of the Products on hand on the date of
expiration or termination, the Distributor may sell such Products, and may use
Company's Trademarks and Company's Property in connection therewith, for a
period of ninety (90) calendar days thereafter, so long as the Distributor shall
not sell the Products in a commercially unreasonable manner or in a manner that
could harm the future sales potential of the Products or the good will of the
Company or Company's Trademarks in the Territory.
SECTION 18.8 UNFILLED PURCHASE ORDERS. Unless otherwise agreed to in
writing by the parties hereto, Notice of termination of this Agreement by either
party hereto automatically cancels all unfilled purchase orders. The Company's
acceptance of a purchase order from the Distributor after the Company has given
Notice of termination hereunder shall not be deemed a waiver or a rescission of
such Notice.
SECTION 18.9 REPURCHASE OF PRODUCTS BY THE COMPANY. During the ninety (90)
calendar-day period after the date of or expiration of this Agreement, the
Company may, at its option, repurchase from the Distributor, at the net price
paid by the Distributor to the Company any and all of the Products on hand in
the Distributor's place of business or otherwise in the Company's Returned Goods
Policy. Upon demand and tender by the Company of such repurchase price, the
Distributor shall deliver such Products and all rights, title and interest
therein, free and clear of all liens and encumbrances, to the Company and the
Company shall pay all freight costs associated with shipping such Products back
to the Company. The Company, however, reserves the right to reject any such
repurchased Products not in first class or acceptable condition, as reasonably
determined by the Company.
SECTION 18.10 RIGHT TO SELL. Upon the expiration of this agreement or the
termination of this Agreement by either party hereto, with or without cause, the
Company shall have the right to sell the
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<PAGE> 20
Products in the Territory itself and to appoint one or more other distributors
of the Products in the Territory to replace the Distributor. The Distributor
waives and relinquishes any rights that it may have, under the law of the
Territory or elsewhere, to seek to enjoin the Company from making such sales or
appointing such other distributors and the Distributor shall not attempt to
exercise any such rights.
ARTICLE 19. ENTIRE AGREEMENT AND AMENDMENT
SECTION 19.1 ENTIRE AGREEMENT; REVOCATION OF ALL PRIOR AGREEMENTS. This
agreement constitutes the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes any prior expression of intent or
understanding, oral or written, with respect to the subject matter hereof.
SECTION 19.2 AMENDMENT. Neither this Agreement nor any purchase order
issued by the Distributor and accepted by the Company hereunder may be amended
except by a writing executed by duly authorized representatives of the parties
hereto.
ARTICLE 20. HEADINGS
Headings are inserted in this Agreement for reference and convenience only
and shall not form part of this Agreement for the purpose of interpretation.
ARTICLE 21. COUNTERPARTS
This Agreement may be executed in two (2) counterparts, each of which is in
the English language and each of which is an original, true and correct version
hereof.
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized representatives on
the date first above written.
ANSYS, INC. XXXXXXXXXXXXXXXXXXXXXX
BY: BY:
----------------------------------- -------------------------------------
NAME: STEPHEN K. SCHULTHEIS NAME:
-------------------------------- ----------------------------------
TITLE: PRESIDENT & CEO TITLE:
------------------------------- ---------------------------------
DATE: DATE:
-------------------------------- ----------------------------------
21
<PAGE> 22
SCHEDULE A
TO
DISTRIBUTORSHIP AGREEMENT BETWEEN ANSYS, INC.
AND XXXXXXXXXXXXXXXXXXXXXX EFFECTIVE JUNE 1, 1997
PRODUCTS
SPEC* Solid Phase Extraction Columns, Discs and Accessories
A-1
<PAGE> 23
SCHEDULE B
TO
DISTRIBUTORSHIP AGREEMENT BETWEEN ANSYS, INC.
AND XXXXXXXXXXXXXXXXXXXXXX EFFECTIVE JUNE 1, 1997
TERRITORY
GERMANY, AUSTRIA, SWITZERLAND, CZECH REPUBLIC
B-1
<PAGE> 24
SCHEDULE C
TO
DISTRIBUTORSHIP AGREEMENT BETWEEN ANSYS, INC.
AND XXXXXXXXXXXXXXXXXXXXXX, EFFECTIVE JUNE 1, 1997
COMPANY'S PRICES
33% DISCOUNT FROM INTERNATIONAL PUBLISHED PRICE LISTS.
(SEE ATTACHED PRICE LIST FOR PRICES EFFECTIVE
AT THE DATE OF THIS AGREEMENT.)
C-1
<PAGE> 25
SCHEDULE D
TO
DISTRIBUTORSHIP AGREEMENT BETWEEN ANSYS, INC.
AND XXXXXXXXXXXXXXXXXXXXXX, EFFECTIVE JUNE 1, 1997
MINIMUM SALES OF PRODUCTS
YEAR 1 $ 50,000
YEAR 2 $ 100,000
D-1
<PAGE> 26
SCHEDULE E
TO
DISTRIBUTORSHIP AGREEMENT BETWEEN ANSYS, INC.
AND XXXXXXXXXXXXXXXXXXXXXX, EFFECTIVE JUNE 1, 1997
GOVERNMENTAL APPROVALS REQUIRED IN THE TERRITORY
NONE
D-2
<PAGE> 1
EXHIBIT 10.10
DISTRIBUTORSHIP AGREEMENT
THIS DISTRIBUTORSHIP AGREEMENT is made and entered into by and between
ANSYS DIAGNOSTICS, INC. (hereinafter referred to as the "Company"), a
corporation organized and existing under the laws of the State of California,
having its principal place of business at 25200 Commercentre Drive, Lake Forest,
California 92630, and xxxxxxxxxxxxx, a corporation organized and existing under
the laws of the State of [Delaware] and having its principal place of business
at xxxxxxxxxxxxxxxxxx (hereinafter referred to as the "Distributor").
W I T N E S S E T H:
WHEREAS, the Company desires to promote the distribution, sale and use of
the Products (defined in Section 1.2 hereof) in the Territory (defined in
Section 1.3 hereof) and is willing to appoint Distributor as its non-exclusive
distributor of the Products listed on Exhibit A attached hereto and incorporated
herein by this reference in the Territory, on the terms and conditions set forth
hereinafter;
WHEREAS, the Distributor desires to be appointed as such non-exclusive
distributor of the Products listed on Exhibit A, on the terms and conditions set
forth hereinafter; and
WHEREAS, the Company and the Distributor have engaged in extensive
negotiations over the terms and conditions set forth hereinafter and each of
them, after careful consideration in conjunction with legal counsel, is willing
and able to enter into an exclusive distributorship arrangement, on such terms
and conditions;
NOW, THEREFORE, in consideration of the premises set forth above and the
mutual promises hereinafter contained, the parties hereto agree as follows:
ARTICLE 1. APPOINTMENT
SECTION 1.1 APPOINTMENT AND ACCEPTANCE OF APPOINTMENT. The Company appoints
the Distributor, and the Distributor accepts appointment, as the Company's
non-exclusive distributor to promote, distribute and sell the Products (defined
in Section 1.2 hereof) listed on Exhibit A in the Territory (as defined in
Section 1.3 hereof).
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SECTION 1.2 PRODUCTS. The Distributor is authorized to promote, distribute
and sell in the Territory only those products specified in Exhibit A attached
hereto and incorporated herein, as such Exhibit A may be amended in writing by
the parties hereto from time to time during the term hereof (all of such
products hereinafter collectively referred to as the "Products"). The Company
reserves the right, with respect to any of the Company's products to make direct
sales in the Territory or to appoint other distributors in the Territory.
SECTION 1.3 TERRITORY. The territory in which the Distributor is authorized
to solicit customers of the Products is limited to the geographic area(s)
specified in Exhibit B attached hereto and incorporated herein, as such Exhibit
B may be amended in writing by the parties hereto from time to time during the
term hereof (hereinafter referred to as the "Territory"), and does not include
any other place in the world. The Distributor shall not actively solicit sales
of the Products outside the Territory and shall not establish any branch or
maintain any distribution depot or warehouse outside the Territory for the
Products, except with the prior written consent of the Company, which may be
granted or denied in the Company's sole discretion.
SECTION 1.4 RESTRICTIONS ON AUTHORITY. For all purposes under this
Agreement, the Distributor is an independent contractor and shall not be deemed
to be an employee, agent, partner or legal representative of the Company. This
Agreement does not grant, and the Distributor shall not have, any authority,
express or implied, to create or assume any obligation, enter into any
agreement, make any representation or warranty, file any document with any
governmental body or serve or accept legal process on behalf of the Company, to
settle any claim by or against the Company, or to bind or otherwise render the
Company liable in any way in the Territory or anywhere else in the world,
without the prior express written consent of the Company. The Distributor shall
purchase the Products for its own account from the Company and shall re-sell the
Products for its own account in the Territory.
SECTION 1.5 EMPLOYEES OF DISTRIBUTOR. The Distributor shall be responsible
for the selection, training and supervision of, and the payment of remuneration
and benefits to, its employees who assist it in the performance of its
obligations hereunder and in no event shall the Company have any obligation to,
or authority over, such employees of the Distributor.
ARTICLE 2. TERMS OF SALE
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<PAGE> 3
SECTION 2.1 PURCHASE ORDERS. In making its purchases of the Products from
the Company, the Distributor shall submit written purchase orders to the Company
at the address set forth in Article 15 below, which the Company may, in its sole
discretion, accept or reject, in whole or in part, for any one of the following
reasons: the Company is unable to fill a purchase order due to commercial
reasons; the Company has experienced an event of force majeure as defined in
Article 14; the Company has decided to cease manufacturing the Products or to
cease selling the Products in the Territory; the order(s) contain terms or
conditions inconsistent with the terms of this Agreement or the course of
dealing between the parties hereto or violative of applicable law; or if the
Company determines that fulfilling the order would cause the Company to be in
breach of any other contract, order, judgment, decree or other authority to
which it is a party or by which it is bound. The Company reserves the right to
distribute unusually large orders over an extended period of time. The Company
may, in its sole discretion, determine whether an order is unusually large and
what extended shipment period is appropriate. The Company may, in its sole
discretion, accept and act on telecopy or telephone purchase orders issued by
the Distributor; provided, however, that, upon the request of the Company, the
Distributor shall promptly confirm telephone purchase orders in writing or by
telecopy. No purchase orders accepted by the Company may be cancelled by either
the Distributor or the Company, unless the parties hereto agree otherwise in
writing.
SECTION 2.2 PRICES TO DISTRIBUTOR. The purchase prices for the Products
shall be the prices specified in Exhibit A, as such may be amended from time to
time during the term hereof by the Company, in its sole discretion, on sixty
(60) days calendar days' prior written Notice to the Distributor; provided,
however, that, within the ten (10) calendar days following the date of such
Notice by the Company, the Distributor may order, at the previously prevailing
prices, such quantities of the Products as are reasonably needed by the
Distributor during the thirty (30) calendar day period immediately following the
date of such Notice to fill contracts and outstanding quotations existing on the
date of the Company's Notice of such price changes.
SECTION 2.3 PAYMENT TERMS.
2.3.1 Each purchase order hereunder shall specify the amount, manner
and timing of payment thereunder; provided, however, that, in all cases, the
Company shall be paid in the same currency reflected on the Company's invoices
to the Distributor, and payment shall be made, at the option of the
3
<PAGE> 4
Company, by one of the following three methods: a bank draft or a wire transfer
of immediately available funds. In all cases, the following payment terms shall
prevail: 2% discount on those prices specified in Exhibit A attached hereto if
paid within ten (10) calendar days of the date of the company's invoice, and the
full amount of those prices specified in Exhibit A attached hereto if paid
within thirty (30) days of the date of the Company's invoice; provided, however,
that in the event the Company changes its payment terms applicable generally to
substantially all of its distributors who conduct a comparable volume of
business in the Products, then the Company may, in its sole discretion, upon
Notice to the Distributor, alter the payment terms at any time during the term
hereof and any such alteration shall be effective with respect to any and all
purchase orders not theretofore accepted by the Company.
2.3.2 Acceptance and endorsement by the Company of any instrument for
less than the full amount that the Company claims to be due and payable to it
under a purchase order or hereunder shall not be deemed to be an admission of
payment in full, and any conditions to the contrary that are noted on such
instrument shall not be binding on the Company.
SECTION 2.4 DELIVERY.
2.4.1 Delivery schedules stated by the Company are estimates only and
are not guaranteed by the Company, but the Company shall, subject to Article 14
hereof, attempt to make delivery within a reasonable time, taking into account
the Distributor's need to obtain the Products, the availability of
transportation, the needs of other customers of the Company, the existence of
special orders and other commercial matters. The Company shall not be obligated
to deliver any Products without timely receipt of shipping instructions from the
Distributor, and the Company shall not be obligated to ship Products that have
been discontinued or that are temporarily out of stock.
2.4.2 Unless the parties hereto otherwise agree in writing or by
telecopy with respect to a given purchase order, the Distributor shall be solely
responsible for all shipping, duty and customs charges applicable to the
Products.
SECTION 2.5 RETURN OF PRODUCTS. Distributor agrees to abide by the terms of
the Company's returned goods policy, and no Product may be returned after
shipment to the Distributor, except as permitted in the Company returned goods
policy as such may be amended from time to time by the Company.
4
<PAGE> 5
SECTION 2.6 TAXES. Any and all customs, tariffs and duties or excise,
sales, use, value-added or other taxes or levies imposed by any governmental
body in the Territory on the Distributor or the Company in connection with the
sale of the Products to or by the Distributor shall be paid by the Distributor.
The Distributor shall fully reimburse and indemnify the Company for any amount
actually paid by the Company or withheld by the Distributor for any such taxes
or levies within thirty (30) calendar days after the date on which the Company
gives notice thereof to the Distributor or after the date of withholding by the
Distributor, as the case may be.
ARTICLE 3. INTELLECTUAL PROPERTY AND TRADEMARKS
SECTION 3.1 CERTAIN DEFINITIONS.
3.1.1 "Company's Property" shall mean any and all inventions, trade
secrets, manufacturing processes, know-how, product designs, formulas,
formulations, machine designs, technical information, technical designs,
engineering and product data, specifications, blueprints, drawings, manuals,
customer lists, vendor and supplier lists and agreements, distributor and sales
representative lists and agreements, marketing and other business strategies,
forms, sales aids, and other confidential information and materials, whether or
not in documentary form and whether or not patented by the Company or its
parent, subsidiaries or other affiliates in the Territory or elsewhere, that are
heretofore and hereafter owned or controlled by the Company or its parents,
subsidiaries or other affiliates and that relate to the design, manufacturing,
production, operations, marketing, sale, distribution and use of the Products or
that otherwise relate to the business, products and services of the Company or
its parents, subsidiaries or other affiliates.
3.1.2 "Company's Trademarks" shall mean any and all of the trademarks,
service marks or trade names, whether or not registered by the Company or its
parents, subsidiaries or other affiliates in the Territory or elsewhere, and all
good will related thereto, that are heretofore and hereafter owned or controlled
by the Company or its parents, subsidiaries or other affiliates and that are
associated with the Products.
SECTION 3.2 OWNERSHIP AND LIMITED LICENSE TO REPRODUCE COMPANY'S
TRADEMARKS. Any and all of Company's Property and Company's Trademarks are and
shall remain the exclusive property of the Company or its parents, subsidiaries
or other affiliates. This Agreement affords the Distributor no rights therein;
the Distributor shall have no rights therein; and the Distributor shall never
assert any rights therein; provided, however, that
5
<PAGE> 6
the Company grants the Distributor a limited, non-exclusive, fully paid-up
license to reproduce Company's Trademarks in advertisements and other
promotional materials during the term of this Agreement. Such license is granted
for the sole purpose of assisting the Distributor in promoting the sale and use
of the Products in the Territory under this Agreement. Subject to Section 18.7
hereof, such license shall expire immediately upon the expiration of this
Agreement or the termination of this Agreement, with or without cause.
SECTION 3.3 CERTAIN ADDITIONAL RESTRICTIONS.
3.3.1 The Products to be sold to the Distributor hereunder shall bear
Company's Trademarks. The Distributor shall not remove, conceal or alter any of
Company's Trademarks on the Products. The Distributor shall promote and sell all
Products in their original packages and under the original labels provided by
the Company; provided, however, that the Distributor shall fully and timely
advise the Company of all laws and regulations of the Territory governing the
packaging and labelling of the Products and provided further that, upon receipt
of such information, the Company shall use its best efforts to ensure that the
packaging and labelling of the Products are in substantial compliance with all
such laws and regulations. The Distributor shall make no modifications,
alterations, changes, enhancements or additions in or to the Products or the
Company's Trademarks, except for the addition of the name and address of the
Distributor to the Products, displaying the name and address of the Distributor
and the Company in the same-size print on the Products.
3.3.2 The Distributor shall include an appropriate trademark or trade
name notice on its advertisements, sales literature, press releases and all
other marketing materials that use Company's Trademarks.
3.3.3 The Distributor shall not use Company's Trademarks on its
letterhead or in its Company name; provided, however, that the Distributor may
include a short plain language statement on its letterhead and promotional
literature to the effect that it is an authorized distributor of the Company's
Products.
3.3.4 The Distributor represents and warrants that it has not sought
or obtained, and agrees that it shall not seek or obtain, in the Territory or
elsewhere, any trademark or tradename registration embodying Company's
Trademarks or any patent or other intellectual property protection for any of
the Company's Property, unless authorized to do so in advance in writing by the
Company.
6
<PAGE> 7
SECTION 3.4 CONFIDENTIALITY.
3.4.1 During the term of this Agreement at all times after the
expiration of this Agreement or the termination of this Agreement, with or
without cause, the Distributor shall treat all Company's Property disclosed or
supplied to it by the Company as confidential and shall cause, instruct and
oblige its directors, officers, employees and agents and any other person acting
in concert with it or on its behalf and having access to such Company's Property
to keep the same in confidence. The Distributor shall not, at any time, in any
way, directly or indirectly, publicly or privately (i) communicate, disclose,
disseminate, lecture upon or publish articles concerning Company's Property nor
(ii) aid anyone else in such communication, disclosure, dissemination, lecturing
or publishing, nor (iii) use, nor aid anyone else in using, Company's Property,
without the prior express written consent of the Company. Provided, however,
that the Distributor's obligation of secrecy and non-use under this Agreement
shall not apply to (a) information that the Distributor is using strictly in
accordance with the terms of this Agreement for the limited purpose of promoting
the sale and use of the Products in the Territory; (b) information that at the
time of the disclosure by the Company to the Distributor is in the public
domain; (c) information that, after disclosure by the Company to the
Distributor, becomes part of the public domain by publication or otherwise,
through an authorized source other than the Distributor and without the fault of
the Distributor; and (d) information that the Distributor can show by written
records was in the Distributor's possession prior to the disclosure by the
Company to the Distributor and was not acquired, directly or indirectly, from
the Company. Provided further, however, in order for the above proviso in this
Section 3.5.1 to be applicable, Distributor must make a claim to the Company in
writing and with specificity that it contends this proviso applies to some or
all of the Company's Property disclosed to it by Company within ten (10) days of
the date of Company's disclosure. Such writing must identify the portion of the
Company's Property that Distributor contends is the subject of this proviso and
the factual basis upon which its claim is grounded. If Company disputes such
claims by Distributor then the parties shall submit the issues to JAMS-
ENDISPUTE for binding arbitration in Orange County, California. The Distributor
shall have the burden of proving that the exceptions set forth in the proviso
apply by clear and convincing evidence and, until there is a final resolution of
the dispute in Distributor's favor. Distributor shall be bound by the provisions
in the first part of Section 3.5.1. If Distributor
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<PAGE> 8
fails to deliver timely notice under this Section, then all such information
shall be conclusively deemed to be Company Property belonging to Company and
subject to all of the other provisions of this Agreement.
3.4.2 During the term of this Agreement, the Distributor shall not,
under any circumstances, copy, replicate, imitate, or reverse engineer any
products of the Company, including, but not limited to, the Products.
3.4.3 Upon the expiration of this Agreement or the termination of this
Agreement, with or without cause, the Distributor shall, subject to Section 18.7
hereof, immediately return to the Company any and all Company's Property,
including, but not limited to, any documentary embodiment thereof.
SECTION 3.5 INFRINGEMENT. The Distributor shall give immediate Notice to
the Company of any and all infringements of Company's Property Trademarks that
come to the Distributor's attention during the term of this Agreement and shall
assist the Company in taking such action against such infringement as the
Company may, in its sole discretion, decide to take; provided, however, that all
costs and expenses, including reasonable attorneys' fees incurred by counsel
approved by the Company, incurred in connection with any such infringement
action shall be borne by the Company. The Company shall hold the Distributor
harmless from, and shall indemnify the Distributor against, any and all claims,
losses, liabilities, damages and costs and expenses (including, but not limited
to, costs of investigation, court costs, arbitrators' fees and attorneys' fees)
that the Distributor may incur by reason of any infringement by the Company of
any trademark or patent or other proprietary right of any third party.
SECTION 3.6 INJUNCTIVE RELIEF. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 3 by the Distributor or any of its employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, the Company shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 3. It is understood that such injunctive relief
is intended solely as provisional relief pending arbitration in accordance with
Article 10 hereof.
SECTION 3.7 INDEMNIFICATION. Each party shall hold the other harmless from,
and shall indemnify the other against, any and all claims, losses, liabilities,
damages and costs and
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<PAGE> 9
expenses (including, but not limited to, costs of investigation, court costs,
arbitrators' fees and attorneys' fees) that the indemnified party may incur by
reason of any breach of any of the provisions of this Article 3 by the
indemnifying party or any of its employees, agents, officers, or directors or
any other person acting in concert with it or on its behalf.
ARTICLE 4. PROMOTIONAL ACTIVITIES
SECTION 4.1 PROMOTIONAL ACTIVITIES OF THE DISTRIBUTOR. During the term
hereof, the Distributor, at its sole cost and expense, covenants and agrees to:
4.1.1 Assign at least one (1) full-time product manager, whose sole
responsibility shall be to promote vigorously and consistently the sale of the
Products and provide technical support regarding the Products for the
Distributor's customers;
4.1.2 Monitor closely the activities of sub-distributors, if any, all
of which must be approved by Company in writing in advance;
4.1.3 Participate actively and engage in sufficient advertising and
publicity campaigns, scientific meetings and exhibitions, trade fairs and shows,
and other marketing activities, to promote vigorously and consistently the sale
of the Products throughout the Territory.
SECTION 4.2 Promotional Activities of the Company. During the term hereof,
the Company, at its sole cost and expense, covenants and agrees to provide at
least one (1) technical support specialist to (a) conduct appropriate training
sessions and workshops for all employees of the Distributor engaged in promoting
the Products, and (b) conduct in-service support for key purchasers and users of
the Products.
ARTICLE 5. MINIMUM SALES
SECTION 5.1 MINIMUM SALES. In addition to all of its other obligations
under this Agreement, the Distributor shall achieve the annual minimum sales of
the Products specified on Exhibit A attached hereto, as such may be amended in
writing by the parties hereto from time to time during the term hereof. The
Distributor understands and acknowledges that its strict fulfillment of such
minimum sales is an essential condition to this Agreement and that its failure
to make any of such sales shall be just cause for termination of this Agreement
pursuant to Section 18.3 hereof.
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SECTION 5.2 REPORTING OBLIGATIONS.
5.2.1 During the term hereof, the Distributor shall provide: (a)
quarterly in arrears, a sales report, on a customer by customer basis, including
detail as to type of customer, and (b) a current inventory report within ten
(10) days of the Company's request therefor.
5.2.2 To underscore that the arrangement contemplated by this
Agreement is a distributorship and not a sales agency, the parties hereto agree
that under no circumstances shall the Distributor be required to provide the
Company at any time after its expiration or termination, the names and addresses
of any of the Distributor's customers of the Products in the Territory.
ARTICLE 6. WARRANTY COVERAGE
SECTION 6.1 WARRANTY LIMITATION. The sole warranties that the Company makes
with respect to the Products are set forth on the Products or their packaging.
EXCEPT AS STATED IN THE FOREGOING SENTENCE, THE COMPANY DISCLAIMS ANY AND ALL
WARRANTIES ON THE PRODUCTS, WHETHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, ANY WARRANTIES OF THEIR MERCHANTABILITY OR THEIR FITNESS FOR A
PARTICULAR PURPOSE OR ANY WARRANTY ARISING FROM COURSE OF DEALING OR USAGE OF
TRADE. TO THE EXTENT THAT ANY IMPLIED WARRANTIES MAY NOT BE DISCLAIMED, SUCH
WARRANTIES ARE EXPRESSLY LIMITED TO THE DURATION OF THE EXPRESS WARRANTY STATED
BY THE COMPANY ON THE PRODUCTS OR THEIR PACKAGING.
SECTION 6.2 WARRANTY CLAIMS.
6.2.1 All of the Products shall be received by the Distributor subject
to the Distributor's visual inspection and may be rejected on the grounds that
the warranties that the Company states on the Products or their packages have
been breached. The Distributor shall assert all such warranty claims in writing
to the Company as soon as possible but in any event during the warranty period
stated in the warranty on the Products or their packaging. At the Company's
request, the Distributor shall promptly supply such evidence of warranty breach
as the Company may reasonably request.
6.2.2 THE DISTRIBUTOR'S EXCLUSIVE REMEDY AND THE COMPANY'S LIMIT OF
LIABILITY FOR ANY AND ALL WARRANTY CLAIMS HEREUNDER, SHALL BE FOR THE
REPLACEMENT OF THE PARTICULAR
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PRODUCTS WITH RESPECT TO WHICH SUCH CLAIMS ARE ASSERTED. THE COMPANY SHALL NOT
BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES
RESULTING FROM THE USE OF THE PRODUCTS OR ARISING OUT OF ANY BREACH OF ANY OF
THE WARRANTIES THAT THE COMPANY STATES ON THE PRODUCTS OR THEIR PACKAGING OR ANY
BREACH BY THE COMPANY OF ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR
APPLICABLE LAW.
SECTION 6.3 INDEMNIFICATION FOR UNAUTHORIZED WARRANTIES. The Company shall
not be responsible for any warranty that the Distributor or any of its
sub-distributors makes concerning the Products other than those warranties made
by the Company as set forth in Section 6.1 hereof. The Distributor shall hold
the Company harmless from and indemnify it against any and all claims, losses,
liabilities, damages, and costs and expenses (including, but not limited to,
costs of investigation, court costs, arbitrators' fees and attorneys' fees) that
the Company may incur arising out of or relating to (i) any such additional
warranty made by the Distributor or any of its agents, employees or
sub-distributors, (ii) the act or omission of the Distributor or any of its
agents, employees or sub-distributors in connection with the transporting,
receiving, handling, storing, advertising, promoting, selling and distributing
any of the Products, and (iii) any breach by the Distributor of any of its
obligations under this Agreement or any purchase order issued by the Distributor
and accepted by the Company hereunder or under applicable law.
SECTION 6.4 PRODUCT LIABILITY INSURANCE. The Distributor shall at all
times maintain adequate product liability insurance with respect to its sale of
the Products with underwriters, limits and terms reasonably acceptable to the
Company.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES BY THE DISTRIBUTOR
SECTION 7.1 The Distributor represents and warrants to the Company as
follows:
7.1.1 It is a marketing and sales company duly organized and validly
existing and in good standing under the laws of the state or country of its
organization and all applicable foreign jurisdictions, and is duly qualified to
conduct its business as presently conducted in all those jurisdictions in which
it presently conducts business.
7.1.2 It has full power and authority to execute and deliver this
Agreement and to perform the terms and conditions hereof.
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7.1.3 It has taken all necessary legal action to authorize the
execution and delivery of this Agreement. The representative who has executed
and delivered this Agreement on behalf of the Distributor has been duly and
validly authorized and will bind the Distributor by his action.
7.1.4 This Agreement constitutes the legal, valid and binding
obligation of the Distributor enforceable against the Distributor in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally and
except as the availability of equitable remedies may be limited under applicable
law.
7.1.5 The execution, delivery and performance of this Agreement will
not violate any provision of the Articles of Incorporation or Bylaws of the
Distributor, or any law, rule, regulation, order or decree of any court or
arbitrator that is or may be binding upon the Distributor or any of its assets.
The execution, delivery and performance of this Agreement will not result in the
breach of any provision of or any default under any agreement to which the
Distributor is a party or which is or may be binding upon the Distributor or any
of its assets.
7.1.6 There are not pending or, to the knowledge of the Distributor,
threatened legal actions, arbitrations or other proceedings against the
Distributor or any of its assets that, if adversely determined, might have a
material adverse effect on the validity or enforceability of this Agreement or
on the financial condition of Distributor or the capability of the Distributor
to perform its obligations hereunder.
7.1.7 The Distributor has never been and is not now the subject of any
bankruptcy or insolvency proceeding or other proceeding, voluntary or
involuntary, for the benefit of creditors.
7.1.8 Neither this Agreement nor the appointment of the Distributor
hereunder must be notified to, approved by, or registered with, any governmental
body, agency or instrumentality in the Territory.
7.2 Each of the representations and warranties set forth in this
Article 7 and in Section 1.6.2 hereof shall be deemed to be confirmed by the
Distributor on each date on which it submits a purchase order to the Company
hereunder.
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7.3 The Distributor shall immediately give Notice to the Company if
any of the representations and warranties made by it in this Article 7 or in
Section 1.6.2 hereof should prove to have been incorrect, incomplete or
misleading on the date of this Agreement or should become incorrect, incomplete
or misleading during the term of this Agreement.
ARTICLE 8. REPRESENTATIONS AND WARRANTIES BY THE COMPANY
SECTION 8.1 The Company represents and warrants to the Distributor as
follows:
8.1.1 It is a corporation duly organized and validly existing and in
good standing under the laws of the State of California and is duly qualified to
conduct its business as presently conducted in all those jurisdictions in which
it presently conducts business.
8.1.2 It has full power and authority to execute and deliver this
Agreement and to perform the terms and conditions hereof.
8.1.3 It has taken all necessary legal action to authorize the
execution and delivery of this Agreement. The representative who has executed
and delivered this Agreement on behalf of the Company has been duly and validly
authorized and will bind the Company by his action.
8.1.4 This Agreement constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and except as the
availability of equitable remedies may be limited under applicable law.
8.1.5 The execution, delivery and performance of this Agreement will
not violate any provision of this Articles of Incorporation or Bylaws of the
Company or any order or decree of any court or arbitrator that is or may be
binding upon the Company or any of its assets. The execution and delivery of
this Agreement will not result in the breach of any provision of or any default
under any agreement to which the Company is a party or which is or may be
binding upon the Company or any of its assets.
ARTICLE 9. GOVERNING LAW
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This Agreement and each purchase order issued by the Distributor and
accepted by the Company hereunder shall be exclusively governed by and construed
in accordance with the laws of the State of California, United States of
America, without giving effect to the choice-of-law principles thereof.
ARTICLE 10. DISPUTE SETTLEMENT
SECTION 10.1 ARBITRATION.
10.1.1 Any dispute, controversy or claim arising out of or relating to
this Agreement or any purchase order issued by the Distributor and accepted by
the Company hereunder or a breach hereof or thereof shall be finally resolved by
arbitration in accordance with the Rules and Procedures of JAMS - ENDISPUTE in
Orange County, California.
10.1.2 The arbitration proceedings, all documents submitted therein
and the award shall be in the English language, and the arbitrator shall be
fluent in the English language. The arbitration proceedings shall be held in
Orange County, California. The arbitrator shall apply such rules of procedure as
it thinks appropriate in the circumstances; provided, however, that both parties
hereto shall be entitled to representation by counsel, to appear and present
written and oral evidence and argument and to cross-examine witnesses presented
by the other party. The award shall be in writing and the arbitrator shall
provide written reasons for its award. The award of the arbitrator shall be
final and binding upon the parties hereto.
10.1.3 The provisions of this Article 10 shall survive and bind the
parties hereto, notwithstanding any expiration or termination of this Agreement
or any purchase order, whether by way of the exercise of rights of termination
hereunder or thereunder, passage of time or otherwise. The provisions of this
Article 10 shall be severable and binding on the parties hereto, notwithstanding
that any other provisions of this Agreement or any purchase order may be held or
declared to be invalid, illegal or unenforceable.
SECTION 10.2 SERVICE OF PROCESS.
10.2.1 The Distributor irrevocably and unconditionally consents to
service of process upon it in any proceeding brought pursuant to Section 3.6 or
10.1 hereof by mailing copies of any Notice or pleading thereof by U.S.
registered mail, postage prepaid, return receipt requested. The foregoing shall
not limit the right of the Company to serve process in any other manner
permitted by applicable law and shall not limited the ability of
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the Company to bring any such proceeding or to obtain execution for any judgment
rendered in any such proceeding any other jurisdiction in which the Distributor
or any of its property or assets may be found.
10.2.2 The Distributor specifically hereby waives any claim or right
it may have by statute, treaty or law to contest the jurisdiction or venue of
JAMS - ENDISPUTE in Orange County, California or any United States state or
federal court in any action or proceeding instituted pursuant to this Agreement.
10.2.3 The Distributor specifically waives any claim of forum non
conveniens and specifically consents to venue as provided herein.
SECTION 10.3 ENFORCEMENT OF JUDGMENT.
The Distributor agrees that final judgment on an arbitral award rendered
against it in any action or proceeding relating in any way to this Agreement or
any purchase order issued by the Distributor and accepted the Company hereunder
shall be conclusive and may be enforced, to the extent permitted by applicable
law, in any other jurisdiction within or outside the United States of America by
suit on the judgment, a certified copy of which judgment shall be conclusive
evidence thereof, or by such other means provided by applicable law.
ARTICLE 11. SEVERABILITY AND SURVIVAL
SECTION 11.1 SEVERABILITY. In the event that any provision or part of any
provision of this Agreement or any purchase order issued by the Distributor and
accepted by the Company hereunder is held to be invalid or unenforceable in any
respect, then, unless such provision or part of a provision is material to the
performance of this Agreement or such purchase order, as the case may be, as
determined by the Company or the Distributor or both of them, this Agreement or
such purchase order, as the case may be, shall continue in effect and such
provision or part of the provision shall be excised herefrom or therefrom. In
the event that either party hereto, in its sole discretion, determines that such
provision or part of a provision to the operation or performance of this
Agreement or such purchase order, as the case may be, then either such party
may, in its sole discretion, elect to terminate this Agreement or such purchase
order, as the case may be, or both, upon thirty (30) calendar days' prior to
notice to the other party.
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SECTION 11.2 SURVIVAL. Sections 1.4, 1.5, and 2.5 and the Articles 3, 6, 7,
8, 9, 10, 16 and 19 hereof shall survive the expiration of this Agreement or the
termination of this Agreement, with or without cause.
ARTICLE 12. ASSIGNMENT
Neither party hereto may assign its rights or obligations under this
Agreement or any purchase order issued by the Distributor and accepted by the
Company hereunder except upon the prior written approval of the other party
hereto; provided, however, that the Company may assign its rights and
obligations hereunder or thereunder to its parent or any of its subsidiaries or
other affiliates or the surviving entity in any corporate merger or
reorganization, but shall give prompt Notice thereof to the Distributor. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
ARTICLE 13. WAIVER
The failure or delay of either party hereto to require performance by the
other party or to enforce its rights under any provision of this Agreement or
any purchase order issued by the Distributor and accepted by the Company
hereunder shall not affect the rights of such party to require performance and
to enforce its rights with respect to such provision unless and until such
performance has been waived in writing by such party. No waiver of any failure
or delay in performance hereunder or thereunder shall constitute waiver of a
continuance or reoccurrence of such failure or delay or of any other failure or
delay, except as provided in such waiver. The rights granted to each party
hereunder and under any purchase order issued by the Distributor and accepted by
the Company hereunder and any rights available to it at law or in equity shall
be cumulative and may be exercised in whole or in part from time to time.
ARTICLE 14. FORCE MAJEURE
Neither party hereto shall be liable or responsible to the other party
hereto for delay or failure to perform any of its obligations, other than an
obligation to pay money arising under this Agreement or any purchase order
issued by the Distributor and accepted by the Company hereunder, due to events
of force majeure, including, but not limited to, acts of God or of the public
enemy, fire, flood, storm, explosion, earthquake, riots, wars, hostilities,
civil commotion, strikes and labor disputes, interruption of supply, inability
to obtain fuel, power, raw materials or freight or transportation services, any
law or
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regulation, any decision by any judicial or arbitral tribunal or any other acts
of any government or any agency or instrumentality thereof or persons purporting
to act with governmental authority, or any other cause beyond the reasonable
control of such party or which such party is not able to overcome by the use of
reasonable measures or which such party is able to overcome only at substantial
expense. This Article 14 shall not be interpreted to relieve the Distributor
from its obligation to pay as and when due in the applicable currency all
payments required to be made by the Distributor under this Agreement or any
purchase order issued by the Distributor and accepted by the Company hereunder.
If any such event of force majeure should occur, the affected party shall
promptly give Notice thereof to the other party hereto. If any such even of
force majeure continues, in whole or in substantial part, whether continuously
or intermittently, for a period of sixty (60) calendar days or more, the other
party may terminate this Agreement or any relevant purchase order or both on
thirty (30) calendar days' prior Notice to the affected party.
ARTICLE 15. NOTICES AND OTHER COMMUNICATIONS
All notices ("Notices"), purchase orders, acceptances of purchase orders,
and other communications between the parties hereunder shall be in the English
language and in writing (by mail, telecopy or telegraph), postage or
transmission costs prepaid, and shall be addressed to the parties hereto at
their respective principal places of business, which shall initially be:
If to the Company: If to the Distributor:
ANSYS DIAGNOSTICS, INC.
25200 Commercentre Drive
Lake Forest, CA 92630
Attention: President
Telecopy: (714) 368-0311
All such Notices and communications shall be deemed effective on (i) the date of
transmission, if sent during normal business hours by telecopy, or (ii) the date
that is five (5) calendar days after the date on which transmitted, deposited or
sent, if sent by mail or telegraph. Each party hereto may change its address for
purposes hereof by Notice given to the other party in the manner prescribed
herein.
ARTICLE 16. COMPLIANCE WITH LAW
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SECTION 16.1 COMPLIANCE WITH LAW. The Distributor shall at all times comply
fully and timely with all laws of the United States of America that may be
applicable to it in performing its obligations under this Agreement, and the
Distributor shall refrain from taking any action that might cause it or the
Company to be deemed to be in violation of any law of the Territory or any law
of the State of California or of the United States of America.
SECTION 16.2 LICENSES, PERMITS, ETC. The Distributor shall use its best
efforts to obtain and maintain all licenses, consents, qualifications and
approvals of governmental bodies in the Territory necessary or advisable to
perform this Agreement and render this Agreement valid, binding and enforceable
in the Territory; provided, however, no disclosures, filings and other
submissions cornering this Agreement or the Products may be made to any such
governmental body without the prior approval of the Company. If for any reason,
including, but not limited to, an event of force majeure, the Distributor does
not obtain all such necessary and advisable government registrations and/or
approvals of the Products within six (6) months after the Effective Date (as
defined in Section 17 hereof) or such other time as may be permitted under
applicable law, then this Agreement shall, without any notice or other act by
the Company, terminate, unless the parties hereto agree in writing to extend the
deadline by which the Distributor must obtain all such government registrations
and/or approvals. Throughout the term of this Agreement, the Distributor shall
immediately give the Company Notice of any revocation of, or any other notice,
investigation, inquiry, action or decision with respect to, Distributor, the
Products of this Agreement or any registration and/or approval of Distributor or
the Products by governmental bodies in the Territory.
ARTICLE 17. EFFECTIVE DATE; TERM
This Agreement shall become effective on the date this Agreement is signed
by the Company, as shown on the signature page hereto, (the "Effective Date")
and shall expire on the day prior to the third anniversary of the Effective
Date, unless terminated earlier in accordance with the terms and conditions
hereof. The parties hereto expressly understand and agree that this Agreement is
a fixed term agreement and shall, unless terminated earlier in accordance
herewith, expire at the end of its term without Notice or any other act by
either party hereto. Subject to Section 18.7 hereof, neither party hereto shall
continue with its performance hereunder after the expiration or termination
hereof, unless the parties agree otherwise in writing.
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ARTICLE 18. TERMINATION
SECTION 18.1 TERMINATION DUE TO BANKRUPTCY AND OTHER EVENTS.
This Agreement shall terminate immediately, without Notice or other act by
the Company in the event that:
18.1.1 a voluntary or involuntary case, action, petition or other
proceeding is initiated seeking liquidation, reorganization or other relief of
Distributor under any bankruptcy, insolvency or similar law now or hereafter in
effect, or seeking appointment of a trustee, receiver, liquidator or other
similar official of Distributor or any of its property, or Distributor shall
consent to have any such relief, or shall make a general appointment for the
benefit of its creditors, or Distributor shall fail generally to pay its debts
as they become due, or Distributor shall take any corporate action in
furtherance of any of the foregoing;
18.1.2 the Distributor shall be dissolved or its assets liquidated;
18.1.3 a substantial change influencing Distributor's ability to
service this Agreement shall occur in the ownership, control, organization,
personnel or operations of the Distributor, including, but not limited to, a
sale or transfer of all or substantially all of its assets or a merger between
the Distributor and another entity; then in any such event, without Notice or
other act by the Company, this Agreement shall terminate immediately.
SECTION 18.2 TERMINATION FOR BREACH OF CONFIDENTIALITY. If the Distributor
breaches any of its obligations under Article 3 hereof or if any of its
directors, officers, employees, agents or others acting in concert with it or on
its behalf breach any of their obligations under the separate confidentiality
agreements referred to in Section 3.5(e) hereof, then this Agreement shall
terminate immediately, without any Notice or other act by the Company and
without prejudice to any other remedy available to the Company.
SECTION 18.3 TERMINATION BY THE COMPANY FOR CERTAIN OTHER CAUSES. The
Company may, at its option and without prejudice to any other remedy available
to it, and without being deemed to have made an election of remedies, terminate
this Agreement upon the occurrence of any of the following events:
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18.3.1 The Distributor fails to pay any amount that is obligated to
pay under this Agreement or under any purchase order or under any other written
agreement between the Company and the Distributor within thirty (30) calendar
days of the date on which such amount became due and payable;
18.3.2 The Distributor fails to make any of the minimum sales
specified in Exhibit A attached hereto;
18.3.3 The Distributor breaches any of its other obligations hereunder
(other than its obligations under Article 3 hereof, breach of which is cause for
immediate termination pursuant to Section 18.2 hereof), or under any purchase
order issued by the Distributor and accepted by the Company hereunder or any
other written agreement between the Company and the Distributor, and fails to
remedy such breach within thirty (30) calendar days after its receipt of Notice
thereof from the Company;
18.3.4 Any representation or warranty made by the Distributor in this
Agreement or in any other written agreement between the Company and the
Distributor shall prove to have been incorrect, incomplete or misleading in any
material respect at the time it was made or deemed made; or
18.3.5 It becomes unlawful under the law of the Territory for the
Distributor to perform its obligations hereunder or under any purchase order
issued by the Distributor and accepted by the Company hereunder; or an
enactment, modification or change in the interpretation of the law of the
Territory subsequent to the date first above written interferes with or
prohibits the full and faithful performance by the Distributor of its
obligations hereunder or under any such purchase order or interferes with or
prohibits the full and complete enforcement of the Company's rights under this
Agreement or any such purchase order.
SECTION 18.4 TERMINATION BY THE DISTRIBUTOR FOR CERTAIN OTHER CAUSES. The
Distributor may, at its option, terminate this Agreement upon the occurrence of
any of the following events:
18.4.1 The Company materially breaches any of its obligations
hereunder and fails to remedy or commence to cure such breach within thirty (30)
calendar days after its receipt of written notice thereof from the Distributor;
or
18.4.2 Any express representation or warranty made by the Company in
this Agreement shall prove to have been
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materially incorrect, incomplete or misleading in any material respect at the
time it was made.
SECTION 18.5 TERMINATION FOR OTHER CAUSES BY EITHER PARTY. Either party
hereto may terminate this Agreement in accordance with other express provisions
hereof. This Agreement shall terminate automatically in accordance with Section
16.2.2 hereof.
SECTION 18.6 NO COMPENSATION. Upon expiration of this Agreement and upon
termination of this Agreement by either party hereto, with or without cause, the
Company shall not be liable or obligated to the Distributor with respect to
future profits, exemplary, special or consequential damages, indemnification or
other compensation regarding such expiration or termination, irrespective of
whether such obligations or liabilities may be provided for in the law of the
Territory or elsewhere, and the Distributor waives and relinquishes any rights,
pursuant to law or otherwise, to any such indemnification or compensation.
SECTION 18.7 DUTIES OF THE DISTRIBUTOR UPON TERMINATION. Upon the
expiration of this Agreement or upon the termination of this Agreement by either
party hereto, with or without cause, the Distributor shall (i) cease immediately
all of its efforts to promote the sale of the Products; (ii) cease immediately
use of Company's Trademarks; (iii) immediately discontinue making any statements
or taking any actions that might cause third parties to infer that any business
relationship continues to exist between the parties hereto and, where necessary
or advisable, inform third parties that the Distributor no longer has a business
relationship with the Company and is no longer authorized to sell the Products
in the Territory; and (iv) within ten (10) calendar days after the date of
expiration of this Agreement or the termination of this Agreement, with or
without cause, return to the Company, at the Company's expense, any and all
Company's Property, including, but not limited to, promotional material, that
has been furnished to the Distributor by the Company; provided, however, that if
the Distributor has an inventory of the Products on hand on the date of
expiration or termination, the Distributor may, subject to Section 18.9, sell
such Products, and may use Company's Trademarks and Company's Property in
connection therewith, for a period of ninety (90) calendar days thereafter. In
no event, however, shall the Distributor sell the Products in a commercially
unreasonable manner or in a manner that could harm the future sales potential of
the Products or the good will of the Company or Company's Trademarks in the
Territory.
SECTION 18.8 UNFILLED PURCHASE ORDERS. Unless otherwise agreed to in
writing by the parties hereto, Notice of termination
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of this Agreement by either party automatically cancels all unfilled purchase
orders. The Company's acceptance of a purchase order from the Distributor after
the Company has given Notice of termination hereunder shall not be deemed a
waiver or a rescission of such Notice.
SECTION 18.9 REPURCHASE OF PRODUCTS BY THE COMPANY. During the ninety (90)
calendar-day period after the date of expiration or termination of this
Agreement, the Company may, at its option, repurchase from the Distributor, at
the net price paid by the Distributor to the Company any and all of the Products
on hand in the Distributor's place of business or elsewhere. Upon demand and
tender by the Company of such repurchase price, the Distributor shall deliver
such Products and all rights, title and interest therein, free and clear of all
liens and encumbrances, to the Company and the Company shall pay all reasonable
freight costs associated with shipping such Products back to the Company. The
Company, however, reserves the right to reject any such repurchased Products not
in first class or acceptable condition, as reasonably determined by the Company.
SECTION 18.10 RIGHT TO SELL. Upon the expiration of this Agreement or the
termination of this Agreement by either party hereto, with or without cause, the
Company shall have the right to sell the Products in the Territory itself and to
appoint one or more other distributors of the Products in the Territory. The
Distributor waives and relinquishes any rights that it may have, under the law
of the Territory or elsewhere, to seek to enjoin the Company from making such
sales or appointing such other distributors and the Distributor shall not
attempt to exercise any such rights.
ARTICLE 19. ENTIRE AGREEMENT AND AMENDMENT
SECTION 19.1 ENTIRE AGREEMENT; REVOCATION OF ALL PRIOR AGREEMENTS. This
Agreement constitutes the entire agreement of the parties hereto with respect to
the subject matter hereof and all parties hereto expressly intend and agree that
this Agreement shall supersede any prior agreement or expression of intent or
understanding, oral or written, with respect to the subject matter hereof. In
addition, Distributor expressly acknowledges and agrees there have been no
representations, warranties, inducements or promises made by Company which are
not set forth in this Agreement.
SECTION 19.2 AMENDMENT. Neither this Agreement nor any purchase order
issued by the Distributor and accepted by the Company hereunder nor any Exhibit
hereto may be amended except by
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a writing executed by duly authorized representatives of the parties hereto, or
except pursuant to other provisions hereof.
ARTICLE 20. HEADINGS
Headings are inserted in this Agreement for reference and convenience only
and shall not form part of this Agreement for the purpose of interpretation.
ARTICLE 21. COUNTERPARTS
This Agreement may be executed in two (2) or more counterparts, each of
which is in the English language and each of which is an original, true and
correct version hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized representatives on
the date first above written.
ANSYS DIAGNOSTICS, INC.
By: By:
----------------------------------- ------------------------------------
Name: Name:
--------------------------------- ----------------------------------
Title: President Title:
------------------------------- --------------------------------
Date: Date:
--------------------------------- ----------------------------------
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EXHIBIT A
TO DISTRIBUTORSHIP AGREEMENT BETWEEN ANSYS DIAGNOSTICS, INC.
AND XXXXXXXXXXXXXXXXXXXXXX DATED ______________________
PRODUCTS, PRICES AND MINIMUM SALES REQUIREMENTS
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EXHIBIT B
TO DISTRIBUTORSHIP AGREEMENT BETWEEN ANSYS DIAGNOSTICS, INC.
AND XXXXXXXXXXXXXXXXXXXXXX DATED ______________________
TERRITORY
United States of America
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<PAGE> 1
EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of this 12th day of December,
1988, is made and entered into by Toxi-Lab, Inc., a California corporation (the
"Company"), Security Pacific National Bank, a national banking association
("SPNB"), First Interstate Capital, Inc., a California corporation ("FICI"), and
Birch Street Partners, a California general partnership ("BSP").
1. Background.
The Company has entered into various securities purchase agreements with
the parties hereto (the "Purchase Agreements") pursuant to which the Company has
issued and sold to such parties, and such parties have purchased, (i) an
aggregate of 14,000 shares of Series B Convertible Preferred Stock, par value
$.0l per share, of the Company (the "Convertible Preferred Stock"), at a price
of $100 per share, which shares of Convertible Preferred Stock are convertible
into an aggregate of 303,448 shares of the Company's common stock, par value
$.0l per share (the "Common Stock"), and (ii) a warrant to purchase an aggregate
of 165,517 shares of Common Stock at an exercise price of $1.00 per share (the
"Warrant"), as follows: SPNB--the Warrant; FICI--13,860 shares of Convertible
Preferred Stock; and BSP--140 shares of Convertible Preferred Stock. Such shares
of Convertible Preferred Stock and the Warrant in the aggregate will comprise
approximately 68% of the issued and outstanding shares of Common Stock of the
Company on a fully diluted basis. This Agreement shall become effective upon the
issuance of the Convertible Preferred Stock and the Warrant to be sold under all
of the Purchase Agreements.
2. Definitions.
As used in this Agreement, the following capitalized terms shall have
the following respective meaning specified below unless the context clearly
indicates to the contrary. All other capitalized terms used herein shall have
the meanings assigned to those terms elsewhere in this Agreement.
Exchange Act - The Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder or any similar federal statute then in
effect, and a reference to a particular section thereof shall be deemed to
include a reference to the comparable section, if any, of any such similar
federal statute.
Holder - Any party hereto (other than the Company) and any holder of
Registrable Securities who agrees in writing to be bound by the provisions
of this Agreement.
Person - Any individual, partnership, joint venture, corporation,
trust, association, unincorporated organization or government or any
department or agency thereof.
<PAGE> 2
Registrable Securities - Any Common Stock acquired upon conversion of
the Convertible Preferred Stock or upon exercise of the Warrant issued or
issuable pursuant to a Purchase Agreement, any Common Stock which may be
issued or distributed in respect thereof by way of stock dividend or stock
split or other distribution, recapitalization or reclassification, and the
Warrant or any share of Convertible Preferred Stock issued or issuable
pursuant to a Purchase Agreement; provided such Warrant and shares of
Convertible Preferred Stock are sold to the underwriters pursuant to an
agreement which requires such underwriters to exercise the Warrant or to
convert the shares of Convertible Preferred Stock and to include the Common
Stock acquired thereby in the registered public offering. As to any
particular Registrable Securities, once issued such securities shall cease
to be Registrable Securities when (i) a registration statement with respect
to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (ii) they shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) they shall have been otherwise transferred,
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent disposition of them
shall not require registration or qualification of them under the
Securities Act or any state securities or blue sky law then in force, or
(iv) they shall have ceased to be outstanding.
Registration Expenses - Any and all expenses incident to performance
of or compliance with this Agreement, including, without limitation, (i)
all SEC and stock exchange or National Association of Securities Dealers,
Inc. registration and filing fees, (ii) all fees and expenses of complying
with securities or blue sky laws (including fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of
the Registrable Securities), (iii) all printing, messenger and delivery
expenses, (iv) all fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange pursuant
to clause (viii) of Section 5, (v) the fees and disbursements of counsel
for the Company and its independent public accountants, including the
expenses of any "cold comfort" letters required by or incident to such
performance and compliance and (vi) any fees and disbursements of
underwriters customarily paid by the issuers or sellers of securities,
including liability insurance if the Company so desires or if the
underwriters so require, and the reasonable fees and expenses of any
special experts (excluding counsel) retained in connection with the
requested registration, but excluding underwriting discounts and
commissions and transfer taxes, if any.
Securities Act - The Securities Act of 1933, as amended, the rules and
regulations thereunder or any similar federal statute then in effect, and a
reference to a particular section thereof shall be deemed to include a
reference to the comparable section, if any, of any such similar federal
statute.
SEC - The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
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3. Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at any
time after the date hereof proposes to register its Common Stock or securities
convertible into, or exchangeable for, its Common Stock under the Securities Act
(other than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes), whether or not for sale for its own account,
it will each such time give prompt written notice to all Holders of Registrable
Securities of its intention to do so and of such Holders' rights under this
Section 3. Upon the written request of any such Holder made within 15 days after
the receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such Holder), the Company will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the Holders thereof, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered; provided, that (i) if, at any time
after giving written notice of its intention to register any securities pursuant
to this Section 3(a) and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to proceed with the proposed registration of the
securities to be sold by it, the Company may, at its election, give written
notice of such determination to each Holder of Registrable Securities and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), and (ii) if such
registration involves an underwritten offering, all Holders of Registrable
Securities requesting to be included in the Company's registration must sell
their Registrable Securities to the underwriters selected by the Company on the
same terms and conditions as apply to the Company, with such differences,
including any with respect to indemnification and liability insurance, as may be
customary or appropriate in combined primary and secondary offerings. If a
registration requested pursuant to this Section 3(a) involves an underwritten
public offering, any Holder of Registrable Securities requesting to be included
in such registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration.
(b) Expenses. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 3. All other expenses of any registration pursuant to this
Section 3 including, without limitation, all underwriting discounts and
commissions and transfer taxes, shall be paid pro rata by the Company and all
other Persons (including the Holders) participating in such registration on the
basis of the relative number of shares of Common Stock of the Company and each
such Person included in such registration.
(c) Priority in Incidental Registrations. If a registration pursuant
to this Section 3 involves an underwritten offering and the managing underwriter
advises the Company in writing that, in its opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, so as to be likely to have an adverse effect on such
offering as contemplated by the Company (including the price at which the
Company proposes to sell such securities), then the Company will include in such
registration
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<PAGE> 4
(i) first, 100% of the securities the Company proposes to sell, (ii) second, to
the extent of the number of Registrable Securities requested to be included in
such registration which, in the opinion of such managing underwriter, can be
sold without having the adverse effect referred to above, the number of
Registrable Securities which the Holders have requested to be included in such
registration, such amount to be allocated pro rata among all requesting Holders
on the basis of the relative number of shares of Registrable Securities then
held by each such Holder (provided that any shares thereby allocated to any such
Holder that exceed such Holder's request will be reallocated among the remaining
requesting Holders in like manner). For purposes of this provision, the term
Holders shall include all members of management of the Company and the term
Registrable securities shall include all shares of Common stock held by or
subject to options granted to such persons, to the extent necessary to reflect
all rights of registration to which such persons may be entitled with respect to
such shares prior to a public offering after the date hereof of shares of Common
Stock pursuant to an effective registration statement under the Securities Act.
4. Registration on Request.
(a) Request by Holders. At any time or from time to time after the
earlier of (i) 90 days after any of the Common Stock of the Company has been
registered after the date hereof under the Securities Act (other than a
registration on Form S-4 or S-8, or any successor or other forms promulgated for
similar purposes) or (ii) December 12, 1993, upon the written request of any
Holder or Holders of a majority of the shares of Registrable Securities
requesting that the Company effect the registration under the Securities Act of
all or part of such Holder's or Holders' Registrable Securities (constituting in
the aggregate at least 200,000 shares or such lesser number of Registrable
Securities then outstanding) or, in the case or the Company-Paid Demand (as
hereinafter defined) upon the written request of any Holder or Holders of
two-thirds of the shares of Registrable Securities (constituting in the
aggregate at least 200,000 shares or such lesser number of Registrable
Securities then outstanding) and specifying the intended method of disposition
thereof, the Company will promptly give written notice of such requested
registration (which request shall specify the intended method of disposition of
such Registrable Securities) to all other Holders of Registrable Securities, and
thereupon will, as expeditiously as possible, use its best efforts to effect the
registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by such Holder or Holders; and
(ii) all other Registrable Securities which the Company has been
requested to register by any other Holder thereof by written request
given to the Company within 15 days after the giving of such written
notice by the Company,
all to the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to be
registered; provided, that the Company shall not be obligated to file a
registration statement relating to any registration request under this Section
4(a), (A) (other than a registration statement on Form S-3 or any successor or
similar short-form registration statement) within a period of nine months after
the effective date of any
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<PAGE> 5
other registration statement relating to any registration request under this
Section 4(a) which was not effected on Form S-3 (or any successor or similar
short-form registration statement) or relating to any registration effected
under Section 3 hereof or (B) if with respect thereto, the managing underwriter,
the SEC, the Securities Act or the rules and regulations thereunder, or the form
on which the registration statement is to be filed, would require the conduct of
an audit other than the regular audit conducted by the Company at the end of it
fiscal year, in which case the filing may be delayed until the completion of
such regular audit (unless the Holders agree to pay the expenses of the Company
in connection with such an audit other than the regular audit).
(b) Registration Statement Form. If any registration requested pursuant to
this Section 4 which is proposed by the Company to be effected by the filing of
a registration statement on Form S-3 (or any successor or similar short-form
registration statement) shall be in connection with an underwritten public
offering, and if the managing underwriter shall advise the Company in writing
that, in its opinion, the use of another form of registration statement is of
material importance to the success of such proposed offering, then such
registration shall be effected on such other form.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the first registration of Registrable Securities pursuant to
this Section 4 (the "Company-Paid Demand"). All other expenses of the first
registration pursuant to this section 4 including, without limitation, the
underwriting discounts and commissions and transfer taxes, shall be paid pro
rata by the Company and all other Persons (including the Holders) participating
in such registration on the basis of the relative number of shares of Common
Stock of the Company and each such Person included in such registration. All
expenses (including Registration Expenses) for any subsequent registrations of
Registrable Securities pursuant to this Section 4 shall be paid pro rata by the
Company and all other Persons (including the Holders) participating in such
registration on the basis of the relative number of shares of Common Stock of
the Company and each such Person included in such registration.
(d) Effective Registration Statement. A registration requested pursuant to
this Section 4 will not be deemed to have been effective unless it has become
effective; provided, that if, within 180 days after it has become effective, the
offering of Registrable Securities pursuant to such registration is interfered
with by any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court, such registration will be deemed not to have
been effected.
(e) Selection of Underwriters. If a requested registration pursuant to
this Section 4 involves an underwritten offering, the Company shall have the
right to select the investment banker or bankers and managers to administer the
offering; provided, however, that such investment banker or bankers and managers
shall be satisfactory to Holders of a majority of the shares of Registrable
Securities and which the Company has been requested to register.
(f) Priority in Requested Registrations. If a requested registration
pursuant to this Section 4 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such
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<PAGE> 6
registration (including securities of the Company which are not Registrable
Securities) exceeds the number which can be sold in such offering, the Company
will include in such registration only the Registrable Securities requested to
be included in such registration. In the event that the number of Registrable
Securities requested to be included in such registration exceeds the number
which, in the opinion of such managing underwriter, can be sold, the number of
such Registrable Securities to be included in such registration shall be
allocated pro rata among all requesting Holders on the basis of the relative
number of shares of Registrable Securities then held by each such Holder
(provided that any shares thereby allocated to any such Holder that exceed such
Holder's request shall be reallocated among the remaining requesting Holders in
like manner). In the event that the number of Registrable Securities requested
to be included in such registration is less than the number which, in the
opinion of the managing underwriter, can be sold without having an adverse
effect on such offering, the Company may include in such registration the
securities the Company proposes to sell up to the number of securities that, in
the opinion of the underwriter, can be sold.
(g) Additional Rights. If the Company at any time grants to any other
holders of Common Stock any rights to request the Company to effect the
registration under the Securities Act of any such shares of Common Stock on
terms more favorable to such holders than the terms set forth in this Section 4,
the terms of this Section 4 shall be deemed amended or supplemented to the
extent necessary to provide the Holders such more favorable rights and benefits.
5. Registration Procedures. If and whenever the Company is required to
use its best efforts to effect or cause the registration of any Registrable
securities under the Securities Act as provided in this Agreement, the Company
will, as expeditiously as possible:
(a) prepare and, in any event within 120 days after the end of the
period within which a request for registration may be given to the Company, file
with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective; provided, however, that the company may discontinue any
registration of its securities which is being effected pursuant to Section 3
hereof at any time prior to the effective date of the registration statement
relating thereto;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
at least 10 days, but not in excess of 180 days and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement; provided, that before filing a
registration statement or prospectus, or any amendments or supplements thereto,
the Company will furnish to one counsel selected by the Holders of a majority of
the Registrable Securities covered by such registration statement to represent
all Holders of Registrable Securities covered by such registration statement,
copies of all documents proposed to be filed, which documents will be subject to
the review of such counsel;
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<PAGE> 7
(c) furnish to each seller of such Registrable Securities such number
of copies of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each form of
prospectus and summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as such seller may reasonably request
in order to facilitate the disposition of the Registrable Securities by such
seller;
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each seller shall reasonably request, and
do any and all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller, except that
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction where, but for the
requirements of this clause (d), it would not be obligated to be so qualified,
to subject itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) use its best efforts to cause such registrable securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities;
(f) notify each seller of any such Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act within the appropriate period
mentioned in clause (b) of this Section 5, of the Company's becoming aware that
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and at the
request of any such seller, prepare and furnish to such seller a reasonable
number of copies of an amended or supplemented prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements herein not misleading in the light of the circumstances then
existing;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable (but not more than eighteen months) after the
effective date of the registration statement, an earnings statement which shall
satisfy the provisions of section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder;
(h) use its best efforts to list such Registrable Securities on any
securities exchange on which the Common Stock is then listed, if such
Registrable Securities are not already so listed and if such listing is then
permitted under the rules of such exchange, and to
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<PAGE> 8
Provide a transfer agent and registrar for such Registrable Securities covered
by such registration statement not later than the effective date of such
registration statement;
(i) enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as sellers of a
majority of shares of such Registrable securities or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(j) obtain a "cold comfort" letter or letters from the Company's
independent public accountants in customary form covering matters of the type
customarily covered by "cold comfort" letters as the seller or sellers of a
majority of shares of such Registrable Securities shall reasonably request
(provided that Registrable Securities constitute at least 25% of the securities
covered by such registration statement); and
(k) make available for inspection by any seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
seller or any such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause all of
the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
The Company may require each seller of registrable Securities as to
which any registration is being effected to furnish the Company with such
information regarding such seller and pertinent to the disclosure
requirements relating to the registration and the distribution of such
securities as the Company may from time to time reasonably request in
writing.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described
in clause (f) of this Section 5, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt
of the copies of the supplemented or amended prospectus contemplated by
clause (f) of this Section 5, and, if so directed by the Company such
Holder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such
notice, the period mentioned in clause (b) of this Section 5 shall be
extended by the number of days during the period from and including the
date of the giving of such notice pursuant to clause (f) of this Section 5
and including the date when such seller of Registrable Securities covered
by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by clause (f) of this
Section 5.
6. Indemnification.
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(a) Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act pursuant to Section 3
or 4 hereof, the Company will, and it hereby does, indemnify and hold harmless,
to the extent permitted by law, the seller of any Registrable Securities covered
by such registration statement, each affiliate of such seller and their
respective directors and officers or general and limited partners, legal counsel
and auditors (and the directors, officers, affiliates and controlling Persons
thereof), each other Person who participates as an underwriter in the offering
or sale of such securities and each other Person, if any, who controls such
seller or any such underwriter within the meaning of the Securities Act
(collectively, the "Indemnified Parties"), against any and all losses, claims,
damages or liabilities, joint or several, and expenses to which such seller, any
such director or officer or general or limited partner or affiliate or any such
underwriter or controlling Person may become subject under the Securities Act,
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof, whether or not such Indemnified
Party is a party thereto) arise out of or are based upon (a) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any form of, final or summary prospectus contained therein, or
any amendment or supplement thereto, or (b) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances then
existing, and the Company will reimburse such Indemnified Party for any legal or
any other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided, that
the Company shall not be liable to any Indemnified Party in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereto or in any such form
of, final or summary prospectus in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller specifically stating that it is for use in the preparation thereof; and
provided, further, that the Company will not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or any of the Person, if any, who controls such underwriter within the meaning
of the Securities Act, under the indemnity agreement in this Section 6(a) with
respect to any form of prospectus or the final prospectus or the final
prospectus as amended or supplemented, as the case may be, to the extent that
any such loss, claim, damage or liability of such underwriter or controlling
Person results from the fact that such underwriter sold Registrable Securities
to a person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the final prospectus (including any
documents incorporated by reference therein) or of the final prospectus as then
amended or supplemented (including any documents incorporated by reference
herein), whichever is most recent, if the Company has previously furnished
copies thereof to such underwriter. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any Indemnified Party and shall survive the transfer of such securities by
such seller.
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed in accordance with
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Section 5 hereof, that the Company shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable Securities or
any underwriter to indemnify and hold harmless (in the same manner and to the
same extent as set forth in subdivision (a) of this Section 6) the Company and
all other prospective sellers with respect to any statement or alleged statement
in or omission or alleged omission from such registration statement, any form
of, final or summary prospectus contained therein, or any amendment or
supplement, if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such seller or
underwriter specifically stating that it is for use in the preparation of such
registration statement, form of, final or summary prospectus or amendment or
supplement, or a document incorporated by reference into any of the foregoing.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any of the prospective
sellers, or any of their respective affiliates, directors, officers or
controlling Persons and shall survive the transfer of such securities by such
seller.
(c) Notices of claims, Etc. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 6, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, that the failure of the
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding clauses of this
Section 6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof, the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) 0ther Indemnification. Indemnification similar to that specified
in the preceding clauses of this Section 6 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation or governmental authority other than the
Securities Act.
(e) Non-Exclusivity. The obligations of the parties under this
Section 6 shall be in addition to any liability which any party may otherwise
have to any other party.
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7. Miscellaneous.
(a) Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holders of
two-thirds of the Registrable Securities then outstanding. Each Holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 7(a), whether or not such Registrable
Securities shall have been marked to indicate such consent.
(b) Successors, Assigns and Transferees. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are for
the benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent Holder of any Registrable
Securities, subject to the provisions contained herein.
(c) Notices. All notices and other communications provided for
hereunder shall be in writing and shall be sent by first class mail, telex,
telecopier or hand delivery:
(i) if to the Company, to:
Toxi-Lab, Inc.
2 Goodyear
Irvine, California 92718
Attn: Secretary
With a copy to:
Latham & Watkins
650 Town Center Drive
Twentieth Floor
Costa Mesa, California 92626
Attn: Jeffrey T. Pero, Esq.
(ii) if to SPNB, to:
Security Pacific National Bank
4000 MacArthur Blvd.
Newport Beach, California 92660
Attn: Christopher A. Peterson
With a copy to:
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Cooley, Godward, Castro,
Huddleson & Tatum
Suite 1400
4675 MacArthur Court
Newport Beach, California 92660
Attn: Paul Jones, Esq.
(iii) if to FICI or BSP, to:
First Interstate Venture Capital
Corporation
5000 Birch Street
Suite 10100
Newport Beach, California 92660
Attn: John M. Morris
All such notices and communications shall be deemed to have been given or made
(1) when delivered by hand, (2) five business days after being deposited in the
mail, postage prepaid, (3) when telexed answer-back received or (4) when
telecopied, receipt acknowledged.
(d) Descriptive Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.
(e) Severability. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the remaining provisions, paragraphs,
words, clauses, phrases or sentences hereof shall not be in any way impaired, it
being intended that all rights, powers and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts, each of which
shall be deemed an original, but all such counterparts shall together constitute
one and the same instrument, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
(g) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to contracts made and to be performed therein. The parties to this Agreement
hereby agree to submit to the jurisdiction
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of the courts of the State of California in any action or proceeding arising out
of or relating to this Agreement.
(h) Voting by Holders of Registrable Securities. To the extent that
any provision of this Agreement calls for a vote or accounting of the Holders of
Registrable Securities to be taken, such vote or accounting shall assume that
each such Holder has exercised or converted its Registrable securities into
Common Stock.
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SIGNATURE PAGE
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
or caused this Agreement to be executed on its behalf as of the date first
written above.
TOXI-LAB, INC.
By:
------------------------------------
Its:
------------------------------------
SECURITY PACIFIC NATIONAL BANK
By:
------------------------------------
Its:
------------------------------------
FIRST INTERSTATE CAPITAL, INC.
By:
------------------------------------
Its:
------------------------------------
BIRCH STREET PARTNERS
By:
------------------------------------
Its:
------------------------------------
14
<PAGE> 1
EXHIBIT 10.12
MANAGEMENT SUBSCRIPTION AGREEMENT
This Management Subscription Agreement (the "Agreement") is entered into as
of December 12, 1988 between Toxi-Lab, Inc., a California corporation (the
"Company"), and the person listed on Schedule I hereto (the "Purchaser")
(together with the Company, the "Parties").
RECITALS
A. The Company was recently incorporated for the purpose of acquiring the
assets and business of the Analytical Systems Division of Marion Laboratories,
Inc. (the "Acquisition"). In connection with the Acquisition, the Company is
selling shares of its common stock, par value $.01 per share (the "Common
Stock") for a purchase price of $1.00 per share (the "Per Share Price") to a
limited number of key employees, to provide incentive for such key employees to
remain employed by the Company and to exert added efforts towards its growth and
success.
B. The Purchaser desires to subscribe for and purchase from the Company,
and the Company desires to sell to the Purchaser, the number of shares of Common
Stock set forth opposite the Purchaser's name on Schedule I attached hereto (the
"Management Common Stock") at the Per Share Price.
C. Simultaneously with the execution of this Agreement, the Company is
executing other Management Subscription Agreements which are identical to this
Agreement, except as to the number of shares of Common Stock covered thereby
(the "Other Purchaser Agreements") with other purchasers who will be key
employees of the Company (collectively, the "Other Purchasers"). The sale of
Management Common Stock to the Purchaser and the Other Purchasers are to be
separate sales, and this Agreement and the Other Purchase Agreements are to be
separate agreements, but references to this "Agreement" shall include the Other
Purchase Agreements where the context so permits, together with all
modifications hereof and thereof. In addition, the Company has entered into an
agreements with First Interstate Capital, Inc., a California corporation
("FICI") and Birch Street Partners, a California general partnership ("BSP")
providing for, among other things, the purchase of shares of Series A Redeemable
Preferred Stock, par value $.01 per share (the "Redeemable Preferred Stock"),
and Series B Convertible Preferred Stock, par value $.01 per share (the
"Convertible Preferred Stock") of the Company by FICI and BSP.
AGREEMENT
In order to implement the foregoing and in consideration of the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Parties agree as
follows:
I. DEFINITIONS
The following terms shall have the meanings ascribed to such terms in the
Sections set forth below:
<PAGE> 2
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Acquisition Recitals
Act 3.1
Agreement Recitals
BSP Recitals
Closing 2.2
Common Stock Recitals
Company Recitals
Convertible Preferred Stock Recitals
Exchange Act 5.2
Fair Market Value 4.2(d)
FICI Recitals
"for cause" 4.2(a)
For Cause Repurchase Event 4.2(a)
Investor Demand 6.1
Involuntary Repurchase Event 4.2(b)
Management Common Stock Recitals
Offer 4.1
Offeror 4.1
Other Purchasers Recitals
Other Purchase Agreements Recitals
Parties Recitals
Per Share Price Recitals
Piggyback Registration 6.1
Public offering 4.1
Purchaser Recitals
Purchase Price 2.1
Purchaser's Trust 3.2(e)
Purchaser's Estate 3.2(c)
Redeemable Preferred Stock Recitals
Registration Rights Agreement 5.1(d)
Repurchase Closing 4.2(e)
Rule 144 3.4(d)
Transfer 3.1
Transferee 3.2(d)
Transferee's Trust 3-2(f)
Transferee's Estate 3.2(d)
Unvested Management Common Stock 2.4(a)
Vested Management Common Stock 2.4(a)
Voluntary Repurchase Event 4.2(c)
</TABLE>
II. SUBSCRIPTION FOR AND PURCHASE OF MANAGEMENT COMMON STOCK.
2.1. Purchase of Management Common Stock. Subject to the terms and
conditions hereinafter set forth, the Purchaser hereby subscribes for and agrees
to purchase, and the Company hereby agrees to sell to the Purchaser, that number
of shares of Management Common Stock set forth opposite the Purchaser's name on
Schedule I attached hereto, at a purchase price
<PAGE> 3
per share equal to the Per Share Price, for a total purchase price (the
"Purchase Price") in the amount set forth opposite the Purchaser's name on
Schedule I attached hereto.
2.2. The Time and Place of the Closing. The closing of the transactions
provided for in this Agreement (the "Closing") shall be held at 10:00 a.m.,
local time, on December 12, 1988, at the offices of Latham & Watkins, 650 Town
Center Drive, Twentieth Floor, Costa Mesa, California 92626, or at such other
place as the parties shall agree.
2.3. Closing of the Purchase of the Management Common Stock. The Purchaser
shall deliver to the Company at the Closing the Purchase Price in immediately
available funds and in consideration of and upon receipt of the Purchase Price,
payable in accordance with this Section 2.3, the Company will deliver to the
Purchaser a certificate, in Purchaser's name, evidencing Purchaser's ownership
of the Management Common Stock.
2.4. Vesting of the Management Common Stock.
(a) A portion of the shares of Management Common Stock acquired
pursuant to this Agreement, will become "Vested Management Common Stock" on each
of the first five anniversaries of the Closing, if, in each case, the Purchaser
is still employed by the Company, any direct or indirect subsidiaries of the
Company or any corporation which owns 100% of the outstanding voting stock of
the Company on such anniversary. The portion of the shares of Management Common
Stock which will become Vested Management Common Stock on each of the first five
anniversaries of the Closing, if, in each case, the Purchaser is still employed
by the Company, any direct or indirect subsidiaries of the Company or any
corporation which owns 100% of the outstanding voting stock of the Company on
such anniversary shall be equal to the percentages of the total number of shares
of Management Common Stock purchased by the Purchaser at the Closing set forth
below opposite such anniversary:
<TABLE>
<CAPTION>
Anniversary Percentage
- ----------- ----------
<S> <C>
First 10%
Second 15
Third 20
Fourth 25
Fifth 30
</TABLE>
Until such time as any of the Management Common Stock becomes
Vested Management Common Stock, it shall remain "Unvested Management Common
Stock."
(b) If prior to the fifth anniversary of the Closing, all or
substantially all of the assets of the Company are sold, or the Common Stock of
the Company is sold to any person (other than in accordance with Article III
hereof) who, after giving affect to such sale would own more than 50% of the
outstanding Common Stock after such sale, all Unvested Management Common Stock
held by the Purchaser, his spouse or immediate family member or the Purchaser's
Trust on the date of such sale shall immediately become Vested Management Common
Stock.
(c) Unless the Purchaser shall be required to pledge his shares of
Unvested Management Common Stock to Security Pacific National Bank in connection
with his guarantee
<PAGE> 4
of certain indebtedness of the Company relating to the Acquisition, the
Purchaser shall deposit with the Company certificates representing the Unvested
Management Common Stock, together with a duly executed stock assignment separate
from certificate in blank, which shall be held by the Secretary of the Company
pending the vesting of such Unvested Management Common Stock, pursuant to this
Section 2.4.
(d) Notwithstanding anything to the contrary in this Agreement, the
Purchaser shall, subject to the transfer restrictions and other rights and
obligations contained herein, have full rights of ownership in all shares of
Unvested Management Common Stock, including the right to vote and receive
dividends, if and when declared, with respect to such shares of Unvested
Management Common Stock, to the sane extent as with respect shares of Vested
Management Common Stock.
2.5. Conditions to the Obligations of the Parties Hereunder. The
obligations of each of the Parties hereto shall be subject to the following
conditions:
(a) Simultaneously with the sale to the Purchaser of the Management
Common Stock, the Company shall have received the proceeds of the additional
equity and debt financing contemplated by, and necessary to consummate, the
Acquisition;
(b) The representations and warranties made by the other Party in
this Agreement shall be true and correct in all material respects at and as of
the date of the Closing; and
(c) The Purchaser and the Company shall have entered into a
Proprietary Information Agreement, substantially in the form attached hereto as
Exhibit A.
III. PURCHASER'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
3.1. No Resales. The Purchaser hereby represents and warrants that he is
acquiring the Management Common Stock for investment solely for his own account
and not with a view to, or for resale in connection with, the distribution or
other disposition thereof. Except as otherwise provided in Section 3.2 hereof,
the Purchaser agrees and acknowledges that he will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter "Transfer") any shares of the Vested Management Common Stock.
Except as otherwise provided in Section 3.2 hereof, the Purchaser agrees and
acknowledges that he will not Transfer any shares of the Vested Management
Common Stock unless such Transfer complies with Section 4.1 of this Agreement
and (i) the Transfer is pursuant to an effective registration statement under
the Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "Act") and complies with any applicable state securities laws,
or (ii) counsel for the Purchaser (which counsel shall be acceptable to the
Company) shall have furnished the Company with an opinion, satisfactory in form
and substance to the Company, to the effect that no such registration is
required because of the availability of an exemption from registration under the
Act and that the Transfer is exempt from any applicable state securities laws.
No transfer of any Management Common Stock in violation of this Agreement shall
be made or recorded on the books of the Company, and any such Transfer shall be
void and of no effect.
<PAGE> 5
3.2. Certain Permitted Transfers. Notwithstanding the general prohibition
on Transfers contained in Section 3.1 hereof, the Company acknowledges and
agrees that any of the following Transfers are deemed to be in compliance with
the Act, state securities laws and this Agreement and no opinion of counsel is
required in connection therewith:
(a) Transfer made by the Purchaser of all or any portion of his
Management Common Stock to the Company pursuant to Article IV thereof;
(b) A Transfer made by the Purchaser of all or any portion of his
Vested Management Common Stock to one of the Other Purchasers, including,
without limitation, the Vice President of Marketing of the Company; provided,
however, that no such Transfer shall be of any force or effect or shall be given
effect on the books of the Company unless such Other Purchaser shall deliver to
the Company a written agreement agreeing to be bound by the terms of this
Agreement;
(c) A Transfer upon the death of the Purchaser of all or any portion
of his Vested Management Common Stock to his executors, administrators,
testamentary trustees, legatees or beneficiaries (the "Purchaser's Estate");
provided, however, that no such Transfer shall be of any force or effect or
shall be given effect on the books of the Company unless the Purchaser's Estate
shall deliver to the Company a written agreement agreeing to be bound by the
terms of this Agreement;
(d) Transfer to the executors, administrators, testamentary trustees,
legatees or beneficiaries of a person who has become a holder of all or any
portion of Purchaser's Vested Management Common Stock in accordance with the
terms of this Agreement (a "Transferee"); provided, however, that no such
Transfer shall be of any force or effect or shall be given effect on the books
of the Company unless the Transferee's executors, administrators, testamentary
trustees, legatees or beneficiaries (the "Transferee's Estate") shall deliver to
the Company a written agreement agreeing to be bound by the terms of this
Agreement;
(e) A Transfer made by the Purchaser of all or any portion of the
Management Common Stock made after the date hereof in compliance with the Act
and any applicable state securities laws to the Purchaser's spouse or any member
of his immediate family (father, mother, brother, sister, children or
grandchildren); provided, however, that no such Transfer shall be of any force
or effect or shall be given effect on the books of the Company unless the
Purchaser's spouse or such member of the Purchaser's immediate family shall
deliver to the Company a written agreement agreeing to be bound by the terms of
this Agreement;
(f) A Transfer made by a Transferee of all or any portion of the
Purchaser's Vested Management Common Stock made after the date hereof in
compliance with the Act and any applicable state securities laws to the
Transferee's spouse or any member of his immediate family (father, mother,
brother, sister, children or grandchildren); provided, however, that no such
Transfer shall be of any force or effect or shall be given effect on the books
of the Company unless the Transferee's spouse or such member of the Transferee's
immediate family shall deliver to the Company a written agreement agreeing to be
bound by the terms of this Agreement;
<PAGE> 6
(g) A Transfer made by the Purchaser of all or any portion of the
Management Common Stock made after the date hereof in compliance with the Act
and any applicable state securities laws to a trust or custodianship the
beneficiaries of which include only the Purchaser, his spouse or his lineal
descendants (a "Purchaser's Trust"); provided, however, that no such Transfer
shall be of any force or effect or shall be given effect on the books of the
Company unless the Purchaser's Trust shall deliver to the Company a written
agreement agreeing to be bound by the terms of this Agreement;
(h) A Transfer made by a Transferee of all or any portion of the
Purchaser's Vested Management Common Stock made after the date hereof in
compliance with the Act and any applicable state securities laws to a trust or
custodianship the beneficiaries of which include only a Transferee, the
Transferee's spouse or the Transferee's lineal descendants (a "Transferee's
Trust"); provided, however, that no such Transfer shall be of any force or
effect or shall be given effect on the books of the Company unless the
Transferee's Trust shall deliver to the Company a written agreement agreeing to
be bound by the terms of this Agreement; and
(i) A Transfer made by the Purchaser of all or any portion of the
Purchaser's Management Common Stock to Security Pacific National Bank pursuant
to that certain Guaranty and Security Agreement, dated as of December 12, 1988,
between Security Pacific National Bank and the Purchaser.
From and after the effective date of any Transfer permitted by this
Section 3.2, the Other Purchaser, the Purchaser's Estate, the Transferee's
Estate, the Purchaser's or any Transferee's spouse or immediate family member,
the Purchaser's Trust or the Transferee's Trust, as the case may be, shall be
the Purchaser for all purposes of this Agreement unless the content otherwise
requires.
3.3. Legend. Each certificate representing shares of Management Common
Stock shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). IN ADDITION, THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING REQUIREMENTS
AND TRANSFER RESTRICTIONS SET FORTH IN THAT CERTAIN MANAGEMENT SUBSCRIPTION
AGREEMENT (THE "AGREEMENT") DATED AS OF DECEMBER 12, 1988 (A COPY OF WHICH
IS ON FILE WITH THE SECRETARY OF THE COMPANY) AND MAY BE SUBJECT TO
REPURCHASE BY THE COMPANY, UNDER THE TERMS OF THE AGREEMENT. THEY MAY NOT
BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION COMPLIES WITH THE PROVISIONS OF THE AGREEMENT. EXCEPT AS
OTHERWISE PROVIDED IN THE AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF ANY VESTED SHARES REPRESENTED BY THIS
CERTIFICATE (A 'TRANSFER') MAY BE MADE UNLESS SUCH TRANSFER COMPLIES WITH
SECTION 4.1 OF THE
<PAGE> 7
AGREEMENT AND (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE 'ACT') AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN FURNISHED
WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS
EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE RULES AND
REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS."
3.4. Securities Unregistered. The Purchaser acknowledges that he has been
advised that:
(a) the Management Common Stock has not been registered under the Act
or qualified under the applicable securities laws of any state;
(b) the Management Common Stock must be held indefinitely and the
Purchaser must continue to bear the economic risk of the investment in the
Management Common Stock unless it is subsequently registered under the Act
and qualified under applicable state securities laws or an exemption from
such registration or qualification is available;
(c) it is not anticipated that there will be any public market for
the Management Common Stock;
(d) Rule 144 promulgated under the Act ("Rule 144") is not presently
available with respect to the sales of any securities of the Company, and
the Company has made no covenant to make Rule 144 available (except as
provided in Section 5.2 hereof);
(e) when and if shares of the Management Common Stock may be disposed
of without registration in reliance on Rule 144, such disposition can be
made only in limited amounts in accordance with the terms and conditions of
Rule 144;
(f) if the Rule 144 exemption is not available, public sale without
registration will require compliance with Regulation A promulgated under
the Act or some other exemption under the Act and compliance with
applicable state securities laws;
(g) a restrictive legend in the form heretofore set forth shall be
placed on the certificates representing the Management Common Stock; and
(h) a notation shall be made in the appropriate records of the
Company indicating that the Management Common Stock is subject to
restrictions on transfer and, if the Company should at some time in the
future engage the services of a stock transfer agent, appropriate stock
transfer restrictions will be issued to such transfer agent with respect to
the Management Common Stock.
3.5. Compliance with Rule 144. If any of the shares of the Management
Common Stock are disposed of in accordance with Rule 144 under the Act, the
Purchaser shall deliver to the Company at or prior to the time of such
disposition an executed copy of Form 144 (if
<PAGE> 8
required by Rule 144) and such
other documentation as the Company may reasonably require in connection with
such sale.
3.6. Standstill Agreement. The Purchaser agrees that, if any shares of the
capital stock of the Company are offered to the public pursuant to an effective
registration statement under the Act, the Purchaser will not effect any public
sale or distribution of any shares of Management Common Stock (including a sale
pursuant to Rule 144) not covered by such registration statement during the
ten-day period prior to, and the 90-day period beginning on, the effective date
of such registration statement (and the Company agrees to cause each holder of
its shares of Common Stock purchased from the Company other than in a public
offering to so agree).
3.7. Additional Representations. The Purchaser further represents and
warrants that:
(a) he has been given the opportunity to obtain any information or
documents and to ask questions and receive answers about such documents, the
Company and the business and prospects of the Company which he deems necessary
to evaluate the merits and risks related to his investment in the Management
Common Stock;
(b) his financial condition is such that he can afford to bear the
economic risk of holding the unregistered Management Common Stock for an
indefinite period of time and has adequate means for providing for his current
needs and personal contingencies;
(c) he can afford to suffer a complete loss of his investment in the
Management Common Stock;
(d) all information which he has provided to the Company concerning
himself and his financial position is correct and complete as of the date of
this Agreement and, if there should be any material change in such information
prior sale to the Closing, the Purchaser will immediately furnish such revised
or corrected information to the Company;
(e) he understands and has taken cognizance of to all risk factors
related to the purchase of the Management of Common Stock;
(f) either (i) he has a "preexisting personal or business
relationship" with the Company or any of its officers, directors or controlling
persons, or (ii) by reason of his business or financial experience or the
business or financial experience of his "professional advisors" who are
unaffiliated with, and who are not compensated by, the Company or any affiliate
of the Company, he has the capacity to protect his own interests in connection
with the investment in the Management Common Stock.
For purposes of this Section 3.7(f), a "preexisting personal or
business relationship" includes any relationship consisting of personal or
business contacts of a nature and duration such as would enable a reasonably
prudent person to be aware of the character, business acumen and general
business and financial circumstances of the person with whom such relationship
exists and a "professional advisor" is (a) a person who, as a regular part of
that person's business, is customarily relied upon by others for investment
recommendations or decisions and who is customarily compensated for those
services, (b) an attorney, or (c) a
<PAGE> 9
certified public accountant. The Purchaser must advise the Company of his
designated "professional advisor" in order to rely upon the "professional
advisor" in making the representation set forth in this Section 3.7(f).
(g) This Agreement has been executed and delivered by the Purchaser
and is the valid and binding obligation of the Purchaser, enforceable against
the Purchaser in accordance with its terms, except for (i) the 710 effect of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting the rights of creditors generally,
and (ii) limitations imposed by federal or state law or equitable principles
upon the specific enforceability of any of the remedies, covenants or other
provisions of this Agreement and upon the availability of injunctive relief or
other equitable remedies.
(h) The Purchaser is an officer or key employee of the Company and as
such has a high degree of familiarity with the business, operations, financial
condition and prospects of the Company.
3.8. Covenant Not to Compete. Except as hereinafter provided, if the
Purchaser's employment with the Company is voluntarily terminated, including
resignation, the Purchaser shall not for a period of five years following the
date of the purchase of Purchaser's Unvested Management Common Stock pursuant to
the provisions of Section 4.2(c) hereof, alone or as an employee, creditor,
investor or any entity, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
work for, any business or activity in any county, territory or area where the
Company then conducts its business which is competitive with the business of the
Company as conducted on the date of the purchase of the Purchaser's Unvested
Management Common Stock pursuant to the provisions of Section 4.2(c) hereof.
IV. THE COMPANY'S REPURCHASE RIGHTS AND OBLIGATIONS.
4.1. Right of First Refusal on Management Common Stock. If at any time
after the Closing and prior to any sale of the shares of the Company's Common
Stock pursuant to a registration statement under the Act which has been declared
effective by the Securities Exchange Commission (other than a registration
statement on Form S-8 or any other such form) (a "Public Offering"), the
Purchaser receives a bona fide offer to purchase any or all of his Vested
Management Common Stock (an "Offer") from a third party other than one of the
other Purchasers, including, without limitation, the Vice President of Marketing
of the Company (the "Offeror") which the Purchaser wishes to accept, the
Purchaser shall cause the Offer to be reduced to writing and shall notify the
Company in writing of his wish to accept the offer. The Purchaser's notice shall
contain an irrevocable offer to sell such Vested Management Common Stock to the
Company (in the manner set forth below) at a purchase price equal to the price
contained in, and on the same terms and conditions of, the Offer and shall be
accompanied by a true copy of the offer (which shall identify the Offeror). At
any time within 60 days after the date of the receipt by the Company of the
Purchaser's notice, the Company shall have the right and option to purchase all
of the Vested Management Common Stock covered by the Offer either (A) at the
same price and on the same terms and conditions as the offer or (B) if the Offer
includes any consideration other than cash, then, at the sole option of the
Company, at the equivalent all cash price, determined in good faith by the
Company's Board of Directors, by delivering a
<PAGE> 10
certified bank check or checks in the appropriate amount to the Purchaser
against delivery of certificates or instruments representing the Vested
Management Common Stock so purchased, free and clear of all claims, liens and
encumbrances, appropriately endorsed by the Purchaser. In the event that the
Company is not permitted to purchase all of the Vested Management Common Stock
covered by the Offer as a result of the limitations set forth in Section 7.8
hereof, then, if the Company elects to exercise its right of first refusal as
set forth in this Section 4.1, the Company shall purchase the greatest number of
shares of Vested Management Common Stock covered by the Offer that the Company
can purchase pursuant to Section 7.8 hereof within 60 days after the date of
receipt by the Company of the Purchaser's notice and, in the event the Offeror
is not willing to purchase the remaining shares of Vested Management Common
Stock covered by the Offer, the Company shall purchase such remaining shares at
such time as the provisions of Section 7.8 no longer limit its ability to do so.
Subject to Section 3.1 hereof, if at the end of such 60-day period the
Company has not tendered the purchase price for such shares in the manner set
forth above, the Purchaser may during the succeeding 45-day period sell all of
the Vested Management Common Stock covered by the Offer which the Company has
not elected to purchase pursuant to this Section 4.1 to the Offeror on terms no
less favorable to the Purchaser than those contained in the Offer. No sale may
be made to any Offeror unless the Offeror agrees in writing with the Company to
be bound by the provisions of this Agreement. Promptly after such sale, the
Purchaser shall notify the Company of the consummation thereof and shall furnish
such evidence of the completion and time of completion of such sale and of the
terms thereof as may reasonably be requested by the Company. If, at the end of
45 days following the expiration of the 60-day period for the Company to
purchase the Vested Management Common Stock, the Purchaser has not completed the
sale of such shares as aforesaid, all the restrictions on Transfer contained in
this Agreement shall again be in effect with respect to such Vested Management
Common Stock.
From and after the effective date of any Transfer permitted by this
Section 4.1, the Offeror shall be the Purchaser for all purposes of this
Agreement, other than Section 4.2 hereof.
4.2. Repurchase of the Management Common Stock Upon Termination of
Purchaser's Employment.
(a) Repurchase Upon Involuntary Termination for Cause. Subject to
Section 7.8 hereof, if the Purchaser's active employment with the Company is
involuntarily terminated "for cause" (as hereinafter defined) (a "For Cause
Repurchase Event"), the Company shall (i) be required to repurchase all of the
Unvested Management Common Stock held by the Purchaser, his spouse or immediate
family members or the Purchaser's Trust on the date of the For Cause Repurchase
Event as determined pursuant to Section 2.4 hereof and (ii) have the right and
option, at any time within 60 days of the For Cause Repurchase Event to purchase
all, but not less than, all of the Vested Management Common Stock held by the
Purchaser, his spouse or immediate family members, or the Purchaser's Trust on
the date of such For Cause Repurchase Event, in each case, at a price per share
equal to the Per Share Price.
For purposes of this Section 4.2, a termination "for cause" shall mean
any termination by the Company of the Purchaser's active employment for any of
the following reasons: (i) the Purchaser's conviction of a crime substantially
detrimental to the Company's
<PAGE> 11
business; (ii) the Purchaser's intentional or willful damage of the Company's
business, properties or labor relations; or (iii) the Purchaser's continued
inadequate performance of his duties after receiving written notice thereof from
the Company as determined by a vote of the majority of the Company's directors.
(b) Repurchase Upon Involuntary Termination Without Cause. Subject to
Section 7.8 hereof, if the Purchaser's active employment with the Company is
involuntarily terminated for any reason (other than a termination "for cause"),
including retirement, death, disability or termination without cause (an
"Involuntary Repurchase Event"), the Company shall be required to repurchase (i)
all of the Unvested Management Common Stock held by the Purchaser, his spouse or
immediate family members or the Purchaser's Trust on the date of the Involuntary
Repurchase Event as determined pursuant to Section 2.4 hereof at a price per
share equal to the Per Share Price, and (ii) all, but not less than all, of the
Vested Management Common Stock held by the Purchaser, his spouse and immediate
family members or the Purchaser's Trust on the date of the Involuntary
Repurchase Event as determined pursuant to Section 2.4 hereof at a price per
share equal to the Fair Market Value thereof (as hereinafter defined).
(c) Repurchase Upon Voluntary Termination. Subject to Section 7.8
hereof, if the Purchaser's active employment with the company is voluntarily
terminated, including resignation (a "Voluntary Repurchase Event"), the Company
shall (i) be required to repurchase all of the Unvested Management Common Stock
held by the Purchaser, his spouse or immediate family members or the Purchaser's
Trust on the date of the Voluntary Repurchase Event as determined pursuant to
Section 2.4 hereof at a price per share equal to the Per Share Price and (ii)
have the right and option at any time within 60 days of the Voluntary Repurchase
Event to purchase all, but not less than all, of the Vested Management Common
Stock held by the Purchaser, his spouse or immediate family members or the
Purchaser's Trust on the date of the Voluntary Repurchase Event as determined
pursuant to section 2.4 hereof at a price per share equal to the Fair Market
Value thereof.
(d) Fair Market Value. For purposes of this Section 4.2, the "Fair
Market Value" of each share of Vested Management Common Stock means the value of
such share as agreed to by the Company and the Purchaser. In the event the
Parties cannot in good faith agree on such Fair Market Value within 60 days
following the Involuntary Repurchase Event or the Voluntary Repurchase Event, as
the case may be, the Fair Market Value of each share of Vested Management Common
Stock shall mean the amount per share which would be received with respect to
the Common Stock to be transferred in a sale of all the outstanding Common Stock
in a single transaction to a third party, without deduction for any transfer or
other restrictions on the Common Stock and without regard to the fact that less
than all the outstanding Common Stock is being purchased or sold in the
transaction for which Fair Market Value is to be determined. Such Fair Market
Value shall be based upon an appraisal by an independent appraiser or
independent investment banker selected by the Board of Directors of the Company.
(e) Procedures for Repurchase. The closing of the repurchase of the
any Management Common Stock pursuant to this Section 4.2 (the "Repurchase
Closing") shall take place on the date designated by the Company in a written
notice to the Purchaser, his spouse or immediate family members or the
Purchaser's Trust, as the case may be, which date shall not be
<PAGE> 12
more than sixty (60) days after the For Cause Repurchase Event, the Involuntary
Repurchase Event or the Voluntary Repurchase Event, as the case may be. The
Company will pay for the Management Common Stock to be purchased pursuant to
this Section 4.2 by check payable to the Purchaser, his spouse or immediate
family members, or the Purchaser's Trust, as the case may be; provided, however,
that in the case of a purchase of Vested Management Common Stock pursuant to
clause (ii) of Section 4.2(b) or 4.2(c) hereof, the Company will pay for the
Vested Management Common Stock to be purchased in three equal, annual
installments, commencing on the date of the Repurchase Closing. Any unpaid
balance of the purchase price shall bear interest from the date of the
Repurchase Closing at the lowest rate necessary in order to avoid the imputation
of interest or the creation of original issue discount under the applicable
provisions of the Internal Revenue Code of 1986, as amended from time to time,
and shall be evidenced by an installment note of the Company payable to the
order of Purchaser, his spouse or immediate family members, or the Purchaser's
Trust, as the case may be, in form and substance reasonably satisfactory to the
Company. The Purchaser will deliver certificates or instruments representing the
Management Common Stock so purchased free and clear of all claims, liens and
encumbrances, appropriately endorsed by the Purchaser, his spouse or immediate
family member or the Purchaser's Trust, as the case may be.
(f) Any Management Common Stock purchased by the Company pursuant to
the provisions of this Section 4.2 shall be issued to other members of the
management and key employees of the Company.
V. THE COMPANY'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
5.1. The Company's Representations and Warranties. The Company represents
and warrants to the Purchaser that:
(a) Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California; has all requisite power and authority to own or
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted; and is duly qualified or licensed to do
business as a foreign corporation in good standing in all jurisdictions in which
it owns or leases property or in which the conduct of its business requires it
to so qualify to be licensed, except for such jurisdictions where the failure to
so qualify or be licensed would not have a material adverse effect on the
business or financial condition of the Company.
(b) Authority. The Company has all requisite power and authority to
enter into and perform all of the its obligations under this Agreement, to issue
the shares of Management Common Stock and to carry out the transactions
contemplated hereby.
(c) Due Authorization. The Company has taken all corporate actions
necessary to authorize it to enter into and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This Agreement
is the legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except for (i) the effect upon this Agreement of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting the rights of creditors generally,
and (ii) limitations imposed by federal or state laws or equitable principles
upon the specific
<PAGE> 13
enforceability of any of the remedies, covenants or other provisions of this
Agreement and upon the availability of injunctive relief or other equitable
remedy.
(d) Capitalization. The authorized capital stock of the Company on
the date hereof consists of 4,000 shares of Redeemable Preferred Stock, 14,000
shares of Convertible Preferred Stock and 766,283 shares of Common Stock. Prior
to the issuance of the Management Common Stock described herein, 100 shares of
Common Stock and no shares of either series of Preferred Stock were issued and
outstanding. When certificates evidencing the Management Common Stock to be
purchased by the Purchaser have been delivered against payment therefor as
provided herein, such shares shall be duly authorized, validly issued, fully
paid and nonassessable.
Except for the Convertible Preferred Stock, the Warrant, dated
December 12, 1988, in favor of Security Pacific National Bank, the Warrant
Purchase Agreement, dated as of December 12, 1988, between the Company and
Security Pacific National Bank and the Option Agreement, dated as of December
22, 1988, between Donald W. Jones, M.D. and Julie E. Jones, (i) there are no
outstanding subscriptions, warrants, options, calls or commitments of any
character relating to or entitling any person to purchase or otherwise acquire
any capital stock of the Company, and (ii) there are no obligations or
securities convertible into or exchangeable or exercisable for shares of any
capital stock of the Company or any commitments of any character relating to or
entitling any person to purchase or otherwise acquire any such obligations or
securities. Except pursuant to that certain Registration Rights Agreement, dated
as of December 12, 1988, between the Company, FICI, BSP and Security Pacific
National Bank (the "Registration Rights Agreement") and Section 6 of this
Agreement, the Company has not entered into any agreement to register its
securities under the Act.
5.2. Rule 144. The Company agrees that if and after it has filed a
registration statement pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") relating to any
class of equity securities of the Company, it will use its best efforts to file
in a timely manner all reports required to be filed by it pursuant to the
Exchange Act and, upon the request of the Purchaser, will furnish Purchaser with
such information as may be necessary to enable the Purchaser to effect routine
sales pursuant to Rule 144 under the Act or any similar rule or regulation
hereafter adopted by the Securities and Exchange Commission. Notwithstanding
anything to the contrary contained in this Section 5.2, the Company may
deregister under Section 12 of the Exchange Act if it is then permitted to do so
pursuant to the Exchange Act and the rules and regulations thereunder.
VI. "PIGGYBACK" REGISTRATION RIGHTS
6.1. Right to Piggy-Back for Vested Management Common Stock. If at any time
the Company proposes to file a registration statement under the Act with respect
to its Common Stock or securities convertible or exchangeable into its Common
Stock (other than a registration statement (i) on Form S-8 or any successor form
to such Form or (ii) filed in connection with an exchange offer or an offering
of its Common Stock or of securities convertible or exchangeable into its Common
Stock made solely to its existing stockholders in connection with a rights
offering or solely to employees of the Company), whether or not for its own
account including pursuant to a demand registration under the Registration
Rights Agreement (an "Investor
<PAGE> 14
Demand"), then the Company shall give written notice of such proposed filing to
the Purchaser at least 15 days before the anticipated filing date. Such notice
shall offer the Purchaser the opportunity to register such amount of Vested
Management Common Stock as the Purchaser may request (a "Piggyback
Registration"). Subject to Section 6.2 hereof, the Company shall include in each
such Piggyback Registration all Vested Management Common Stock of the Purchaser
with respect to which the Company received a written request for inclusion
therein within 10 days after notice has been duly given the Purchaser.
6.2. Priority on Piggyback Registrations. The Company shall cause the
managing underwriter or underwriters of a proposed underwritten offering to
permit the Purchaser to include all Vested Management Common Stock requested to
be included in the Piggyback Registration in such offering on the same terms and
conditions as the other Common Stock of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering deliver(s) a written opinion to the Purchaser that the total
number of securities which the Purchaser, the Company, and any other persons or
entities having registration rights, intend to include in such offering is such
as to materially and adversely affect the success of such offering, then (i) if
the Piggyback Registration is an Investor Demand the Registration Expenses (as
defined in the Registration Rights Agreement) for which are being paid by the
Company, the number of securities to be offered in the Piggyback Registration
for the account of all persons and entities, including the Company (other than
the FICI, BSP and Security Pacific National Bank) shall be reduced or limited
pro rata in proportion to the respective number of securities requested to be
included in such registration to the extent necessary to reduce the total number
of securities to be included in such offering to the number recommended by such
managing underwriter or underwriters and (ii) in all other cases, the number of
securities to be offered in the Piggyback Registration for the account of all
persons and entities (other than the Company) shall be reduced or limited pro
rata in proportion to the respective number of securities required to be
registered to the extent necessary to reduce the total number of securities to
be included in such offering to the number recommended by such managing
underwriter or underwriters.
VII. MISCELLANEOUS
7.1. Purchaser's Employment by Company. Nothing contained in this Agreement
or in any other agreement entered into by the Company and the Purchaser
contemporaneously with the execution of this Agreement (i) obligates the Company
to employ the Purchaser in any capacity whatsoever or (ii) prohibits or
restricts the Company from terminating the employment, if any, of the Purchaser
at any time or for any reason whatsoever, with or without cause, and the
Purchaser hereby acknowledges and agrees that neither the Company nor any other
person has made any representations or promises whatsoever to the Purchaser
concerning the Purchaser's employment or continued employment by the Company.
7.2. State Securities Laws. The Company hereby agrees to use its best
efforts to comply with all state securities or "blue sky" laws which might be
applicable to the sale of the Management Common Stock. Notwithstanding the
foregoing, this Agreement shall have no force or effect if the Company is unable
to comply with such laws.
<PAGE> 15
7.3. Binding Effect. The provisions of this Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective heirs, legal
representatives, successors and assigns.
7.4. Amendment. This Agreement may be amended only by a written instrument
signed by the Parties hereto which specifically states that it is amending this
Agreement.
7.5. Applicable Law. The laws of the state of California shall govern the
interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be implied under principles of conflicts of
law.
7.6. Notices. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid, to the Party to whom it is directed:
(a) If to the Company, to it at:
2 Goodyear
Irvine, CA 92718
Attention: Secretary
with a copy to:
Latham & Watkins
650 Town Center Drive
Twentieth Floor
Costa Mesa, CA 92626
Attn: Jeffrey T. Pero, Esq.
(b) If to the Purchaser, to him at the address set forth below under
his signature; or at such other address as either Party shall have specified by
notice in writing to the other.
7.7. Payment for Management Common Stock by the Company. If at any time the
Company purchases Management Common Stock from the Purchaser hereunder and the
Purchaser is indebted to the Company or otherwise has any liquidated or
unliquidated liability of any nature whatsoever to the Company in any amount
whatsoever, the Company may, at its sole election, apply all (or part of) such
indebtedness or liability, including any interest accrued thereon, to the
purchase price of the shares of Management Common Stock.
7.8. Limitations on Exercisability of the Company's Repurchase Rights and
Obligations. Notwithstanding anything to the contrary contained in Article IV,
the Company may not purchase shares of Management Common Stock from the
Purchaser if at such time there exists or is continuing a default by the Company
under any mortgage, indenture or instrument
<PAGE> 16
under which there may be secured or evidenced any indebtedness of the Company or
any other material agreements of the Company, or if such purchase would result
in a default by the Company under any such agreement, an impairment of the
capital of the Company, the capital of the Company is then impaired or such
purchase would otherwise violate the California Corporations Code.
7.9. Rights to Negotiate Purchase Price. Nothing in this Agreement shall be
deemed to restrict or prohibit the Company from purchasing shares of Management
Common Stock from the Purchaser, at any time, upon such terms and conditions,
and for such price, as may be mutually agreed upon between the Parties, whether
or not at the time of such purchase circumstances exist which specifically grant
the Company the right, or obligate the Company, to purchase shares of Management
Common Stock under the terns of this Agreement.
7.10. Covenant Regarding 83(b) Election. Purchaser hereby covenants and
agrees that he will make the election provided pursuant to Treasury Regulation
1.83-2 with respect to the Management Common Stock; and Purchaser further
covenants and agrees that he will furnish the Company with copies of the forms
of election the Purchaser files within 30 days after the date hereof, and with
evidence that each such election has been filed in a timely manner.
7.11. Notice of Change of Beneficiary. Immediately prior to any Transfer of
Management Common Stock to a Purchaser's Trust or a Transferee's Trust, the
Purchaser or the Transferee, as the case may be, shall provide the Company with
a copy of the instruments creating the Purchaser's Trust or the Transferee's
Trust, as the case may be, and with the identity of the beneficiaries of the
Purchaser's Trust or the Transferee's Trust, as the case may be. The Purchaser
or Transferee, as the case may be, shall notify the Company immediately prior to
any change in the identity of any beneficiary of the Purchaser's Trust or the
Transferee's Trust, as the case may be; provided, however, that no such change
in the identity of any beneficiary shall be permitted unless a Transfer to the
Purchaser's Trust or the Transferee's Trust, as the case may be, containing such
new beneficiary would be permitted by Section 3.2 hereof.
7.12. Expiration of Agreement. This Agreement shall terminate and be of no
further force or effect with respect to any shares of Management Common Stock
sold by the Purchaser pursuant to an effective registration statement filed by
the Company pursuant to Article VI hereof or in compliance with Rule 144.
7.13. Recapitalizations, etc. The provisions of this Agreement shall apply,
to the full extent set forth herein with respect to the Management Common Stock,
to any and all shares of capital stock of the Company or any capital stock,
partnership units or any other security evidencing ownership interests in any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Management Common Stock, by reason of any stock dividend,
split, reverse split, combination, recapitalization, liquidation,
reclassification, merger, consolidation or otherwise.
7.14. Assignment. No Party shall have the right, without the prior written
consent of the other Party to sell, assign, mortgage, pledge or otherwise
transfer any interest or right created hereby; provided, however, that the
Company shall have the right to assign its rights or
<PAGE> 17
obligations to purchase any of the Management Common Stock under Article IV
hereof to one or more persons or entities without the consent of the Purchaser
or any other person. This Agreement is made solely for the benefit of the
Parties hereto, and no other person shall acquire or have any right under this
Agreement.
SIGNATURE PAGE
IN WITNESS HEREOF, the Parties have executed this Agreement as of the date
first above written.
The Company: TOXI-LAB, INC.
By: /s/ C. Michael O'Donnell
------------------------------------
Its: President
------------------------------------
The Purchaser: WILFORD DOWNS
/s/
------------------------------------
Address of Purchaser:
25551 Goldensprings Dr.
----------------------------------------
Dana Point, CA 92629
----------------------------------------
Consent and Ratification of Spouse
The undersigned, the spouse of __________________, a party to the attached
Management Subscription Agreement (the "Agreement"), dated as of December 12,
1988, hereby consents to the execution of the Agreement by such party; and
ratifies, approves, confirms and adopts the Agreement, and agrees to be bound by
each and every term and condition thereof as if the undersigned had been a
signatory to the Agreement, with respect to the Management Common Stock (as
defined in the Agreement) made the subject of the Agreement in which the
undersigned has an interest, including any community property interest.
Date:
------------------------ ----------------------------------------
<PAGE> 18
SCHEDULE I
<TABLE>
<CAPTION>
Number of Aggregate
Shares Purchase Price
--------- --------------
<S> <C> <C>
Wilford Downs 33,793 $33,793
</TABLE>
<PAGE> 19
PROPRIETARY INFORMATION AGREEMENT
This Proprietary Information Agreement (the "Agreement") is entered into
this _____ day of ____________, 1998_ , between Toxi-Lab, Inc., a California
corporation (the "Company"), and ______________________________ ("Employee").
RECITALS
A. Employee desires to be employed by the Company and the Company desires
to employ Employee.
B. Employee will be employed by the Company in a capacity in which
Employee will receive or have access to information which Employee and the
Company acknowledge is confidential and not generally known outside the Company.
Employee and the Company also expect Employee, as part of his or her job duties
with the Company, to develop or contribute to new ideas and improvements which
will be confidential, not generally known outside the Company, and Proprietary
Information (as hereinafter defined) owned solely by the Company.
C. Employee understands that by entering into this Agreement and/or
working for the Company, Employee will learn of, have access to, or develop
confidential and Proprietary Information of the kind referred to generally in
paragraph B, above.
D. Employee further understands that by accepting the benefits of
employment with the Company, Employee assumes the obligations set forth herein
and recognizes that those obligations apply not only to the period of employment
with the Company but also after the employment relationship has ended. Employee
understands that such continuing obligations right limit Employee's ability to
obtain employment with other employers who engage in businesses similar to that
of the Company and who would employ Employee in a capacity that would undermine
or threaten the confidentiality of the proprietary and confidential information
referred to in this Agreement.
WHEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Company and Employee understand and agree to the following:
I
DEFINITION
In this Agreement, the terms listed below shall have the following
meanings:
1.1 "Company" means Toxi-Lab, Inc., a California corporation, and any
other business entity owning, owned by, or otherwise affiliated with Toxi-Lab,
Inc.
1.2 "Employee" has the meaning assigned to such term in the recitals
hereto.
1.3 "Proprietary Information" means all information disclosed to Employee
or known by Employee as a consequence of or through Employee's employment by the
company (including information belonging to third parties in the Company's
possession and information
<PAGE> 20
EXHIBIT A
conceived, originated, discovered or developed by Employee), whether or not in
Employee's primary field of professional interest, not generally known in the
trade or industry in which such information is used, about the Company's (or
third parties') products, processes, services and customers, including, without
limitation, information relative to research, development, Inventions,
manufacture, purchasing, engineering, and business studies, practices, and
finances. It shall not include any information which is in the possession of
Employee from a source other than the Company as established by the written
records of Employee.
1.4 "Inventions" means inventions, discoveries, plans, sketches, drawings,
models, figures, work-in-progress, concepts and ideas, whether patentable or
not, and whether or not protected by copyright or trade secret, including but
not limited to processes, methods, formulas, and techniques, as well as
improvements thereof or know-how related thereto.
II
GENERAL
2.1 Employee understands that this Agreement is a condition to his or her
employment with the Company, and that the sole consideration for his or her
obligations under this Agreement is his or her salary and other benefits of
employment with the Company. Employee agrees never to assert any claim for other
or different consideration for performance of his obligations under this
Agreement. Employee understands that his or her employment with the Company is
terminable at will unless otherwise provided in writing, and that this Agreement
is not intended to be an agreement of employment.
2.2 Employee understands that his or her employment involves a high degree
of trust and confidence, that he or she is employed for the purpose of making
Inventions and improvements in the Company's products, processes and operations,
that in executing this Agreement Employee undertakes obligations in addition to
those obligations which are imposed or implied by law, and certifies that he or
she knowingly or voluntarily undertakes the obligations set forth in this
Agreement.
III
INVENTIONS
3.1 With respect to (i) Inventions made or conceived by Employee, whether
or not during Employee's hours of employment or with the use of the Company's
equipment, facilities, materials, trade secrets or personnel, either solely or
jointly with another or others, during the period of Employee's employment with
the Company which (w) have any applicability to any aspect of the work engaged
in by Employee as an Employee of the Company, (x) were derived from Proprietary
Information which Employee received from the Company, as determined by the
Company, (y) have been incorporated or utilized or may hereafter be incorporated
or utilized by the Company in the manufacture, use or sale of the Company's
products or (z) relate to the business of the Company or to the Company's actual
or demonstrably anticipated research or development, and (ii) inventions made or
conceived by Employee solely or jointly after
<PAGE> 21
termination of Employee's employment based on or related to Proprietary
information, without royalty or any other consideration to Employee therefor:
(a) Employee shall inform officials designated by the Company to
receive disclosures promptly and fully of such Inventions by a written report,
setting forth in detail necessary to permit the Company to understand said
Inventions and practice then without the exercise of further inventive skill,
the procedures employed and the results achieved. A report will be submitted by
Employee upon completion of any and all studies or research projects undertaken
on the Company's behalf, whether or not in Employee's opinion a given project
has resulted in an Invention.
(b) Employee shall apply, at the Company's request and expense, for
United States and foreign letters patent either in Employee's name or otherwise
as the Company shall desire.
(c) Employee shall assign and hereby does assign to the Company all
of Employee's rights to such Inventions, and to applications for United States
and/or foreign letters patent and to United States and/or foreign letters patent
granted upon such Inventions.
(d) Employee shall acknowledge and deliver promptly to the Company
without charge to the Company (beyond Employee's regular salary or, if after
employment, at a rate equal thereto), but at the Company's expense such written
instruments and shall do such other lawful acts, such as giving testimony in
support of inventorship, as may be necessary in the opinion of the company to
obtain and maintain United States and/or foreign letters patent and to vest the
entire right and title thereto in the Company.
3.2 Employee shall grant and hereby grants the Company the royalty-free
right to use in its business, to keep as a trade secret of the Company, and to
use, make and sell products, processes, and/or services derived from any
Inventions, conceived or made by Employee during the period of Employee's
employment with the Company, which are not within the scope of Inventions
described in Section 3.1 hereof, but which are conceived or made by Employee (i)
during the hours which Employee is employed or retained by Company or (ii) with
the use or assistance of the Company's facilities, materials, or personnel.
3.3 For purpose of this Article III, an Invention is deemed to have been
made during the period of Employee's employment with the Company if, during such
period, the Invention was conceived or first actually reduced to practice.
Employee agrees that any patent application filed within a year after
termination of his or her employment shall be presumed to relate to an Invention
which was made during the period of his or her employment with the Company
unless he or she provides evidence to the contrary.
3.4 Notwithstanding anything in this Article III to the contrary, this
Agreement does not apply to any Invention that qualifies fully under the
provisions of the California Labor Code Section 2870, which reads in pertinent
part as follows:
"Any provision in an employment agreement which provides that an
employee shall assign or offer to assign any of his or her
<PAGE> 22
rights in an invention to his or her employer shall not apply to an
invention for which no equipment, supplies, facility, or trade secret
information of the employer was used and which was developed entirely
on the employee's own time, and (a) which does not relate (1) to the
business of the employer or (2) to the employer's actual or
demonstrably anticipated research or development, or (b) which does
not result from any work performed by the employee for the employer."
IV
PROPRIETARY INFORMATION
4.1 Except as required in Employee's duties to the Company, or as
authorized in writing by the management of the Company or its designated
representative, Employee shall never during or after his or her employment,
directly or indirectly, or otherwise use, disseminate, disclose, lecture upon or
publish articles concerning any Proprietary Information, or use for Employee's
or another's benefit or deliver to another any document, record, notebook, file,
computer program, sketch or similar repository of or containing Proprietary
Information, unless or until such Proprietary Information may become a matter of
public knowledge through no fault of Employee or unless otherwise required to
comply with law or with a request of a governmental or regulatory agency.
4.2 Upon termination of Employee's employment with the Company, all
documents, records, notebooks, files, computer programs, sketches and similar
repositories of or containing Proprietary Information, including all copies
thereof, then in Employee's possession or control whether prepared by Employee
or others, will be left with or returned to the Company.
V
CONTINUING OBLIGATIONS AND PRIOR INVENTIONS
5.1 Except as listed by annexation to this Agreement, Employee has no
outstanding obligations to any party, and Employee shall not assert any rights
under any Inventions, as having been made or acquired by Employee prior the
commencement of Employee's period of employment with the Company or since then,
and not otherwise covered by the terms of this Agreement.
5.2 Employee understands that he or she is expected to honor any prior
obligations Employee may have with respect to Proprietary Information which
Employee possesses and Employee agrees not to disclose to the Company or use any
proprietary Information or trade secrets belonging to any third party.
VI
CONTINUITY OF OBLIGATIONS
<PAGE> 23
All of Employee's obligations under this Agreement shall be binding upon
Employee's heirs, assigns, and legal representatives.
VII
INJUNCTIVE RELIEF
7.1 Employee acknowledges that the Company would not have any adequate
remedy at law for the material breach of any one or more of the provisions set
forth in this Agreement by Employee or these affiliated with Employee.
7.2 In addition to other remedies which the Company may have under this
Agreement, Employee agrees that in the event a breach of this Agreement is
threatened or takes place the Company shall be entitled to obtain a temporary
restraining order and preliminary and permanent Injunction against Employee to
restrain such breach or threatened breach.
VIII
APPLICABLE LAW AND SEVERABILITY
8.1 This Agreement shall be construed in accordance with and governed for
all purposes by the law of the State of California applicable to contracts made
and to be performed in that state, excluding any choice of law principles which
direct the application of the laws of another jurisdiction.
8.2 In case any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. If, moreover, any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to time,
duration, activity or subject, it shall be construed, by limiting and reducing
it, so as to be enforceable to the extent compatible with the applicable law as
it shall then appear.
IX
ASSIGNMENT
This Agreement shall be assignable by the Company to any successor or to
any other Company owned or controlled by the Company, and shall be binding upon
Employee. This Agreement, being personal to the Employee, shall not be
assignable by the Employee.
X
AUTHORITY
<PAGE> 24
Employee represents and warrants to the Company that Employee has full
right and authority to enter into this Agreement and has no legal obligations
inconsistent with the terms of this Agreement.
XI
MODIFICATION
This Agreement constitutes the full and complete understanding and
agreement between the parties relating to the subject matter contained herein
and supersedes and replaces any existing Agreement, written or otherwise,
entered into between the parties relating generally to the same subject matter.
The terms set forth in this Agreement may not be modified in any way except by a
written agreement signed by Employee and by an authorized representative of the
Company which expressly states the intention of the parties to modify the terms
of this Agreement.
XII
NON WAIVER OF RIGHTS
All waivers hereunder must be made in writing, and failure at any time to
require the other party's performance of any obligation under this Agreement
shall not affect the right subsequently to require performance of that
obligation. Any waiver of any breach of any provision of this Agreement shall
not be construed as a waiver of any continuing or succeeding breach of such
provision or as a waiver or modification of the provision.
XIII
FURTHER ASSURANCES
The parties hereto shall each perform such acts, execute and deliver such
instruments and documents, and do all such other things as may be reasonably
necessary to accomplish the purposes of this Agreement.
XIV
SUBJECT HEADINGS
The subject headings of this Agreement are included for the purposes of
convenience only, and shall not affect the construction or interpretation of any
of its provisions.
XV
EXECUTION
This Agreement supersedes and replaces any existing agreement, written or
otherwise, entered into by me relating generally to the same subject matter.
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TOXI-LAB, INC.
By:
---------------------------------- ----------------------------------------
Title: ----------------------------------------
PRIOR INVENTIONS
Annex a complete list of all Inventions which are to be excluded from the
obligations of this Agreement.
Number of pages annexed hereto: ____ (____________________)
Initials of Employee
<PAGE> 26
FIRST AMENDMENT TO MANAGEMENT SUBSCRIPTION AGREEMENT
This First Amendment to Management Subscription Agreement is made
and entered into to as of the 23rd day of March, 1992, between Toxi-Lab, Inc., a
California corporation ("Toxi-Lab" or the "Company") and the persons whose
signatures appear below (the "Shareholders").
RECITALS
A. The Shareholders constitute all the current shareholders of
the Company who are parties to that certain Management Subscription Agreement
dated December 12, 1988 by and among the Company and such shareholders, as
amended (the "Management Subscription Agreement").
B. The Company is in the process of obtaining a loan from
Greyhound Financial Corporation, a Delaware corporation ("GFC") in the aggregate
principal amount of approximately $2,500,000 (the "Loan").
C. As a condition to the making of the Loan, GFC has required a
pledge by the Shareholders of 100% of the voting common stock of the Company
held or acquired in the future by the Shareholders.
D. The parties hereto desire to amend the Management Subscription
Agreement in order to permit the Shareholders to pledge their stock as security
for the Loan and to enter into and perform such other documents and agreements
as may be necessary or advisable in facilitating the Loan.
<PAGE> 27
AGREEMENT
NOW THEREFORE, in order to implement the foregoing and in consideration of
the mutual agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Parties agree as follows:
1. Paragraph 3.2(i) is deleted in its entirety and in its place is
inserted the following:
"(i) A Transfer made by the Purchaser of all or any portion of the
Purchaser's Management Common Stock, or any interest therein, to GFC pursuant to
that certain Pledge Agreement dated as of March __, 1992 between GFC and the
Purchaser."
2. Except as expressly amended and modified herein, the Company and the
Shareholders ratify and confirm the Management Subscription Agreement, as
amended, in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
TOXI-LAB, INC., a California
corporation
----------------------------------------
D. Adams
By:
---------------------------------
----------------------------------------
Its: Michael A. Beeuwsaert
---------------------------------
- -------------------------------------- ----------------------------------------
C. Michael O'Donnell Stephen Schultheis
- -------------------------------------- ----------------------------------------
C. Downs Lorna A. Gamboa
2
<PAGE> 28
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared C. Michael O'Donnell, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared C. Downs, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their authorized signature(s) on the instrument the person(s), or the
entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
3
<PAGE> 29
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared J. Adams, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their authorized signature(s) on the instrument the person(s), or the
entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Michael A. Beeuwsaert, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
4
<PAGE> 30
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Stephen Schultheis, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Lorna A. Gamboa, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
5
<PAGE> 31
SECOND AMENDMENT TO MANAGEMENT SUBSCRIPTION AGREEMENT
This Second Amendment to Management Subscription Agreement is
made and entered into to as of the 27th day of October, 1993, between Ansys,
Inc., a California corporation (formerly Toxi-Lab, Inc., a California
corporation) ("Ansys" or the "Company"), and the persons whose signatures appear
below (the "Shareholders").
RECITALS
A. The Shareholders constitute all the current shareholders of the Company
who are parties to that certain Management Subscription Agreement dated December
12, 1988 by and among the Company and such shareholders, as amended (the
"Management Subscription Agreement").
B. The Company is in the process of obtaining a loan from Independence One
Bank of California, a federally chartered stock savings bank ("Lender") in the
aggregate principal amount of approximately $1,500,000 (the "Loan").
C. As a condition to the making of the Loan, Lender has required a pledge
by the Shareholders of 100% of the voting common stock of the Company held or
acquired in the future by the Shareholders.
D. The parties hereto desire to amend the Management Subscription Agreement
in order to permit the Shareholders to pledge their stock as security for the
Loan and to enter into and perform such other documents and agreements as may be
necessary or advisable in facilitating the Loan.
<PAGE> 32
AGREEMENT
NOW THEREFORE, in order to implement the foregoing and in consideration of
the mutual agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Parties agree as follows:
1. Paragraph 3.2(i) is deleted in its entirety and in its place is
inserted the following:
"(i) A Transfer made by the Purchaser of all or any portion of the
Purchaser's Management Common Stock, or any interest therein, to secure
indebtedness of the Company."
2. Except as expressly amended and modified herein, the Company and the
Shareholders ratify and confirm the Management Subscription Agreement, as
amended, in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
----------------------------------------
ANSYS, INC., a California Darrell J. Adams
corporation
----------------------------------------
By: Michael A. Beeuwsaert
---------------------------------
Its: ----------------------------------------
--------------------------------- Stephen Schultheis
- ------------------------------------- ----------------------------------------
C. Michael O'Donnell Lorna A. Gamboa
- -------------------------------------
Wilford C. Downs
2
<PAGE> 33
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared C. Michael O'Donnell, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Wilford C. Downs, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
3
<PAGE> 34
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Darrell J. Adams, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Michael A. Beeuwsaert, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
4
<PAGE> 35
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Stephen Schultheis, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Lorna A. Gamboa, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
5
<PAGE> 36
THIRD AMENDMENT TO MANAGEMENT SUBSCRIPTION AGREEMENT
This Third Amendment to Management Subscription Agreement is made and
entered into to as of the 17th day of August, 1998, between Ansys Diagnostics,
Inc., a California corporation (formerly Ansys, Inc., a California corporation,
and Toxi-Lab, Inc., a California corporation) ("Ansys" or the "Company"), and
the persons whose signatures appear below (the "Shareholders").
RECITALS
A. The Shareholders constitute all the current shareholders of the
Company who are parties to that certain Management Subscription Agreement dated
December 12, 1988 by and among the Company and such shareholders, as amended
(the "Management Subscription Agreement"), and who are currently employed by the
Company.
B. The parties hereto desire to amend the Management Subscription
Agreement in order to modify the circumstances under which the Company is
obligated to purchase and the Shareholders are obligated to sell their common
stock in the Company.
AGREEMENT
NOW THEREFORE, in order to implement the foregoing and in consideration of
the mutual agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Parties agree as follows:
1. Section 4.2 of the Management Subscription Agreement is hereby
deleted in its entirety.
<PAGE> 37
2. Except as expressly amended and modified herein, the Company and the
Shareholders ratify and confirm the Management Subscription Agreement, as
amended, in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
ANSYS DIAGNOSTICS, INC., a
California corporation
By:
----------------------------------
Stephen K. Schultheis
Its: President
By:
----------------------------------
Suzanne David
Its: Secretary
- -------------------------------------
Wilford C. Downs
- -------------------------------------
Darrell J. Adams
- -------------------------------------
Lorna A. Gamboa
2
<PAGE> 38
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Wilford C. Downs, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Darrell J. Adams, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
3
<PAGE> 39
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ___________________________, before me, ________________________, Notary
Public, personally appeared Lorna A. Gamboa, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity on behalf of which the person(s) acted, executed the instrument.
----------------------------------------
NOTARY PUBLIC
(seal)
4
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
1. ANSYS International, Inc., a Virgin Islands foreign sales corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF MCGLADREY & PULLEN, LLP, INDEPENDENT AUDITORS
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Stagement on Form S-1 of our
report, dated January 29, 1999, relating to the consolidated financial
statements of Ansys Diagnostics, Inc. and Subsidiary. We also consent to the
reference to our Firm under the captions "Experts" and "Selected Financial Data"
in the Prospectus.
MCGLADREY & PULLEN, LLP
Anaheim, California
February 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from ANSYS
Diagnostics, Inc. and Subsidiary Consolidated Financial Statements as of
December 31, 1998 and is qualified in its entirety by reference to such Form S-1
Registration Statement of ANSYS Diagnostics, Inc.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,176,000
<SECURITIES> 0
<RECEIVABLES> 2,113,000
<ALLOWANCES> 20,000
<INVENTORY> 1,581,000
<CURRENT-ASSETS> 7,430,000
<PP&E> 6,049,000
<DEPRECIATION> 1,850,000
<TOTAL-ASSETS> 11,891,000
<CURRENT-LIABILITIES> 2,377,000
<BONDS> 1,894,000
0
0
<COMMON> 0
<OTHER-SE> 7,664,000
<TOTAL-LIABILITY-AND-EQUITY> 11,891,000
<SALES> 18,964,000
<TOTAL-REVENUES> 18,964,000
<CGS> 9,703,000
<TOTAL-COSTS> 9,703,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,000
<INCOME-PRETAX> 4,466,000
<INCOME-TAX> 1,775,000
<INCOME-CONTINUING> 2,691,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,691,000
<EPS-PRIMARY> 1.33
<EPS-DILUTED> .45
</TABLE>
