<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File
June 30, 1996 No. 1-9767
----------------------
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2579751
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
9162 Eton Ave., Chatsworth, California 91311
(Address of principal executive offices) (Zip Code)
Telephone Number: 818-709-1244
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------------- ---------
The number of shares of Common Stock of the registrant outstanding as of
August 6, 1996 was 6,470,951.
<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
INDEX TO FORM 10-Q
Three and six months ended June 30, 1996 and 1995
PAGE
----
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations. . . . . . . . . . . . 3 & 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . .13
PART 2 - OTHER INFORMATION
ITEM 1 - Legal Proceedings. . . . . . . . . . . . . . . . . .21
ITEM 5 - Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . .21
ITEM 6 - Exhibits And Reports on Form 8-K
(a) Exhibits . . . . . . . . . . . . . . . . . . . . . . . .21
(b) Reports on Form 8-K. . . . . . . . . . . . . . . . . . .23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
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PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 June 30
A S S E T S 1995 1996
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,511,395 $1,228,504
Short-term investments 4,736,727 2,635,900
Accounts receivable-trade, net of allowance for doubtful
accounts of $87,759 in 1995 and 1996 3,402,007 4,696,226
Accounts receivable-service contracts 481,367 621,860
Accounts receivable-other 407,245 244,321
Inventories 2,869,813 3,954,626
Prepaid expenses and other current assets 238,683 341,866
Deferred tax asset 800,900 800,900
---------- -----------
Total current assets 14,448,137 14,524,203
Property and equipment, at cost, net of accumulated
depreciation 995,044 1,387,921
Software development costs, net of accumulated
amortization of $667,425 in 1995 and $694,628 in 1996 298,030 558,440
Long term investments 100,000 --
Deferred warrant costs 1,574,780 1,493,740
Deferred tax asset 3,594,100 3,594,100
Other assets 1,460,157 2,117,819
--------- ----------
Total assets $22,470,248 $23,676,223
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 810,819 $ 1,469,542
Notes payable 185,633 --
Accrued expenses 1,276,099 901,566
Service contracts-deferred income 710,907 722,490
---------- -----------
Total current liabilities
2,983,458 3,093,598
Notes payable - long term portion 125,000 --
Service contracts-deferred income 190,045 216,601
---------- -----------
Total liabilities 3,298,503 3,310,199
---------- -----------
Shareholders' equity:
Common stock, $.01 par value
Authorized: 15,600,000 shares
Issued and outstanding: 6,292,408 in 1995
6,377,805 in 1996 62,924 63,778
Additional paid-in capital 34,154,116 34,469,313
Treasury stock (96,473 shares in 1995 and
84,462 shares in 1996) (453,386) (377,980)
Unearned compensation (95,884) (160,531)
Accumulated deficit (14,496,025) (13,628,556)
-------------- --------------
Total shareholders' equity 19,171,745 20,366,024
------------- --------------
Total liabilities and shareholders' equity $ 22,470,248 $ 23,676,223
------------- --------------
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
June 30, 1995 June 30, 1996
------------- -------------
<S> <C> <C>
Sales of IVD imaging systems $1,337,966 $ 1,283,476
Sales of IVD imaging system supplies and services 1,622,000 2,152,499
Sales of small instruments and supplies 755,917 1,348,470
---------- ------------
Net sales 3,715,883 4,784,445
---------- ------------
Cost of goods from IVD imaging systems 510,803 598,810
Cost of goods from IVD imaging system supplies and services 814,406 1,065,048
Cost of goods from small instruments and supplies 481,810 670,027
---------- ------------
Cost of goods sold 1,807,019 2,333,885
---------- ------------
Gross margin 1,908,864 2,450,560
Marketing and selling expenses 714,092 879,954
General and administrative expenses 518,848 769,987
Research and development expenses, net 487,676 321,121
Acquisition of in-process research and development 3,175,645 --
---------- ------------
Total operating expenses 4,896,261 1,971,062
---------- ------------
Operating income (loss) (2,987,397) 479,498
Other income (expense):
Interest income 72,796 76,841
Interest expense (18,309) --
Other income 32,720 3,912
---------- ------------
Income (loss) before provision for income taxes (2,900,190) 560,251
Provision for income taxes 16,300 135,000
---------- ------------
Net income (loss) $ (2,916,490) $ 425,251
-------------- ----------
-------------- ----------
Net income (loss) per share ($.53) $.06
------ ----
------ ----
Weighted average number of common shares and common
share equivalents outstanding for the period 5,529,772 6,920,567
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
------------------------
June 30, 1995 June 30, 1996
------------- -------------
<S> <C> <C>
Sales of IVD imaging systems $ 2,150,323 $ 2,593,090
Sales of IVD imaging system supplies and services 3,167,241 4,166,294
Sales of small instruments and supplies 1,565,596 2,369,632
--------- ---------
Net sales 6,883,160 9,129,016
--------- ---------
Cost of goods from IVD imaging systems 942,015 1,121,822
Cost of goods from IVD imaging system supplies and services 1,579,246 2,166,156
Cost of goods from small instruments and supplies 917,227 1,206,674
--------- ---------
Cost of goods sold 3,438,488 4,494,652
--------- ---------
Gross margin 3,444,672 4,634,364
Marketing and selling expenses 1,354,069 1,674,364
General and administrative expenses 947,008 1,489,308
Research and development expenses, net 663,990 591,224
Acquisition of in-process research and development 3,175,645 --
--------- ---------
Total operating expenses 6,140,712 3,754,896
--------- ---------
Operating income (loss) (2,696,040) 879,468
Other income (expense):
Interest income 175,014 136,640
Interest expense (36,619) (5,366)
Other income 66,949 31,727
---------- ---------
Income (loss) before provision for income taxes (2,490,696) 1,042,469
Provision for income taxes 28,300 175,000
---------- ---------
Net income (loss) $ (2,518,996) $ 867,469
-------------- -----------
-------------- -----------
Net income (loss) per share ($.46) $.13
------ ----
Weighted average number of common shares and common
share equivalents outstanding for the period 5,485,933 6,915,143
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
-------------------------
June 30, 1995 June 30, 1996
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,518,996) $ 867,469
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 235,480 389,319
Common stock compensation 19,781 48,880
Write off of acquired in-process research and development 3,175,645 --
Changes in assets and liabilities:
Accounts receivable - trade (273,341) (1,294,219)
Accounts receivable - other -- 162,924
Service contracts, net (17,070) (102,354)
Inventories (284,967) (897,813)
Prepaid expenses and other current assets (141,407) (103,183)
Other assets 278,692 (244,662)
Accounts payable (219,781) 658,723
Accrued expenses (47,677) (872,544)
---------- ----------
Net cash used by operating activities 206,359 (1,023,423)
---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (275,959) (423,955)
Acquisition of product line (850,000) (788,000)
Software development costs (77,719) (287,613)
Maturities of certificates of deposit 900,000 800,000
Purchases of certificates of deposit (900,000) (800,000)
Maturities of held-to-maturity debt securities 800,000 3,068,000
Purchases of held-to-maturity debt securities (1,262,937) (867,173)
---------- ----------
Net cash provided (used) by investing activities (1,666,615) 701,259
---------- ----------
Cash flows from financing activities:
Issuance of common stock for cash 384,766 277,930
Proceeds from notes payable 166,660 --
Principal payments on notes payable (382,646) (310,633)
---------- ----------
Net cash provided (used) by financing activities 168,780 (32,703)
---------- ----------
Net increase (decrease) in cash and cash equivalents (1,291,476) (282,891)
Cash and cash equivalents at beginning of period 2,573,384 1,511,395
Adjustment to cash to reflect change in StatSpin Technologies'
fiscal year 114,866 --
---------- ----------
Cash and cash equivalents at end of period $1,396,774 $1,228,504
---------- ----------
---------- ----------
Supplemental schedule of non-cash financing activities:
Issuance of common stock for services $ 22,473 $113,428
Issuance of warrants for asset purchase 153,000 --
Issuance of stock for exercise of call option to purchase LDA 2,977,344 --
Issuance of warrants in connection with development agreement 315,000 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY.
International Remote Imaging Systems, Inc. (IRIS) was incorporated in
California in 1979 and reincorporated during 1987 in Delaware. IRIS engages in
the business of developing, manufacturing and selling IN VITRO diagnostic (IVD)
systems and other laboratory instruments based on proprietary technology.
On February 1, 1996, a newly formed subsidiary of IRIS completed its merger
with Norfolk Scientific, Inc. , d/b/a/ StatSpin Technologies, Inc. (StatSpin),
which became a wholly owned subsidiary of IRIS. StatSpin manufactures special
purpose centrifuges and other small instruments widely used in clinical,
veterinary, and physicians' offices and research laboratories. StatSpin sells
its products primarily through leading distributors to the physician office and
veterinary laboratory markets. IRIS issued approximately 340,000 shares of
common stock for all of the outstanding common stock and appreciation rights of
StatSpin and assumed options and warrants to purchase an additional 126,000
shares of IRIS common stock. This represented an exchange ratio of 4.095 shares
of IRIS common stock for each common share and stock appreciation right of
StatSpin. This transaction was accounted for as a pooling-of-interests.
Accordingly, the consolidated financial statements have been retroactively
restated for all periods presented to include the financial position, results of
operations and cash flows of StatSpin.
Combined and separate results of IRIS and StatSpin are as follows:
IRIS StatSpin Combined
---- -------- --------
Six months ended June 30, 1996
Net sales $7,142,494 $1,986,522 $9,129,016
Net income 678,430 189,039 867,469
Six months ended June 30, 1995
Net sales 5,447,178 1,435,982 6,883,160
Net income (loss) (2,660,024) 141,028 (2,518,996)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Unaudited Interim Financial Statements:
In the opinion of IRIS, the accompanying unaudited consolidated financial
statements contain all normal recurring adjustments necessary to present fairly
the financial position of IRIS and subsidiary as of June 30, 1996 and the
results of their operations and cash flows for the three and six months ended
June 30, 1996 and 1995. It is suggested that these financial statements be read
in conjunction with the financial statements and notes included in the latest
IRIS annual report on Form 10-K. Interim results are not necessarily indicative
of results for a full year.
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 amount of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Principles of Consolidation:
The financial statements include the accounts of IRIS and StatSpin, a
wholly-owned subsidiary acquired on February 1, 1996. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
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<PAGE>
Cash, Cash Equivalents and Short-Term Investments:
Short-term investments principally include certificates of deposit and debt
instruments of the United States Government with initial maturities greater than
three months and less than one year. Long term investments represent
certificates of deposit and debt instruments with maturities greater than one
year. IRIS considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. IRIS places its cash
and investments with high credit-quality institutions. At times, these deposits
may be in excess of the federally insured limit.
Accounts Receivable:
IRIS sells predominantly to entities in the healthcare industry. IRIS
grants uncollateralized credit to its customers, primarily domestic hospitals,
clinical, veterinary and physicians' offices, and research laboratories. IRIS
performs ongoing credit evaluations of its customers before granting
uncollaterized credit and, to date, has not experienced any material credit
related losses.
Property and Equipment and Depreciation:
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation is computed using the straight line method over
three to five years, the estimated useful lives of these assets. Leasehold
improvements are amortized over the lesser of their useful life or the remaining
term of the lease.
Costs of maintenance and repairs are charged to expense when incurred;
costs of renewals and betterments are capitalized. Upon sale or retirement, the
cost and related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is included in current income.
Software Development Costs:
IRIS capitalizes certain software development costs in accordance with
Statement of Financial Accounting Standards (SFAS) No. 86 -- "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" for new
products currently under development. IRIS amortizes software costs using the
greater of the straight line method over the estimated product life of generally
one to three years, or a percentage of total units sold over the projected
sales. Amortization of software development costs was $27,203 and $20,098 for
the six months ended June 30, 1996 and 1995, respectively.
Deferred Warrant Costs:
Deferred warrant costs result from the issuance of warrants in conjunction
with various development, distribution and technology license agreements. These
costs are being amortized over the term of the related agreements, or with
respect to perpetual technology license agreements, over the expected life of
the related technology of, generally, ten years.
Revenue Recognition:
IRIS derives revenue from the sale of IVD imaging systems, sales of
supplies and service for its IVD imaging systems and sales of small laboratory
instruments and related supplies. IRIS generally recognizes product revenues
once all of the following conditions have been met: (i) an authorized purchase
order has been received in writing, (ii) customer credit worthiness has been
established, and (iii) shipment of the product to the customer designated
location has occurred. Estimated installation expense is recognized as part of
the accrual for warranty expenses at the time of shipment.
IRIS recognizes service revenues ratably over the term of the service
period, which typically ranges from twelve to sixty months. Payments for
service contracts are generally made in advance. Deferred revenue represents
the revenues to be recognized over the remaining term of the service contracts.
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<PAGE>
Warranties:
IRIS recognizes the full estimated cost of warranty expense, including
installation costs, at the time of shipment.
Research and Development Expenditures:
Except for certain software development costs required to be capitalized as
described above (See Software Development Costs), research and development
expenditures are charged to operations as incurred. Net research and
development expenses include total research and development costs incurred,
including costs incurred under research and development contracts, less costs
reimbursed under research and development contracts.
Income Taxes:
IRIS accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes" which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and the tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense represents
the tax payable for the period and the change during the period in deferred tax
assets and liabilities.
Reclassifications:
Certain reclassifications have been made to the interim financial
statements for the periods ended June 30, 1995 to conform with the 1995 fiscal
year-end and 1996 interim financial statement presentation. These
reclassifications had no effect on net loss or shareholders' equity.
3. MARKETABLE DEBT SECURITIES.
On January 1, 1994, IRIS adopted SFAS No. 115 -- "Accounting for Certain
Investments in Debt and Equity Securities" and determined that all its debt
securities should be classified as "held-to-maturity" based on the Company's
intent and ability to hold those securities to maturity. Under this standard,
debt securities classified as "held-to-maturity" are carried at amortized cost.
At June 30, 1996, IRIS had the following debt securities included in short-
term investments:
<TABLE>
<CAPTION>
Amortized Expected Maturity Value and Period
----------------------------------
Cost Within OneYear One to Five Years
---- -------------- -----------------
<S> <C> <C> <C>
US Treasury Bills 1,435,900 $ 1,470,000 --
US Treasury Notes 400,000 400,000 --
</TABLE>
4. INVENTORIES.
Inventories are carried at the lower of first-in, first-out cost or market
and are composed of the following:
December 31, 1995 June 30, 1996
----------------- -------------
Finished goods $ 350,907 $ 224,000
Work-in-process 276,115 431,332
Raw materials, parts and
sub-assemblies 2,242,791 3,299,294
--------- ---------
$ 2,869,813 $ 3,954,626
----------- -----------
----------- -----------
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<PAGE>
5. PROPERTY AND EQUIPMENT.
Property and equipment is composed of the following:
December 31, 1995 June 30, 1996
----------------- -------------
Leasehold improvements $ 327,178 $ 352,254
Furniture and fixtures 115,544 116,531
Machinery and equipment 2,422,835 2,791,934
Tools, dies, and molds 532,070 785,553
Rental units 166,268 191,578
------- -------
3,563,895 4,237,850
Less accumulated depreciation (2,568,851) (2,849,929)
----------- -----------
$ 995,044 $ 1,387,921
----------- ------------
----------- ------------
Property and equipment includes $1,348,448 and $1,284,448 at June 30, 1996
and December 31, 1995, respectively, of fully depreciated assets which remain in
service. Depreciation expense was $281,078 and $164,169 for the six month
periods ended June 30, 1996 and 1995, respectively. Repairs and maintenance
expense for the six month periods ended June 30, 1996 and 1995 was $26,406 and
$36,019, respectively.
Rental units are carried at cost less accumulated depreciation ($187,060 at
June 30, 1996 and $163,952 at December 31, 1995). Future minimum rental revenue
on noncancellable leases as of June 30, 1996 is approximately $136,000 due
during 1996.
6. ACCRUED EXPENSES.
Accrued expenses are composed of the following:
December 31, 1995 June 30, 1996
----------------- -------------
Accrued bonuses $ 366,372 $ 198,519
Accrued commission 76,079 --
Accrued payroll 88,228 55,122
Accrued vacation 135,832 137,104
Accrued professional fees 155,552 12,389
Accrued taxes - other 70,642 140,331
Accrued warranty expense 307,323 279,198
Accrued - other 76,071 78,903
------- -------
$1,276,099 $ 901,566
---------- ----------
---------- ----------
7. NOTES PAYABLE.
StatSpin had notes payable to shareholders with an outstanding balance of
$185,638 at December 31, 1995. The notes bore interest at 11% to 12% and were
due in 1996 through 1997.
In addition, StatSpin had a note payable to the Massachusetts Technology
Development Corporation with an outstanding balance of $124,995 at December 31,
1995. The note bore interest at 9% per year and was due in 1998.
Upon consummation of the merger with StatSpin, all note obligations were
paid off by IRIS.
8. LDA AND WARRANTS.
In October 1992, LDA Systems, Inc. (LDA) completed an initial public
offering of 107,750 units, each unit consisting of one share of callable LDA
common stock and ten IRIS warrants, each five warrants entitling the holder to
purchase one share of IRIS common stock for $3.75, exercisable at any time from
November 16, 1992 through July 31, 1995. LDA received net proceeds of $774,000
from the unit
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<PAGE>
offering. LDA used these funds to engage IRIS during the period October 1993
through June 1995 to conduct research, development, clinical evaluations and
pre-market testing of The White IRIS-Registered Trademark-, a proposed new
product, in accordance with a research and development contract. In addition,
IRIS funded an additional $500,000 of the development cost at a rate of $15,000
per month during this period.
On April 25, 1994, LDA completed the sale of additional units to Corange
Limited consisting of 85,714 shares of callable LDA common stock and warrants to
purchase an aggregate of 248,571 shares of IRIS common stock at an exercise
price of $3.75 per share. As part of the investment agreement, Corange was
granted the option to participate with LDA in the joint development,
manufacture, and marketing of certain future hematology instruments. The option
expired October 30, 1995.
IRIS had the option to purchase for cash or shares of IRIS common stock all
of the outstanding shares of LDA common stock at $20 per share until November
29, 1995. In June 1995, IRIS completed the acquisition of LDA for approximately
498,000 shares of IRIS Common Stock . IRIS acquired LDA pursuant to the
exercise of its call option under the LDA Restated Certificate of Incorporation
to purchase all the outstanding shares of LDA Common Stock tendering 2.5765
shares of IRIS Common Stock for each share of LDA Common Stock. As a result of
the acquisition, IRIS incurred a non-recurring charge in the second quarter of
1995 of approximately $3.2 million against earnings for the acquisition of in-
process research and development (i.e., work-in-process not yet cleared for
interstate commerce by the Food and Drug Administration).
On May 13, 1996, IRIS obtained clearance from the FDA to commence marketing
The White IRIS-Registered Trademark- leukocyte differential analyzer, its newly
developed workstation for white blood cell classification. The FDA cleared The
White IRIS-Registered Trademark- as a class III device for commercial use in the
classification of normal as well as immature and other abnormal types of white
blood cells.
9. POLY DEVELOPMENT AGREEMENT.
On September 25, 1995, Poly U/A Systems, Inc. (Poly) engaged IRIS to
develop several new products based on IRIS and other technology to further
enhance automation in the urinalysis field. Under the terms of the project,
Poly will have the right to use the IRIS technology and any newly developed
technology for developing, manufacturing and marketing the new products as
stand-alone devices, and IRIS will have the right to use any newly developed
technology for any other purpose and to incorporate the new products into The
Yellow IRIS-Registered Trademark-. Poly has retained IRIS to conduct research,
development, clinical evaluation and pre-market testing of the proposed new
products. IRIS will fund the first $15,000 per month (up to maximum of
$500,000) of the cost of the project, and Poly will reimburse IRIS for the
excess. IRIS has an option until 121 days after termination of the project
(which terminates not later than July 31, 1998) to acquire all of the Common
Stock of Poly at prices rising over time from $14 to $20 per share of Poly
Common Stock. IRIS may pay the option exercise price in cash or with shares of
IRIS Common Stock. IRIS is also providing financial and administrative services
to Poly at cost.
Poly, a privately-held company based in Los Angeles, California, was
organized in June 1995 to undertake the commercial development of several
potential products based on technology developed or licensed by IRIS. In order
to fund its share of the project, Poly, in 1995 raised net proceeds of $2.0
million through the sale of 128 units at a price of $20,000 per unit. Each unit
consists of 2,000 shares of Poly's Callable Common Stock and a warrant to
purchase 4,000 shares of IRIS Common Stock. In the aggregate, investors
purchased 256,000 shares of Poly's Callable Common Stock and warrants to
purchase 512,000 shares of IRIS Common Stock. The IRIS warrants are exercisable
at $6.50 per share during the last two years of their three-year duration. In
connection with Poly's sale of units, IRIS also issued warrants to the placement
agent and the finder to purchase an aggregate of 150,000 shares of IRIS Common
Stock. These warrants are exercisable at $7.80 per share for a five year period
and include certain registration rights.
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<PAGE>
10. REFERENCE LAB AGREEMENT.
During the first quarter of 1995, IRIS and Boehringer Mannheim Corporation
(BMC) and Boehringer Mannheim GmbH (BMG), its German affiliate, announced a
joint project to develop a high capacity automated urinalysis system primarily
for reference laboratories based on the proprietary technologies of both
companies. The program is jointly funded by both companies. In addition to
designing specific components of the new system, BMG originally agreed to pay
IRIS a fixed amount of $640,000 for its research and development of the project.
During the first quarter of 1996, BMG agreed to pay IRIS an additional $350,000
to complete the project.
In connection with this project and certain distribution considerations,
IRIS issued Corange (an affiliate of BMG) warrants to purchase 250,000 shares of
IRIS Common Stock at an exercise price of $7.375 per share and granted Corange
certain registration rights with respect to the shares of IRIS Common Stock
issuable upon exercise of these warrants.
11. RESEARCH AND DEVELOPMENT CONTRACTS.
Revenues are recognized under research and development contracts in amounts
equivalent to reimbursable research and development costs incurred on the
related project plus, where contractually provided for, an amount to cover
general and administrative costs of the project.
Development contract revenues and costs connected with the development
agreements entered into with LDA, Poly and BMG as described above were as
follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
Revenues $363,790 $131,562 $ 638,150 $944,249
Costs 746,695 141,819 1,066,055 964,137
------- ------- --------- -------
Net costs $382,905 $ 10,257 $ 427,905 $ 19,888
-------- --------- ---------- --------
-------- --------- ---------- --------
12. CAPITAL STOCK.
Stock Issuances:
During 1990, the IRIS Board of Directors adopted an Employee Stock Purchase
Plan designed to allow employees of the Company to buy its shares at 50% of the
then current market price, provided that the employee agrees to hold the shares
purchased for a minimum of 2 years. Payments for the 50% portion may be made at
the option of the employee either by payroll deduction or by lump sum payment,
but in no event may exceed more than 15% of the employee's total compensation
during any year. The remaining 50% portion is recorded as deferred compensation
and amortized over the vesting period. The shares purchased pursuant to the
Plan may not be transferred, except following the death of the employee or a
change in control, for a period of 2 years following the date of purchase.
During the period of the limitation on transfer, IRIS has the option to
repurchase the shares at the employee's purchase price, if the employee
terminates employment with IRIS either voluntarily or as result of termination
for cause. During the periods ended June 30, 1996 and 1995, IRIS issued 29,973
and 17,937 shares of common stock, respectively, in exchange for $226,755 and
$71,222, respectively, in cash and services under the Plan.
In addition during the six month period ended June 30, 1996, IRIS issued
35,633 shares of stock on exercise of stock options granted to employees,
former employees and consultants and 19,791 shares of common stock on exercise
of options granted in connection with the acquisition of StatSpin Technologies,
Inc.
24
<PAGE>
Stock Options:
In connection with the merger with StatSpin, each outstanding option and
warrant of StatSpin was converted into an option to purchase IRIS common stock
at a ratio of 4.095 shares of IRIS common stock for each share of StatSpin
common stock covered by such option or warrant. The exercise price per share
for the StatSpin options and warrants were adjusted by dividing the initial
exercise price by 4.095.
For the six months ended June 30, 1996, 200,000 shares of common stock were
granted under the 1994 Stock Option Plan. Options for 55,424 shares were
exercised and options for 11,600 were canceled. At June 30, 1996, options to
purchase 872,834 shares of common stock were issued and outstanding under IRIS
stock option plans. The outstanding options expire by the end of 2006. The
exercise price for these options ranges from $1.10 to $8.29 per share and in
aggregate $3,533,352. At June 30, 1996 there were an additional 138,400 shares
available for the granting of future options.
Warrants:
At June 30, 1996, there were warrants outstanding and exercisable to purchase
250,000 shares of common stock exercisable at $7.375 per share until February 6,
1998, 75,000 shares at $8.125 per share until March 30, 1998, 512,000 shares at
$6.50 per share until September 29, 1998 and 150,000 shares at $7.80 per share
until September 28, 2000.
Preferred Stock:
IRIS is authorized to issue 3,000,000 shares of preferred stock in one or
more series with such terms as may be designated by the Board of Directors.
There is no preferred stock outstanding.
13. COMMITMENTS.
Leases:
IRIS leases its primary business locations at a monthly rent of $20,800,
subject to increases based on the Consumer Price Index. IRIS has the option to
renew one lease for two additional three-year periods commencing on July 3,
1997.
At June 30, 1996, the minimum lease payments due over the remaining life of
these leases and three automobile leases were:
Year ending
December 31, Amount
------------ -------
1996 $ 134,088
1997 186,069
1998 85,932
1999 85,932
2000 21,483
----------
$ 513,504
----------
----------
Rental expense under all operating leases during the six months ended
June 30, 1996 and 1995 was $93,304 and $90,832, respectively.
-12-
<PAGE>
Other:
Effective September 1, 1988, IRIS entered into a consulting and licensing
agreement with Cytocolor, Inc. relating to the use of a patented leukocyte stain
in The White IRIS. Under the terms of the agreement, IRIS is subject to the
following future minimum royalty payments:
YEAR ROYALTY
---- -------
1997 $ 20,000
1998 20,000
1999 20,000
Years thereafter 280,000
----------
$ 340,000
----------
----------
In connection with the development agreement with Poly, IRIS has agreed to
fund up to $15,000 per month (to a maximum of $500,000) of the cost of the
development project (see Note 9)
14. EARNINGS PER SHARE.
The computations of per share amounts for the three and six months ended
June 30, 1996 are based on the weighted average number of shares and common
share equivalents outstanding for the period. Fully diluted and primary
earnings per share were $.06 and $.13, respectively, for the three and six
month periods ended June 30, 1996.
The computations of share amounts for the three and six months ended June
30, 1995 are based on the weighted average number of shares outstanding for
the period. Common share equivalents were not included in the computations
as their inclusion would be antidilutive. The loss per share for the three
and six month periods ended June 30, 1995 was $.53 and $.46, respectively.
15. LICENSE.
Pursuant to earlier payments and certain agreements with TOA Medical
Electronics Co., Ltd. (TOA), TOA has developed a urine sediment analyzer under
license from IRIS using pre-1989 IRIS technology. IRIS received royalties of
approximately $4,000 and $33,000 for the three months ended June 30, 1996 and
1995, respectively and approximately $32,000 and $67,000 for the six months
ended June 30, 1996 and 1995, respectively.
16. EXPORT SALES.
IRIS had export equipment sales of $12,317 and $5,788, respectively, and
$51,936 and $58,138, respectively, for the three and six month periods ended
June 30, 1996 and 1995.
17. SUBSEQUENT EVENT.
Only July 31, 1996, IRIS acquired the IVD imaging business of Perceptive
Scientific Instruments, Inc. (PSI) for $9.1 million in cash, a $7.0 million
subordinated debenture and a five year warrant to purchase 875,000 shares of
IRIS common stock at $8.00 per share. IRIS paid the cash portion of the
purchase price with funds obtained from a bank under a $7.8 million term loan
and a new $1.5 million revolving line of credit.
PSI, a privately held company based in Houston, is a recognized leader in
the development and supply of digital imaging systems for biological, clinical
and research applications. PSI's primary business is providing cytogenetic
analysis instrumentation and related services through worldwide sales of its
proprietary PowerGene-TM- product line. The PowerGene product line, based in
part on image processing technology from NASA, is used in various procedures for
chromosome analysis, including karyotyping, DNA probe analysis via fluorescent
in-situ hybridization methods and comparative genomic hybridization analysis.
The PowerGene system is marketed nationally from PSI's Houston headquarters and
internationally through its U.K. subsidiary.
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<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The Company generates revenues from the initial sales of IN VITRO
diagnostic ("IVD") imaging systems based on its patented and proprietary
"Automated Intelligent Microscope" ("AIM") technologies, which in turn generate
follow-on sales of supplies and service necessary for their operation, as well
as ancillary lines of small laboratory instruments and supplies.
Until recently, the Company generated most of its revenues from sales of
two models of The Yellow IRIS-Registered Trademark- urinalysis workstation and
related supplies and services. These two models differ mainly by their speed
and price, with the faster and more expensive model accounting for approximately
two-thirds of sales in both 1994 and 1995. In 1996, the Company introduced a
third model of The Yellow IRIS-Registered Trademark- and two new lines of other
IVD imaging systems. The Model 900UDx-TM- urine pathology system, the latest in
The Yellow IRIS-Registered Trademark- family, is a higher capacity automated
urinalysis workstation designed specifically for the high volume testing
requirements of large hospitals and reference laboratories. The Company
received FDA clearance to market the Model 900UDx-TM- in March 1996 and
commenced sales in May 1996. The Company also received FDA clearance to market
The White IRIS-Registered Trademark- leukocyte differential analyzer in May 1996
and expects to commence sales of this system in late 1996 or early 1997.
Finally, the Company commenced sales of the PowerGene-TM- family of cytogenetic
analyzers in August 1996 after acquiring this line of business from Perceptive
Scientific Instruments, Inc. ("PSI").
The Company devotes a significant amount of resources to research and
development for new products and upgrading existing products. The following
table summarizes net research and development expenses for the periods
indicated:
-14-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ---------------------------
1995 1994 1993 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total product
technology expenditures $2,362,000 $1,939,000 $1,499,000 $1,823,000 $1,380,000
Less:
Capitalized software
development costs (299,000) (25,000) (81,000) (288,000) (78,000)
Reimbursed costs under
research and develop-
ment contracts (843,000) (1,111,000) (539,000) (944,000) (638,000)
-------- ---------- -------- -------- --------
Research and development
expense, net $1,220,000 $ 803,000 $ 879,000 $591,000 $664,000
---------- ---------- --------- -------- --------
---------- ---------- --------- -------- --------
</TABLE>
The Company has in the past partially funded its research and development
programs through (i) grants from the National Institutes of Health under its
Small Business Innovative Research program, (ii) joint development programs with
strategic partners and (iii) Company-sponsored research and development
entities.
In recent years, the Company has entered into two significant joint
development projects with strategic partners and two projects with Company-
sponsored research and development entities. From 1994 to 1996, the Company and
Boehringer Mannheim Corporation, an Indianapolis-based manufacturer of
diagnostic products, collaborated in the development of (i) a new urine test
strip reader for The Yellow IRIS-Registered Trademark- and the related
CHEMSTRIP/IRIStrip-Registered Trademark- urine test strips and (ii) the Model
900UDx-Registered Trademark-, the latest model in The Yellow IRIS-Registered
Trademark- family. The Company entered into a project in October 1992 with LDA
Systems, Inc. ("LDA"), a Company-sponsored research and development entity, for
development of The White IRIS-Registered Trademark- leukocyte differential
analyzer. Boehringer Mannheim was one of the investors in LDA. In June 1995,
the Company acquired LDA for approximately 498,000 shares of common stock of the
Company. As a result of the LDA acquisition, the Company incurred a non-
recurring, non-cash charge of $3.2 million against earnings in the second
quarter of 1995 for the acquisition of in-process research and development
because The White IRIS-Registered Trademark- had not yet received FDA clearance.
The Company entered into a similar project in September 1995 with Poly U/A
Systems, Inc. ("Poly"), another Company-sponsored research and development
entity, for development of several new products to enhance automated urinalysis
(the "Poly Products"). The program with Poly is currently ongoing.
See "--Liquidity and Capital Resources."
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
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<PAGE>
Net sales for the six months ended June 30, 1996 increased to $9.1 million
from $6.9 million, an increase of $2.2 million or 33% over the comparable period
of the prior year. Sales of IVD imaging systems increased to $2.6 million from
$2.2 million, an increase of $443,000 or 21% over the comparable period, mostly
as a result of the launch of the Model 900UDx-TM-. Sales of IVD imaging system
supplies and service increased to $4.2 million from $3.2 million, an increase of
$1.0 million or 32% over the comparable period, due to the larger installed base
of IVD imaging systems and the ongoing conversion of the installed base to the
new CHEMSTRIP/IRIStrip-Registered Trademark- urine test strips. As of June 30,
1996, the Company had converted approximately 80% of the installed base from
test strips marketed by various distributors to the new test strips marketed
exclusively by IRIS. Sales of small instruments and supplies increased to $2.4
million from $1.6 million, an increase of $804,000 or 51%, over the comparable
period. The increase reflects generally higher sales levels of the StatSpin
product line as well as the addition of the Cen-Slide-Registered Trademark- 1500
System and the Biovation-Registered Trademark- product line. See "--PSI and
Other Recent Acquisitions."
Cost of goods for IVD imaging systems decreased nominally as a percentage
of sales of IVD imaging systems to 43% for the six months ended June 30, 1996
from 44% for the comparable period. Cost of goods for IVD imaging system
supplies and service increased as a percentage of sales of such products to 52%
for the six months ended June 30, 1996 from 50% for the comparable period
primarily due to lower gross margins on CHEMSTRIP/IRIStrip-Registered Trademark-
urine test strips as compared to other IVD imaging system supplies. Cost of
goods for small instruments and supplies decreased as a percentage of sales of
small instruments and supplies to 51% for the six months ended June 30, 1996
from 59% for the comparable period due to higher gross margins on the recently
added Cen-Slide-Registered Trademark- and Biovation-Registered Trademark-
product lines as compared to the Company's other small instruments and supplies.
The net result of these changes and the overall change in product mix was a
modest increase in gross margin to 51% for the six months ended June 30, 1996
from 50% for the comparable period.
Marketing and selling expenses consist primarily of salaries, commissions
and related travel expenses of the Company's direct sales force, as well as
salaries for the marketing and distributor relations departments. Marketing and
selling expenses increased to $1.7 million for the six months ended June 30,
1996 from $1.4 million, an increase of $320,000 or 24% over the comparable
period, due to increased spending on direct sales and after-sales support, but
decreased as a percentage of net sales to 18% from 20%.
General and administrative expenses consist primarily of payroll costs
associated with the Company's management and support personnel, travel expenses,
and legal and accounting
-16-
<PAGE>
fees. General and administrative expenses increased to $1.5 million for the six
months ended June 30, 1996 from $947,000, an increase of $542,000 or 57% over
the comparable period, and increased as a percentage of net sales to 16% from
14%, primarily as a result of one-time costs associated with the acquisition of
StatSpin Technologies in February, 1996 (recorded as a "pooling of interests"),
as well as two additions to the administrative staff.
Net research and development expenses consist of expenses for the
development of new products and improvements to existing products less
third-party reimbursements under joint development programs. Net research
and development expenses decreased to $591,000 for the six months ended June
30, 1996 from $664,000, a decrease of $73,000 or 11% over the comparable
period, and also decreased as a percentage of net sales to 6% from 10%.
Total research and development expenses increased to $1.5 million from $1.3
million, an increase of $233,000 or 18%, due primarily to the acceleration of
work on the Model 900UDx-Registered Trademark- prior to its launch and
commercial refinements to The White IRIS-Registered Trademark- following FDA
clearance. However, this increase was more than offset by an increase in
reimbursements under joint development programs to $944,000 from $638,000, an
increase of $306,000 or 48%.
Interest income consists of income from investments and decreased to
$137,000 for the six months ended June 30, 1996 from $175,000 for the comparable
period. This was primarily the result of decreased amounts of invested cash
during the 1996 period. See "--Liquidity and Capital Expenditures."
Interest expense consists of interest on notes assumed in the StatSpin
acquisition and decreased to $5,000 for the six months ended June 30, 1996 from
$37,000 for the comparable period due to payment in full following consummation
of the acquisition.
Other income consists of royalties for sales of licensed products and
decreased to $32,000 for the six months ended June 30, 1996 from $67,000 for the
comparable period due to lower reported sales of licensed products, partly
offset by higher royalty rates.
Acquisition of in-process research and development in 1995 reflects the
acquisition of LDA which resulted in a non-recurring, non-cash charge of $3.2
million against earnings for the acquisition of in-process research and
development (i.e., work-in-process not yet cleared for interstate commerce by
the FDA).
The income tax provision for the six months ended June 30, 1996 was
$175,000 as compared to $28,000 for the comparable period in 1995. The
effective tax rate increased to 17% from 4% (before the non-recurring charge)
due to the reduction
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<PAGE>
of a substantial portion of the deferred tax asset valuation allowance during
the fourth quarter of 1995. This reduction in the valuation allowance resulted
principally from the Company's assessment of the realizability of its net
operating loss carryforwards based on recent operating history as well as an
assessment that operations will continue to generate taxable income. However,
the amount of the deferred tax assets considered realizable could be reduced if
the future taxable income during the carryforward periods is reduced.
The above factors contributed to net income of $867,000, or $.13 per share,
for the six months ended June 30, 1996 as compared to a net loss of $2.5
million, or $(.46) per share, for the six months ended June 30, 1995. The net
loss for the 1995 period was the result of the acquisition of LDA which resulted
in a non-recurring, non-cash charge of $3.2 million against earnings for the
acquisition of in-process research and development. Excluding the effect of the
acquisition, the Company would have had net income of approximately $657,000 for
the six months ended June 30, 1995.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995
Net sales for the three months ended June 30, 1996 increased to $4.8
million from $3.7 million, an increase of $1.1 million or 29% over the
comparable period of the prior year. Sales of IVD imaging systems remained
relatively constant at $1.3 million for the three month periods ended June 30,
1996 and 1995. Sales of IVD imaging system supplies and service increased to
$2.2 million from $1.6 million, an increase of $530,000 or 33% over the
comparable period, due to the larger installed base of IVD imaging systems and
the ongoing conversion of the installed base to the new
CHEMSTRIP/IRIStrip-Registered Trademark- urine test strips. Sales of small
instruments and supplies increased to $1.3 million from $756,000, an increase of
$593,000 or 78% over the comparable period. The increase reflects generally
higher sales levels of the StatSpin product line as well as the addition of the
Cen-Slide-Registered Trademark- 1500 System and the Biovation-Registered
Trademark- product line. See "--PSI and Other Recent Acquisitions."
Cost of goods for IVD imaging systems increased as a percentage of sales of
IVD imaging systems to 47% for the three months ended June 30, 1996 from 38% for
comparable period due to lower gross margins on introductory sales of the Model
900UDx-Registered Trademark-. Cost of goods for IVD imaging system supplies and
service decreased as a percentage of sales of such products to 49% for the three
months ended June 30, 1996 from 50% for the comparable period. Cost of goods
for small instruments and supplies decreased as a percentage of sales of small
instruments and supplies to 50% for the three months ended June 30, 1996 from
64% for the comparable period due to higher gross margins on the recently added
Cen-Slide-Registered Trademark- and
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<PAGE>
Biovation-Registered Trademark- product lines as compared to the Company's other
small instruments and supplies. These changes and the overall change in product
mix resulted in gross margins remaining constant at 51% for the three month
periods ended June 30, 1996 and 1995.
Marketing and selling expenses increased to $880,000 for the three months
ended June 30, 1996 from $714,000, an increase of $166,000 or 23% over the
comparable period, due to increased spending on direct sales and after-sales
support, but decreased as a percentage of net sales to 18% from 19%.
General and administrative expenses increased to $770,000 for the three
months ended June 30, 1996 from $519,000, an increase of $251,000 or 48% over
the comparable period of the prior year, and increased as a percentage of net
sales to 16% from 14%, primarily as a result of one-time costs associated with
the acquisition of StatSpin Technologies in February, 1996 (recorded as a
"pooling of interests"), as well as two additions to the administrative staff.
Net research and development expenses decreased to $321,000 for the three
months ended June 30, 1996 from $488,000, a decrease of $167,000 or 34% over the
comparable period, and also decreased as a percentage of net sales to 7% from
13%, due primarily to the timing in the recognition of certain costs and
offsetting reimbursements on research and development contracts. Total research
and development expenses decreased to $453,000 from $851,000, a decrease of
$398,000 or 47%, due primarily to the timing in the recognition of certain
costs.
Interest income increased to $77,000 for the three months ended June 30,
1996 from $73,000 for the comparable period. See "--Liquidity and Capital
Expenditures."
There was no interest expense for the three months ended June 30, 1996 as
compared $18,000 for the prior year period due to payment in full of outstanding
notes of StatSpin following consummation of the StatSpin acquisition.
Other income decreased to $4,000 for the three months ended June 30, 1996
from $33,000 for the comparable period due to lower reported sales of licensed
products, partly offset by higher royalty rates.
Acquisition of in-process research and development in 1995 reflects the
acquisition of LDA which resulted in a non-recurring, non-cash charge of $3.2
million against earnings for the acquisition of in-process research and
development (i.e., work-in-process not yet cleared for interstate commerce by
the FDA).
-19-
<PAGE>
The income tax provision for the three months ended June 30, 1996 was
$135,000 as compared to $16,000 for the comparable period. The effective tax
increased to 24% from 6% (before the non-recurring charge) due to the reduction
of a substantial portion of the deferred tax asset valuation allowance during
the fourth quarter of 1995. This reduction in the valuation allowance resulted
principally from the Company's assessment of the realizability of its net
operating loss carryforwards based on recent operating history as well as an
assessment that operations will continue to generate taxable income. However,
the amount of the deferred tax assets considered realizable could be reduced if
the future taxable income during the carryforward periods is reduced.
The above factors contributed to net income of $425,000, or $.06 per share,
for the three months ended June 30, 1996 as compared to a net loss of $2.9
million, or $(.53) per share, for the three months ended June 30, 1995. The net
loss for the 1995 period was the result of the acquisition of LDA which resulted
in a non-recurring, non-cash charge of $3.2 million against earnings for the
acquisition of in-process research and development. Excluding the effect of the
acquisition, the Company would have had net income of approximately $259,000 for
the three months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased to $3.9 million
at June 30, 1996 from $6.2 million at December 31, 1995, a decrease of $2.3
million or 37%. The decrease is primarily attributable to increased levels of
inventory and accounts receivable, the acquisition of the Cen-Slide-Registered
Trademark- product line near the end of the first quarter and the purchase of
additional manufacturing and office equipment. Inventory levels during the
first six months of 1996 increased to $4.0 million from $2.9 million, an
increase of $1.1 million or 38%. This increase was primarily due to the
addition of the Model 900UDx-TM- and CHEMSTRIP/IRIStrip-Registered Trademark-
urine test strips to the product line, as well as the additional inventory of
supplies and spare parts required to support the growing size of the installed
base of IVD imaging systems. Total accounts receivable increased to $5.6
million at June 30, 1996 from $4.3 million at December 31, 1995, an increase of
$1.3 million or 30%. This increase was the combined effect of generally higher
sales levels and extended payment terms on the sale of several IVD imaging
systems to one customer which were collected in August 1996.
In the six months ended June 30, 1996, the Company expended $423,000 for
capital equipment, primarily for manufacturing and office equipment, and
expended $288,000 in capitalized software development.
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<PAGE>
During the first six months of 1996, the Company generated cash of $278,000
from stock sales to employees under the Company's stock option and purchase
plans and from exercises of stock options assumed in connection with the
StatSpin acquisition.
On July 31, 1996 the Company acquired the IVD imaging business of PSI for
approximately $16.1 million plus a five-year warrant to purchase 875,000 shares
of the Company's Common Stock at $8 per share. The Company financed the cash
portion of the purchase price with (i) a $7 million subordinated note issued to
PSI's parent company (the "Subordinated Note"), (ii) a $7.8 million term loan
from City National Bank (the "Bank") (the "Term Loan") and (iii) $1.3 million
from a new revolving line of credit (the "Credit Facility") with the Bank. As a
result of this acquisition, the Company expects to recognize a charge against
earnings of approximately $7 million in the third quarter of 1996 for the
acquisition of in-process research and development.
The Subordinated Note bears interest at a fixed rate of 8.5% per annum
payable in quarterly installments. The entire principal amount is due on or
before July 31, 2001. The Company may prepay the Subordinated Note at any time
without premium or penalty. Under the terms of the Subordinated Note, the
Company is required to apply 50% of the net proceeds in excess of $14.5 million
from any future offering of equity securities to the payment of principal. The
payment of principal and interest on the Subordinated Note is subordinated in
right of payment, to the extent and in the manner provided therein, to the prior
payment in full of all indebtedness to the Bank.
The Term Loan is secured by all the assets of the Company and bears
interest monthly at the Bank's prime rate plus 0.25% through December 1, 1996
and 1.0% thereafter. The Company is required to repay $1.8 million of principal
on or before December 1, 1996, $100,000 of principal each month thereafter
commencing January 1, 1997 and the balance of $4.8 million on or before January
15, 1998. The Company may repay the Term Loan at any time without premium or
penalty. The Term Loan imposes substantially the same operating and financial
covenants on the Company as the Credit Facility (discussed below).
The Company established the Credit Facility in July 1996. Under the terms
of the Credit Facility, the Company can borrow and reborrow up to a maximum
principal amount of $1.5 million at a variable interest rate equal to the Bank's
prime rate (presently 8.25%). The Credit Facility matures June 1, 1997 and is
secured by a first priority lien on all of the assets of the Company. The
Credit Facility imposes certain operating and financial covenants on the
Company, including, among other things, (i) financial covenants regarding
minimum tangible net
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<PAGE>
worth, a minimum fixed charge coverage ratio, a maximum ratio of senior
liabilities to tangible net worth and a minimum ratio of current assets to
current liabilities, (ii) restrictions on the disposition of assets other than
in the ordinary course of business, (iii) covenants to maintain the Company's
assets and appropriate insurance coverage and (iv) covenants to deliver from
time to time certain financial and other information. As of July 31, 1996,
there was approximately $200,000 of unused credit available under the Credit
Facility.
In September 1995, the Company and Poly entered into a joint project to
develop the Poly Products using the Company's technology. These products are
intended to have dual potential as both stand-alone products and enhancements to
The Yellow IRIS-Registered Trademark- line of urinalysis workstations. Under
the terms of this project, Poly will have the right to use Company technology
and any newly developed technology for developing, manufacturing and marketing
the Poly Products as stand-alone devices, and the Company will have the right to
use the newly developed technology for any other purpose and to incorporate the
Poly Products into The Yellow IRIS-Registered Trademark- family of products.
Poly has retained the Company to conduct research, development, clinical
evaluation and premarket testing of the Poly Products. The Company is funding
the first $15,000 per month (up to a maximum of $500,000) of the cost of the
project, and Poly is reimbursing the Company for the excess. Poly was organized
by the Company in June 1995 and subsequently raised net proceeds of
approximately $2.0 million in a private offering. The Company has an option
until 121 days after termination of the project with Poly to acquire all of the
common stock of Poly for an aggregate price rising over time from $4.4 million
to $5.1 million payable in cash or shares of the Company's Common Stock. If the
Company elects to exercise its option, it would likely capitalize the portion of
the net cost of the acquisition allocated to completed products and record a
nonrecurring, noncash (if purchased with Common Stock) charge against earnings
for the portion of the net cost of the acquisition allocated to in-process
research and development.
PSI AND RECENT ACQUISITIONS
In late 1995, the Company began implementing a strategy to achieve global
IVD imaging leadership by expanding its product lines of large IVD imaging
systems and adding complementary lines of small instruments and supplies.
In July 1996, IRIS acquired the IVD imaging business of PSI which
includes the PowerGene-TM- family of cytogenetic analyzers. See "--Liquidity
and Capital Resources." For the six months ended June 30, 1996, PSI's net
sales from this business increased to $3.6 million from $2.4 million, an
increase of $1.2 million or 50% over the comparable period. PSI generated
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<PAGE>
net sales from this business of $5.4 million, $4.3 million and $3.0 million in
1995, 1994 and 1993, respectively, reflecting annual increases of 26% and 45%,
respectively.
PSI has a significant international presence and generated 56% and 57% of
its total sales from international sales of the PowerGene-TM- product line for
the six months ended June 30, 1996 and the twelve months ended December 31,
1995, respectively. With the PSI acquisition, the Company acquired an overseas
direct sales force of four persons located in Chester, England that supports
agents and distributors in more than 20 countries. Prior to the acquisition,
the Company's international sales were not significant. The Company intends to
market all of its products internationally through the international operations
acquired from PSI and to enhance domestic sales of the PowerGene-TM- product
line through the Company's existing operations.
In March 1996, the Company acquired the Cen-Slide-Registered Trademark-
1500 System for centrifugal urine sedimentation and manual microscopic
examination and certain other products for $788,000 in cash and the assumption
of $62,000 of liabilities. The Company generated revenues from these products
of approximately $153,000 for the three months ended June 30, 1996.
In February 1996, the Company acquired Norfolk Scientific, Inc. for
approximately 340,000 shares of common stock of the Company and the
assumption of options and warrants to purchase an additional 126,000 shares
of common stock of the Company. The Company recorded the transaction as a
"pooling-of-interests" for accounting purposes. Norfolk Scientific, which
conducts business under the trade name "StatSpin Technologies," manufactures
special-purpose centrifuges, application specific consumable items and other
small laboratory instruments. Through this acquisition, the Company acquired
sample preparation technologies useful for future IVD imaging applications as
well as access to key distributors for its small laboratory instruments and
supplies. StatSpin had net sales of $2.0 million for the six months ended
June 30, 1996 and $3.1 million for the twelve months ended December 31, 1995.
In June 1995, the Company acquired LDA for approximately 498,000 shares of
common stock of the Company. LDA was a Company-sponsored research and
development entity which provided funding for The White IRIS-Registered
Trademark- leukocyte differential analyzer in a joint development program with
the Company. The Company received FDA clearance to market The White
IRIS-Registered Trademark- in May 1996 and expects to commence sales of this
product in late 1996 or early 1997. See "--Overview."
In March 1995, the Company acquired its digital refractometer product line
from Biovation, Inc. for $850,000
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<PAGE>
in cash and warrants to purchase 75,000 shares of common stock of the Company at
an exercise price of $8.125 per share. The Company generated revenues from this
product line of approximately $226,000 for the six months ended June 30, 1996.
The Company may pursue additional acquisitions in the future.
HEALTHCARE LEGISLATION
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, either nationally or at the state
level. Healthcare legislation is an area of extensive and dynamic change, and
the Company cannot predict future legislative changes in the healthcare field or
their impact on its business.
INFLATION
The Company does not foresee any material impact on its operations from
inflation.
NEWLY ISSUED ACCOUNTING STANDARDS
In December 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 ("SFAS No. 123"), "Accounting for Stock
Based Compensation." In accordance with SFAS No. 123, the Company will adopt
the disclosure method as provided for in the statement.
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<PAGE>
PART 2 - OTHER INFORMATION
ITEM 1- Legal Proceedings
In 1994, IRIS became aware that a company called Intelligent Medical
Imaging, Inc. (IMI), was demonstrating a new slide-based microscopic imaging
system at various trade shows. After further examination of the IMI system,
IRIS notified IMI that its system infringed at least two IRIS patents. The
parties then entered into negotiations regarding the licensing of these and
possibly other IRIS patents to IMI. The parties were unable to reach an
agreement and, on October 19, 1995, IMI filed a complaint in the United States
District Court for the Southern District of Florida. In its complaint, IMI
seeks, among other things, declaratory judgments that: (i) IMI's system does
not infringe either of the two IRIS patents in question; (ii) both of such IRIS
patents are invalid; and (iii) IRIS is in violation of certain U.S. antitrust
laws. IRIS is defending both patents and pursing infringement claims against
IMI.
In 1996, TOA Medical Electronics, Inc. ("TOA") commenced an arbitration
before the International Court of Justice to determine whether it was obligated
to allow IRIS to distribute a new product being introduced by it based on
particle counting technology. The arbitration by TOA seeks a ruling that the
instrument is not covered by a distribution agreement and royalty arrangement
entered into by the parties in 1986 and amended in 1988. IRIS has asked the
arbitration panel to also rule on whether it is entitled to royalties on the new
product based on the same agreements.
ITEM 5 - Submissions of Matters to a Vote of Security-Holders.
IRIS held its Annual Meeting of Stockholders on June 20, 1996. At the
meeting, IRIS stockholders voted on the following matters:
1. ELECTION OF THE CLASS 3 DIRECTORS. The IRIS stockholders re-elected
Dr. Deindoerfer, and Dr. Kelley as the Class 3 Directors. The voting results
were 4,374,018 votes for and 16,292 votes withheld.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. The IRIS
stockholders ratified the reappointment of the accounting firm of Coopers and
Lybrand LLP, by the Board of Directors, as independent auditors of IRIS for
1996.
3. AMENDMENT OF FORMULA FOR STOCK OPTIONS AWARDS TO NON-EMPLOYEE
DIRECTORS UNDER THE 1994 STOCK OPTION PLAN. The IRIS stockholders ratified the
amendment to the formula for stock option awards to non-employee directors under
the 1994 Stock Option Plan.
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<PAGE>
ITEM 6 - Exhibits And Reports on Form 8K
(a) Exhibits
No. Description
--- -----------
3.1 Certificate of Incorporation, as amended (1)
3.2 Restated Bylaws (2)
10.1 Lease of the Registrant's facilities (3)
10.2(a) 1982 Stock Option Plans and form of Stock Option Agreement (4)
10.2(b) 1983 and 1986 Stock Option Plans, and forms of Stock Option
Agreements for each Plan (5)
10.2(c) Amended and Restated 1986 Stock Option Plan (6)
10.2(d) 1994 Stock Option Plan and forms of Stock Option Agreements (7)
10.2(e) Certificate of Officer With Respect to Amendment of 1994 Stock
Option Plan
10.3(a) Various Agreements with TOA Medical Electronics (8)
10.4(a) Agreement for a Strategic Alliance in Urinalysis dated Jan. 7,
1994 between IRIS and Boehringer Mannheim Corporation (9)
10.4(b) Securities Purchase Agreement dated as of April 20, 1994 by and
among IRIS, LDA Systems, Inc. and Corange International
Limited (10)
10.4(c) Warrant Certificate dated April 22, 1994 issued to Corange
International Limited (9)
10.4(d) Research and Development and Distribution Agreement dated
February 6, 1995 by and among IRIS, LDA Systems, Inc. and Corange
International Limited (9)
10.4(e) Warrant Certificate dated February 6, 1995 issued to Corange
International Limited (9)
10.5(a) Asset Purchase Agreement dated as March 20, 1995 between IRIS and
Biovation, Inc. (9)
10.5(b) Warrant Certificate dated March 20, 1995 issued to Biovation,
Inc. (9)
10.6(a) Technology License Agreement dated as of September 29, 1995
between IRIS and Poly U/A Systems, Inc. (11)
10.6(b) Research and Development Agreement dated as September 29, 1995
between IRIS and Poly U/A Systems, Inc. (11)
10.6(c) $100 Class "A" Note dated September 29, 1995 issued by Poly U/A
Systems, Inc. in favor of IRIS (11)
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<PAGE>
No. Description
--- -----------
10.6(d) Certificate of Incorporation of Poly U/A Systems, Inc. (See
Article FOUR regarding the IRIS Option) (11)
10.7(a) Agreement and Plan of Merger dated January 31, 1996 between IRIS
and StatSpin Technologies (12)
10.7(b) Registration Rights Agreement dated January 31, 1996 between IRIS
and StatSpin Stockholders (12)
10.7(c) Employment Agreement dated January 30, 1996 with Thomas F.
Kelley (12)
10.7(d) Employment Agreement dated January 30, 1996 with Joseph E.
Whittier
10.7(e) Lease for the facilities of Registrant's StatSpin subsidiary (12)
10.8(a) Asset Purchase Agreement dated as of July 15, 1996 by and among
IRIS, Digital Imaging Technologies, Inc., Perceptive Scientific
Instruments, Inc. and Perceptive Scientific Technologies, Inc.
(13)
10.8(b) Registration Rights and Standstill Agreement dated July 31, 1996
between IRIS and Digital Imaging Technologies, Inc.
10.8(c) Warrant Certificate dated July 31, 1996 issued to Digital Imaging
Technologies Inc.
10.8(d) Stockholder Guaranty Agreement dated July 31, 1996 between Edward
Randall III and PSII Acquisition Corp., a wholly-owned subsidiary
of IRIS now known as Perceptive Scientific Instruments, Inc.
10.8(e) Non-Competition Agreement dated as of July 15, 1996 between
Edward Randall III and PSII Acquisition Corp., a wholly-owned
subsidiary of IRIS now known as Perceptive Scientific
Instruments, Inc.
10.8(f) Director's Service Agreement dated July 29, 1996 with Anthony G.
Landells
10.8(g) Director's Service Agreement dated July 29, 1996 with Paul
Douglas
10.8(h) Employment Agreement dated July 8, 1996 with Dr. Kenneth
Castleman
10.8(i) Lease for the League City, Texas facilities of Registrant's
Perceptive Scientific Instruments, Inc. subsidiary (with
modifications and ratifications)
10.8(j) Lease for the England facilities of Registrant's Perceptive
Scientific Instruments, Inc. subsidiary
10.8(k) Technology License Agreement dated July 31, 1996 between
Perceptive Scientific Imaging Systems, Inc. and PSII Acquisition
Corp., a wholly-owned subsidiary of IRIS now known as Perceptive
Scientific Instruments, Inc.
10.9(a) $7,000,000 Subordinated Note dated July 31, 1996 issued by IRIS
in favor of Digital Imaging Technologies, Inc.
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<PAGE>
No. Description
--- -----------
10.9(b) $1,500,000 Promissory Note dated July 29, 1996 issued by IRIS to
City National Bank
10.9(c) Supplemental Terms letter dated July 29, 1996 between IRIS and
City National Bank re: $1,500,000 Promissory Note
10.9(d) Commercial Security Agreement dated July 29, 1996 executed by
IRIS in favor of City National Bank re: $1,500,000 Promissory
Note
10.9(e) $7,800,000 Promissory Note dated July 29, 1996 issued by IRIS to
City National Bank
10.9(f) Supplemental Terms letter dated July 29, 1996 between IRIS and
City National Bank re: $7,800,000 Promissory Note
10.9(g) Commercial Pledge Agreement dated July 29, 1996 executed by IRIS
in favor of City National Bank re: $7,800,000 Promissory Note
11 Statement re Computation of Per Share Earnings
- ---------------
(1) Incorporated by reference to the Company's Current Report on Form 8-K dated
August 13, 1987 and its Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994.
(3) The original lease and all prior amendments are incorporated by reference
to the Company's Annual Report on Form 10-K for the year December 31, 1989,
its quarterly report on Form 10-Q for the quarter ended September 30, 1993
and its Annual Report on Form 10-K for the year ended December 31, 1994.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-2, as filed with the Securities and Exchange Commission on September 4,
1985 (File No. 2-99240).
(5) Incorporated by reference to the Company's Registration Statement on Form
S-8, as filed with the Securities and Exchange Commission on May 10, 1982
(File No. 2-77496).
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8, as filed with the Securities and Exchange Commission on August 8, 1994
(File No. 33-82560).
(8) Incorporated by reference to the Company's Current Report on Form 8-K dated
July 15, 1988 and its quarterly report on Form 10-Q for the quarter ended
June 30, 1995.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
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<PAGE>
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 31, 1995.
(12) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(13) Incorporated by reference to the Company's Current Report on Form 8-K dated
July 15, 1996.
(b) Reports on Form 8-K
IRIS filed a Current Report on Form 8-K on February 16, 1996 with respect
to the acquisition of Norfolk Scientific, Inc., d/b/a StatSpin Technologies,
which included certain financial statements of StatSpin and unaudited pro forma
condensed financial statements reflecting the combination of IRIS and StatSpin
using the pooling of interest accounting method. IRIS also filed Current
Reports on Form 8-K on May 9, 1966 and July 15, 1966 with respect to the signing
of a letter of intent and a definitive acquisition agreement, respectively, for
the acquisition of the digital imaging business of Perceptive Scientific
Instruments, Inc. IRIS filed a Current Report on Form 8-K dated July 31, 1996
with respect to the consummation of its acquisition of the digital imaging
business of Perceptive Scientific Instruments, Inc.
- --------------------------------
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
Dated: August 15, 1996 By: /s/ E. Eduardo Benmaor
------------------------------------
E. Eduardo Benmaor
Secretary, Controller, and
Principal Accounting Officer
<PAGE>
EXHIBIT 10.2(e)
CERTIFICATE OF OFFICER
WITH RESPECT TO AMENDMENT OF
THE 1994 STOCK OPTION PLAN
OF
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
I, the undersigned, being the duly elected, qualified and acting Secretary
of International Remote Imaging Systems, Inc., a Delaware corporation (the
"Company"), hereby certify on behalf of the Company that the following amendment
of Section 5 of the Company's 1994 Stock Option Plan (the "Plan") was duly
approved by the Board of Directors of the Company on March 17, 1996 and by the
stockholders of the Company on June 20, 1996:
The second paragraph of Section 5 of the Plan was amended to read
in its entirety as follows:
During the term of the Plan, a Non-Employee Director shall
be granted a nonqualified stock option to purchase 5,000
shares of Common Stock, subject to adjustment pursuant to
Section 16, on the date of each annual meeting of the
Company's shareholders (10,000 shares of Common Stock in the
case of the 1996 Annual Meeting) if his term has not expired
or he is re-elected at such annual meeting; PROVIDED,
HOWEVER, that the aggregate number of shares of Common Stock
subject to outstanding and unexercised stock options under
all of the IRIS stock option plans shall not exceed 25,000
with respect to any individual Non-Employee Director. A
Non-Employee Director may comply with such limit and
continue to receive options under this Section 5 by
voluntarily surrendering previously granted and unexercised
options.
Dated as of July 31, 1996.
/s/ E. Eduardo Benmaor
--------------------------------------------
E. Eduardo Benmaor, Secretary
<PAGE>
EXHIBIT 10.7(d)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as of
January 30, 1996 by and between International Remote Imaging Systems, a
California corporation ("COMPANY"), and Joseph S. Whittier, an individual
("EMPLOYEE").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to employ Employee, and
Employee hereby accepts employment with the Company, on the terms set forth in
this Agreement for a period commencing as of January 30, 1996 (the "EFFECTIVE
DATE") and terminating on January 30, 1997 unless terminated sooner in
accordance with the provisions of Section 8 (Termination).
2. TITLE AND DUTIES. Employee shall be a Vice President of the Company's
StatSpin subsidiary and shall report to its general manager. Subject to the
supervisory powers of the general manager, Employee shall be responsible for the
general supervision and direction of the subsidiary's sales and marketing,
customer service and technical support functions in accordance with the policies
of the Company and perform such other duties as the general manager may
determine from time to time. Employee will devote his full working time to the
performance of his duties, primarily located in the Boston area, but is expected
to travel extensively on an as-needed basis.
3. BASE SALARY. The Company will pay Employee a base salary to be
determined annually by the Compensation Committee of the Board of Directors, and
in no event less than $3,076.92 paid biweekly.
4. BONUSES. The minimum bonus of $7,000 guaranteed by StatSpin for the
first year of Employee's current employment will be honored and paid no later
than March 31, 1996. Thereafter, the Employee shall participate in the
Management Incentive Bonus program as administered by the Compensation
Committee.
5. STOCK OPTIONS. The Employee shall be eligible to participate in
Company's 1994 Stock Option Plan, and will receive an initial grant of 8,000
shares at the Company's first Board of Directors meeting after the Effective
Date at then fair market value, with vesting of 4,000 shares at 6 months and the
remaining 4,000 shares at one year.
6. STOCK PURCHASES. The Employee shall be eligible to participate in the
Company's Employee Stock Purchase Plan.
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<PAGE>
7. BENEFITS. The Company will continue to provide Employee with
a. The current insurance benefits he is receiving from StatSpin
Technologies;
b. Participation in the Company's 401(k) retirement plan;
c. Reimbursement for one airline club membership and membership in
the Biomedical Marketing Association;
d. Paid vacation of 3 weeks in accordance with Employee's Original
Contract with StatSpin Technologies;
e. Paid holidays and sick leave in accordance with the Company's
policies;
8. TERMINATION. The Company and Employee acknowledge that the employment
relationship created by this Agreement is "at-will" and may be terminated at any
time by either party without cause. In the event of such termination, the
Company shall pay employee (i) a pro rata portion of any cash bonus for the year
(payable in the ordinary course when such bonus is otherwise due) and (ii) a
lump sum cash amount for all accrued and unused vacation time. If the Company
terminates Employee's employment without cause on or before the first
anniversary of the Effective Date, the Company shall also continue to pay
Employee his base salary and all benefits for the remainder of the term of this
Agreement. For purposes of this Agreement, the Company shall be deemed to have
terminated Employee "with cause" if such termination is based primarily upon any
of the following:
a. Employee's continued failure to follow the reasonable
instructions of the general manager of the StatSpin subsidiary;
b. Employee's breach of any material provision of this Agreement (or
the Employee Acknowledgment, Invention and Secrecy Agreement referred to in
Section 9) after written notice and a reasonable opportunity to cure;
c. Employee's final conviction (after exhaustion of appeals) of, or
plea of nolo contendere or guilty to, a felony; or
d. Any criminal theft from the Company.
The Company shall not have any obligation to make any payment or provide
any benefit under this Section 8 unless and until Employee executes a written
agreement, in form and substance reasonably satisfactory to the Company,
releasing Company (and its officers, directors, employees, agents, affiliates,
successors and assigns) from any and all liability and claims in connection with
the termination of Employee's employment.
-2-
<PAGE>
9. CONFIDENTIALITY, INVENTIONS AND RELATED MATTERS. Employee will sign
and deliver to the Company a copy of the Company's standard form "Employee
Acknowledgment, Invention and Secrecy Agreement".
10. GENERAL.
10.1 COMPLETE AGREEMENT. This Agreement and any agreements referred
to herein or executed contemporaneously herewith constitute the entire agreement
and understanding between the parties to this Agreement and supersede all prior
and contemporaneous negotiations and understandings between the parties, whether
oral or written. In the event of any inconsistency between this Agreement and
the Employee Acknowledgment, Invention and Secrecy Agreement referred to in
Section 9, this Agreement shall control.
10.2 AMENDMENTS, WAIVERS, ETC. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms, conditions
or covenants hereof may be waived, only by a written instrument executed by both
parties to this Agreement, or in the case of a waiver, by the party waiving
compliance. The failure of a party at any time or times to require performance
of any provision hereof will in no manner affect its right at a later time to
enforce the same. No waiver by a party of the breach of any term or covenant
contained in the Agreement, whether by conduct or otherwise, in any one or more
instances, will be deemed to be, or construed as, a further or continuing waiver
of any such breach, or a waiver of the breach of any other term or covenant
contained in the Agreement.
10.3 NOTICES. Unless otherwise specifically permitted by this
Agreement, all notices under this Agreement shall be in writing and shall be
delivered by personal service, facsimile, telegram, or certified mail (or, if
certified mail is not available, then by first class mail), postage prepaid, to
such address as may be designated from time to time by the relevant party, and
shall initially be:
(i) To the Company:
International Remote Imaging Systems, Inc.
9162 Eton Avenue
Chatsworth, CA 91311
Attn: F. H. Deindoerfer, Chairman
(ii) To the Employee:
StatSpin Technologies
85 Morse Street
Norwood, MA 02062
Attn: Joseph S. Whittier
-3-
<PAGE>
Any notice sent by certified mail shall be deemed to have been given
three (3) days after the date on which it is mailed. All other notices shall be
deemed given when received. No objection may be made to the manner of delivery
of any notice actually received in writing by an authorized agent of a party.
10.4 ASSIGNMENT: SUCCESSORS AND ASSIGNS. Employee may not assign
any of his rights or obligations under this Agreement. The Company may not
assign any of its rights or obligations under this Agreement EXCEPT in
connection with any sale, transfer or other disposition of all or substantially
all of its or StatSpin's business and assets, whether by merger, purchase of
stock or assets or otherwise. This Agreement will be binding upon, and will
inure to the benefit of, the respective successors and permitted assigns of the
parties.
10.5 SEVERABILITY. In the event that any provision of this Agreement
should be held to be void, voidable, unlawful or for any reason unenforceable,
the remaining provisions or portions of the Agreement will remain in full force
and effect.
10.6 ADDITIONAL DOCUMENTS AND ACTIONS. Employee and Company agree to
execute any and all further documents and writings and to perform such other
actions which may be or become necessary or expedient to effectuate and carry
out the intent of this Agreement.
10.7 HEADINGS. The headings in this Agreement are included solely
for convenience of reference and are not intended to affect or control the
meaning or interpretation of any of the provisions of the Agreement.
10.8 ARBITRATION AS EXCLUSIVE REMEDY. Any dispute or controversy
arising out of or relating to this Agreement or the employment relationship
between the parties shall be settled by arbitration in Boston, Massachusetts,
but otherwise in accordance with the provisions of the Employee Acknowledgment,
Invention and Secrecy Agreement referred to in Section 9.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
"THE COMPANY"
By: /s/ Fred H. Deindoerfer
-----------------------------------------------
"THE COMPANY"
By: /s/ Joseph S. Whittier
-----------------------------------------------
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<PAGE>
EXHIBIT 10.8(b)
REGISTRATION RIGHTS AND STANDSTILL AGREEMENT
This REGISTRATION RIGHTS AND STANDSTILL AGREEMENT (the "AGREEMENT") is made
and entered into as of July 31, 1996, by and between INTERNATIONAL REMOTE
IMAGING SYSTEMS, INC., a Delaware corporation ("IRIS"), and DIGITAL IMAGING
TECHNOLOGIES, INC., a Delaware corporation ("DITI"), with reference to the
following facts:
A. Pursuant to an Asset Purchase Agreement (the "ASSET PURCHASE
AGREEMENT") dated as of July 15, 1996, by and among IRIS, on the one hand, and
DITI and certain of its subsidiaries, on the other hand, IRIS is purchasing
substantially all of the assets of DITI and such subsidiaries.
B. IRIS and DITI desire that the consideration for the assets include a
warrant to purchase shares of IRIS Common Stock. IRIS is willing to issue the
warrant subject to the standstill provisions set forth herein, and DITI is
willing to accept the warrant with the registration rights set forth herein.
NOW, THEREFORE, based on the above premises and in consideration of the
mutual covenants and agreements contained herein, the parties agree as follows:
1. CERTAIN DEFINITIONS. The following terms shall have the respective
meanings set forth below:
1.1 "AFFILIATE" shall mean any person which, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
in common control with, a specified person.
1.2 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
1.3 "HOLDER" shall mean any person who at a given time is the
permitted holder of record of any Registrable Securities (or securities
convertible into Registrable Securities) and has agreed in writing to be bound
by the provisions of this Agreement.
1.4 "IRIS COMMON STOCK" shall mean the common stock, $.01 par
value per share, of IRIS, and any securities issued in exchange therefore or in
replacement thereof in connection with any reorganization, restructuring,
merger, consolidation or similar transaction.
<PAGE>
1.5 "IRIS WARRANT" shall mean the warrant to purchase 875,000
shares of IRIS Common Stock at an exercise price of $8.00 per share exercisable
for a period of five years from the date hereof issued in connection with the
consummation of the transactions contemplated by the Asset Purchase Agreement.
1.6 "REGISTRATION PERIOD" shall mean the period of time
beginning on the first (1st) anniversary of the date hereof and ending on (and
including) the fifth (5th) anniversary of such date; PROVIDED, HOWEVER, that the
Registration Period shall be extended as required under (i) the last sentence of
Section 9 (Exception as to Timing) if IRIS elects to exercise its right to
postpone a demand registration and (ii) the last sentence of Section 4.6
(Prospectus Delivery) if IRIS suspends the sale Registrable Securities as
permitted thereunder.
1.7 "REGISTRABLE SECURITIES" shall mean those shares of IRIS
Common Stock issued upon exercise of the IRIS Warrant, or as a dividend or other
distribution with respect to, or in exchange or replacement of, such shares of
IRIS Common Stock.
1.8 "REGISTRATION STATEMENT" shall mean any registration
statement or comparable document under the Securities Act through which a public
sale or disposition of the IRIS Common Stock may be registered or exempted from
registration (except a form exclusively for the sale or distribution of
securities by IRIS to employees of IRIS or its subsidiaries or for use
exclusively in connection with a business combination).
1.9 "SELLING HOLDER" shall mean, with respect to any
Registration Statement, any Holder whose securities are included therein.
1.10 "SELLER'S UNDERWRITER" shall mean, with respect to any
Registration Statement, the underwriter, if any, designated in writing by the
Selling Holders as underwriting the Registrable Securities involved and
reasonably acceptable to IRIS.
1.11 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
1.12 "SIGNIFICANT HOLDERS" shall mean, at any time, Holders
together holding more than 50% of the then outstanding Registrable Securities
held by the Holders (treating securities convertible into Registrable Securities
as if they had been converted and were outstanding).
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<PAGE>
1.13 "TRANSFER" shall mean sell, transfer, assign, hypothecate,
encumber or otherwise dispose, whether voluntarily or involuntarily, whether by
gift, bequest or otherwise.
1.14 "WARRANT SHARES" shall mean shares of IRIS Common Stock
issuable upon exercise of the IRIS Warrant, or as a dividend or other
distribution with respect to, or in exchange or replacement of, such shares of
IRIS Common Stock.
2. DEMAND REGISTRATION.
2.1 NOTICE OF DEMAND. At any time during the Registration
Period, the Significant Holders may by written notice request that IRIS register
Registrable Securities under the Securities Act. The maximum number of such
demands shall be one (1). The notice of demand shall set forth (i) the number
of shares to be included, (ii) the names of the Selling Holders and the amounts
to be sold by each, and (iii) the proposed manner of sale. Within ten (10) days
after receipt of such notice, IRIS shall notify all other Holders and offer to
them the opportunity to include their Registrable Securities in such
registration. Each of the other Holders shall have twenty (20) days from the
mailing of such notice to notify IRIS of the number of Registrable Securities
such Holder desires be included in the Registration Statement, but IRIS shall
have no obligation to include the Registrable Securities of any such Holder in
the Registration Statement if IRIS does not receive the required notice within
such 20-day period.
2.2 REGISTRATION. Promptly, but in any event within 60 days,
after receipt of any demand pursuant to Section 2.1, IRIS shall prepare and file
with the Securities and Exchange Commission (the "SEC"), a Registration
Statement on any applicable form, with respect to all the Registrable Securities
specified in a notice received in a timely manner pursuant to Section 2.1, and
thereafter use its best efforts to cause such Registration Statement to become
effective. IRIS shall use its best efforts to keep such Registration Statement
continuously effective for two (2) years; PROVIDED, HOWEVER, that IRIS may, at
any time temporarily suspend the effectiveness of the Registration Statement in
accordance with the provisions of Section 9. During such suspension, Selling
Holders shall discontinue sales or other dispositions of Registrable Securities
pursuant to the Registration Statement.
2.3 LISTING OF SHARES. Promptly, but in any event within 60
days, after receipt of any demand pursuant to Section 2.1, IRIS shall prepare
and file with the principal securities exchange on which the IRIS Common Stock
is then traded an additional listing application with respect to all the
Registrable Securities specified in a notice received in a timely manner
pursuant to Section 2.1, and use its best efforts to cause such Registrable
Securities to be approved for listing on such exchange upon official notice of
issuance.
3. INCIDENTAL REGISTRATION. Whenever during the Registration Period IRIS
proposes to file a Registration Statement for the sale by it of shares of IRIS
Common
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Stock, except in connection with a demand under Section 2, IRIS shall take the
following steps:
3.1 NOTICE. Mail a written notice to each Holder at the address
shown on the books and records of IRIS at least forty-five (45) days prior to
the effective date of any such Registration Statement.
3.2 REGISTRATION. Include in such Registration Statement any
and all Registrable Securities specified in a notice by the Holder which is
received by IRIS not less than thirty (30) days following the mailing of the
notice specified in Section 3.1. In connection with any such registration, the
Selling Holder must: (i) sell such Registrable Securities in the manner and on
the terms adopted by or through the underwriter(s) acting on behalf of IRIS in
connection with such registration, if such underwriter(s) so requests; and
(ii) accept a reduction (including a total elimination) in the number of shares
to be included in such registration on a pro rata basis (based on the number of
securities held by each) with any other selling securityholders holding
contractual PARI PASSU registration rights if the underwriter(s) reasonably deem
that without such reduction (or elimination) IRIS might be substantially
hindered in the terms or number of securities which it could sell in such
registration.
3.3 LISTING OF SHARES. Promptly, but in any event within 60
days, after a notice received in a timely manner pursuant to Section 3.2, IRIS
shall prepare and file with the principal securities exchange on which the IRIS
Common Stock is then traded an additional listing application with respect to
all the Registrable Securities specified in such notice, and use its best
efforts to cause such Registrable Securities to be approved for listing on such
exchange upon official notice of issuance.
4. REGISTRATION PROCEDURES. Whenever IRIS shall register any securities
pursuant to this Agreement, the parties agree as follows:
4.1 SELLING STOCKHOLDER INFORMATION. Selling Holders shall
provide IRIS with such information about Selling Holders and their intended
manner of distributing the Registrable Securities, and shall otherwise cooperate
with IRIS and any underwriter(s) as may be needed or helpful in the reasonable
opinion of IRIS to complete any obligation of IRIS hereunder. Failure to comply
with this requirement shall excuse IRIS from any further obligation to Selling
Holders to file a Registration Statement on their behalf or include their
Registrable Securities in a Registration Statement.
4.2 CONSULTATION. IRIS shall supply copies of any Registration
Statement, any amendment thereto and any communications with the SEC related
thereto to Selling Holders and to the Seller's Underwriter prior to filing such
document with the SEC, and shall reasonably consult with such persons and their
counsel with respect to the form and content of such filing. IRIS will
immediately amend such Registration Statement to include such reasonable changes
as Selling Holders and the Seller's Underwriter reasonably agree should be
included therein.
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4.3 PROVISION OF PROSPECTUSES. IRIS shall furnish to Selling
Holders and any Underwriter such number of copies of a summary prospectus or
other prospectus (including any amendments and supplements thereto and a
preliminary prospectus in conformity with the requirements of the Securities
Act) and such other documents as the Selling Holders may reasonably request in
order to facilitate the public sale or other disposition of such securities.
4.4 BLUE SKY COMPLIANCE. IRIS shall use its best efforts to
register or qualify the securities covered by such Registration Statement under
the securities or "blue sky" laws of such jurisdictions as the Selling Holders
shall reasonably request (PROVIDED, HOWEVER, that IRIS shall not be required
(i) to consent to, or take any action which would subject it to, general service
of process for all purposes or (ii) to qualify to do business in any
jurisdiction where it is not then subject or qualified) and do any and all other
acts or things which may be reasonably necessary or advisable to enable the
Selling Holders to consummate the public sale or other disposition of such
securities in such jurisdictions.
4.5 AMENDMENTS. IRIS shall use its best efforts to prepare and
file promptly with the SEC such amendments and supplements to the Registration
Statement filed with the SEC in connection with such registration, and the
prospectus used in connection therewith, as may be necessary to keep such
Registration Statement continuously effective and in compliance with the
Securities Act for two (2) years, or until all Registrable Securities registered
in that Registration Statement are sold, whichever is earlier; PROVIDED,
HOWEVER, that IRIS may, at any time temporarily suspend the effectiveness of the
Registration Statement in accordance with the provisions of Section 9.
4.6 PROSPECTUS DELIVERY. At any time when a sale or other
public disposition pursuant to a Registration Statement is subject to a
prospectus delivery requirement, IRIS shall immediately notify the Selling
Holders and the Seller's Underwriter, if any, of the occurrence of any event as
a result of which 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 IRIS shall thereafter diligently proceed to amend the prospectus
as necessary to correct such untrue statement or omission of a material fact and
provide updates thereto. Upon receipt of such a notice, the Selling Holders
shall immediately discontinue sales or other dispositions of Registrable
Securities pursuant to the Registration Statement. Selling Holders may resume
sales only upon receipt of amended prospectuses or after Selling Holders have
been advised by IRIS that the use of the previous prospectus may be legally
resumed. The length of the Registration Period (as defined in Section 1.6)
shall be increased by the length of any postponement taken by IRIS hereunder.
4.7 OPINIONS. At the request of Selling Holders, IRIS shall use
its best efforts to furnish on the date that the Registrable Securities are
delivered to the
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Seller's Underwriter for sale in connection with a registration pursuant to this
Agreement (i) an opinion of the counsel representing IRIS for the purposes of
such registration, and (ii) a letter from the independent certified public
accountants of IRIS, each dated such date and in form and substance as is
customarily given by counsel and independent certified public accountants to
underwriters in an underwritten public offering, addressed to the Seller's
Underwriter and to Selling Holders.
4.8 STOP-ORDERS. IRIS agrees to immediately notify Selling
Holders (i) of the issuance by the SEC of any stop order or order suspending the
effectiveness of any Registration Statement or the initiation of any proceedings
for that purpose, or (ii) of the receipt by IRIS of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction, or the initiation of any proceedings for such purpose.
IRIS, with the reasonable cooperation of Selling Holders, shall make every
reasonable effort to contest any such proceedings and to obtain the withdrawal
of any such order at the earliest possible moment.
4.9 REVIEW OF RECORDS. IRIS shall make available all financial
and other records, pertinent corporate documents and properties of IRIS for
inspection by the Seller's Underwriter, and its counsel and accountants, and
shall cause IRIS's officers, directors and employees to supply all information
reasonably requested by any such person in connection with any Registration
Statement filed or to be filed hereunder so long as such person agrees to keep
confidential any records, information or documents provided by IRIS.
4.10 EARNINGS STATEMENTS. IRIS shall, upon the request of
Selling Holders, make earning statements satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder generally available
to its security holders as soon as reasonably practicable, but in no event later
than 45 days, after the end of any 12-month period commencing at the end of any
fiscal quarter in which Registrable Securities are sold.
4.11 COMPLIANCE WITH LAWS. In all actions taken under this
Agreement, IRIS and Selling Holders agree to use their best efforts to comply
with all provisions of the Securities Act, the Exchange Act and any other law
applicable to them.
5. FILING OF OTHER REGISTRATION STATEMENTS. Holders acknowledge and
understand that IRIS has granted demand registration rights with respect to
shares of IRIS Common Stock to other holders of its securities which could be
exercised concurrently with an exercise of the rights granted hereunder to
Holders.
6. DELAY OF REGISTRATION. Holders shall not have any right to take any
action to restrain, enjoin or otherwise delay the filing or effectiveness of any
Registration Statement on the basis of any controversy which might arise with
respect to the interpretation or implementation of this Agreement.
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7. INDEMNIFICATION AND CONTRIBUTION.
7.1 IRIS INDEMNITY. IRIS agrees that it will indemnify each
Selling Holder and Seller's Underwriter (and any of the officers, directors and
persons who control any of the foregoing within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) against all claims, losses,
damages, liabilities and expenses (including those relating to settlements
approved by IRIS, which consent shall not be unreasonably withheld) resulting
from any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or in any other document incident to
that registration) or from 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, except insofar as the same may have been contained in
(i) information furnished in writing to IRIS by such Selling Holder or the
Seller's Underwriter expressly for use therein, or (ii) the circumstances set
forth in Section 7.2(y) below.
7.2 SELLING HOLDER'S INDEMNITY. Each Selling Holder will
indemnify IRIS, any underwriter, and any other person selling under the
applicable Registration Statement (and any of the officers and directors and
persons who control any of the foregoing within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) against all claims, losses,
damages, liabilities and expenses (including those relating to settlements
approved by the Selling Holder, which consent shall not be unreasonably
withheld) resulting from (x) any untrue statement or alleged untrue statement of
a material fact contained in any registration statement (or in any other
document incident to that registration) or from any omission or alleged omission
to state a material fact required to be stated or necessary to make the
information therein not misleading, but only to the extent contained in any
information furnished in writing to IRIS by such Selling Holder expressly for
inclusion in that Registration Statement (or such other document incidental to
that registration), or (y) any untrue statement or alleged untrue statement of a
material fact contained in, or any omission or alleged omission of a material
fact from, a prospectus if (i) a later prospectus corrected the untrue statement
or alleged untrue statement, or omission or alleged omission, (ii) the Selling
Holder had notice of the later prospectus prior to confirmation of the sale to
the aggrieved purchaser, and (iii) there would have been no such liability but
for the failure of the Selling Holder to deliver such later prospectus to such
purchaser; PROVIDED, HOWEVER, that no Selling Holder shall be liable for any
claims hereunder in excess of the amount of net proceeds received by such
Selling Holder from the sale of Registrable Securities pursuant to such
Registration Statement.
7.3 CONTRIBUTION. If the indemnification provided for in this
Section 7 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein as a result of a judicial determination that such
indemnification may not be enforced in such case notwithstanding this Agreement,
the indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such
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proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expense, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty or such fraudulent misrepresentation.
8. EXPENSES OF REGISTRATION. IRIS shall bear all expenses (other than
brokerage or underwriting fees, expenses or commissions) incurred in connection
with any Registration Statement, including, without limitation, all registration
and filing fees (including all expenses incident to filing with the American
Stock Exchange), fees and expenses of complying with securities and blue sky
laws, printing expenses and fees and disbursements of the independent certified
public accountants and counsel to IRIS. Selling Holders shall bear any
brokerage or underwriting fees, expenses or commissions and the cost of any
lawyers, accountants, experts and other consultants retained by them.
9. EXCEPTION AS TO TIMING. Notwithstanding any other section of this
Agreement, IRIS may at any time postpone or suspend for a reasonable period of
time (not to exceed 180 days) the filing or effectiveness of any Registration
Statement demanded under Section 2, if (a) IRIS is conducting or is about to
conduct a primary offering of other securities of IRIS and is advised by its
investment banker in writing that such offering would be materially adversely
affected by such demanded registration or (b) the board of directors of IRIS
shall in good faith determine that such demand registration would materially
adversely affect any financing, merger, sale of assets, acquisition,
recapitalization or other material transaction involving IRIS, which, in each
case, is either pending or under active and continuing negotiation. The length
of the Registration Period (as defined in Section 1.6) shall be increased by the
length of any postponement taken by IRIS hereunder. If IRIS suspends the
effectiveness of a Registration Statement, Selling Holder shall immediately
discontinue sales or other dispositions of Registrable Securities pursuant to
the Registration Statement during the period of such postponement, and the
length of time IRIS is required to keep such Registration Statement effective
under Sections 2.2 and 4.5 shall be increased by the length of the postponement.
IRIS may suspend the effectiveness of a Registration Statement by giving written
notice of the suspension to Selling Holders and shall not be required to make
any filings with the Securities Exchange Agreement relating to such suspension
other than those required by law.
10. TERMINATION. Holders shall have no further rights under Sections 2
or 3 at any time after the Registration Period.
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11. STANDSTILL AGREEMENT. Until the IRIS Warrant has been fully exercised
or expires, and so long thereafter as the Holders and their Affiliates
collectively own 50% or more of the Warrant Shares, none of the Holders nor any
of their Affiliates will in any manner, directly or indirectly: (a) effect or
seek, offer or propose (whether publicly or otherwise) to effect, or cause or
participate in or in any way assist any other person to effect or seek, offer or
propose (whether publicly or otherwise) to effect or participate in, (i) any
acquisition of any securities (or beneficial ownership thereof) or assets of
IRIS (EXCEPT that the officers of DITI may, in their individual capacities,
acquire additional shares of IRIS Common Stock on the principal exchange where
the IRIS Common Stock is traded provided that (a) such officers collectively do
not at any time own beneficially more than one percent (1%) of outstanding
shares of IRIS Common Stock and (b) such acquisitions are not made while in
possession of material, non-public information regarding IRIS or the assets or
business purchased from DITI), (ii) any tender or exchange offer, merger or
other business combination involving IRIS, (iii) any recapitalization,
restructuring, liquidation, dissolution or other extraordinary transaction with
respect to IRIS or (iv) any "solicitation" of "proxies" (as such terms are used
in the proxy rules of the Securities and Exchange Commission) or consents to
vote any voting securities of IRIS; (b) form, join or in any way participate in
a "group" (as defined under the Exchange Act) with respect to the securities of
IRIS; (c) otherwise act, alone or in concert with others, to seek to control or
influence the management, Board of Directors or policies of IRIS (other than, in
the case of DITI, through the nomination and service of one (1) director as
provided in the Asset Purchase Agreement); (d) take any action which might force
IRIS to make a public announcement regarding any of the types of matters set
forth in (a) above; or (e) enter into any discussions or arrangements with any
third party with respect to any of the foregoing. Holders also agree not to
request IRIS (or its directors, officers, employees or agents), DIRECTLY OR
INDIRECTLY, TO AMEND OR WAIVE ANY PROVISION OF THIS SECTION 11 (INCLUDING THIS
SENTENCE).
12. "LOCK-UP" AGREEMENT. In addition to the other resale restrictions
contained herein, if IRIS proposes to sell any securities to the public (a
"PUBLIC OFFERING") during the Registration Period, no Holder will during the
Lock-Up Period (as hereinafter defined), directly or indirectly, offer, sell,
contract to sell, or otherwise Transfer any shares of IRIS Common Stock.
Furthermore, each Holder shall execute and deliver to any underwriter(s) acting
on behalf of IRIS in connection with such Public Offering the form of "lock-up
agreement" customarily used by such underwriter(s) evidencing the restrictions
contained in this Section 12. For purposes of this Agreement, the term "LOCK-UP
PERIOD" shall mean the period beginning on the initial filing of a Registration
Statement for a Public Offering and ending 180 days after the actual
consummation of the Public Offering.
13. TRANSFER LIMITATIONS. Notwithstanding anything to the contrary
herein, no Holder may Transfer the IRIS Warrant, or any part thereof, except (i)
to an Affiliate who has executed and delivered to IRIS a written agreement to be
bound by the terms of this Agreement as a Holder and (ii) in accordance with the
terms of the Warrant Certificate for the IRIS Warrant.
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14. VOLUME LIMITATION ON SALES. Notwithstanding anything to the contrary
herein, the Holders shall not, individually or collectively, Transfer more than
One Hundred Nine Thousand Three Hundred Seventy-Five (109,375) Warrant Shares
(as adjusted for any subsequent stock splits) during any ninety-day period;
PROVIDED, HOWEVER that such volume limitation shall not apply to any Transfer to
an Affiliate or a member of the Transferring Holder's immediate family made
without consideration if such Affiliate or family member has executed and
delivered to IRIS a written agreement to be bound by the terms of this Agreement
as a Holder. In order to ensure compliance with the foregoing volume
limitation, each Holder shall provide IRIS and any other Holders with written
notice of such proposed Transfer of Warrant Shares at least 10 days (but not
more than 30 days) prior to such Transfer and of the consummation thereof within
10 days thereafter.
15. MISCELLANEOUS.
15.1 COMPLETE AGREEMENT. This Agreement and any documents
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Agreement may not be amended, altered or modified except by a
writing signed by the parties.
15.2 ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
subsequent Holders of Registrable Securities. Except as expressly provided
otherwise in this Agreement, none of the parties may assign or otherwise
Transfer any of its rights or obligations under this Agreement.
15.3 COOPERATION. Each party hereto agrees to execute any and
all further documents and writings and to perform such other actions which may
be or become necessary or expedient to effectuate and carry out this Agreement.
15.4 WAIVERS STRICTLY CONSTRUED. With regard to any power,
remedy or right provided herein or otherwise available to any party hereunder
(a) no waiver or extension of time shall be effective unless expressly contained
in a writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
15.5 SEVERABILITY. 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.
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15.6 NOTICES. All notices under this Agreement will be in
writing and will be delivered by personal service or facsimile or certified mail
(or, if certified mail is not available, then by first class mail), postage
prepaid, to such address as may be designated from time to time by the relevant
party, and which will initially be as set forth below. Any notice sent by
certified mail will be deemed to have been given three (3) days after the date
on which it is mailed. All other notices will be deemed given when received.
No objection may be made to the manner of delivery of any notice actually
received in writing by an authorized agent of a party. Notices will be
addressed as follows or to such other address as the party to whom the same is
directed will have specified in conformity with the foregoing:
(a) If to IRIS:
International Remote Imaging Systems, Inc.
9162 Eton Avenue
Chatsworth, California 91311
Attn: Fred H. Deindoerfer
Chairman of the Board and President
Telephone: (818) 709-1244
Facsimile: (818) 700-9661
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attn: Theodore E. Guth, Esq.
Telephone: (310) 277-1010
Facsimile: (310) 203-7199
(b) If to DITI:
Digital Imaging Technologies, Inc.
2950 North Loop West, Suite #1050
Houston, Texas 77092
Attn: James L. Hurn
Chief Executive Officer
Telephone: (713) 956-2165
Facsimile: (713) 956-2185
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With a copy to:
Andrews & Kurth LLP
Texas Commerce Tower
600 Travis, Suite 4200
Houston, Texas 77002
Attn: Robert V. Jewell, Esq.
Telephone: (713) 220-4200
Facsimile: (713) 220-4285
(c) If to any other Holder:
To the Holder's last address listed on the Company's books
and records.
15.7 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
without regard to the conflict of laws rules of the State of Delaware or any
other jurisdiction that would call for the application of the laws of any
jurisdiction other than the State of Delaware. Each party hereto hereby
irrevocably consents, for itself and its legal representatives, partners,
successors and assigns, to the exclusive jurisdiction of the Courts of the State
of Delaware for all purposes in connection with any action or proceeding that
arises from or relates to this Agreement, and further agrees that, subject to
Section 15.9 (Arbitration of Disputes), any action arising from or relating to
this Agreement shall be instituted and prosecuted only in the courts of the
State of Delaware, and hereby waives any rights it may have to personal service
of summons, complaint, or other process in connection therewith, and agrees that
service may be made by registered or certified mail to such party at the address
set forth for notice in the Asset Purchase Agreement.
15.8 ATTORNEYS' FEES. Should any litigation or arbitration be
commenced (including any proceedings in a bankruptcy court) between the parties
hereto or their representatives concerning any provision of this Agreement or
the rights and duties of any person or entity hereunder, the party or parties
prevailing in such proceeding shall be entitled, in addition to such other
relief as may be granted, to the reasonable attorneys' fees and court costs
incurred by reason of such litigation or arbitration.
15.9 ARBITRATION OF DISPUTES. Except for actions seeking
injunctive relief, which may be brought before any court having jurisdiction,
any claim arising out of or relating to (i) this Agreement, including, but not
limited to, its validity, interpretation, enforceability or breach, or (ii) the
relationship between the parties (including its commencement and termination)
which are not settled by agreement between the parties, shall be settled by
arbitration conducted exclusively in Wilmington, Delaware in accordance with the
arbitration provisions of the Asset Purchase Agreement. The parties hereby
consent to the in personam jurisdiction of the courts of the State of
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Delaware for purposes of confirming any such award and entering judgment
thereon. Each party agrees that the arbitration is its exclusive damage remedy
and expressly waives any right to seek redress in another forum.
15.10 AGREEMENT NEGOTIATED. The parties hereto are sophisticated
and have consulted legal counsel with respect to this transaction. As a
consequence, the parties do not believe that the presumptions of any statutory
or common law rule relating to the interpretation of contracts against the
drafter of any particular clause should be applied in this case and therefore
waive its effects.
15.11 HEADINGS. The Section headings in this Agreement are
inserted only as a matter of convenience, and in no way define, limit, or extend
or interpret the scope of this Agreement or of any particular Section.
15.12 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
*** [NEXT PAGE IS SIGNATURE PAGE] ***
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SIGNATURE PAGE TO REGISTRATION RIGHTS AND STANDSTILL AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Note to be duly
executed, as of the day and year first above written.
"IRIS"
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., a
Delaware corporation
By: /s/ Fred H. Deindoerfer
------------------------------------------
Name: Fred H. Deindoerfer
----------------------------------------
Title: Chairman and President
---------------------------------------
"DITI"
DIGITAL IMAGING TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ James L. Hurn
------------------------------------------
Name: James L. Hurn
----------------------------------------
Title: President
---------------------------------------
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EXHIBIT 10.8(c)
THESE WARRANTS AND THE SHARES OF COMMON STOCK ISSUABLE UPON THEIR EXERCISE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), NOR UNDER THE SECURITIES LAWS OR "BLUE SKY" LAWS OF ANY
STATE. AS A RESULT, SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR APPLICABLE EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS THEREOF. ANY SALE OR TRANSFER OF SUCH
SECURITIES, OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, IS
SUBJECT TO THE PRIOR DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE ISSUER THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
WARRANT CERTIFICATE
Series "F" No. 1 875,000 Warrants
WARRANTS TO PURCHASE SHARES OF
COMMON STOCK OF
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
VOID AFTER JULY 31, 2001
This certifies that, for value received, DIGITAL IMAGING TECHNOLOGIES,
INC., a Delaware corporation ("DITI"), is the registered holder of the number of
Warrants (the "WARRANTS") set forth above. Each Warrant entitles DITI, or its
permitted successors and assigns ("HOLDERS"), to purchase from INTERNATIONAL
REMOTE IMAGING SYSTEMS, INC., a Delaware corporation (the "COMPANY"), subject to
the terms and conditions set forth hereinafter, one fully paid and nonassessable
share (a "WARRANT SHARE") of common stock, $.01 par value per share, of the
Company for Eight Dollars ($8.00). The Warrants may be exercised at any time or
from time to time on or after the date hereof and will expire at 5:00 p.m., Los
Angeles time, on July 31, 2001, or if such date shall be a holiday or a day on
which banks are authorized to close, then the next following date which is
neither a holiday or a day on which banks are authorized to close (the
"EXPIRATION DATE"). Upon the Expiration Date, all rights
<PAGE>
evidenced by the Warrants shall cease and the Warrants shall become void.
Exercise of a Warrant Share shall be made by surrender of this Warrant
Certificate to the Company at its principal office located at 9162 Eton Avenue,
Chatsworth, California 91311 with the form of election to purchase appearing at
the end of this Warrant Certificate duly completed and signed, and accompanied
by payment of the Exercise Price in cash or by certified or official bank check
payable to the order of the Company.
1. DEFINITIONS. As used in this Warrant Certificate, the following terms
shall have the following meanings:
1.1 "CLOSING PRICE" shall mean the closing price per share of the
Common Stock on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or traded on any such
exchange, on the NASDAQ National Market System or, if not listed or traded on
any such exchange or system, the mean of the closing bid and asked prices per
share on NASDAQ or, if such quotations are not available, the fair market value
as reasonably determined by the Board of Directors of the Company or any
committee of such Board.
1.2 "COMMON STOCK" means (i) the class of stock designated as the
common stock, $.01 par value per share, of the Company on the date hereof or
(ii) any other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par value, or
from par value to no par value, or from no par value to par value. Unless the
context requires otherwise, all references to Common Stock and Warrant Shares in
this Warrant Certificate shall, in the event of an adjustment pursuant to
Section11 hereof, be deemed to refer also to any other securities or property
then issuable upon exercise of the Warrants as a result of such adjustment.
1.3 "EXERCISE PERIOD" shall mean the period from the date hereof to
5:00 p.m., Los Angeles time on the Expiration Date.
1.4 "EXERCISE PRICE" means Eight Dollars ($8.00) per share of Common
Stock, as adjusted from time to time pursuant to Section 11.
1.5 "EXPIRATION DATE" means July 31, 2001, or if such date shall be a
holiday or a day on which banks are authorized to close, then the next following
date which is neither a holiday or a day on which banks are authorized to close.
1.6 "REGISTRATION RIGHTS AND STANDSTILL AGREEMENT" means the
Registration Rights and Standstill Agreement dated as of even date herewith
between the Company and DITI.
2. EXERCISE. Each Warrant shall entitle the Holder to purchase one
Warrant Share (or such number of Warrant Shares as may result from adjustments
made from time to time as provided herein) upon the exercise thereof during the
Exercise Period at the Exercise Price; PROVIDED, HOWEVER, that the Warrants are
exercisable only for whole shares and cash will be paid in lieu of fractional
shares in accordance with Section 4.3.
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3. FORM OF WARRANT CERTIFICATE. All certificates representing the
Warrants ("WARRANT CERTIFICATES"), which may hereinafter be issued and the
forms of election to purchase shares to accompany such Warrant Certificates
shall be substantially in the form of this Warrant Certificate and may have such
letters, numbers or other marks of identification or designation and such
legends (including, without limitation, a legend referring to restrictions on
resale by statutory underwriters), summaries or endorsements printed thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Warrant Certificate, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of the National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the NASDAQ National Market System or any stock exchange on which the
Warrants may from time to time be listed. All Warrant Certificates shall be
executed on behalf of the Company by its President or any Vice President.
Warrants shall be dated as of the date of issuance either upon their initial
issuance or transfer by the Company.
4. DURATION AND EXERCISE OF WARRANTS.
4.1 (a) EXERCISE PERIOD. The Warrants may be exercised at any time
or from time to time during the Exercise Period. Upon the Expiration Date, all
rights evidenced by the Warrants shall cease and the Warrants shall become void.
(b) MANNER OF EXERCISE. Subject to the provisions of this
Warrant Certificate, the Holder shall have the right to purchase from the
Company (and the Company shall issue and sell to the Holder) the number of fully
paid and nonassessable Warrant Shares set forth on this Warrant Certificate (or
such number of Warrant Shares as may result from adjustments made from time to
time as provided in this Warrant Certificate), at the Exercise Price, upon (i)
surrender of the Warrant Certificate to the Company at its principal office
located at 9162 Eton Avenue, Chatsworth, California 91311 with the exercise form
attached hereto duly completed and signed by the Holder or by a duly appointed
legal representative thereof or by a duly authorized attorney and (ii) payment
in cash or in certified or official bank check payable to the order of the
Company of the Exercise Price for the Warrant Share or Warrant Shares in respect
of which such Warrant is then exercised. Upon surrender of a Warrant
Certificate, and payment of the Exercise Price, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the written order
of the Holder and in such name or names as Holder may designate, a certificate
or certificates for the number of Warrant Shares so purchased upon the exercise
of such Warrant, together with cash in respect of any fraction of a Warrant
Share issuable upon such surrender.
4.2 UNEXERCISED PORTION. In the event that less than all of the
Warrants represented by this Warrant Certificate are exercised before 5:00 p.m.,
Los Angeles time, on the Expiration Date, a new Warrant Certificate, duly
executed by the Company, will be issued for the remaining number of Warrants
exercisable pursuant to the Warrant Certificate so surrendered.
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4.3 NO FRACTIONAL SHARES. Warrants may not be exercised for a
fraction of a share. In lieu of issuing fractional shares, the Company will pay
an amount in cash equal to that fractional interest of the then current Closing
Price per share of Common Stock.
4.4 ADJUSTMENTS. The number of Warrant Shares to be received upon
the exercise of a Warrant is subject to adjustment from time to time as
hereinafter set forth.
5. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the original issuance of the Warrants and of the shares of
Common Stock issuable upon the exercise of Warrants; PROVIDED, HOWEVER, that the
Company shall not be required to (a) pay any tax which may be payable in respect
to any transfer involved in the transfer and delivery of Warrant Certificates or
the issuance or delivery of certificates for Warrant Shares in a name other than
that of the Holder upon the exercise of a Warrant or (b) issue or deliver any
certificate for Warrant Shares upon the exercise of any Warrants until any such
tax required to be paid under clause (a) shall have been paid, all such tax
being payable by the Holder at the time of surrender.
6. MUTILATED OR MISSING WARRANTS. In case any Warrant Certificate shall
be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of a substitution for the lost, stolen or destroyed
Warrant Certificate, a new Warrant Certificate of like tenor and evidencing the
number of Warrant Shares purchasable upon exercise of the Warrant Certificate so
mutilated, lost, stolen or destroyed, but only upon receipt of evidence
satisfactory to Company of such loss, theft or destruction of such Warrant
Certificate and indemnity, if requested, also satisfactory to it. Applicants
for such substitute Warrant Certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company may
prescribe. Any such new Warrant Certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
7. RESERVATION OF WARRANT SHARES; STOCK CERTIFICATES. The Company shall
at all times reserve for issuance and delivery upon exercise of the Warrants,
such number of Warrant Shares or other shares of capital stock of the Company
from time to time issuable upon exercise of the Warrants. All such shares shall
be duly authorized and, when issued upon such exercise, shall be validly issued,
fully paid and nonassessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free and clear of all
preemptive rights.
8. REGISTRATION OF WARRANTS AND WARRANT SHARES.
8.1 UNREGISTERED STATUS OF WARRANTS AND WARRANT SHARES. Neither the
Warrants nor the Warrant Shares have been registered under the Securities Act of
1933, as amended (the "SECURITIES ACT"), or qualified under applicable state
securities laws and may not be transferred, sold, assigned, pledged or otherwise
disposed of unless (i) a
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registration statement under the Securities Act shall have become effective with
respect thereto and all applicable qualifications under state securities laws
shall have been obtained with respect thereto or (ii) a written opinion from
counsel for the Holder reasonably satisfactory to the Company has been obtained
stating that no such registration or qualification is required.
8.2 REGISTRATION RIGHTS. The Holder is entitled to certain
registration rights from the Company as set forth in the Registration Rights and
Standstill Agreement.
9. EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT. Warrants may not be
transferred, sold, assigned, pledged or otherwise disposed of unless and until
IRIS receives from the transferee, buyer, assignee, pledgee or other recipient
(and from such person's spouse, if applicable) a written consent to be bound by
all of the terms and conditions of the Registration Rights and Standstill
Agreement. Subject to the preceding sentence and Section 8.1, Warrants may be
assigned or transferred, at the option of the Holder, upon surrender of Warrant
Certificates to the Company, accompanied (if so required by the Company) by a
written instrument or instruments of transfer in form satisfactory to the
Company, duly executed by the registered Holder or by a duly authorized
representative or attorney. Upon any such registration of transfer, a new
Warrant Certificate shall be issued to the transferee and the surrendered
Warrant Certificate shall be canceled by the Company. Any new Warrant or
Warrants issued pursuant to this Section 9 shall be dated as of the date of
issuance by the Company.
10. RIGHTS OF WARRANT CERTIFICATE HOLDER. The Holder shall not, by virtue
of being the holder of any Warrant Certificate or Warrants, be entitled to any
rights of a stockholder of the Company, either at law or in equity, and the
rights of the Holder are limited to those expressed in this Warrant Certificate.
11. ANTIDILUTION PROVISIONS. The Exercise Price, the number of Warrant
Shares that may be purchased upon the exercise of a Warrant and the number of
Warrants outstanding will be subject to change or adjustment as follows:
11.1 STOCK DIVIDENDS AND STOCK SPLITS. If at any time after the date
of the issuance of the Warrants and before 5:00 p.m., Los Angeles, time, on the
Expiration Date, (i) the Company shall fix a record date for the issuance of any
stock dividend payable in shares of Common Stock or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares of
Common Stock, then, on the record date fixed for the determination of holders of
Common Stock entitled to receive such dividend or immediately after the
effective date of such subdivision or split-up, as the case may be, the number
of shares to be delivered upon exercise of any Warrant will be appropriately
increased so that the Holder thereafter will be entitled to receive the number
of shares of Common Stock that the Holder would have owned immediately following
such action had the Warrant been exercised immediately prior thereto, and the
Exercise Price will be appropriately adjusted. The time of occurrence of an
event giving rise to an adjustment made pursuant to this Section 11.1 shall, in
the
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case of a subdivision, combination or reclassification, be the effective date
thereof and shall, in the case of a dividend or distribution, be the record date
thereof.
11.2 COMBINATION OF STOCK. If the number of shares of Common Stock
outstanding at any time after the date of the issuance of the Warrants and
before 5:00 p.m., Los Angeles time, on the Expiration Date shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of any Warrant will be
appropriately decreased so that the Holder thereafter will be entitled to
receive the number of shares of Common Stock that the Holder would have owned
immediately following such action had the Warrant been exercised immediately
prior thereto, and the Exercise Price will be appropriately adjusted.
11.3 REORGANIZATION. If any capital reorganization of the Company, or
any reclassification of the Common Stock, or any consolidation of the Company
with or merger of the Company with or into any other corporation or any sale,
lease or other transfer of all or substantially all of the assets of the Company
to any other person (including any individual, partnership, joint venture,
corporation, trust or group thereof), shall be effected in such a way that the
holders of the Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, upon exercise of
the Warrant Certificate, the Holder shall have the right to receive the kind and
amount of stock, securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer by a
holder of the number of shares of Common Stock that the Holder would have been
entitled to receive upon exercise of the Warrants had the Warrants been
exercised immediately before such reorganization, reclassification,
consolidation, merger or sale, lease or other transfer, subject to adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 11.
11.4 RECORD DATE ADJUSTMENTS. In any case in which this Section 11
requires that a downward adjustment of the Exercise Price shall become effective
immediately after a record date for an event, the Company may defer until the
occurrence of such event (A) issuing to the Holder exercised after such record
date and before the occurrence of such event the additional Warrant Shares
issuable upon such exercise by reason of the adjustment required by such event
over and above the Warrant Shares issuable upon such exercise before giving
effect to such adjustment and (B) paying to the Holder any amount in cash in
lieu of a fractional share pursuant to Section 4.3 hereof.
11.5 NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
requires any adjustment of the Exercise Price and/or the number of Warrant
Shares that may be issued, then and in each such case the Company shall give
notice thereof to the Holder, which notice shall state the Exercise Price and
number of shares purchasable after giving effect to such adjustment, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculated is based.
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11.6 SPECIAL DIVIDENDS. If (other than in a dissolution or
liquidation) securities of the Company (other than shares of Common Stock or
securities issued pursuant to a shareholder rights plan or any similar plan) or
assets (other than cash dividends payable out of retained earnings or out of any
amount legally available for dividends under the laws of the State of Delaware)
are issued by way of a dividend on outstanding shares of Common Stock, then the
Exercise Price shall be adjusted so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the close of
business on the record date for the determination of the stockholders entitled
to receive such dividend by a fraction, the numerator of which shall be the
Closing Price on such record date less the then fair market value as determined
by the Board of Directors of the Company, whose determination shall be
conclusive, of the portion of the securities or assets distributed applicable to
one share of Common Stock and the denominator of which shall be such Closing
Price. Such adjustment shall become effective immediately prior to the opening
of business on the day following such record date.
11.7 NO ADJUSTMENTS TO EXERCISE PRICE. No adjustments in the Exercise
Price in accordance with the provisions of this Section 11 need be made if such
adjustment would amount to a change in the Exercise Price of less than $.01;
PROVIDED, HOWEVER, that the amount by which any adjustment is not made by reason
of the provision of this Section shall be carried forward and taken into account
at the time of any subsequent adjustment in the Exercise Price.
11.8 READJUSTMENTS, ETC. If an adjustment is made pursuant to this
Section 11, and the event to which the adjustment relates does not occur, then
any adjustments in the Exercise Price or number of Warrant Shares that were made
in accordance with such paragraphs shall be adjusted back to the Exercise Price
and the number of Warrant Shares that were in effect immediately prior to the
record date for such event. In any case in which an adjustment is required
pursuant to this Section 11 as of the record date for a specified event, the
Company may elect to defer until the occurrence of such event the issuing to the
holder of any Warrant exercised after such record date the shares of Common
Stock and other securities, if any, issuable upon such exercise over and above
the shares of Common Stock and other securities, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
12. OFFICER'S CERTIFICATE. Whenever the number of Warrant Shares that may
be purchased upon exercise of the Warrants or the Exercise Price is adjusted as
required by the provisions of this Warrant Certificate, the Company will
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office an officer's certificate showing the adjusted number of Warrant
Shares that may be purchased upon exercise of the Warrants and the adjusted
Exercise Price, determined as herein provided, setting forth in reasonable
detail the facts requiring such adjustment and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by any registered holder of a Warrant
Certificate. The
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Company shall, forthwith after such adjustment, cause a copy of such certificate
to be mailed to each registered holder of a Warrant Certificate at the time of
such mailing. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any action referred to in Section 11 hereof.
13. NOTICE OF CERTAIN EVENTS.
13.1 At any time during the Exercise Period, in the event:
13.1.1 the Company authorizes the distribution to all holders of
the Common Stock of evidences of its indebtedness or assets (other than cash
dividends payable out of retained earnings or out of amounts legally available
for distribution under the laws of the State of Delaware or stock dividends or
securities issued pursuant to a shareholders rights plan or any similar plan);
or
13.1.2 of any capital reorganization or reclassification of the
Common Stock (other than a subdivision or combination of the outstanding Common
Stock and other than a change in par value of the Common Stock), or any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company is required (other than a consolidation or
merger in which the Company is the continuing corporation and that does not
result in any reclassification or change in the outstanding Common Stock) or of
the sale, lease or other transfer of all or substantially all of the assets of
the Company; or
13.1.3 of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then the Company will cause to be mailed to the Holder, at least 20 days before
the applicable record or effective date hereinafter specified, a notice stating
(A) the date as of which the holders of Common Stock of record entitled to
receive any such rights, warrants or distributions are to be determined or (B)
the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record will be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding-up.
14. TERMINATION. This Warrant Certificate shall terminate at 5:00 p.m.,
Los Angeles time, on the earlier of (i) the Expiration Date or (ii) the date
upon which all Warrants have been exercised.
15. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Warrant Certificate without the approval of the Holder
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions in regard to matters or questions arising
hereunder which the Company
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may deem necessary or desirable and which shall not adversely affect the
interests of the Holder.
The Company shall mail notice to the Holder, in accordance with Section 16
hereof, of any supplement or amendment affecting the rights of the Holder
effected pursuant to this Section 15, within 60 days of any such supplement or
amendment.
16. NOTICES. Any notice pursuant to this Warrant Certificate to be given
by the Holder to the Company shall be sufficiently given if sent by facsimile or
first-class mail, postage prepaid, addressed (until another address is
designated in writing by the Company) as follows:
International Remote Imaging Systems, Inc.
9162 Eton Avenue
Chatsworth, California 91311
Attention: Dr. Fred H. Deindoerfer
Telephone: (818) 709-1244
Facsimile: (818) 700-9661
Notices or demands authorized by this Warrant Certificate to be given or
made by the Company to the Holder shall be sufficiently given or made if sent by
facsimile or first-class mail, postage prepaid, addressed (until another address
is designated in writing by the Holder) as follows:
Digital Imaging Technologies, Inc.
2950 North Loop West, Suite 1050
Houston, Texas 77092
Attention: James L. Hurn
Telephone: (713) 956-2165
Facsimile: (713) 956-2185
Notices or demands authorized by this Warrant Certificate to be given or
made by the Company only need be given to any subsequent Holder(s) if the
Company has received written notice of the transfer of part or all the Warrants
to such subsequent Holder(s) in accordance with the terms of this Warrant
Certificate and shall be sufficiently given or made if sent by facsimile or
first-class mail, postage prepaid, addressed to the most recent address of such
subsequent Holder(s) as reflected on the Company's books (until another address
is designated in writing by such subsequent Holder(s)).
17. BENEFITS OF THIS WARRANT CERTIFICATE. Nothing in this Warrant
Certificate shall be construed to give to any person or corporation, other than
the Company and the Holder, any legal or equitable right, remedy or claim under
this Warrant Certificate; but this Warrant Certificate shall be for the sole and
exclusive benefit of the Company and the Holder.
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18. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
19. SUCCESSORS. All covenants and provisions of this Warrant Certificate
by or for the benefit of the Company or the Holder shall bind and inure to the
benefit of their respective successors and permitted assigns.
20. HEADINGS. The headings in this Warrant Certificate are inserted only
as a matter of convenience, and in no way define, limit, or extend or interpret
the scope of this Warrant Certificate or of any particular provision.
***[NEXT PAGE IS SIGNATURE PAGE]***
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SIGNATURE PAGE TO WARRANT CERTIFICATE
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officer.
"COMPANY"
INTERNATIONAL REMOTE IMAGING
SYSTEMS, INC., a Delaware corporation
By: /s/ Fred H. Deindoerfer
----------------------------------
Name: Fred H. Deindoerfer
-------------------------------
Title: Chairman and President
------------------------------
Date: July 31, 1996
------------------------------
S-1
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SUBSCRIPTION FORM
(To be executed if Holder desires
to exercise the Warrant Certificate)
The undersigned hereby irrevocably exercises this Warrant to purchase
____________ shares of Common Stock and herewith makes payment of $___________
in payment of the Exercise Price thereof on the terms and conditions specified
in this Warrant Certificate, surrenders this Warrant Certificate and all right,
title and interest herein to the Company and directs that the Warrant Shares
deliverable upon the exercise of such Warrants be registered in the name and at
the address specified below and delivered thereto.
Name________________________________________________
(Please Print or Type)
Address______________________________________________
City, State and Zip Code________________________________
Taxpayer Identification
or Social Security Number_____________________________
Dated:________________ _________________________________
Signature of Registered Holder
NOTICE
The signature to the foregoing Subscription Form must correspond to the
name as written upon the face of this Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
WARRANT ASSIGNMENT FORM
(To be executed by the Holder if such
Holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers
to:
Name________________________________________________
(Please Print)
Address______________________________________________
City, State and Zip Code________________________________
Taxpayer Identification
or Social Security Number_____________________________
the right to purchase up to ____________________ Warrant Shares represented by
this Warrant Certificate and does hereby irrevocably constitute and appoint
______________________________________________________________ to transfer said
Warrant on behalf of the Company, with full power of substitution in the
premises.
Dated:________________ _________________________________
Signature of Registered Holder
NOTICE
The signature to the foregoing Warrant Assignment Form must correspond to
the name as written upon the face of this Warrant Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT 10.8(d)
STOCKHOLDER GUARANTY
This STOCKHOLDER GUARANTY (the "GUARANTY") is made and entered into as of
July 31, 1996, by and among PSII Acquisition Corp., a Delaware corporation
("PSII ACQUISITION"), and Edward Randall III, an individual ("GUARANTOR"), with
reference to the following facts:
A. Guarantor owns all of the capital stock of Digital Imaging
Technologies, Inc., a Delaware corporation ("DITI"). DITI owns all of the
capital stock of Perceptive Scientific Instruments, Inc., a Delaware corporation
("PSII"), and Perceptive Scientific Technologies, Inc., a Delaware corporation
("PSTI"). (DITI, PSII and PSTI are sometimes hereinafter referred to
collectively as the "SELLER.")
B. PSII Acquisition is a newly-formed and wholly-owned subsidiary of
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., a Delaware corporation ("IRIS").
C. Pursuant to an Asset Purchase Agreement dated as of July 15, 1996 (the
"ASSET PURCHASE AGREEMENT"), by and among IRIS and Seller, IRIS agreed to
purchase substantially all of the assets of Seller. In accordance with
Section 12.6 of the Asset Purchase Agreement, IRIS has assigned its rights and
obligations thereunder to PSII Acquisition.
D. The Guarantor desires that PSII Acquisition consummate the acquisition
of such assets, and PSII Acquisition is willing to do so provided that certain
conditions are met, including the execution of this Guaranty by the Guarantor.
NOW, THEREFORE, based on the above premises and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. GUARANTY. Guarantor fully, irrevocably and unconditionally guarantees
and promises to cause each and every one Seller's obligations and liabilities
under the Asset Purchase Agreement when and as such obligations and liabilities
shall become due (collectively, the "OBLIGATIONS"), to be paid, performed,
satisfied or discharged strictly in accordance with the terms of the Asset
Purchase Agreement, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of
Seller with respect thereto.
2. LIMIT OF LIABILITY. Guarantor's liability under this Guaranty shall
not exceed in aggregate an amount equal to Sixteen Million Three Hundred Twenty-
Eight Thousand Dollars ($16,328,000).
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3. GUARANTOR'S OBLIGATIONS UNCONDITIONAL. The obligations of Guarantor
hereunder are independent of the Obligations, and separate action or actions may
be brought or prosecuted against Guarantor whether action is brought against
Seller or Seller is joined in any such action or actions. Guarantor agrees that
this is a guarantee of payment and not of collection and that his obligations
hereunder shall be unconditional, absolute and irrevocable and, without limiting
the generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect of any Obligation, by operation of law or otherwise;
(ii) any modification, waiver or amendment of any provision of, or
supplement or consent to, the Asset Purchase Agreement or any act or omission to
act hereunder or thereunder;
(iii) any change in the corporate existence, structure or ownership
of Seller (whether or not consented to by PSII Acquisition), or any insolvency,
bankruptcy, reorganization or other similar proceeding affecting Seller or any
of their assets or any resulting release or discharge of any obligation of
Seller;
(iv) the validity, regularity or enforceability of the Asset
Purchase Agreement as against Seller (except for PSII Acquisition's failure to
bring a claim for indemnity or any other remedy or recovery within the time
limit expressly imposed by the terms of the Asset Purchase Agreement), or the
absence of any action to enforce the same, or any provision of applicable law or
regulation purporting to prohibit the discharge by Seller of any Obligation;
(v) the obtaining of any judgment against Seller or any action to
enforce the same; or
(vi) any other act or omission to act or delay of any kind by any
other person or entity or any other circumstance whatsoever which might, but for
the provisions of this Section 3, constitute a legal or equitable discharge of
Guarantor's obligations hereunder (except for PSII Acquisition's failure to
bring a claim for indemnity or any other remedy or recovery within the time
limit expressly imposed by the Asset Purchase Agreement).
4. WAIVERS OF GUARANTOR. Guarantor hereby waives:
(i) notice of acceptance of this Guaranty or (except for notices
expressly required under the Obligations) of the nonpayment or nonperformance by
Seller, diligence, promptness, presentment, protest, dishonor, demand for
payment and notice of nonpayment or failure to perform on the part of Seller,
filing of claims with a court in the event of insolvency or bankruptcy of
Seller, and all other notices whatsoever;
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<PAGE>
(ii) any right or requirement that PSII Acquisition or any other
person or entity proceed first against, or exhaust any right or take any action
against, any other person or entities;
(iii) any defense arising by reason of any claim or defense based
upon an election of remedies by PSII Acquisition or any other person or entity
which in any manner impairs, reduces, releases or otherwise adversely affects
its subrogation or reimbursement rights or other rights to proceed against
Seller;
(iv) any defense arising by reason of the cessation of the
obligations, either in whole or in part, of Seller in a bankruptcy proceeding;
(v) any duty on the part of PSII Acquisition or any other person or
entity to disclose to Guarantor any matter, fact or thing relating to the
business, operations or condition of Seller, any of its assets, or any matter
contemplated by the Asset Purchase Agreement now known or hereafter known by any
other person or entity.
5. DISCHARGE ONLY UPON SATISFACTION IN FULL; REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. Guarantor's obligations hereunder shall remain in full force and
effect until all Obligations shall have been paid, performed, discharged and
satisfied in full. If, at any time, whether before or after the discharge of
all Obligations, any payment of any amount paid or payable by Seller under the
Asset Purchase Agreement is rescinded or must be otherwise restored or returned,
upon the insolvency, bankruptcy or reorganization of Seller, or otherwise,
Guarantor's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
6. FINANCIAL CONDITION OF SELLER. Guarantor represents to PSII
Acquisition that he is now and will be completely familiar with the business,
operations and condition (financial and otherwise) of Seller.
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT; MODIFICATIONS. This Guaranty and any
documents referred to herein or executed contemporaneously herewith constitute
the parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Guaranty may not be amended, altered or modified except by a
writing signed by the parties.
7.2 WAIVERS. With regard to any power, remedy or right provided
herein or otherwise available to any party hereunder (i) no waiver or extension
of time will be effective unless expressly contained in a writing signed by the
waiving party, and (ii) no alteration, modification or impairment will be
implied by reason of any previous waiver, extension of time, delay or omission
in exercise, or other indulgence.
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<PAGE>
7.3 COOPERATION. Each party hereto agrees to execute any and all
further documents and writings and perform such other reasonable actions which
may be or become necessary or expedient to effectuate and carry out this
Guaranty.
7.4 SUCCESSOR AND ASSIGNS. This Guaranty shall be binding upon and
inure to the benefit of the parties, their respective successors and permitted
assigns.
7.5 REMEDIES NOT EXCLUSIVE. Subject to Section 7.12 (Arbitration),
no remedy conferred by any of the specific provisions of this Guaranty is
intended to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies will not constitute a waiver of the right
to pursue other available remedies.
7.6 NOTICES. All notices under this Guaranty will be in writing
and will be delivered by personal service or facsimile or certified mail (or, if
certified mail is not available, then by first class mail), postage prepaid, to
such address as may be designated from time to time by the relevant party, and
which will initially be as set forth below. Any notice sent by certified mail
will be deemed to have been given three (3) days after the date on which it is
mailed. All other notices will be deemed given when received. No objection may
be made to the manner of delivery of any notice actually received in writing by
an authorized agent of a party. Notices will be addressed as follows or to such
other address as the party to whom the same is directed will have specified in
conformity with the foregoing:
(a) If to PSII Acquisition:
PSII Acquisition Corp.
9162 Eton Avenue
Chatsworth, California 91311
Attn: Fred H. Deindoerfer
Chairman of the Board and President
Telephone: (818) 709-1244
Facsimile: (818) 700-9661
With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attn: Theodore E. Guth, Esq.
Telephone: (310) 277-1010
Facsimile: (310) 203-7199
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<PAGE>
(b) If to Guarantor:
Edward Randall III
5851 San Felipe
Suite 850
Houston, Texas 77057
Telephone: (713) 952-6262
Facsimile: (713) 974-0671
With a copy to:
Andrews & Kurth LLP
Texas Commerce Tower
600 Travis, Suite 4200
Houston, Texas 77002
Attn: Robert V. Jewell, Esq.
Telephone: (713) 220-4200
Facsimile: (713) 220-4285
7.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Guaranty shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without regard to the conflict of laws rules of the State of
Delaware or any other jurisdiction that would call for the application of the
laws of any jurisdiction other than the State of Delaware. Each party hereto
hereby irrevocably consents, for itself and its legal representatives, partners,
successors and assigns, to the exclusive jurisdiction of the Courts of the State
of Delaware for all purposes in connection with any action or proceeding that
arises from or relates to this Guaranty, and further agrees that, subject to
Section 7.12 (Arbitration of Disputes), any action arising from or relating to
this Guaranty shall be instituted and prosecuted only in the courts of the State
of Delaware, and hereby waives any rights it may have to personal service of
summons, complaint, or other process in connection therewith, and agrees that
service may be made by registered or certified mail to such party at the address
set forth in Section 7.6 (Notices). IF, NOTWITHSTANDING THE FOREGOING, THE LAW
OF THE STATE OF CALIFORNIA IS APPLIED TO THIS GUARANTY, GUARANTOR, IN ADDITION
TO ANY OTHER WAIVERS CONTAINED HEREIN, HEREBY EXPRESSLY WAIVES ANY AND ALL
BENEFITS UNDER CALIFORNIA CIVIL CODE SECTIONS 2809, 2810, 2819, 2845, 2847,
2848, 2849 AND 2850.
7.8 ATTORNEYS' FEES. Should any litigation or arbitration be
commenced (including any proceedings in a bankruptcy court) between the parties
hereto or their representatives concerning any provision of this Guaranty or the
rights and duties of any person or entity hereunder, the party or parties
prevailing in such proceeding will be entitled to the reasonable attorneys' fees
and expenses of counsel and court costs incurred by reason of such litigation or
arbitration.
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<PAGE>
7.9 CONSTRUCTION. No term or provision of this Guaranty shall be
construed so as to require the commission of any act contrary to law, and
wherever there is any conflict between any provision of this Guaranty and any
present or future statute, law, ordinance, or regulation contrary to which the
parties have no legal right to contract, the latter shall prevail, but in such
event the provision of this Guaranty so affected shall be curtailed and limited
only to the extent necessary to bring it within the requirements of the law.
7.10 HEADINGS. The Section headings in this Guaranty are inserted
only as a matter of convenience, and in no way define, limit, or extend or
interpret the scope of this Guaranty or of any particular Section.
7.11 SEVERABILITY. The validity, legality or enforceability of the
remainder of this Guaranty shall not be affected even if one or more of the
provisions of this Guaranty shall be held to be invalid, illegal or
unenforceable in any respect. To the extent permitted by applicable law, the
parties hereby waive any provision of law that would render any provision hereof
prohibited or unenforceable in any respect.
7.12 ARBITRATION OF DISPUTES. Except for actions seeking injunctive
relief, which may be brought before any court having jurisdiction, any claim
arising out of or relating to (i) this Guaranty, including, but not limited to,
its validity, interpretation, enforceability or breach, or (ii) the relationship
between the parties (including its commencement and termination) which are not
settled by agreement between the parties, shall be settled by arbitration
conducted exclusively in Wilmington, Delaware before a board of three
arbitrators, one selected by each party, and the third by the two persons so
selected, all in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") then in effect. The notice of intent
to arbitrate shall name one arbitrator, and the party(ies) receiving the notice
shall name the second arbitrator within 15 days or the moving party may select
the second arbitrator from a list supplied by the AAA. In the event that these
two arbitrators cannot agree upon a third arbitrator within 15 days, then the
third arbitrator shall be selected from the list provided by the AAA with the
parties striking names in order with the party striking first to be determined
by the flip of a coin. The parties hereby consent to the in personam
jurisdiction of the courts of the State of Delaware for purposes of confirming
any such award and entering judgment thereon. In any arbitration proceedings
hereunder, (a) all testimony of witnesses shall be taken under oath;
(b) discovery will be allowed to the same extent as available under the rules
then applicable to civil actions under Delaware law; (c) upon conclusion of any
arbitration, the arbitrators shall render findings of fact and conclusions of
law in a written opinion setting forth the basis and reasons for any decision
reached and deliver such documents to each party to this Agreement along with a
signed copy of the award; and (d) the rules of evidence as then applicable to
civil actions under Delaware law shall be applied in the arbitration. Each
party agrees that the arbitration provisions of this Agreement are its exclusive
damage remedy and expressly waives any right to seek redress in another forum.
Each party shall bear the fees of the arbitrator appointed by it, and the fees
of the neutral arbitrators
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<PAGE>
shall be borne equally by each party during the arbitration, but the fees of all
arbitrators shall be borne by the losing party.
7.13 AGREEMENT NEGOTIATED. The parties hereto are sophisticated and
have consulted legal counsel with respect to this transaction. As a
consequence, the parties do not believe that the presumptions of any statutory
or common law rule relating to the interpretation of contracts against the
drafter of any particular clause should be applied in this case and therefore
waive its effects.
7.14 COUNTERPARTS. This Guaranty may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
*** [NEXT PAGE IS SIGNATURE PAGE] ***
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<PAGE>
SIGNATURE PAGE TO STOCKHOLDER GUARANTY
IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly
executed, as of the day and year first above written.
"PSII ACQUISITION"
PSII ACQUISITION CORP., a Delaware corporation
By: /s/ Fred H. Deindoerfer
--------------------------------------------
Name: Fred H. Deindoerfer
------------------------------------------
Title: President
-----------------------------------------
"GUARANTOR"
/s/ Edward Randall III
-----------------------------------------------
Edward Randall III
S-1
<PAGE>
EXHIBIT 10.8(e)
---------------
NON-COMPETITION AGREEMENT
This NON-COMPETITION AGREEMENT (the "AGREEMENT") is made and entered into
as of July 15, 1996, by and between EDWARD RANDALL III, an individual (the
"CONTROLLING STOCKHOLDER"), and PSII Acquisition Corp., a Delaware corporation
("PSII ACQUISITION"), with reference to the following facts:
A. The Controlling Stockholder owns all of the capital stock of Digital
Imaging Technologies, Inc., a Delaware corporation ("DITI"). DITI owns all of
the capital stock of Perceptive Scientific Instruments, Inc., a Delaware
corporation ("PSII"), and Perceptive Scientific Technologies, Inc., a Delaware
corporation ("PSTI"). (DITI, PSII and PSTI are sometimes hereinafter referred
to collectively as the "SELLER.")
B. PSII Acquisition is a newly-formed and wholly-owned subsidiary of
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., a Delaware corporation ("IRIS").
C. Seller is the owner of certain intellectual property and other assets
used in the business of developing, manufacturing and marketing digital image
processing and analysis products and services, including the proprietary
PowerGene-TM- product line of genetic analysis instruments.
D. Pursuant to an Asset Purchase Agreement (the "ASSET PURCHASE
AGREEMENT") dated as of July 15, 1996, by and among IRIS and Seller, IRIS agreed
to purchase substantially all of the assets of Seller. In accordance with
Section 12.6 of the Asset Purchase Agreement, IRIS has assigned its rights and
obligations thereunder to PSII Acquisition.
E. The Controlling Stockholder desires that PSII Acquisition consummate
the acquisition of such assets, and PSII Acquisition is willing to do so
provided that certain conditions are met, including the execution of this
Agreement by the Controlling Stockholder.
F. This Agreement is a material part of the consideration for the
consummation of the Asset Purchase Agreement by PSII Acquisition, and the
purchase price paid thereunder includes consideration for the covenants
contained in this Agreement.
NOW, THEREFORE, based on the above premises and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. AGREEMENT NOT TO COMPETE. For a period of five (5) years from the
date hereof (the "TERM"), the Controlling Stockholder will not, directly or
indirectly, engage
<PAGE>
in, own (other than as a holder of less than 5% of the outstanding capital stock
of a publicly traded corporation), manage, operate, join, control or participate
in the ownership, management, operation or control of any business engaged in
developing, manufacturing and/or marketing digital image processing or analysis
products or services in any city or county in the United States of America or
any comparable subdivision of any foreign country; PROVIDED, HOWEVER, that the
Controlling Stockholder may own, manage and operate a business engaged in the
Well Log Business. The Controlling Stockholder acknowledges that Seller is
currently engaged in substantial activities related to such business worldwide.
For purposes of this Agreement, "WELL LOG BUSINESS" shall mean the business of
developing, manufacturing and/or marketing digital image processing and analysis
products and services for use solely in the oil and gas exploration industry.
2. SOLICITATION OF EMPLOYEES. The Controlling Stockholder shall not
directly or indirectly, without the prior written consent of PSII Acquisition,
(i) hire any employee or consultant of PSII Acquisition for a period of two (2)
years from the date hereof or (ii) induce or take any action intended to induce
any employee or consultant of PSII Acquisition to cease providing or otherwise
alter the services provided to PSII Acquisition until the expiration of the
Term.
3. SOLICITATION OF CUSTOMERS. Until the expiration of the Term, the
Controlling Stockholder shall not directly or indirectly induce or attempt to
induce any customer of PSII Acquisition or any present customer of PSII, PSTI or
any of their subsidiaries to cease doing business with PSII Acquisition or to do
business with any of its then competitors or potential competitors.
4. USE OF NAME. Except as temporarily permitted under the Asset Purchase
Agreement in connection with the operation of the Well Log Business, the
Controlling Stockholder shall not use any names which in the reasonable opinion
of PSII Acquisition are confusingly similar to the name "Perceptive Scientific"
or any of the trademarks purchased under the Asset Purchase Agreement.
5. EQUITABLE RELIEF. The Controlling Stockholder acknowledges that the
covenants contained in Sections 1, 2, 3, and 4 hereof are reasonable and
necessary to protect the legitimate interests of PSII Acquisition, including,
without limitation, the goodwill acquired by PSII Acquisition under the Asset
Purchase Agreement, that PSII Acquisition would not have consummated the Asset
Purchase Agreement in the absence of such covenants, that any breach or
threatened breach of such covenants will result in irreparable injury to PSII
Acquisition and that the remedy at law for such breach or threatened breach
would be inadequate. Accordingly, the Controlling Stockholder agrees that PSII
Acquisition shall, in addition to any other rights or remedies which it may
have, be entitled to seek such equitable and injunctive relief as may be
available from any court of competent jurisdiction to restrain the Controlling
Stockholder from any breach or threatened breach of such covenants.
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<PAGE>
6. MISCELLANEOUS.
6.1 COMPLETE AGREEMENT. This Agreement and any documents referred to
herein or executed contemporaneously herewith constitute the parties' entire
agreement with respect to the subject matter hereof and supersede all
agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Agreement may not be amended, altered or modified except by a
writing signed by the parties.
6.2 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. None of the parties may assign any of his or its rights or obligations
under this Agreement without the prior written consent of the other; PROVIDED,
HOWEVER, that PSII Acquisition may assign its rights under this Agreement to a
subsidiary of PSII Acquisition or in connection with a merger, consolidation or
sale of substantially all of the assets of PSII Acquisition.
6.3 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
6.4 SEVERABILITY. 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. Further, if the period of time, the
extent of the geographic area, or the scope of the proscribed activities covered
by this Agreement should be deemed unenforceable, then this Agreement shall be
construed to cover the maximum period of time, geographic area and scope of
proscribed activities (not to exceed the maximum time, geographic area or scope
set forth herein) as may be valid under applicable law.
6.5 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
without regard to the conflict of laws rules of the State of Delaware or any
other jurisdiction that would call for the application of the laws of any
jurisdiction other than the State of Delaware. Each party hereto hereby
irrevocably consents, for itself and its legal representatives, partners,
successors and assigns, to the exclusive jurisdiction of the Courts of the State
of Delaware for all purposes in connection with any action or proceeding that
arises from or relates to this Agreement, and further agrees that, subject to
Section 6.7 (Arbitration of Disputes), any action arising from or relating to
this Agreement shall be instituted and prosecuted only in the courts of the
State of Delaware, and hereby waives any rights it may have to personal service
of summons, complaint, or
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<PAGE>
other process in connection therewith, and agrees that service may be made by
registered or certified mail to such party at the address set forth for notice
in the Asset Purchase Agreement.
6.6 ATTORNEYS' FEES. Should any litigation or arbitration be
commenced (including any proceedings in a bankruptcy court) between the parties
hereto or their representatives concerning any provision of this Agreement or
the rights and duties of any person or entity hereunder, the party or parties
prevailing in such proceeding shall be entitled, in addition to such other
relief as may be granted, to the reasonable attorneys' fees and court costs
incurred by reason of such litigation or arbitration.
6.7 ARBITRATION OF DISPUTES. Except for actions seeking injunctive
relief, which may be brought before any court having jurisdiction, any claim
arising out of or relating to (i) this Agreement, including, but not limited to,
its validity, interpretation, enforceability or breach, or (ii) the relationship
between the parties (including its commencement and termination) which are not
settled by agreement between the parties, shall be settled by arbitration
conducted exclusively in Wilmington, Delaware in accordance with the arbitration
provisions of the Asset Purchase Agreement. The parties hereby consent to the
in personam jurisdiction of the courts of the State of Delaware for purposes of
confirming any such award and entering judgment thereon. Each party agrees that
the arbitration is its exclusive damage remedy and expressly waives any right to
seek redress in another forum.
6.8 AGREEMENT NEGOTIATED. The parties hereto are sophisticated and
have consulted legal counsel with respect to this transaction. As a
consequence, the parties do not believe that the presumptions of any statutory
or common law rule relating to the interpretation of contracts against the
drafter of any particular clause should be applied in this case and therefore
waive its effects.
6.9 HEADINGS. The Section headings in this Agreement are inserted
only as a matter of convenience, and in no way define, limit, or extend or
interpret the scope of this Agreement or of any particular Section.
6.10 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
*** [NEXT PAGE IS SIGNATURE PAGE] ***
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<PAGE>
SIGNATURE PAGE TO NON-COMPETITION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
"THE CONTROLLING STOCKHOLDER"
/s/ Edward Randall III
---------------------------------------
Edward Randall III
"PSII ACQUISITION"
PSII ACQUISITION CORP., a Delaware
corporation
By: /s/ Fred H. Deindoerfer
---------------------------------
Name: Fred H. Deindoerfer
---------------------------------
Title: President
---------------------------------
S-1
<PAGE>
Exhibit 10.8(f)
---------------
DIRECTOR'S SERVICE AGREEMENT
DATE: 29 July 1996
THE PARTIES: INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., a Delaware
Corporation whose prime place of business is at 9162 Eton
Avenue, Chatsworth, California 91311, USA (hereinafter
`IRIS')
PERCEPTIVE SCIENTIFIC INTERNATIONAL LIMITED whose registered
office is at Halladale, Lakeside, Chester Business Park,
Wrexham Road, Chester CH4 9QT (hereinafter `the Company')
MR. ANTHONY G. LANDELLS of 2 Paddock Walk, Delamere Park,
Cuddington, Northwich, Cheshire CW8 2UQ (hereinafter `the
Director')
DIRECTIONS: These terms and expressions shall have the following
meanings in this Agreement:
`Associated Company' means any company which is a holding
company or a subsidiary company of the Company as defined in
sections 736 and 736A of the Companies Act 1985 as
substituted by section 144 of the Companies Act 1989.
`The Board' means the Board of Directors of the Company as
constituted from time to time of the Company.
`the Purchase Agreement' means the agreement dated 15 July
1996 between IRIS, Digital Imaging Technologies, Inc.,
Perceptive Scientific Instruments, Inc., and Perceptive
Scientific Technologies, Inc.
`Effective Date' means the closing date as defined by the
Purchase Agreement.
RECITALS: A IRIS has entered into the Purchase Agreement to effect
transfer of the assets of Perceptive Scientific Instruments,
Inc., and the shares of the Company.
B It is a condition precedent to the completion (referred to
therein as `the Closing') of the Purchase Agreement that,
inter alia, this Agreement has been entered into.
<PAGE>
C The Company wishes to employ the Director and the Director
wishes to serve the Company on the terms hereinafter
appearing.
D IRIS wishes the Company to employ the Director and wishes to
confer upon the Director the various benefits herein
referred to.
E Following the Effective Date, IRIS will own 100% of the
outstanding capital stock of the Company.
F Immediately after the Effective Date, IRIS shall appoint Mr.
Jeffrey S. Williams who is currently the Executive Vice
President and Chief Operating Officer of IRIS, as Chairman
of The Board (the `Chairman').
IT IS AGREED AS FOLLOWS:
1 COMMENCEMENT AND DURATION OF EMPLOYMENT
1.1 COMMENCEMENT
This Agreement shall commence on the Effective Date.
1.2 DURATION OF EMPLOYMENT
The date of commencement of continuous employment with the Company is 11
September 1992. This employment shall continue until determined by either
party giving notice in writing to the other. The Company shall employ the
Director and the Director shall serve the Company as Managing Director and
Chief Executive Officer subject to the provisions for termination of his
employment contained in this Agreement. The notice period required to
terminate this Agreement is not less than 4 months from the Director and
not less than 18 months from the Company, although the Director may not
terminate this Agreement for a period of two years following the Effective
Date.
2 DUTIES AND OBLIGATIONS OF THE DIRECTOR
The Director shall for so long as his employment continues:
Undertake and perform such duties and exercise such powers and functions in
relation to the Company and its businesses as the Chairman shall from time
to time reasonably assign to or vest in him in his capacity as Managing
Director and Chief Executive Officer and do so for any Associated Company
as the Chairman may from time to time reasonably require.
Devote the whole of his time, ability and attention to his duties on behalf
of the Company and of any Associated Company during normal working hours
Monday
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<PAGE>
to Friday inclusive and shall in addition, as may be required, work outside
or beyond normal working hours or at weekends or during holidays if
reasonably required to do so for the furtherance of the Company.
Comply with all proper and reasonable requirements and directions of the
Chairman.
3 LOCATION
The Director shall carry out his duties from the principal place of
business for the Company which shall be located in North West region of the
United Kingdom.
4 SALARY
The Company shall pay the Director during the course of his employment a
salary at the rate of L75,000 per annum payable in arrears by twelve equal
installments on the twenty first day of every month.
The rate of salary shall be reviewed upwards with effect from the first day
of January each year by the Chairman with the next annual review on or
about 1 January 1997 and any consequent increase in the rate of salary
shall be paid by the Company with effect from that date.
5 STOCK OPTIONS AND PURCHASES
In consideration of the Director's obligations and covenants herein IRIS
hereby agrees that:
The Director shall be eligible to participate in the IRIS 1994 Stock Option
Plan and will receive, subject to IRIS board of directors approval, an
initial option to purchase 45,000 shares in the capital of IRIS at 85% of
the then fair market value, of which 30,000 shall be issued at the first
IRIS board of directors meeting after the Effective Date and 15,000
immediately following the disposal of AIC Shares as detailed in clause 14.
Except as provided by the securities laws of the United Kingdom, the
Director shall be eligible to participate in the IRIS Employee Stock
Purchase Plan allowing the purchase of shares in the capital of IRIS at 50%
of their then current market price provided that in no event shall such
purchase price exceed 15% of the Director's total annual salary including
incentive payments, commissions and bonuses in any one year, with such plan
subject to change from time to time by the IRIS board of directors.
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<PAGE>
6 ADDITIONAL PAYMENTS
The Company shall pay to the Director an annual bonus during the course of
his employment subject to the achievement of certain Company performance in
respect of each complete accounting reference period of the Company. The
nature of the bonus scheme and the criteria for entitlement may be amended
for each accounting reference period having taken due regard to the
expectations of the business but the bonus paid shall be equivalent to no
less than 40% of salary for on target achievement each year.
The bonus scheme detailed below covers the 1996 accounting reference
period. This bonus scheme shall comprise of two independent elements, a
sales commission programme (equivalent to 20% of annual salary) and a
trading profit bonus plan (equivalent to 20% of annual salary). The
aggregate bonus payable to the Director upon the successful achievement of
both elements of the scheme shall therefore be L30,000 (equivalent to 40%
of annual salary) as detailed by the following formulae:
Sales Commission = L15,000 x Actual Sales Revenue/Budget
Sales Revenue
Trading Profit Bonus = L15,000 x Actual Trading Profit/Budget
Trading Profit
If the accounting reference period is extended or shortened, the targets
and bonus shall be altered proportionately.
If during any accounting reference period, Company achievements exceed
targets then any additional payments for over achievement shall be
determined by the IRIS Compensation Committee.
The Company shall make the payment of such bonus within one month of the
approval by auditors of the annual accounts.
7 CAR
The Company shall provide a car, which will be a Ford Scorpio 2.9 Litre 24V
or similar vehicle reasonably comparable in rental cost and suitable for
the Director to perform his duties for which the Company shall meet the
cost of insurance, maintenance and all running expenses including the costs
of fuel consumed during private use of the car.
The Director shall take proper care of the car and ensure that it is
correctly maintained and where appropriate shall do so in accordance with
the terms of the manufacturer's warranty and will observe all provisions
and conditions relating to the insurance policy.
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<PAGE>
The Director shall immediately on the termination of this Agreement, for
whatever reason, return the car together with its keys to the Company at
such place the Company may require.
8 OTHER BENEFITS
The Company shall:
Provide life insurance cover for the Director (payable to the personal
representatives of the Director) at the rate of four times his annual
salary.
Provide private medical insurance cover for the Director in accordance with
the scheme operated by the Company.
Provide director's liability insurance cover for the Director, subject to
IRIS board of directors approval.
Make contributions on behalf of the Director to a pension scheme operated
by the Company subject to the rules of such scheme as amended from time to
time, conditional upon the Director making as required all contributions
due from him in accordance with the provisions of such scheme.
At other benefits provided by the Company for the Director or his family
are provided at the Company's discretion and do not form part of any
contractual entitlement arising out of the Director's employment under this
Agreement.
9 HOLIDAYS
The Director shall be entitled to 25 working days' holiday in each calendar
year to be taken at such time or times, at his sole discretion, having
taken due regard to the requirements of the business of the Company or any
associated Company.
In respect of the holiday year in which the Director commences his
employment he shall be entitled to such proportion of his annual
entitlement as his initial period of employment bears to one calendar year.
10 EXPENSES
The Company shall procure the repayment to or reimburse the Director all
travelling, hotel and other expenses reasonably incurred by him in the
proper performance of his duties provided that the Director produces to the
Company sufficient evidence of the payment by him of such expenses as the
Company or its auditors may reasonably require.
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<PAGE>
The Company shall reimburse the Director the cost of subscriptions to all
professional bodies to which he may belong and which the Company may
require him to subscribe to as a condition of his employment.
The Company shall meet the cost of the Directors home telephone, fax and
car telephone rental charges and the cost of all calls conditional upon the
Director making a L10 contribution towards each quarterly account.
11 INCAPACITY, ILLNESS AND SICK PAY
If the Director shall at any time be incapacitated or prevented by illness,
injury, accident or any other circumstances beyond his control from
performing his duties under this Agreement for a total of up to twenty six
weeks absence in any period of twelve months, the Company shall for such
period continue to pay the Director his current level of annual salary such
payment to be inclusive of any statutory sick pay or social security
benefits.
If such period of absence extends beyond twenty six weeks, the Director
shall be covered to the extent coverage is available under, a long term
disablement insurance policy operated by the Company. If the Director
becomes a claimant on this said insurance policy, then at no time before
cessation of payments made under this policy shall the Director cease to be
an employee of the Company (albeit an unpaid employee), notwithstanding
that the Director may cease to hold office as a director.
12 CONFIDENTIALITY
Except as may be necessary for the proper performance of his duties the
Director shall not either before or after the termination of his employment
disclose or divulge to any person, firm or company any trade secret,
manufacturing process or information relating to the business methods,
customers or suppliers or finances or any other confidential information to
the Company or any Associated Company which the Director has obtained
during his employment before or after the Effective Date provided that this
clause shall not apply to any information which becomes public knowledge
other than director or indirectly through the default of the Director.
13 INVENTIONS
The Director shall assign to the Company all interest in any inventions,
discoveries, developments, improvements and innovations whether or not
patentable, (`Inventions') which the Director has developed or may help to
develop during his employment before and after the Effective Date. If
requested by the Company, the Director shall execute specific assignments
and other documents helpful or necessary to evidence ownership of such
Inventions and
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<PAGE>
assist the Company or any Associated Company in obtaining or defending
patents for such inventions.
14 NO CONFLICT OF INTEREST
Subject to the second paragraph of this clause, throughout the duration of
his employment, the Director shall not be directly or indirectly engaged,
concerned or interested in any other business or be involved in any way in
competition with the business of the Company or any Associated Company or
any business which is involved in a supply of goods or services to the
Company or Associated Company.
The Director currently holds 18,000 shares (`AIC Shares') of common stock
in Applied Imaging Corporation which is a private company that is
considered to be involved in competition with the business of the Company
and is currently pursuing an initial public offering (an `IPO'). Provided
that the IRIS board of directors shall have given its full approval to the
Director's participation in the IRIS Stock Option Plan as determined in
clause 5, the Director shall be obliged to dispose of the AIC Shares within
90 days following Applied Imaging Corporation's IPO.
15 TERMINATION OF DIRECTORSHIP
This Agreement shall terminate automatically by the Company serving notice
to that effect on the Director in the event that the Director:
Is disqualified from being a director or is prohibited by law from being a
director.
Be convicted of any criminal offense and is given a custodial sentence,
which in the reasonable opinion of the Company impairs the fitness of the
Director to carry out his duties under this Agreement.
Commits or be guilty of any serious or persistent breach or non-performance
of any of his obligations under this Agreement.
16 CONSEQUENCES OF TERMINATION
In the event that this Agreement is terminated for any reason:
The Director at the conclusion of his notice period, shall immediately
deliver to the Chairman or other representative of the Company all
documents (together with any copies) including notes, records, accounts,
memoranda, papers or data residing on computer media and any other items or
property relating to or concerning the business of the Company and any
Associated Company or any of its or their suppliers, agents, distributors
or customers.
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<PAGE>
The Director shall not for the duration of his notice period be employed or
act in any capacity for any other person, firm or company without the
consent of the Chairman in writing.
In the event that this Agreement is terminated by the Company for any
reason other than under clause 15:
The Director shall be entitled to salary, bonuses, commissions, additional
payments and all other benefits and entitlements hereunder throughout the
duration of the notice period specified in clause 1.2 hereof.
On receipt of such monies, the Director shall execute a written agreement,
releasing the Company (and its officers, directors, employees, agents,
affiliates, successors and assigns) from any and all liability and claims
in connection with the termination if this Agreement.
17 GRIEVANCE PROCEDURE
The Director shall refer any grievance which he may have arising out of his
employment under this Agreement to the Chairman.
18 GENERAL
18.1 COMPLETE AGREEMENT
This Agreement and any agreements referred to herein or executed
contemporaneously herewith constitute the entire agreement and
understanding between the parties to this Agreement and supersede all prior
and contemporaneous negotiations and understandings between the parties,
whether oral or written.
For the avoidance of doubt, the Director's Service Agreement dated 1
January 1994 between the Director and the Company shall continue in full
force and effect until the Effective Date when it shall automatically
terminate, be of no further force or effect and be superseded by this
Agreement.
The performance and obligations of the parties under this Agreement is
expressly made subject to the completion (or Closing) of the Purchase
Agreement. In the event the Purchase Agreement is not completed (or
closed), this Agreement shall automatically terminate and shall be of no
force or effect.
18.2 AMENDMENTS, WAIVERS, ETC.
This Agreement may be amended, modified, superseded, cancelled, renewed or
extended and the terms, conditions or covenants hereof may be waived, only
by a
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<PAGE>
written instrument executed by all parties to this Agreement, or in the
case of a waiver, by the party waiving compliance.
The failure of a party at any time or times to require performance of any
provision hereof will in no manner affect its right at a later time to
enforce the same.
No waiver by a party of the breach of any term or covenant contained in the
Agreement, whether by conduct or otherwise, in any one or more instances,
will be deemed to be, or construed as, a further or continuing waiver of
any such breach, or a waiver of the breach of any other term or covenant
contained in the Agreement.
18.3 NOTICES
Any notices, instruction or communication under this Agreement shall be in
writing and shall be delivered by personal service or certified mail (or if
certified mail is not available then by ordinary first class post) or by
such other means as may be appropriate in the circumstances, postage
prepaid, to such address as may be designated from time to time by the
relevant party and shall initially be the address of the parties stated in
this Agreement.
Any notice sent by certified mail shall be deemed to have been given three
(3) days after the date it was mailed. All other notices shall be deemed
given when received by the party to whom it was sent. No objection may be
made to the manner of delivery of any notice actually received in writing
by an authorized agent of a party.
18.4 ASSIGNMENT: SUCCESSORS AND ASSIGNS
The Director may not assign any of his rights or obligations under this
Agreement. Neither IRIS nor the Company may assign any of their rights or
obligations under this Agreement except in connection with any sale,
transfer or other disposition of all or substantially all of its business
and assets, whether by merger, purchase of stock or assets or otherwise.
This Agreement will be binding upon and will inure to the benefit of, the
respective successors and permitted assigns of the parties.
18.5 SEVERABILITY
In the event that any provision of this Agreement should be held to be
void, voidable, unlawful or for any reason unenforceable, the remaining
provisions or portions of the Agreement will remain in full force and
effect.
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<PAGE>
18.6 ADDITIONAL DOCUMENTS AND ACTIONS
The Director, the Company and IRIS agree to execute any and all further
documents and writing and to perform such other actions which may be or
become necessary or expedient to effectuate and carry out the intent of
this Agreement.
18.7 HEADINGS
The headings in this Agreement are included solely for convenience of
reference and are not intended to affect or control the meaning or
interpretation of any of the provisions of this Agreement.
18.8 LAW
This Agreement shall be governed by English law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
SIGNED FOR AND ON BEHALF OF INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., BY
/s/ Jeffrey S. Williams
-------------------------------------------
Jeffrey S. Williams (Executive Vice President and Chief Operating Officer)
SIGNED FOR AND ON BEHALF OF PERCEPTIVE SCIENTIFIC INTERNATIONAL LIMITED, BY
/s/ Paul Douglas
-------------------------------------------
Paul Douglas (Director)
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<PAGE>
SIGNED BY THE DIRECTOR
/s/ Anthony G. Landells
-------------------------------------------
Anthony G. Landells
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<PAGE>
EXHIBIT 10.8(g)
DIRECTOR'S SERVICE AGREEMENT
DATE: 29 July 1996
THE PARTIES: INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., a Delaware
Corporation whose prime place of business is at 9162 Eton
Avenue, Chatsworth, California 91311, USA (hereinafter
"IRIS")
PERCEPTIVE SCIENTIFIC INTERNATIONAL LIMITED whose registered
office is at Halladale, Lakeside, Chester Business Park,
Wrexham Road, Chester CH4 9QT (hereinafter "the Company")
MR PAUL DOUGLAS of 52 Ravenswood, The Coppice, Heaton,
Bolton Greater Manchester BL1 5TL (hereinafter "the
Director")
DIRECTIONS: These terms and expressions shall have the following
meanings in this Agreement:
"Associated Company" means any company which is a holding
company or a subsidiary company of the Company as defined in
sections 736 and 736A of the Companies Act 1985 as
substituted by section 144 of the Companies Act 1989.
"The Board" means the Board of Directors of the Company as
constituted from time to time of the Company.
"the Purchase Agreement" means the agreement dated 15 July
1996 between IRIS, Digital Imaging Technologies, Inc.,
Perceptive Scientific Instruments, Inc., and Perceptive
Scientific Technologies, Inc.
"Effective Date" means the closing date as defined by the
Purchase Agreement.
RECITALS: A IRIS has entered into the Purchase Agreement to effect
transfer of the assets of Perceptive Scientific Instruments,
Inc., and the shares of the Company.
B It is a condition precedent to the completion (referred to
therein as "the Closing") of the Purchase Agreement that,
inter alia, this Agreement has been entered into.
C The Company wishes to employ the Director and the Director
wishes to serve the Company on the terms hereinafter
appearing.
<PAGE>
D IRIS wishes the Company to employ the Director and wishes to
confer upon the Director the various benefits herein
referred to.
E Following the Effective Date, IRIS will own 100% of the
outstanding capital stock of the Company.
F Immediately after the Effective Date, IRIS shall appoint
Mr Jeffrey S Williams who is currently the Executive Vice
President and Chief Operating Officer of IRIS, as Chairman
of The Board (the "Chairman").
IT IS AGREED AS FOLLOWS:
1 COMMENCEMENT AND DURATION OF EMPLOYMENT
1.1 COMMENCEMENT
This Agreement shall commence on the Effective Date.
1.2 DURATION OF EMPLOYMENT
The date of commencement of continuous employment with the Company is
8 October 1992. This employment shall continue until determined by either
party giving notice in writing to the other. The Company shall employ the
Director and the Director shall serve the Company as Sales Director subject
to the provisions for termination of his employment contained in this
Agreement. The notice period required to terminate this Agreement is not
less than 4 months from the Director and not less than 12 months from the
Company, although the Director may not terminate this Agreement for a
period of two years following the Effective Date.
2 DUTIES AND OBLIGATIONS OF THE DIRECTOR
The Director shall for so long as his employment continues:
Undertake and perform such duties and exercise such powers and functions in
relation to the Company and its businesses as the Managing Director shall
from time to time reasonably assign to or vest in him in his capacity as
Sales Director and do so for any Associated Company as the Managing
Director may from time to time reasonably require.
Devote the whole of his time, ability and attention to his duties on behalf
of the Company and of any Associated Company during normal working hours
Monday to Friday inclusive and shall in addition, as may be required, work
outside or beyond normal working hours or at weekends or during holidays if
reasonably required to do so for the furtherance of the Company.
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<PAGE>
Comply with all proper and reasonable requirements and directions of the
Managing Director.
3 LOCATION
The Director shall carry out his duties from the principal place of
business for the Company which shall be located in North West region of the
United Kingdom.
4 SALARY
The Company shall pay the Director during the course of his employment a
salary at the rate of L52,000 per annum payable in arrears by twelve equal
installments on the twenty first day of every month.
The rate of salary shall be reviewed upwards with effect from the first day
of January each year by the Managing Director with the next annual review
on or about 1 January 1997 and any consequent increase in the rate of
salary shall be paid by the Company with effect from that date.
5 STOCK OPTIONS AND PURCHASES
In consideration of the Director's obligations and covenants herein IRIS
hereby agrees that:
The Director shall be eligible to participate in the IRIS 1994 Stock Option
Plan and will receive, subject to IRIS board of directors approval, an
initial option to purchase 29,000 shares in the capital of IRIS at 85% of
the then fair market value, of which 20,000 shall be issued at the first
IRIS board of directors meeting after the Effective Date and 9,000
immediately following the disposal of AIC Shares as detailed in clause 14.
Except as prohibited by the securities laws of the United Kingdom, the
Director shall be eligible to participate in the IRIS Employee Stock
Purchase Plan allowing the purchase of shares in the capital of IRIS at 50%
of their then current market price provided that in no event shall such
purchase price exceed 15% of the Director's total annual salary including
incentive payments, commissions and bonuses in any one year, with such plan
subject to change from time to time by the IRIS board of directors.
6 ADDITIONAL PAYMENTS
The Company shall pay to the Director an annual bonus during the course of
his employment subject to the achievement of certain Company performance in
respect of each complete accounting reference period of the Company. The
nature of the bonus scheme and the criteria for entitlement may be amended
for each accounting reference period having taken due regard to the
expectations of
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<PAGE>
the business but the bonus paid shall be equivalent to no less than 40% of
salary for on target achievement each year.
The bonus scheme detailed below covers the 1996 accounting reference
period. This bonus scheme shall comprise of two independent elements, a
sales commission programme (equivalent to 20% of annual salary) and a
trading profit bonus plan (equivalent to 20% of annual salary). The
aggregate bonus payable to the Director upon the successful achievement of
both elements of the scheme shall therefore be L20,800 (equivalent to 40%
of annual salary) as detailed by the following formulae:
Sales Commission = L10,400 x Actual Sales Revenue/Budget
Sales Revenue
Trading Profit Bonus = L10,400 x Actual Trading Profit/Budget
Trading Profit
If the accounting reference period is extended or shortened, the targets
and bonus shall be altered proportionately.
If during any accounting reference period, Company achievements exceed
targets then any additional payments for over achievement shall be
determined by the IRIS Compensation Committee.
The Company shall make the payment of such bonus within one month of the
approval by auditors of the annual accounts.
7 CAR
The Company shall provide a car, which will be a Ford Granada 2.0 Litre
Ghia or similar vehicle reasonably comparable in rental cost and suitable
for the Director to perform his duties for which the Company shall meet the
cost of insurance, maintenance and all running expenses including the costs
of fuel consumed during private use of the car.
The Director shall take proper care of the car and ensure that it is
correctly maintained and where appropriate shall do so in accordance with
the terms of the manufacturer's warranty and will observe all provisions
and conditions relating to the insurance policy.
The Director shall immediately on the termination of this Agreement, for
whatever reason, return the car together with its keys to the Company at
such place the Company may require.
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<PAGE>
8 OTHER BENEFITS
The Company shall:
Provide life insurance cover for the Director (payable to the personal
representatives of the Director) at the rate of four times his annual
salary.
Provide private medical insurance cover for the Director in accordance with
the scheme operated by the Company.
Provide director's liability insurance cover for the Director, subject to
IRIS board of directors approval.
Make contributions on behalf of the Director to a pension scheme operated
by the Company subject to the rules of such scheme as amended from time to
time, conditional upon the Director making as required all contributions
due from him in accordance with the provisions of such scheme.
At other benefits provided by the Company for the Director or his family
are provided at the Company's discretion and do not form part of any
contractual entitlement arising out of the Director's employment under this
Agreement.
9 HOLIDAYS
The Director shall be entitled to 25 working days' holiday in each calendar
year to be taken at such time or times, at his sole discretion, having
taken due regard to the requirements of the business of the Company or any
Associated Company.
In respect of the holiday year in which the Director commences his
employment he shall be entitled to such proportion of his annual
entitlement as his initial period of employment bears to one calendar year.
10 EXPENSES
The Company shall procure the repayment to or reimburse the Director all
travelling, hotel and other expenses reasonably incurred by him in the
proper performance of his duties provided that the Director produces to the
Company sufficient evidence of the payment by him of such expenses as the
Company or its auditors may reasonably require.
The Company shall reimburse the Director the cost of subscriptions to all
professional bodies to which he may belong and which the Company may
require him to subscribe to as a condition of his employment.
The Company shall meet the cost of the Directors home telephone, fax and
car telephone rental charges and the cost of all calls conditional upon the
Director making a L10 contribution towards each quarterly account.
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<PAGE>
11 INCAPACITY, ILLNESS AND SICK PAY
If the Director shall at any time be incapacitated or prevented by illness,
injury, accident or any other circumstances beyond his control from
performing his duties under this Agreement for a total of up to twenty six
weeks absence in any period of twelve months, the Company shall for such
period continue to pay the Director his current level of annual salary such
payment to be inclusive of any statutory sick pay or social security
benefits.
If such period of absence extends beyond twenty six weeks, the Director
shall be covered to the extent coverage is available under, a long term
disablement insurance policy operated by the Company. If the Director
becomes a claimant on this said insurance policy, then at no time before
cessation of payments made under this policy shall the Director cease to be
an employee of the Company (albeit an unpaid employee), notwithstanding
that the Director may cease to hold office as a director.
12 CONFIDENTIALITY
Except as may be necessary for the proper performance of his duties the
Director shall not either before or after the termination of his employment
disclose or divulge to any person, firm or company any trade secret,
manufacturing process or information relating to the business methods,
customers or suppliers or finances or any other confidential information
relating to the Company or any Associated Company which the Director has
obtained during his employment before or after the Effective Date provided
that this clause shall not apply to any information which becomes public
knowledge other than director or indirectly through the default of the
Director.
13 INVENTIONS
The Director shall assign to the Company all interest in any inventions,
discoveries, developments, improvements and innovations whether or not
patentable, ("Inventions") which the Director has developed or may help to
develop during his employment before or after the Effective Date. If
requested by the Company, the Director shall execute specific assignments
and other documents helpful or necessary to evidence ownership of such
Inventions and assist the Company or any Associated Company in obtaining or
defending patents for such inventions.
14 NO CONFLICT OF INTEREST
Subject to the second paragraph of this clause, throughout the duration of
his employment, the Director shall not be directly or indirectly engaged,
concerned or interested in any other business or be involved in any way in
competition with the business of the Company or any Associated Company or
any business which
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<PAGE>
is involved in a supply of goods or services to the Company or Associated
Company.
The Director currently holds 9,000 shares ("AIC Shares") of common stock in
Applied Imaging Corporation which is a private company that is considered
to be involved in competition with the business of the Company and is
currently pursuing an initial public offering (an "IPO"). Provided that
the IRIS board of directors shall have given its full approval to the
Director's participation in the IRIS Stock Option Plan as determined in
clause 5, the Director shall be obliged to dispose of the AIC Shares within
90 days following Applied Imaging Corporation's IPO.
15 TERMINATION OF DIRECTORSHIP
This Agreement shall terminate automatically by the Company serving written
notice to that effect on the Director in the event that the Director:
Is disqualified from being a director or is prohibited by law from being a
director.
Be convicted of any criminal offense and is given a custodial sentence,
which in the reasonable opinion of the Company impairs the fitness of the
Director to carry out his duties under this Agreement.
Commits or be guilty of any serious or persistent breach or non-performance
of any of his obligations under this Agreement.
16 CONSEQUENCES OF TERMINATION
In the event that this Agreement is terminated for any reason:
The Director at the conclusion of his notice period, shall immediately
deliver to the Managing Director or other representative of the Company all
documents (together with any copies) including notes, records, accounts,
memoranda, papers or data residing on computer media and any other items or
property relating to or concerning the business of the Company and any
Associated Company or any of its or their suppliers, agents, distributors
or customers.
The Director shall not for the duration of his notice period be employed or
act in any capacity for any other person, firm or company without the
consent of the Managing Director in writing.
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<PAGE>
In the event that this Agreement is terminated by the Company for any
reason other than under clause 15:
The Director shall be entitled to salary, bonuses, commissions, additional
payments and all other benefits and entitlements hereunder throughout the
duration of the notice period specified in clause 1.2 hereof.
On receipt of such monies, the Director shall execute a written agreement,
releasing the Company (and its officers, directors, employees, agents,
affiliates, successors and assigns) from any and all liability and claims
in connection with the termination if this Agreement.
17 GRIEVANCE PROCEDURE
The Director shall refer any grievance which he may have arising out of his
employment under this Agreement to the Managing Director who will determine
what action, if any, should be taken in response to the Director's
grievance. In the event that the Director is dissatisfied with the
response and action taken by the Managing Director, he shall refer his
grievance in writing to the Chairman.
18 GENERAL
18.1 COMPLETE AGREEMENT
This Agreement and any agreements referred to herein or executed
contemporaneously herewith constitute the entire agreement and
understanding between the parties to this Agreement and supersede all prior
and contemporaneous negotiations and understandings between the parties,
whether oral or written.
For the avoidance of doubt, the Director's Service Agreement dated
4 October 1992 between the Director and the Company shall continue in full
force and effect until the Effective Date when it shall automatically
terminate, be of no further force or effect and be superseded by this
Agreement.
The performance and obligations of the parties under this Agreement is
expressly made subject to the completion (or Closing) of the Purchase
Agreement. In the event the Purchase Agreement is not completed (or
closed), this Agreement shall automatically terminate and shall be of no
force or effect.
18.2 AMENDMENTS, WAIVERS, ETC.
This Agreement may be amended, modified, superseded, cancelled, renewed or
extended and the terms, conditions or covenants hereof may be waived, only
by a written instrument executed by all parties to this Agreement, or in
the case of a waiver, by the party waiving compliance.
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<PAGE>
The failure of a party at any time or times to require performance of any
provision hereof will in no manner affect its right at a later time to
enforce the same.
No waiver by a party of the breach of any term or covenant contained in the
Agreement, whether by conduct or otherwise, in any one or more instances,
will be deemed to be, or construed as, a further or continuing waiver of
any such breach, or a waiver of the breach of any other term or covenant
contained in the Agreement.
18.3 NOTICES
Any notices, instruction or communication under this Agreement shall be in
writing and shall be delivered by personal service or certified mail (or if
certified mail is not available then by ordinary first class post) or by
such other means as may be appropriate in the circumstances, postage
prepaid, to such address as may be designated from time to time by the
relevant party and shall initially be the address of the parties stated in
this Agreement.
Any notice sent by certified mail shall be deemed to have been given three
(3) days after the date it was mailed. All other notices shall be deemed
given when received by the party to whom it was sent. No objection may be
made to the manner of delivery of any notice actually received in writing
by an authorized agent of a party.
18.4 ASSIGNMENT: SUCCESSORS AND ASSIGNS
The Director may not assign any of his rights or obligations under this
Agreement. Neither IRIS nor the Company may assign any of their rights or
obligations under this Agreement except in connection with any sale,
transfer or other disposition of all or substantially all of its business
and assets, whether by merger, purchase of stock or assets or otherwise.
This Agreement will be binding upon and will inure to the benefit of, the
respective successors and permitted assigns of the parties.
18.5 SEVERABILITY
In the event that any provision of this Agreement should be held to be
void, voidable, unlawful or for any reason unenforceable, the remaining
provisions or portions of the Agreement will remain in full force and
effect.
18.6 ADDITIONAL DOCUMENTS AND ACTIONS
The Director, the Company and IRIS agree to execute any and all further
documents and writing and to perform such other actions which may be or
become necessary or expedient to effectuate and carry out the intent of
this Agreement.
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<PAGE>
18.7 HEADINGS
The headings in this Agreement are included solely for convenience of
reference and are not intended to affect or control the meaning or
interpretation of any of the provisions of this Agreement.
18.8 LAW
This Agreement shall be governed by English law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
SIGNED FOR AND ON BEHALF OF INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., BY
/s/ Jeffrey S. Williams
-------------------------------------------
Jeffrey S. Williams (Executive Vice President and Chief Operating Officer)
SIGNED FOR AND ON BEHALF OF PERCEPTIVE SCIENTIFIC INTERNATIONAL LIMITED, BY
/s/ Anthony G. Landells
-------------------------------------------
Anthony G. Landells (Director)
SIGNED BY THE DIRECTOR
/s/ Paul Douglas
-------------------------------------------
Paul Douglas
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<PAGE>
EXHIBIT 10.8(h)
---------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
July 8, 1996 by and between International Remote Imaging Systems, a California
corporation ("Company"), and Dr. Kenneth R. Castleman, an individual
("Employee"), in connection with the non-binding letter of intent dated May 3,
1996 relating to the Company's intention to acquire the business of Digital
Imaging Technologies, Inc. (the "Acquisition").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. TERMS OF EMPLOYMENT. Subject to consummation of the Acquisition
within 120 days of the date hereof, The Company hereby agrees to employ
Employee, and Employee hereby accepts employment with the Company, on the terms
set forth in this Agreement for a period commencing as of the date of
consummation of the Acquisition (the "EFFECTIVE DATE") and terminating two years
after the Effective Date unless terminated sooner in accordance with the
provisions of Section 8 (Termination). Employee acknowledges and understands
that IRIS may elect not to consummate the acquisition.
2. TITLE AND DUTIES. Employee shall be Vice President of Research and
shall report to the Chief Operating Officer. Subject to the supervisory powers
of the Employees direct supervisor, Employee shall be responsible for Research
in accordance with the policies of the Company and perform such other duties as
the direct supervisor may determine from time to time. Employee will devote his
full working time to the performance of his duties on an exclusive basis.
3. BASE SALARY. The Company will pay Employee a base salary to be
determined annually and in no event less than $96,000 annually payable in
accordance with Company's then prevailing payroll practices.
4. BONUSES. The Employee shall be eligible to participate in the
Management Incentive Bonus program as administered by the Compensation
Committee.
5. STOCK OPTIONS. The Employee shall be eligible to participate in
Company's 1994 Stock Option Plan, and will receive, subject to Board approval,
an initial option to purchase 25,000 shares at the Company's first Board of
Directors meeting after the Effective Date at 85% of then fair market value.
6. STOCK PURCHASES. The Employee shall be eligible to participate in the
Company's Employee Stock Purchase Plan.
<PAGE>
7. BENEFITS. The Company will provide Employee with all benefits
normally offered to an IRIS employee, including:
(a) Insurance benefits including life, health, dental, vision, and
AD&D.
(b) Participation in the Company's 401(k) retirement plan.
(c) Paid vacation in accordance with IRIS vacation policy. Credit
will be given for service at PSI.
(d) Paid holidays and sick leave in accordance with the Company's
policies.
8. TERMINATION. The Company may terminate Employee's employment at any
time without cause. In the event of such termination, the Company shall pay
employee (i) a pro rata portion of any cash bonus for the year (payable in the
ordinary course when such bonus is otherwise due) and (ii) a lump sum cash
amount for all accrued and unused vacation time. If the Company terminates
Employee's employment without cause on or before the second anniversary of the
Effective Date, the Company shall also continue to pay Employee his base salary
and provide health insurance for the remainder of the term of this Agreement.
For purposes of this Agreement, the Company shall be deemed to have terminated
Employee "with cause" if such termination is based primarily upon any of the
following:
(a) Employee's continued failure to follow the reasonable instruction
of the Employee's direct supervisor.
(b) Employee's breach of any material provision of this Agreement (or
the Employee Acknowledgment, referred to in Section 9).
(c) Employee's conviction of, or plea of nolo contendere or guilty
to, a felony; or
(d) Any criminal theft from the Company.
The Company shall not have any obligation to make any payment or
provide any benefit under this Section 8 unless and until Employee executes a
written agreement, in form and substance reasonably satisfactory to the Company,
releasing Company (and its officers, directors, employees, agents affiliates,
successors and assigns) from any and all liability and claims in connection with
the termination of Employee's employment.
9. CONFIDENTIALITY, INVENTIONS AND RELATED MATTERS. Employee will sign
and deliver to the Company a copy of the Company's standard "Employee
Acknowledgment Form."
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10. GENERAL.
10.1 COMPLETE AGREEMENT. This Agreement and any agreements referred
to herein or executed contemporaneously herewith constitute the entire agreement
and understanding between the parties to this Agreement and supersede all prior
and contemporaneous negotiations and understandings between the parties, whether
oral or written. In the event of any inconsistency between this Agreement and
the Employee Acknowledgment referred to in Section 9, this Agreement shall
control.
10.2 AMENDMENTS, WAIVERS, ETC. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms, conditions
or covenants hereof may be waived, only by a written instrument executed by both
parties to this Agreement, or in the case of a waiver, by the party waiving
compliance. The failure of a party at any time or times to require performance
of any provision hereof will in no manner affect its right at a later time to
enforce the same. No waiver by a party of the breach of any term or covenant
contained in the Agreement, whether by conduct or otherwise, in any one or more
instances, will be deemed to be, or construed as, a further or continuing waiver
of any such breach, or a waiver of the breach of any other term or covenant
contained in the Agreement.
10.3 NOTICES. Unless otherwise specifically permitted by this
Agreement, all notices under this Agreement shall be in writing and shall be
delivered by personal service, facsimile, telegram, or certified mail (or, if
certified mail is not available, then by first class mail), postage prepaid, to
such address as may be designated from time to time by the relevant party, and
shall initially be:
(i) To the Company:
International Remote Imaging Systems, Inc.
9162 Eton Avenue
Chatsworth, CA 91311
Attn: J.S. Williams, COO
(ii) To the Employee:
Ken Castleman
404 N. Shadowbend Avenue
Friendswood, TX 77546
Any notice sent by certified mail shall be deemed to have been given
three (3) days after the date on which it is mailed. All other notices shall be
deemed given when received. No objection may be made to the manner of delivery
of any notice actually received in writing by an authorized agent of a party.
10.4 ASSIGNMENT: SUCCESSORS AND ASSIGNS. Employee may not assign any
of his rights or obligations under this Agreement. The Company may not assign
any
<PAGE>
of its rights or obligations under this Agreement EXCEPT to a subsidiary in
connection with any sale, transfer or other disposition of all or substantially
all of its business and assets, whether by merger, purchase of stock or assets
or otherwise. This Agreement will be binding upon, and will inure to the
benefit of, the respective successors and permitted assigns of the parties.
10.5 SEVERABILITY. In the event that any provision of this Agreement
should be held to be void, voidable, unlawful or for any reason unenforceable,
the remaining provisions or portions of the Agreement will remain in full force
and effect.
10.6 ADDITIONAL DOCUMENTS AND ACTIONS. Employee and Company agree to
execute any and all further documents and writings and to perform such other
actions which may be or become necessary or expedient to effectuate and carry
out the intent of this Agreement.
10.7 HEADINGS. The headings in this Agreement are included solely for
convenience of reference and are not intended to affect or control the meaning
or interpretation of any of the provisions of this Agreement.
10.8 ARBITRATION AS EXCLUSIVE REMEDY. Any dispute or controversy arising
out of or relating to this Agreement or the employment relationship between the
parties shall be settled by arbitration in Los Angeles county, but otherwise in
accordance with the provisions of the Employee Acknowledgment, referred to in
Section 9.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
"THE COMPANY"
By: /s/ Jeffrey S. Williams
------------------------
"EMPLOYEE"
By: /s/ Kenneth R. Castleman
-------------------------
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<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT
OF
KENNETH R. CASTLEMAN
This ADDENDUM TO EMPLOYMENT AGREEMENT (the "Addendum") is made and entered
into as of July 12, 1996 by and between International Remote Imaging Systems, a
California corporation ("Company") and Kenneth R. Castleman, an individual
("Employee"), with reference to the following facts:
A. In connection with a non-binding letter of intent dated May 3, 1996
relating to the Company's intention to acquire the business of Digital Imaging
Technologies, Inc. (the "Acquisition"), the Company and Employee have entered
into an Employment Agreement dated as of July 12, 1996 (the "Employment
Agreement").
B. The Company and Employee desire to supplement the terms of the
Employment Agreement to compensate Employee for securing for the Company
research and development grants and contracts from government agencies and other
third parties ("R&D Grants").
NOW, THEREFORE, for value received, the sufficiency and adequacy of which
is hereby knowledged, the parties agree as follows:
1. BONUS. Subject to the consummation of the Acquisition and
effectiveness of the Employment Agreement, Company will pay Employee an extra
bonus (a "Grant Bonus") equal to five percent (5%) of the net cash proceeds
(i.e., grant or contract proceeds less amounts recoupable by the funding agency)
for R&D Grants awarded based upon proposals authored principally by Employee
("Employee Generated Grants"). Grant Bonus payments shall be paid at the end of
each payroll period in which funds were transferred to the Company from any
funding agency, in accordance with the Company's regular payroll policy. The
amount of the Grant Bonus paid at the end of any payroll period shall be
computed based upon the net proceeds transferred to the Company from all funding
agencies during that payroll period.
2. SOURCE OF FUNDS. The parties understand that the Grant Bonus is
intended as a means for the Company to offer Employee a performance incentive,
and that any Grant Bonus payments due shall be paid out of Company's general
working capital. In no case shall any Grant Bonus payment be made using funds
that have been received from any funding agency.
3. TERMINATION. If Employee leaves employment of the Company for any
reason the Company shall continue to be obligated to pay Employee a Grant Bonus
computed as three percent (3%) of the net cash proceeds of all Employee
Generated Grants that have been awarded during the time of Employee's
employment, and such payments shall continue throughout the term of all such
Employee Generated Grants. In addition, Company shall continue to be obligated
to pay Employee a Grant Bonus
<PAGE>
computed as two percent (2%) of the net cash proceeds of all Employee Generated
Grants that are awarded subsequent to Employee's departure from employment and
such payments shall continue throughout the term of all such Employee Generated
Grants. For purposes of this Addendum, any extension or renewal of an R&D Grant
that does not change the total amount of awarded funds shall be considered to be
the same R&D Grant. Any renewal or extension that increases the amount of
awarded funds shall be considered a new R&D Grant only insofar as the amount of
the increase.
4. RENEGOTIATION OF TERMS. In the event that the legality or propriety
of this Addendum is challenged by any government agency or other third party,
the Company and Employee shall renegotiate a mutually satisfactory alternative
bonus arrangement.
5. GENERAL. The "General" provisions of the Employment Agreement shall
be equally applicable to this Addendum and are hereby incorporated by reference
as if set forth herein. Except as supplemented hereby, the Employment Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly
executed, as of the day and year first above written.
"THE COMPANY"
By: /s/ Jeffrey S. Williams
--------------------------------------------
Its: Executive Vice President
---------------------------------------------
and Chief Operating Officer
-------------------------------------------------
"EMPLOYEE"
/s/ Kenneth R. Castleman
-------------------------------------------------
Kenneth R. Castleman
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<PAGE>
EXHIBIT 10.8(i)
LEASE AGREEMENT
<TABLE>
<CAPTION>
<S><C>
BASIC LEASE PROVISIONS
ITEM 1. Date this Lease Agreement made and entered into: 24th day of
----------
March , 1988.
-------- --
(between)
ITEM 2. "Landlord" name Marina One Joint Venture
-------------------------------------------------
950 Echo Lane, Suite 100
address Houston, Texas 77024
address for Same as above
payment &
notices
(and)
"Tenant" name PERCEPTIVE SYSTEMS INC.
-------------------------------------------------
2525 South Shore Blvd., Suite 100
address Leauge City, Texas 77573
address for Same as above Prior to Occupancy: 1301 Regents Park Drive
billings & Houston, Texas 77058
notices
ITEM 3. Building Name: Marina One
-------------------------------------------------------
Building Address: 2525 South Shore Blvd., League City, Texas 77573
ITEM 4. Tenant's premises floor: First (1st) Suite No.: #100
------------------- ---------------
Tenant's Net Rentable Area: 15,164 sq. ft., Net Usable Area: 13,539 sq. ft.
------------ -----------------
(See "Exhibit B" for area definitions) Parking Spaces: 30
---------
ITEM 5. Total Net Rentable Area of Building: 110,000 sq. ft.
-----------------------------------------
Tenant's Building Expense Percentage: 13.7855 % (See Article 2)
-----------------------------
ITEM 6. Rent (See Article 2) Total per Year Total per Month per Sq.Ft./Year
a. Basic Rent: $ 181,968 $ 15,164 $ 12.00
------------- -------------- --------------
b. Projected Building Operating Expense: (included in Basic Rent) $ 4.00
--------------
c. Initial Rent-Parking Spaces : $ -0-
------------------
d. Total Initial Rent : $ 15,164
------------------
ITEM 7. Target Commencement Date: June 1, 1988 * Term: 60 months * See Addendum
---------------------------- ---------
ITEM 8. Security Deposit: $ One month's rent ; payable on lease execution. *See Addendum
--------------------------------
ITEM 9. Broker(s): W. Derrell Curry - Coldwell Banker
ITEM 10. Permitted use: General Office: associated with administrative, manufacturing, assembly sales, service, and related
activities associated with electronic systems.
ITEM 11. Space Plan Approval Date: April 10, 1988 (See "Exhibit E")
-------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S><C>
TABLE OF CONTENTS Page TABLE OF CONTENTS Page
ARTICLE 1 - TERM AND POSSESSION . . . . . . . . . . . . . . . .2 ARTICLE 8 - CONDEMNATION . . . . . . . . . . . .5
ARTICLE 2 - RENT . . . . . . . . . . . . . . . . . . . . . . . .2 ARTICLE 9 - LIENS . . . . . . . . . . . . . . . .5
ARTICLE 3 - SECURITY DEPOSIT . . . . . . . . . . . . . . . . . .2 ARTICLE 10 - TAXES ON TENANT'S PROPERTY . . . . .6
ARTICLE 4 - OCCUPANCY AND USE . . . . . . . . . . . . . . . . .2 ARTICLE 11 - SUBLETTING AND ASSIGNING . . . . . .6
ARTICLE 5 - UTILITIES AND SERVICES . . . . . . . . . . . . . . .4 ARTICLE 12 - TRANSFERS BY LANDLORD . . . . . . . .6
ARTICLE 6 - REPAIRS, MAINTENANCE, ALTERATIONS, AND ARTICLE 13 - DEFAULT . . . . . . . . . . . . . . .6
IMPROVEMENTS . . . . . . . . . . . . . . . . . . . .4 ARTICLE 14 - NOTICES . . . . . . . . . . . . . . .7
ARTICLE 7 - INSURANCE, FIRE AND CASUALTY . . . . . . . . . . . .4 ARTICLE 14 - MISCELLANEOUS PROVISIONS . . . . . .7
EXHIBIT A-1 FLOOR PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MADE PART OF "LEASE AGREEMENT"
EXHIBIT A-2 DESCRIPTION OF LAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MADE PART OF "LEASE AGREEMENT"
EXHIBIT B AREA DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MADE PART OF "LEASE AGREEMENT"
EXHIBIT C RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MADE PART OF "LEASE AGREEMENT"
EXHIBIT D BUILDING SERVICES AND CLEANING SPECIFICATIONS . . . . . . . . . . . . . . . . . . . MADE PART OF "LEASE AGREEMENT"
EXHIBIT E AGREEMENT FOR CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MADE PART OF "LEASE AGREEMENT"
EXHIBIT F PARKING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MADE PART OF "LEASE AGREEMENT"
EXHIBIT G ACCEPTANCE OF PREMISES MEMORANDUM . . . . . . . . . . . . . . . . . . . . . . . . . MADE PART OF "LEASE AGREEMENT"
</TABLE>
LEASE OF PREMISES
In consideration of the mutual covenants herein, Landlord hereby leases to
Tenant and Tenant hereby hires from Landlord, subject to all the terms and
conditions hereinafter set forth, those certain premises (hereinafter called the
"Premises") set forth in Items 3 and 4 of the Basic Lease Provisions and shown
on the drawings attached hereto and made a part hereof as "Exhibit A-1." The
office building in which the Premises are located, the land on which the office
building is situated [COPY MISSING] all improvements and appurtenances to the
building, the garage and the land, are referred to collectively herein as the
"Building".
ARTICLE 1: TERM AND POSSESSION
SECTION 1.01. COMMENCEMENT AND EXPIRATION. The Term of this Lease shall be the
period of time specified in Item 7 of the Basic Lease Provisions, adjusted as
provided below. The Term shall commence on the Target Commencement Date shown
in Item 7 of the Basic Lease Provisions or such later date as the Premises shall
be tendered to and accepted by Tenant as set forth below, or such earlier date
as Tenant takes possession or commences use of the Premises for any purpose,
other than moving in and performing work to ready the premises for business.,
and shall expire, without notice to Tenant, on the Expiration Date. If the
Lease commences on any day other than the first day of a calendar month, the
term of the Lease shall be extended by that part of one month necessary to cause
the expiration of the term to be on the last day of a calendar month. The dates
of commencement ("Commencement Date") and expiration ("Expiration Date"), shall
be confirmed by Landlord and Tenant by execution of an "Acceptance of Premises
Memorandum" attached hereto as "Exhibit G" and made a part hereof.
SECTION 1.02. CONSTRUCTION OF LEASE SPACE IMPROVEMENTS AND POSSESSION.
Landlord will perform or cause to be performed the "Building Standard Work" and
"Above Standard Work" as defined in "Exhibit E," in accordance with the terms of
said "Exhibit E", subject to events and delays beyond its reasonable control for
which Landlord will not be liable to Tenant in any way. Landlord may, subject
to the terms of "Exhibit E," perform or cause to be performed "Non-Standard
Work," if any is required by Tenant's Construction Plans. Landlord will tender
the Premises to Tenant by providing fifteen days written notice of the day on
which its work will be completed. Upon delivery of possession of the Premises
to Tenant and acceptance in writing by Tenant Landlord and Tenant shall execute
the above-mentioned Acceptance of Premises Memorandum, which, besides fixing the
Commencement Date and Expiration Date, will contain acknowledgements that Tenant
has accepted the premises and their condition, and that the Premises and the
Building are satisfactory in all respects
-2-
<PAGE>
except for "punch list" items agreed to in writing by Landlord and Tenant, which
Landlord will promptly remedy.
SECTION 1.03. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of this Lease, or upon the lawful exercise by Landlord of its right
to re-enter the Premises without terminating this Lease, Tenant shall
immediately surrender the Premises and all keys to the Premises to Landlord,
together with all alterations, improvements and other property as provided
elsewhere herein, in good order, condition and repair, except for ordinary wear
and tear casualty, fire and damage by third parties failing this, Landlord may
restore the Premises to such condition at Tenant's expense. Tenant shall, at
its expense, promptly repair any damage caused by removal of its property, and
shall restore the Premises to the condition existing prior to the installation
of the items removed. reasonable wear and tear, casualty, fire and damage by
third parties excepted. Upon the expiration or earlier termination of the
Lease, Tenant will, at the option of Landlord, execute a Release of Lease and
Waiver of Claim, acceptable to tenant in recordable form, containing Tenant's
release of all its interest in the Premises.
SECTION 1.04. HOLDING OVER. In the event Tenant, or any party claiming under
Tenant, retains possession of the Premises after the expiration or earlier
termination of this Lease, such possession shall be an unlawful detainer, and no
tenancy or interest shall result from such possession; such parties shall be
subject to immediate eviction and removal in accordance with applicable law and
Tenant or any such party shall pay Landlord as rent for the period of such
hold-over an amount equal to one and one half times the lease rental set forth
in Section 2.01 hereof. during the time of hold-over, Tenant shall also pay any
and all damages sustained by Landlord as a result of such hold-over. Tenant
will vacate the Premises and deliver same to Landlord immediately upon Tenant's
receipt of notice from Landlord to so vacate. The rent during such hold-over
period shall be payable to Landlord on demand. No holding over by Tenant,
whether with or without consent of Landlord, shall operate to extend this Lease.
ARTICLE 2: RENT
SECTION 2.01. BASIC RENT. Tenant shall pay as Basic Rent for the Premises the
annual sum shown in Item 6(a) of the Basic Lease Provisions. The Basic Rent
shall be payable at the office of the Building Manager in equal monthly
installments in advance, without deduction, commencing on the Commencement Date
except that the first (1st) month's rent shall be waived. (subject to the
provisions of Section 2.02 D. hereof) and continuing on the first day of each
calendar month thereafter. If the term of this Lease commences on a day other
than the first day of a calendar month, the rent for such partial month shall be
prorated in the proportion that the number of days this Lease is in effect
during such partial month bears to the number of days in that calendar month.
SECTION 2.02. ADDITIONAL RENT.
A. Definitions. For purposes of this Section 2.02, the following definitions
shall apply:
1. "Additional Rent" shall mean the amount of Tenant's Proportionate
Share of Building Operating Expenses for a particular calendar year or
portion thereof.
2. "Building Expense Percentage" shall mean the percentage specified in
Item 5 of the Basic Lease Provisions. This percentage was determined
by dividing Net Rentable Area in the Premises, as specified in Item 4
of the Basic Lease Provisions, by the total Net Rentable Area in the
Building.
3. "Tenant's Proportionate Share of Building Operating Expenses" shall be
the dollar amount equal to the product of Tenant's Building Expense
Percentage times the Building Operating Expense Variance.
4. The "Building Operating Expense Variance" is that dollar amount that
the Building Operating Expenses exceed the product of Projected
Building Operating Expense times Total Net Rentable Area of Building
(Item 6b and 5 respectively of Basic Lease Provisions).
5. "Building Operating Expenses" shall mean all of Landlord's direct
costs and expenses paid or incurred in operating and maintaining the
Building for a particular calendar year or portion thereof
-3-
<PAGE>
as determined by Landlord in accordance with generally accepted
accounting principles. Building Operating Expenses shall include by
way of illustration but not limitation; all general real estate taxes
and all special assessments; costs and expenses of contesting the
validity or amount of real estate taxes; insurance premiums; water,
sewer, electrical and other utility charges; service and other charges
incurred in the operation and maintenance of the elevators and the
heating, ventilation and air-conditioning system; cleaning and other
janitorial services; tools and supplies; repair costs; landscape
maintenance costs; security services; license, permit and inspection
fees; management fees not to exceed 3% of total gross income; wages
and related benefits payable to employees engaged in the maintenance
and operation of the Building; and, in general, all other costs and
expenses which would generally be regarded as operating and
maintenance costs and expenses, including those which would normally
be amortized over a period not to exceed five (5) years.
If Landlord shall install a labor-saving device or other equipment,
which improves the operating efficiency of any system within the
Building (such as an energy management computer system) and thereby
reduces Building Operating Expenses, then Landlord may add to Building
Operating Expenses in each year during the useful life of such
installed device or equipment an amount equal to the annual
amortization allowance of the cost of such installed device or
equipment as determined in accordance with applicable regulations of
the Internal Revenue Service or generally accepted accounting
principles, together with interest at the rate of 8% per annum on the
unamortized balance thereof, provided, however, that the amount of
such allowance and interest shall not exceed the annual cost or
expense reduction attributed by Landlord to such installed device or
equipment; and further provided, that in no event shall such allowance
and interest increase Tenant's Additional Rent over what it would have
been if such labor-saving device [COPY MISSING] installed.
For the purposes of this Article, payments made by tenants of the
Building, either to third parties or to Landlord, under agreements for
direct reimbursement for services (e.g., separately metered utilities,
separately contracted janitorial services, property taxes directly
reimbursed to Landlord, etc.) See Addendum shall not be included in
"Building Operating Expenses." However, for each category of expense
for which one or more tenants of the Building makes such payments,
Tenant's Building Expense Percentage shall be adjusted by excluding
from the denominator thereof, the New Rentable Area of all tenants
making such payments (for instance, if tenants leasing a total of 10%
of the Net Rental Area of the Building pay their own electricity bills
under an arrangement for separate metering, the Building Expense
Percentage for each tenant not making such payment will increase
proportionally with respect to that category of expense).
If Tenant makes any such payment, Building Operating Expenses, for
purposes of this Article, shall exclude the category of expense for
which such payment is made, but only to the extent that the category
of expense includes payments made or charges incurred with respect to
space actually leased to other tenants (for example, if Tenant pays
its own electricity, Building Operating Expenses for purposes of
determining Tenant's Additional Rent shall only include the
electricity expenses associated with space not actually leased to
other tenants).
B. Payment Obligation. In addition to the Basic Rent specified in this Lease,
Tenant shall pay to Landlord as Additional Rent for the Premises, in each
calendar year or partial calendar year during the term of this Lease, an
amount equal to Tenant's Proportionate Share of Building Operating Expenses
for such calendar year.
1. Payment of Tenant's Proportionate Share of Building Operating
Expenses. Tenant's Proportionate Share of Building Operating Expenses
for each calendar year shall be estimated annually by Landlord, and
written notice thereof shall be given to Tenant at least thirty (30)
days prior to the beginning of each calendar year. Tenant shall pay
to Landlord each month, at the same time the
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<PAGE>
Basic Rent is due, an amount equal to one-twelfth (1/12) of the
estimated annual Additional Rent due.
2. [OMITTED]
3. Adjustments to Actual Additional Rent. Within ninety (90) days after
the end of each calendar year, Landlord shall prepare and deliver to
Tenant a statement showing Tenant's actual Additional Rent. Within
thirty (30) days after receipt of the aforementioned statement.
Tenant shall pay to Landlord, or Landlord shall credit against the
next Additional Rent payment or payments due from Tenant, as the case
may be, the difference between Tenant's actual Additional Rent for the
preceding calendar year and the estimated Additional Rent paid by
Tenant during such year. See Addendum
C. Rent. The Basic Rent, the Additional Rent, and all other sums required to
be paid by Tenant hereunder, including any sums due under the Agreement for
Construction, are sometimes collectively referred to as, and shall
constitute, "Rent."
Rent shall be paid by Tenant when due, without prior demand therefor,
without deduction or set-off.
D. (See Addendum)
ARTICLE 3: SECURITY DEPOSIT
Tenant has paid or will pay Landlord the sum set forth in Item 8 of the Basic
Lease Provisions as security for the performance of the terms hereof by Tenant.
Tenant shall not be entitled to interest thereon. If Tenant defaults with
respect to any provision of this Lease, Landlord may, but shall not be required
to, use, apply or retain all or any part of this security deposit for the
payment of any rent or any other sum in default, or for the payment of any other
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default, or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default, including, without
limitation, costs and attorneys' fees incurred by Landlord to recover possession
of the Premises. If any portion of said deposit is so used or applied, Tenant
shall, upon demand therefor, deposit cash with Landlord in an amount sufficient
to restore the security deposit to its original amount and Tenant's failure to
do so shall constitute a default hereunder by Tenant. If Tenant shall fully and
faithfully perform every provision of this Lease to be performed by it, the
security deposit shall be returned to Tenant within thirty (30) days after the
Expiration Date.
ARTICLE 4: OCCUPANCY AND USE
SECTION 4.01. USE OF PREMISES. The Premises shall be used solely for the
purpose specified in Item 10 of the Basic Lease Provisions. Tenant will not
use, occupy or permit the use or occupancy of the Premises for any purpose which
is, directly or indirectly, forbidden by law, ordinance or governmental or
municipal regulation or order, or which may be dangerous to life, limb or
property; or permit the maintenance of any public or private nuisance; or do or
permit any other thing which may disturb the quiet enjoyment of any other tenant
of the Building; or keep any substance or carry on or permit any operation which
might emit offensive odors or conditions into other portions of the Building; or
use any apparatus which might make undue noise or set up vibrations in the
Building; or permit anything to be done which would increase the fire and
extended coverage insurance rate on the Building or contents, and if there is
any increase in such rate by reason of acts of Tenant, then Tenant agrees to pay
such increase promptly upon demand therefor by Landlord. Payment by Tenant of
any such rate increase shall not be a waiver of Tenant's duty to comply
herewith.
SECTION 4.02. RULES AND REGULATIONS. Such reasonable rules and regulations
applying to all tenants in the Building as may [COPY MISSING] and cleanliness
of, and preservation of good order in, the Premises and the Building, are hereby
made a part hereof and Tenant agrees to comply with all such rules and
regulations after
-5-
<PAGE>
promulgated. Landlord shall have the right at all times to change such rules
and regulations or to amend them in any reasonable manner. All changes and
amendments will be sent by Landlord to Tenant in writing and shall be thereafter
carried out and observed by Tenant (See "Exhibit C" attached).
SECTION 4.03. SIGNS. Tenant shall not inscribe, paint, affix or display any
signs, advertisements or notices on or in the Building, except for such tenant
identification information as Landlord permits to be included or shown on the
directory board in the main lobby and adjacent to the access door or doors to
the Premises.
SECTION 4.04. ACCESS. Landlord or its authorized agents shall at any and all
reasonable times (See Addendum) have the right to enter the Premises (See
Addendum) to inspect the same, to supply janitorial service or any other service
to be provided by Landlord to Tenant hereunder, to show the Premises to
prospective purchasers or tenants, to alter, improve or repair the Premises or
any other portion of the Building, all without being deemed guilty of an
eviction of Tenant and without abatement of Rent, and may for that purpose erect
scaffolding and other necessary structures (See Addendum) where reasonably
required by the character of the work to be performed, provided the business of
Tenant shall be interfered with as little as is reasonably practicable. Tenant
hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby. (See Addendum) For each
of the aforesaid purposes, Landlord shall at all times have and retain a key
with which to unlock all of the doors in, upon and about the Premises, excluding
Tenant's vaults and safes. Landlord shall have the right to use any and all
means which Landlord may deem proper and reasonable to open any door(s) in an
emergency without liability therefor.
SECTION 4.05. QUIET POSSESSION. Upon Tenant's paying the Rent reserved
hereunder and observing and performing all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant shall
have the quiet possession of the Premises for the entire Term hereof, subject to
all of the provisions of this Lease.
ARTICLE 5: UTILITIES AND SERVICES
SECTION 5.01. SERVICE TO BE PROVIDED. Landlord agrees to furnish or cause to
be furnished to the Premises, the utilities and services specified and hereby
made a part hereof, subject to the conditions and in accordance with the
standards set forth herein (See "Exhibit D" attached).
SECTION 5.02. ADDITIONAL SERVICES. Landlord may impose a reasonable charge for
any utilities and services, including without limitation, air conditioning,
electric current, and water, provided by Landlord by reason of any substantial
use of the Premises at any time other than the hours set forth above or for any
use beyond what Landlord agrees herein to furnish or because of special
electrical, cooling and ventilating needs created by Tenant's hybrid telephone
equipment, computers and other similar equipment or uses. Overtime HVAC charges
shall be calculated as set forth in the Lease Addendum hereto.
SECTION 5.03. TENANT'S OBLIGATION. Tenant agrees to cooperate fully at all
times with Landlord and to abide by all regulations and requirements which
Landlord may prescribe for the use of the above utilities and services. Any
failure to pay any excess costs as described above shall constitute a breach of
the obligation to pay Rent under this Lease and shall entitle the Landlord to
the rights herein granted for such breach.
SECTION 5.04. SERVICE INTERRUPTION. Landlord shall not be liable for, and
Tenant shall not be entitled to, any abatement or reduction of Rent by reason of
Landlord's failure to furnish any of the foregoing services when such failure is
caused by accident, breakage, repairs, strikes, lockouts or other labor
disturbance or labor dispute of any character, governmental regulation,
moratorium or other governmental action, inability by exercise of reasonable
diligence to obtain electricity, water or fuel, or by any other cause beyond
Landlord's reasonable control, nor shall any such failure, stoppage or
interruption of any such service be construed as an eviction of Tenant, or
relieve Tenant from the obligation to perform any covenant or agreement herein.
In the
-6-
<PAGE>
event of any failure, stoppage or interruption thereof, however, Landlord shall
use reasonable diligence to resume service promptly.
SECTION 5.05. MODIFICATIONS. Notwithstanding anything hereinabove to the
contrary, Landlord reserves the right from time to time to make reasonable and
nondiscriminatory modifications to the above standards for utilities and
services. and subject to Tenant's written approval which shall not be
unreasonably withheld.
ARTICLE 6: REPAIRS, MAINTENANCE, ALTERATIONS AND IMPROVEMENTS
SECTION 6.01: REPAIRS AND MAINTENANCE OF THE BUILDING. Landlord shall provide
for the cleaning and maintenance of the public portions of the Building. Unless
otherwise expressly stipulated herein. Landlord shall not be required to make
any improvements or repairs of any kind or character on the Premises during the
term of this Lease, except repairs to the utility systems, exterior walls,
corridors, windows, roof, foundation and other structural elements and equipment
of the Building, and such additional maintenance as may be necessary because of
damage by persons other than Tenant, its agents, employees, invitees or
visitors. (See Addendum)
SECTION 6.02. IMPROVEMENTS AND ALTERATIONS.
A. Landlord's sole construction obligation under this Lease is as set forth in
the Agreement for Construction attached hereto as "Exhibit E" and
incorporated herein by this reference.
B. Landlord shall have the right (See Addendum) to change the arrangement,
location and/or size of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets or other public parts of the Building
and, upon giving Tenant reasonable notice thereof, to change the name,
number or designation by which the Building is commonly known.
C. Tenant shall not make any alterations, additions or improvements to the
Premises without the prior written consent of Landlord. (See Addendum)
All such alterations, additions or improvements (except movable furniture
and trade fixtures) shall become the property of Landlord and shall be
surrendered with the Premises, as a part thereof, at the expiration or
earlier termination of the Lease. The same shall be made by Tenant at
Tenant's sole cost and expense. Any contractor or person making such
improvements must first be approved in writing by Landlord. (See Addendum)
SECTION 6.03. LANDLORD'S OPTION TO REPAIR. Landlord may at its option and at
the cost and expense of Tenant, repair or replace any damage or injury done to
the Building or any part thereof, caused by Tenant, Tenant's agents, employees,
licensees, invitees or visitors. Tenant shall pay the cost thereof, which shall
include Landlord's administrative fee of 0%, to Landlord within thirty (30) days
after receipt of a detailed statement thereof, Tenant further agrees to
maintain and keep the interior of the Premises in good repair and condition at
Tenant's expense, reasonable wear and tear, casualty, fire and damage by third
parties excepted. Tenant agrees not to commit or allow any waste or damage to
be committed on any portion of the Premises.
ARTICLE 7: INSURANCE, FIRE AND CASUALTY
SECTION 7.01. SUBSTANTIAL DESTRUCTION OF THE BUILDING OR THE PREMISES. If
either the Building or the Premises should be substantially destroyed or damaged
(which, as used herein, means destruction or material damage to at least 50% of
the Building or the Premises) by fire or other casualty, then either party may,
at its option, terminate this Lease by giving written notice thereof to the
other party within thirty (30) days after the date of such casualty. In such
event, Rent shall be apportioned to and shall cease as of the date of such
casualty. If neither party exercises this option, then the Premises shall be
reconstructed and restored, at Landlord's expense, to substantially the same
condition as they were prior to the casualty, provided however, the Landlord's
obligation hereunder shall be limited to the [FOUR WORDS ILLEGIBLE] Improvements
as were originally required to be made by Landlord at Landlord's expense in
accordance with "Exhibit E." In the event of such reconstruction, Rent shall be
abated from the date of casualty until substantial completion of the
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reconstruction repairs and acceptance thereof in writing by Tenant and this
Lease shall continue in full force and effect for the balance of the term.
SECTION 7.02. PARTIAL DESTRUCTION OF THE PREMISES. If the Premises should be
damaged by fire or other casualty, but not substantially destroyed or damaged to
the extent provided in Section 7.01, then such damaged part of the Premises
shall be reconstructed and restored, at Landlord's expense, to substantially the
same condition as it was prior to the casualty; provided however, the Landlord's
obligation hereunder shall be limited to the reconstruction of such of the Lease
Space Improvements as were originally required to be made by Landlord at
Landlord's expense in accordance with "Exhibit E." In such event, if the damage
prevents Tenant from carrying on its business in the Premises in whole or in
part, Rent shall be abated in the proportion which the approximate area of the
damaged part bears to the total area in the Premises from the date of the
casualty until substantial completion of the reconstruction repairs, and
acceptance thereof in writing by Tenant and this Lease shall continue in full
force and effect for the balance of the term. Landlord shall use reasonable
diligence in completing such reconstruction repairs, but in the event Landlord
fails to complete the same within one hundred eighty (180) days from the date of
the casualty, Tenant may, at its option, terminate this Lease upon giving
Landlord sixty (60) days written notice to that effect, whereupon both parties
shall be released from all further obligations and liability hereunder. Nothing
herein shall require the Landlord to expend more repairs, restoration or
replacement than the proceeds of the insurance therefor received by Landlord.
SECTION 7.03. TENANT'S RESPONSIBILITIES.
A. If the Building or the Premises shall be damaged by fire or other casualty
resulting from the fault or negligence of Tenant, or the agents, employees,
licensees or invitees of Tenant (except as set forth in Section 7.06), such
damage shall be repaired by and at the expense of Tenant under the
direction and supervision of Landlord, and Rent shall continue without
abatement.
B. Except for that portion, if any, of Landlord's gross negligence or willful
misconduct not waived by Tenant, Tenant covenants that Landlord shall not
be liable for any damage or liability of any kind or for any injury to or
death of persons or damage to property of Tenant or any other person during
the Term, including consequential loss or damage, from any cause whatsoever
by reason of the construction, use, occupancy or enjoyment of the Premises
by Tenant or any person therein or holding under Tenant or by or through
the acts or omissions of other tenants of the Building or Landlord.
Exclusive of Landlord's negligence, Tenant hereby agrees, as part of the
material consideration for this Lease, to indemnify and save Landlord
harmless from all claims, action, demands, costs and expenses and liability
whatsoever, including reasonable attorneys' fees, on account of any such
real or claimed damage or liability, and from all liens, claims and demands
occurring in, on or at the Premises, or arising out of the construction,
use, occupancy or enjoyment of the Premises and its facilities; or any
repairs or alterations which Tenant may make upon the Premises.
SECTION 7.04. TENANT'S INSURANCE. Tenant covenants and agrees that from and
after the date of delivery of the Premises from Landlord to Tenant, Tenant will
carry and maintain, at its sole cost and expense, the following types of
insurance, in the amounts specified and in the form hereinafter provided, as
follows:
A. Public Liability and Property Damage. General Public Liability Insurance
covering the Premises and Tenant's use thereof against claims for personal
injury or death and property damage occurring upon, in or about the
Premises, such insurance to afford protection to the limit of not less than
$500,000 in respect of injury or death to any number of persons arising out
of any one occurrence, and such insurance against property damage to afford
protection to the limit of not less than $100,000 in respect of any
instance of property damage. This insurance coverage shall extend to any
liability of Tenant arising out of the indemnities provided for in Sections
7.03 and 7.04.
B. Tenant Improvements and Property. Insurance covering all leasehold
improvements, heating, ventilating and air conditioning equipment installed
by reason of Tenant's "Non-Standard Work"; fixtures installed by or at the
expense of Tenant; and personal property in, on or upon the Premises, in an
amount no less than 100% of the full replacement cost thereof.
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Tenant shall obtain a written obligation from each insurance company issuing the
insurance required to be maintained by Tenant pursuant to Section 7.04(A.) and
(B.) hereof to notify Landlord at least thirty (30) days prior to the expiration
or cancellation of such insurance. Such policies or duly executed certificates
of insurance shall be promptly delivered to Landlord and renewals thereof, as
required, shall be delivered to Landlord at least thirty (30) days prior to the
expiration of the respective policies.
SECTION 7.05. LANDLORD'S INSURANCE. Landlord shall at all times during the
Term maintain in effect a policy or policies of insurance covering the Building
(excluding property required to be insured by Tenant) in such amounts (so long
as it includes full replacement value for the building) as Landlord may from
time to time determine, providing protection against perils included within the
standard Texas form of fire and extended coverage insurance policy, together
with insurance against sprinkler damage, vandalism and malicious mischief, and
such other risks as Landlord may from time to time determine and with any such
deductibles as landlord may from time to time determine in good faith.
Any insurance provided for in this Section 7.05 may be effected by a policy or
policies of blanket insurance, covering additional items or locations or
assureds, provided that the requirements of this Paragraph are otherwise
satisfied. Tenant shall have no rights in any policy or policies maintained by
Landlord and shall not, by reason of payment by Tenant, as part of the Building
Operating Expenses, of its prorata share of the Landlord's premium for the
insurance, be entitled to be a named insured thereunder.
SECTION 7.06. WAIVER OF SUBROGATION. Landlord and Tenant hereby waive any
rights each may have against the other, on account of any loss or damage
occasioned to Landlord or Tenant, as the case may be, their respective property,
the Premises, its contents or to the other portion of the Building arising from
any risk to the extent the party suffering damage receives the proceeds of fire
and extended coverage insurance. The parties hereto each, on behalf of their
respective insurance companies insuring the property of either Landlord or
Tenant against any such loss, waive any right of subrogation that it may have
against landlord or Tenant, so long as additional premiums, if charged, are paid
by Landlord and Tenant.
ARTICLE 8: CONDEMNATION
In the event the Building, or any portion thereof necessary, in the sole opinion
of Landlord, to the continued efficient and/or economically feasible use of the
Building shall be taken or condemned in whole or in part for public purposes, or
sold to a condemning authority to prevent taking, then the term of this Lease
shall, at the option of the Landlord, forthwith cease and terminate, and the
Landlord shall receive the entire award for land and buildings. Notwithstanding
the foregoing, Tenant shall have the right to recover from such authority, but
not from Landlord, or out of the proceeds otherwise payable to Landlord, only
any compensation as may be awarded to Tenant on account of moving and relocation
expenses and depreciation to and removal of Tenant's physical property. (See
Addendum)
ARTICLE 9: LIENS
Tenant shall keep the Premises free from any liens arising out of any work
performed, materials furnished, or obligations incurred by or for Tenant. In
the event that Tenant shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right but not the obligation, to cause the same
to be released by such means as it shall deem proper, including payment of or
defense against the claim giving rise to such lien. All [SUMS]? paid by
Landlord and all expenses incurred by it in connection therewith shall create
automatically an obligation of Tenant to pay an equivalent amount together with
interest at 10% per annum as Rent. No work which Landlord permits Tenant to
perform in the Premises shall be deemed to be for the immediate use and benefit
of Landlord so that no mechanics or other lien shall be allowed against the
estate of Landlord by reason of its consent to such work. (See Addendum)
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ARTICLE 10: TAXES ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay, prior to their becoming delinquent,
any and all taxes and assessments levied against any personal property or trade
or other fixtures placed by Tenant in or about the Premises, including any
additional real estate taxes or assessments which may be levied against the
Building by reason of Tenant's requirements for "Above-Standard Work" or
"Non-Standard Work" in the Premises. Notwithstanding the foregoing, Tenant
shall have the right to contest such taxes by providing Landlord with reasonable
assurances that Landlord will be protected during such contest.
ARTICLE 11: SUBLETTING AND ASSIGNING
SECTION 11.01. RESPONSIBILITIES. (See Addendum) Tenant shall not assign this
Lease, or allow it to be assigned, in whole or in part, by operation of law or
otherwise, or mortgage or pledge the same, or sublet the Premises, or any part
thereof, without the prior written consent of Landlord, (See Addendum) and in no
event shall any such assignment or sublease ever release Tenant from any
obligation or liability hereunder. No assignee or sublessee of the Premises or
any portion thereof may assign or sublet the Premises or any portion thereof.
SECTION 11.02. CONDITIONS OF SUBLEASE. If the Tenant desires to assign or
sublet all or any part of the Premises, it shall so notify Landlord at least
sixty (60) days in advance of the date on which Tenant desires to make such
assignment or sublease. Tenant shall provide Landlord with a copy of the
proposed assignment or sublease, and such information as Landlord might
reasonably request concerning the proposed sublessee or assignee to allow
Landlord to make informed judgements as to the financial condition, reputation,
operations and general desirability of the proposed subtenant(s) or assignee.
Within thirty (30) days after Landlord's receipt of Tenant's proposed assignment
or sublease, and all required information concerning the proposed subtenant(s)
or assignee, Landlord shall have the option to:
A. Cancel the Lease as to the Premises or portion thereof proposed to be
assigned or sublet; or
B. Consent to the proposed assignment or sublease, in which event, however, if
the rent due and payable by any assignee or sublessee under any such
permitted assignment or sublease (or a combination of the rent payable
under such assignment or sublease plus any bonus or any other consideration
therefor or any payment, incident thereto) exceeds the Rent payable under
this Lease for such space, Tenant shall pay to Landlord all such excess
rent and other excess consideration within ten (10) days following receipt
thereof by Tenant; or
C. Refuse its consent to the proposed assignment or sublease but allow Tenant
to continue in the search for an assignee or sublessee that may be
acceptable to landlord, which option shall be deemed to be elected unless
Landlord gives Tenant notice providing otherwise.
ARTICLE 12: TRANSFERS BY LANDLORD
SECTION 12.01. SALE OF THE BUILDING. In the event of a sale or conveyance by
Landlord of the Building, the same shall operate to release Landlord from any
and all liability under this Lease arising after the date of such sale.
Tenant's right to quiet possession of the Premises shall not be disturbed so
long as Tenant shall pay the Rent and observe and perform all of the provisions
of this Lease to be observed and performed by Tenant, unless this Lease is
terminated pursuant to specific provisions relating thereto or contained herein.
If any security deposit has been made by Tenant, Landlord may transfer such
security deposit to the purchaser, and thereupon Landlord shall be discharged
from any further liability in reference thereto.
SECTION 12.02. SUBORDINATION AND ATTORNMENT.
A. Upon written request or notice by Landlord, Tenant agrees to subordinate
its rights under this Lease to any Lease wherein Landlord is the Tenant and
to the lien of any first mortgage or first deed of trust, regardless of
whether such lease, first mortgage or first deed of trust now exists or may
hereafter be created with
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regard to all or any part of the Building, and to any and all advances to
be made thereunder and to the interest thereon and all modifications,
consolidations, renewals, replacements and extensions thereof, provided the
Lessor, first mortgagee or first trustee agrees to recognize the Lease of
Tenant in the event of default under the Lease or foreclosure if Tenant is
not in default. Tenant also agrees that any Lessor, first mortgagee or
first trustee may elect to have this Lease prior to any lease or lien of
its first mortgage or first deed of trust, and in the event of such
election and upon notification by such lessor, first mortgagee or first
trustee to Tenant to that effect, this Lease shall be deemed prior to lien
to said Lease, first mortgage or first deed of trust, whether this Lease is
dated prior to or subsequent to the date of said Lease, first mortgage or
first deed of trust.
B. Tenant shall, in the event of the sale or assignment of Landlord's interest
in the Premises (except in a sale-leaseback financing transaction), or in
the event of any proceedings brought for the foreclosure of, or in the
event of the exercise of the power of sale under, any first mortgage or
first deed of trust covering the Premises, or in the event of the
termination of any lease in a sale-leaseback transaction wherein Landlord
is the lessee, attorn to and recognize such purchaser or assignee or first
mortgagee as Landlord under this Lease first.
C. Tenant agrees that, upon the request of Landlord, or any such lessor, first
mortgagee or trustee, Tenant shall execute and deliver whatever instruments
may be reasonably required for such purposes and to carry out the intent of
this Section, and in the event Tenant fails to do so within twenty (20)
days after demand in writing, Tenant does hereby make, constitute and
irrevocably appoint Landlord as its attorney-in-fact, complete with an
interest, in its name, place and stead so to sign and deliver such
instruments as if the same had been signed and delivered by Tenant first.
ARTICLE 13: DEFAULT
SECTION 13.01. DEFAULTS BY TENANT. The occurrence of any of the following
shall constitute a material default and breach of this Lease by Tenant:
A. Any failure by Tenant to pay the Rent or to make any other payment required
to be made by Tenant hereunder, (See Addendum)
B. Any failure by Tenant to observe and perform any other provision of this
Lease to be observed or performed by Tenant, where such failure continues
for twenty (20) days after written notice to Tenant; (See Addendum)
C. Tenant admits in writing that it cannot meet its obligations as they become
due; is declared insolvent according to any law; or assignment of Tenant's
property is made for the benefit of creditors; or a receiver or trustee is
appointed for Tenant or its property; or the interest of Tenant under this
Lease is levied on under execution or other legal process; or any petition
is filed by or against Tenant to declare Tenant bankrupt or to delay,
reduce or modify Tenant's debts or obligations; or any petition is filed or
other action taken to reorganize or modify Tenant's capital structure if
Tenant be a corporation or other entity (provided that no such levy,
execution, legal process or petition filed against Tenant shall constitute
a breach of this Lease if Tenant shall vigorously contest the same by
appropriate proceedings and shall remove or vacate the same within ninety
(90) days from the date of its creation, service of filing).
D. The abandonment of the Premises by Tenant, which shall mean that Tenant is
absent from Premises for ten (10) consecutive days while Tenant is in
default in the payment of any sum to be paid by Tenant hereunder.
SECTION 13.02. REMEDIES OF LANDLORD. In the event of any such default by
Tenant, Landlord, at its option, may have one or more of the following remedies,
in addition to all other rights and remedies provided at law or in equity:
A. Landlord may terminate this Lease and without further notice repossess the
Premises and be entitled to recover as damages a sum of money equal to the
total of (1) the reasonable cost of recovering the Premises, (2) the unpaid
Rent earned at the time of termination, plus interest thereon, (3)
(OMITTED), (4)
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reasonable costs of reletting and refurbishing (limited to Building
Standard) and (5) any other sum of money and damages owed by Tenant to
landlord;
B. Landlord may immediately terminate Tenant's right of possession of the
Premises, but not terminate the Lease, and without notice or demand enter
upon the Premises or any part thereof and take absolute possession of the
same, change the locks, and, at Landlord's option, Landlord may relet the
Premises or any part thereof for such terms and such rents as Landlord may
reasonably elect. (See Addendum) In the event Landlord shall elect to so
relet, then Rent received by Landlord from such reletting shall be applied
first, to the payment of any indebtedness other than Rent due hereunder
from Tenant to Landlord, second, to the payment of any reasonable cost of
such reletting, including, without limitation, refurbishing costs (See
Addendum) and leasing commissions, and third to the payment of Rent due and
unpaid hereunder, and Tenant shall satisfy and pay any deficiency (See
Addendum). Tenant further agrees that Landlord may file suit to recover
any sums due under the terms of this Article and that no recovery of any
portion due Landlord hereunder shall be any defense to any subsequent
action brought for any amount not theretofore reduced to judgment in favor
of Landlord. Reletting of the Premises shall not be construed as an
election on the part of Landlord to terminate this Lease and,
notwithstanding any such reletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for such previous breach.
SECTION 13.03. LANDLORD'S LIEN. To assure payment of all sums due hereunder
and the faithful performance of all other covenants of the Lease, Landlord shall
have all rights available to landlord at law or in equity.
SECTION 13.04. DEFAULTS BY LANDLORD. Except as otherwise provided in this
Lease, Landlord shall be in default under this Lease if Landlord fails to
perform any of its obligations hereunder and said failure continues for a period
of thirty (30) days after written notice thereof from Tenant to Landlord (unless
such failure cannot reasonably be cured within thirty (30) days and Landlord
shall have commenced to cure said failure within said thirty (30) days and
continues diligently to pursue the curing of the same.) If Landlord shall be in
default under this Lease and, if as a consequence of such default, Tenant shall
recover a money judgement against Landlord, such judgement shall be satisfied
only out of the right, title and interest of Landlord in the Building as the
same may then be encumbered and Landlord shall not be liable for any deficiency.
In no event shall Tenant have the right to levy execution against any property
of Landlord other than its interest in the Building as hereinbefore expressly
provided.
ARTICLE 14: NOTICES
All notices which Landlord or Tenant may be required, or may desire, to serve on
the other may be served, as an alternative to personal service, by mailing the
same by registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth in Item 2 of the Basic Lease Provisions, or addressed to
such other address or addresses as either Landlord or Tenant may from time to
time designate to the other in writing.
ARTICLE 15: MISCELLANEOUS PROVISIONS
SECTION 15.01. [OMITTED]
SECTION 15.02. ATTORNEY'S FEES. In the event of any legal action or proceeding
brought by either party against the other arising out of this Lease, the
prevailing party shall be entitled to recover reasonable attorney's fees and
costs incurred in such action and such amount shall be included in any judgment
rendered in such proceeding.
SECTION 15.03. WAIVER. No waiver by either party of any provision of this
Lease or of any breach by the other party hereunder shall be deemed to be a
waiver of any other provision hereof, or of any subsequent breach by the other
party of the same or any other provision. Landlord's consent to or approval of
any act by Tenant requiring Landlord's consent or approval shall not be deemed
to render unnecessary the obtaining of Landlord's consent to or approval of any
subsequent act of Tenant. No act or thing done by Landlord or Landlord's agents
during the term of this Lease shall be deemed an acceptance of a surrender of
the Premises, unless done in writing signed by Landlord. The delivery of the
keys to any employee or agent of Landlord
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shall not operate as a termination of the Lease or a surrender of the Premises.
The acceptance of any Rent by Landlord following a breach of this Lease by
Tenant shall not constitute a waiver by Landlord of such breach or any other
breach unless such waiver is expressly stated in writing signed by Landlord.
SECTION 15.04. INSOLVENCY OR BANKRUPTCY. In no event shall this Lease be
assigned or assignable by operation of law and in no event shall this Lease be
an asset of Tenant in any receivership, bankruptcy, or insolvency, or
reorganization proceeding.
SECTION 15.05. CONFLICT OF LAW. This Lease shall be governed by and construed
pursuant to the laws of the State of Texas.
SECTION 15.06. COMMON FACILITIES; PARKING. Tenant shall have the non-exclusive
right, in common with others, to the use of common entrances, lobbies,
elevators, ramps, drives, stairs and similar access and serviceways and other
common facilities in and adjacent to the Building, subject to such rules and
regulations as may be adopted by the Landlord. Tenant shall have such parking
rights as are set forth in the Parking Agreement attached hereto as "Exhibit F."
SECTION 15.07. SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
Lease, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
SECTION 15.08. BROKERS. Tenant warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease,
excepting only the broker(s) named in Item 9 of the Basic Lease Provisions, and
that it knows of no other real estate broker(s) or agent(s) who is (are) or
might be entitled to a commission in connection with this Lease. Landlord
covenants and agrees to pay all real estate commissions due in connection with
this Lease to only such broker(s).
SECTION 15.09. NAME. Tenant shall not, without the written consent of
Landlord, use the name of the Building for any purpose other than as the address
of the business to be conducted by Tenant in the Premises, and in no event shall
Tenant acquire any rights in or to such names.
SECTION 15.10. EXAMINATION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a Lease or otherwise until
execution by and delivery to both Landlord and Tenant.
SECTION 15.11. INTEREST ON TENANT'S OBLIGATIONS; LATE CHARGE. Any amount due
from Tenant to Landlord which is not paid when due shall bear interest at a rate
equal to the lesser of ten percent (10%) per annum or the highest lawful rate
from the date such payment is due until paid, but the payment of such interest
shall not excuse or cure the default.
SECTION 15.12. TIME. TIME IS OF THE ESSENCE IN THIS LEASE AND IN EACH AND ALL
OF THE PROVISIONS HEREOF.
SECTION 15.13. DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as singular. If more
than one person is named as Tenant, the obligations of such persons are joint
and several. The headings and titles to the articles of this Lease are not a
part of this Lease and shall have not effect upon the construction or
interpretation of any part hereof.
SECTION 15.14. CORPORATE AUTHORITY. If Tenant executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Tenant does
hereby personally covenant and warrant that Tenant is a duly authorized and
existing corporation, that Tenant has and is qualified to do business in Texas,
that the corporation has full right and authority to enter into this Lease, and
that each person signing on behalf of the corporation was authorized to do so.
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SECTION 15.15. RECORDING. This lease shall not be recorded, however Landlord
shall have the right to record a short form of memorandum thereof, at Landlord's
expense, at any time during the term hereof.
SECTION 15.16. ENTIRE AGREEMENT. This lease contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreement, understanding or representation pertaining to any
such matter shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest.
SECTION 15.17. See attached Lease Addendum hereto
IN WITNESS WHEREOF, the parties hereto have executed this Lease, consisting
of the foregoing provisions and Articles 1 through 15, together with Exhibits
specified on page 1, incorporated herein by this reference, as of the date first
above written.
WITNESS TENANT
PERCEPTIVE SYSTEMS, INC.
BY:
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Title:
----------------------------------
Date:
-----------------------------------
WITNESS LANDLORD
MARINA ONE
- -------------------------------- BY:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
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"EXHIBIT A"
METES AND BOUNDS DESCRIPTION
OF A 3.124 ACRE TRACT OF LAND
OUT OF THE MICHAEL MULDOON TWO LEAGUE GRANT, ABSTRACT 18
GALVESTON COUNTY, TEXAS
Being 3.124 acres of land out of the Michael Muldoon Two League Grant, Abstract
18, Galveston County, Texas; and being out of and a portion of that certain
Partial Replat of South Shore Harbour Subdivision, Section Two, as recorded in
Volume 18, Page 136 and 137 of the Map Records of Galveston County, Texas; said
3.124 acre tract of land being more particularly described by metes and bounds
as follows:
COMMENCING at a point for corner at the most Southerly corner of said Partial
Replat of Section Two and being in the Northerly right-of-way line of F.M. 2094
(80-foot right-of-way);
THENCE North 41DEG. 47' 20" West with the Westerly line of said Partial Replat
of Section Two, 1350.42 feet to a point for corner;
THENCE North 03DEG. 12' 40" East, 108.85 feet to a point for corner and being
the PLACE OF BEGINNING for the tract herein described;
THENCE North 03DEG. 12' 40" East, 485.00 feet to a point for corner;
THENCE South 86DEG. 47' 20" East, 114.74 feet to a point for corner in the
centerline of a 100-foot wide Access Easement;
THENCE South 41DEG. 47' 20" East with said centerline, 413.13 feet to a point
for corner;
THENCE South 48DEG. 12' 40" West, 272.76 feet to a point for corner;
THENCE North 86DEG. 47' 20" West, 213.99 feet to the PLACE OF BEGINNING;
containing 3.124 acres of land, more or less. (136,061 square feet)
"EXHIBIT B"
AREA DEFINITIONS
A. NET USEABLE AREA. For all purposes of the Lease and the Agreement for
Construction ("Exhibit E") "Net Useable Area" shall mean:
1. On a multi-tenant floor, the area encompassed by the inside surface of
all exterior walls of the office building, the corridor side of
corridor walls and the center line of walls separating the Premises
from other lease or leasable areas.
<PAGE>
Perceptive Systems Inc.
Addendum to Lease
March 24, 1988
Page 1 of 6
2. On a single-tenant floor, the area encompassed by the inside surface
of all exterior walls, less stairs, vertical shafts, air handling
rooms, janitor closets, and such other rooms not actually available
for the tenant's use. Toilet rooms, corridors, and elevator lobbies,
serving such a floor shall be included.
B. NET RENTABLE AREA. For all purposes of the Lease, "Net Rentable Area"
shall be the sum of:
1. Net Useable Area;
2. A prorated share of all common areas on the same floor as the Premises
(including elevator, lobby, corridors, rest rooms, mechanical and
electrical rooms, and telephone and janitor closets); and
3. A prorated share of other office building common areas (including e.g.
ground floor and basement entrance lobbies, tunnel, central mechanical
room, emergency generator room, engineer's office, shipping and
receiving room, fire department room and post office).
C. AGREEMENT ON AREAS. Net Rentable and Net Useable Areas shown in the Basic
Lease Provisions have been calculated on the basis of the foregoing
definitions and are hereby agreed to be the stated areas regardless of
minor variations* resulting from actual construction and completion of the
Premises for occupancy, so long as such work is done in accordance with the
terms and provisions in the Lease, the Agreement for Construction, and the
approved Construction Plans.
* so long as such variations do not exceed five percent (5%) of the
original calculations.
ITEM 7: (BASIC LEASE PROVISIONS): * In the event the premises are not
ready for occupancy by June 1, 1988, Landlord shall timely pay all holdover rent
obligations and related costs incurred by Tenant because the premises are
unavailable. If the premises are not ready for occupancy by August 1, 1988,
Tenant shall have the right to terminate this Lease and pursue its remedies at
law or in equity.
ITEM 8: (BASIC LEASE PROVISIONS): * If Tenant is not in default
hereunder, such security deposit will be returned to Tenant at the 30th month of
the term.
SEC. 2.02. A.5: * and those items as set forth in Section 21 made part of
this Lease Addendum attached hereto and made a part hereof for all purposes.
<PAGE>
Perceptive Systems Inc.
Addendum to Lease
March 24, 1988
Page 2 of 6
SEC. 2.02. B.3: * In no year shall such adjustments to Additional Rent
exceed 10% of the previous year's Additional Rent excepting all real estate and
ad valorem taxes and or other assessments by governmental or quasi government
entities over which Landlord has no control, i.e. Building Operating Expenses
for a specific year (less taxes and assessments) shall not exceed the previous
years Building Operating Expenses (less taxes and assessments) by more than 10%.
SEC. 2.02. D: * Audit. Tenant shall have the right, at its expense, at
all reasonable times to audit Landlord's books and records relating to this
Lease. In the event such audit discloses an error by Landlord or its
accountants of 3% or more, Landlord shall pay for the cost of Tenant's audit.
SEC. 4.04: * , upon prior notice of 24-hour, excepting routine services,
** , without unreasonably interfering with Tenant's business,
*** , only during non-business hours,
**** , so long as Landlord complies with the provisions hereof and is not
negligent,
SEC. 6.01: *** In the event Landlord does not effect such repairs within a
reasonable time after notice of such damage, Tenant may effect such repairs and
pursue reimbursement for such repair from Landlord.
SEC. 6.02.B: * subject to Tenant's written approval which shall not be
unreasonably withheld.
SEC. 6.02.C: * , which consent or approval shall not be unreasonably
withheld, delayed or conditioned.
ARTICLE 8: CONDEMNATION: ** by such authority. In the event the lease is
not terminated, Landlord shall promptly repair the Premises to an architectural
whole at its cost, during which time Rent shall be abated and after which rent
shall be adjusted equitably.
ARTICLE 9: LIENS: * Notwithstanding the foregoing, Tenant shall have the
right to contest such liens by providing Landlord with reasonable assurances
that Landlord will be protected during such contest.
<PAGE>
Perceptive Systems Inc.
Addendum to Lease
March 24, 1988
Page 3 of 6
SEC. 11.01: * With the exception of Du Pont, its subsidiaries, or any
venture of which either* would be a partner of,
* Tenant, Dupont or their respective subsidiaries
SEC. 11.01: ** , which consent shall not be unreasonably withheld, delayed
or conditional.
SEC. 13.01.A: * where such failure continues for ten (10) days after
written notice to Tenant, provided however, such written notice shall not be
required after three written notices in any one year period.
SEC. 13.01.B: ** plus such additional time as may be necessary if such
cure cannot be effected within twenty (20) days provided Tenant is diligently
pursuing such cure.
SEC. 13.02.B: **** , and Landlord shall diligently attempt to relet the
Premises.
SEC. 13.02.B: ***** (limited to Building Standard)
SEC. 13.02.B: ****** within fifteen (15) days after receipt of a detailed
statement therefor.
SECTION 16. EXPANSION SPACE. If Lessee is not in default of any terms,
conditions or covenants of this Lease and Lessee occupies at least 15,000
rentable square feet of premises (initial lease space) on the first floor level
of the Building, then Lessor agrees to hold as expansion space for Tenant, the
remaining contiguous lease space on the first floor level (as evidenced by
cross-hatching on Exhibit "A1" hereto) for a period of one year from the
Commencement Date of this Lease Agreement. The Rent Rate (Item 6-Basic Lease
Provisions) per square foot to be applied for such expansion space shall remain
unchanged for such period and Landlord shall make all Tenant Improvements for
such expansion space at no cost to Tenant provided that such expansion Tenant
Improvements are comparable in nature to the initial lease Tenant Finish and do
not otherwise exceed the unit cost per s.f.) of the initial lease Tenant Finish.
SECTION 17. LEASE RENEWAL. If Lessee is not in default of any terms,
conditions or covenants of this Lease, then Lessor hereby grants to Lessee, but
not any assignee or subtenant,* an option to renew the Lease ("Renewal Option")
under the same terms and conditions contained in this Lease with the following
exceptions and modifications: *excepting, however, as provided in 11.01 herein
<PAGE>
Perceptive Systems Inc.
Addendum to Lease
March 24, 1988
Page 4 of 6
a.) Number of Renewal Terms after the original term shall be one (1)
consecutive sixty (60) month term.
b.) Base monthly rent (Section 1.6) shall be 95% of the then prevailing
market rates for comparable space and comparable properties of
comparable age, quality, size, utility, and location in the Clear Lake
market.
Lessee shall exercise its Renewal Option by giving Landlord written notice
thereof on or before one hundred twenty (120) days prior to the expiration date
of the initial lease term. In the event that Lessee does not exercise the
Renewal Option or respond in writing prior to such 120-day period, this Renewal
Option is rescinded together with all other rights granted in this Lease on the
expiration date of the original term or the then respective renewal term as
herein set forth.
SECTION 18. TENANT SIGNAGE IDENTIFICATION. Landlord will provide
prominent external signage identifying Tenant consistent with all applicable
covenants, restrictions, ordinances or signage controls and which shall also be
acceptable to Tenant.
SECTION 19. AFTER-HOURS HVAC. Landlord will provide after-hours HVAC to
Tenant, upon request, at a cost of $1.50 per hour per zone. Tenant shall work
with Landlord to layout areas most likely requiring off-hour HVAC to minimize
total number of zones that might be required to operate at any given off-hour
time.
SECTION 20. LANDLORD NEGLIGENCE. Landlord shall be liable to any damage
or loss caused by its gross negligence (whether by action or inaction), and its
willful misconduct, including the gross negligence and willful misconduct of its
agents, employees, contractors, and any other person engaged by Landlord to
perform work for it (collectively, "Landlord's negligence").
SECTION 21. EXPENSES. Building Operating Expenses, as contemplated in
Section 2.02 A. of the Lease, shall also not include the following items:
(i) Capital costs incurred by Landlord in connection with the
Building and any improvements situated thereon which constituted capital
expenditures under generally accepted accounting principles, including (without
limitation) the cost of capital improvements, capital repairs, capital equipment
and capital tools.
(ii) Depreciation of the Building, and all equipment, fixtures,
improvements and facilities used in connection therewith.
<PAGE>
Perceptive Systems Inc.
Addendum to Lease
March 24, 1988
Page 5 of 6
(iii) Any taxes, property or otherwise, to the extent Landlord is
reimbursed or is entitled to be reimbursed, by any tenant other than under a
rental adjustment provision.
(iv) the cost of repairs or other work occasioned by any casualty
which is covered by insurance.
(v) Legal fees or other expenses incurred in connection with
negotiations or disputes with tenants, occupants or prospective tenants of the
Building.
(vi) Landlord's cost of electricity and other services sold to tenants
by Landlord for which Landlord is reimbursed, or is entitled to be reimbursed,
by tenants as an additional charge or rental over and above the base rental
payable under the applicable lease.
(vii) Expenses incurred by Landlord in connection with services or
other benefits of a type which are not available to or provided Tenant but which
are provided to another tenant or occupant of the Building.
(viii) Expenses or costs incurred by landlord relating to any
violation by Landlord or any other tenant of the terms and conditions of any
lease covering the Building.
(ix) Overhead and profit increment paid to subsidiaries, partners,
parent companies or other affiliates of Landlord for services rendered to
Landlord in connection with the Building or for equipment, fixtures and supplies
sold to Landlord in connection therewith, to the extent only that the cost of
such services or goods exceeds the cost which would be paid by Landlord therefor
if the same were rendered or sold to Landlord by an unrelated entity at
competitive prices.
(x) Landlord's general overhead and administrative expenses which are
not chargeable to operating expenses of the Building or equipment, fixtures and
facilities used in connection therewith, in accordance with generally accepted
accounting principles, including the salaries and expenses of Landlord's
executive officers and partners.
(xi) Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord.
(xii) All items and services for which Tenant reimburses Landlord
or pays third persons.
<PAGE>
Perceptive Systems Inc.
Addendum to Lease
March 24, 1988
Page 6 of 6
(xiii) Costs related to maintaining Landlord's existence, either as
a trust, corporation, partnership or other entity.
SECTION 22. LANDLORD ENTRY. At any time Landlord enters upon the
Premises, Landlord shall use its best efforts not to interfere with the business
and operation of Tenant at the Premises.
SECTION 23. NON-DISTURBANCE AGREEMENT. So long as Tenant has no defaults
under the Lease which remain uncured after the applicable grace periods, Tenant
shall not be disturbed in its possession under the terms of the Lease, and any
successor or assignee of Landlord, whether by foreclosure or otherwise, shall
recognize and honor the terms of this Lease.
<PAGE>
"EXHIBIT F"
PARKING AGREEMENT
DATED March 24, 1988
---------------
BUILDING: MARINA ONE SUITE NO. 100
----------------------------------------- ------
LANDLORD: MARINA ONE
-----------------------------------------
TENANT: PERCEPTIVE SYSTEMS, INC. LEASE
------------------------------------------ --------
So long as the Lease of which this Agreement is a part shall remain in effect,
Tenant or persons designated by Tenant hereby rents on a nonexclusive basis
except as provided for herein up to 30 parking spaces on the "Premises" in
areas designated for parking and as classified herein, two (2) spaces of which
shall be designated as loading area. In no case, however, shall Tenant's
parking allocation fall below 3 spaces per 1000 sqft NRA.
Tenant shall pay initially for parking spaces(s) rented the sum* of $0
per month. during the Term and any renewals thereof
Tenant may validate visitor parking, by such method or methods as Landlord or
the garage operator may approve, at the validation rate from time to time
generally applicable to visitor parking. Landlord expressly reserves the right
to re-designate parking areas and to modify the parking structure for other uses
or to any extent.
A condition of any parking shall be compliance by the parker with garage rules
and regulations, including any sticker or other identification system
established by Landlord. The following rules and regulations are in effect
until notice is given to Tenant of any change. Landlord reserves the right to
modify and/or adopt such other reasonable and non-discriminatory rules and
regulations for the garage as it deems necessary for the operation of the
garage. Landlord may refuse to permit any person who violates the rules to park
in the garage, and any violation of the rules shall subject the car to removal,
after written notice of such violation being first given by Landlord.
RULES AND REGULATIONS
1. Cars must be parked entirely within the stall lines painted on the floor.
2. All directional signs and arrows must be observed.
3. The speed limit shall be 5 miles per hour.
See Page 2 Page 1 of 2
<PAGE>
4. Parking is prohibited:
a. in areas not stripped for parking
b. in aisles
c. where "no parking" signs are posted
d. on ramps
e. in cross hatched areas
f. in such other areas as may be designated by Landlord or Landlord's
agent(s).
5. Parking stickers or any other device or form of identification supplied by
Landlord shall remain the property of Landlord and shall not be
transferable. There will be a replacement charge payable by Tenant equal
to the amount posted from time to time by Landlord for loss of any magnetic
parking card, parking sticker, or any other entry or control device.
6. Garage managers or attendants are not authorized to make or allow any
exceptions to these Rules and Regulations.
7. Every parker is required to park and lock his own car. All responsibility
for damage to cars or persons or theft is assumed by the parker.
See Page 2 Page 1 of 2
<PAGE>
Failure on the part of Tenant or Tenant's designated parkers to observe the
rules and regulations above* shall give Landlord the right to terminate Tenant's
right to use the parking structure. No such termination shall create any
liability on Landlord or be deemed to interfere with Tenant's right to quiet
possession of its Premises.
* , after notice and opportunity to cure as provided in the Lease,
* PARKING CLASS - RATE STRUCTURE
Designation Class Type Rate/Month Allocations
- -------------------------------------------------------------------
A Name-Dedicated ** Covered 10
B Open-Reserved Covered
** Dedicated for exclusive use of Tenant only
THE TERMS AND PROVISIONS OF THIS PARKING AGREEMENT ACCEPTED AND AGREED TO:
TENANT: PERCEPTIVE SYSTEMS, INC.
--------------------------------------------
BY: /s/ Don Winkler
--------------------------------------------
TITLE: Vice President
--------------------------------------------
DATE: 3-30-88
--------------------------------------------
LANDLORD: MARINA ONE
--------------------------------------------
BY: /s/ R.A. Estinson
--------------------------------------------
TITLE: V.P. South Shore Venture Corp.
--------------------------------------------
DATE: 3-31-88
--------------------------------------------
PARKING AGREEMENT
Page 2 of 2
<PAGE>
MODIFICATION AND RATIFICATION OF LEASE
This Modification and Ratification of Lease Agreement, dated June 12, 1991, is
made and entered into between MARINA ONE JOINT VENTURE (Lessor or Landlord) and
PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC., successor to and formally known as
Perceptive Systems, Inc., (Lessee or Tenant) for and in consideration of one
dollar ($1.00) and other good and valuable considerations, receipt of which is
hereby acknowledged.
W I T N E S S E T H:
(1) Lessor and Lessee hereby confirm and ratify, except as modified below, all
of the terms, conditions, and covenants in that certain written Lease Agreement
dated March 24, 1988 between Lessor and Lessee, for the rental of the following
described property:
Being a portion of a multi-story, 110,000 s.f. facility known as "Marina I"
(1st Floor, Suite 100), located at 2525 South Shore Blvd., League City, TX
77573.
(2) Lessor and Lessee herein agree that Tenant name (BASIC LEASE PROVISIONS -
ITEM 2) is changed from "Perceptive Systems, Inc." to "Perceptive Scientific
Instruments, Inc.".
(3) Perceptive Scientific Instruments, Inc. now as Tenant and as successor and
assign to the herein referenced Lease Agreement, does hereby agree to be bound
by all conditions, restrictions, covenants, and obligations of the herein
referenced Lease Agreement.
(4) Lessor and Lessee herein agree that the Term (BASIC LEASE PROVISIONS - ITEM
7. Term) shall be extended to provide a total initial term that would run
through and terminate (unless renewed or further extended) on July 1, 1994.
(5) Lessor and Lessee herein agree that the "Rent" (BASIC LEASE PROVISIONS -
ITEM 6. Rent) shall be changed, effective July 1, 1991 from $15,164.00/month
($12.00/sf/year) to $17,133.76/month ($13.56/sf/year) for the lease term through
June 30, 1993. The Rent for the last twelve (12) months of the lease term (July
1, 1993 thru June 30, 1994) shall be $18,323.17/month ($14.50/sf/year).
Signed at Houston, Texas this _____ day of June 1991.
LESSOR: Marina One Joint Venture
------------------------------
By: Richard A. Estenson
President - South Shore Venture Corporation
General Partner
LESSEE: Perceptive Scientific Instruments, Inc.
\s\ James L. Hurn
---------------------------------------------
By:
Title: President/CEO
<PAGE>
MODIFICATION AND RATIFICATION OF LEASE
This Modification and Ratification of Lease Agreement ("M&R"), dated October 11,
1991, is made and entered into between MARINA ONE JOINT VENTURE (Lessor or
Landlord) and PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC. (Lessee or Tenant) for and
in consideration of one dollar ($1.00) and other good and valuable
considerations, receipt of which is hereby acknowledged.
W I T N E S S E T H:
1) Lessor and Lessee hereby confirm and ratify, except as modified below, all
of the terms, conditions, and covenants in that certain written Lease Agreement
dated March 24, 1988 (and as modified by M&R dated 6/12/91) between Lessor and
Lessee, for the rental of the following described property:
Being a portion of a multi-story, 110,000 s.f. facility known as "Marina I"
(1st Floor, Suite 100), located at 2525 South Shore Blvd., League City, Tx
77573.
2) Lessor and Lessee herein agree that Tenant's Net Rentable Area (BASIC LEASE
PROVISIONS: ITEM 4) shall be increased by 667 s.f. NRA (see EXHIBIT A,
"Expansion Space") from 15,164 s.f. to 15,831 s.f..
3) Lessor and Lessee herein agree that the "Rent" (BASIC LEASE PROVISIONS -
ITEM 6. Rent) shall be changed, effective October 1, 1991, from $17,133.76/Month
($13.56/sf/year) to $17,889.03/month ($13.56/sf/year) for the lease term through
June 30, 1993. The Rent for the last twelve (12) months of the lease term (July
1, 1993 thru June 30, 1994) shall be $19,129.13/month ($14.50/sf/year).
Signed at Houston, Texas this 31st day of October, 1991.
LESSOR: MARINA ONE JOINT VENTURE
\s\ Richard A. Estension
-----------------------------------
By: Richard A. Estension
President - South Shore Venture Corporation
General Partner
LESSEE: PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
\s\ James L. Hurn
-----------------------------------
By: James L. Hurn
President/CEO
<PAGE>
MODIFICATION AND RATIFICATION OF LEASE
This Modification and Ratification of Lease Agreement, dated May 16 , 1994, is
made and entered into between MARINA ONE JOINT VENTURE (Landlord) and PERCEPTIVE
SCIENTIFIC INSTRUMENTS, INC., successor to and formerly known as Perceptive
Systems, Inc., (Tenant) for and in consideration of one dollar ($1.00) and other
good and valuable considerations, receipt of which is hereby acknowledged.
W I T N E S S E T H:
Whereas, by written agreement (the "Underlying Lease") dated March 24, 1988,
including all amendments, modifications and ratifications there to, Lessor and
Landlord leased the following described real property to Perceptive Systems,
Inc., now Perceptive Scientific Instruments, Inc. ("PSI"):
Being a portion of a 111,921 square foot multi-story facility known as
"Marina I" (1st. Floor, Suite 105), located at 2525 South Shore Blvd.,
League City, TX 77573; and
Whereas, it is the desire of PSI to modify, renew and extend the Underlying
Lease as to a portion of the Leased Premises and to release to Terra
Laboratories, Ltd. (TLL) the remainder of the Leased Premises; and
Whereas Lessor and Landlord, PSI and TLL have all agreed to a division of the
Leased Premises into two separate premises, one to be leased to and occupied by
PSI and the other to be leased to and occupied by TLL;
Now, therefore, it is agreed that the terms, covenants, and conditions of the
Underlying Lease shall be continued as the basic lease provisions of two
separate leases, one to PSI the other to TLL. As to TLL, the Underlying Lease
shall be incorporated herein with the following modifications, and, as so
modified, the same is hereby confirmed and ratified.
1) NAME OF TENANT: The name of the Tenant is Perceptive Scientific
Instruments, Inc.
2) PREMISES: Landlord and Tenant herein agree that the premises and rent
(BASIC LEASE PROVISIONS ITEM 5) is hereby changed as follows: Premises
shall decrease from 15,831 square feet of Net Rentable Area (13,766 sq. ft.
Net Usable) to approximately 7,213 square feet of Net Rentable Area (6,272
sq. ft. Net Usable). Tenants Building Expense Percentage shall decrease
from approximately 14.1448% to 6.4447%. Both such changes are subject to
Tenants independent verification of space measurement.
3) LEASE TERM: Landlord and Tenant herein agree that the commencement and
lease term (BASIC LEASE PROVISIONS ITEM 7) is hereby changed as follows:
<PAGE>
The initial lease term will be for a period of five (5) years commencing
upon substantial completion of the Premises. The commencement date for all
other changes in the lease, including the Annual Rental Rate, will be April
1, 1994. If Tenant is then current on all obligations to Landlord, all
liabilities of Tenant shall cease with respect to all prior leases and
amendments, excluding any escalations for the first three months of 1994.
4) ANNUAL RENTAL RATE: Landlord and Tenant herein agree that the rent (BASIC
LEASE PROVISIONS ITEM 6) is hereby changed as follows: Tenants rent shall
decrease from $14.50 per square foot per year to $13.75 per square foot per
year flat, full service, plus amortization of excess fit up costs, if any;
Landlord and Tenant herein agree that Section 2.02 C, third paragraph shall
be re-inserted as follows: IN THE EVENT ANY INSTALLMENT OF RENT UNDER THIS
LEASE SHALL NOT BE PAID WITHIN THIRTY DAYS OF THE DUE DATE (THE GRACE
PERIOD), A "LATE CHARGE" OF FIVE CENTS ($.05) PER EACH DOLLAR SO OVERDUE
MAY BE CHARGED BY LANDLORD, FOR THE PURPOSE OF DEFRAYING LANDLORD'S
ADMINISTRATIVE EXPENSES INCIDENT TO HANDLING OF SUCH OVERDUE PAYMENTS.
SHOULD TENANT TWICE IN ANY SIX MONTH PERIOD, FAIL TO TO PAY WITHIN THE
GRACE PERIOD, THE GRACE PERIOD SHALL BE REDUCED FROM THIRTY DAYS TO TEN
DAYS FOR THE REMAINDER OF THE LEASE TERM.
5) OPERATING EXPENSES AND REAL ESTATE TAXES: Landlord and Tenant herein agree
that Tenant will pay its proportionate share of operating expenses and real
estate taxes exceeding a 1994 base year, grossed up to reflect the amount
of operating expenses and real estate taxes which would have been
incurred/paid had the building been 100% occupied during such base 12 month
period; however, in no event shall the base year be less than $6.00 PSF.
There will be no operating expense pass throughs for the calendar year 1994
subsequent to the commencement date of this modification. The following
clause shall be reinstated to its original location in Section 2.02 A.5.
"including all additional direct cost and expense of operation and
maintenance of the Building which Landlord determines that it would have
paid or incurred during such year if the building had been one hundred
percent (100%) occupied."
Landlord and Tenant herein agree that the exclusions to operating expenses
outlined in Section 21 EXPENSES of the Primary Lease shall continue to
apply.
6) TENANT LEASEHOLD IMPROVEMENTS: Landlord and Tenant herein agree that
Landlord will provide Tenant with $6.00 PSF NRA (net of architectural fees
which shall be provided at Landlords sole cost without reimbursement by
Tenant) toward the cost of construction of leasehold improvements. Any
leasehold improvement dollars not utilized in the Tenants lease space can
be applied toward the Terra Laboratories, Ltd. lease space and vice versa.
Landlord and Tenant herein agree that all excess construction costs over
and above the aforementioned allowance will be amortized over the term of
the lease at 9.25% interest rate. The budget worksheet attached as Exhibit
A is the
<PAGE>
budgeted cost of leasehold improvements, the total of which is considered a
"not to exceed" number. The owner (Guarantor) of Tenant will personally
guarantee repayment of all construction costs associated with such lease.
Such personal guarantee will be in a form agreed to by Landlord and
Guarantor.
In addition, Landlord at its sole cost and expense, shall be responsible
for all consultation, architectural and engineering charges and shall
timely make (or cause to be made) all alterations, additions, improvements
and/or renovations to the Building and the Building systems such that the
Building shall, throughout the term, be in full compliance with all
provisions of the American with Disabilities Act (ADA). None of the cost
and expenses incurred by Landlord with respect to the ADA compliance will
be included in Operating Expenses.
7) RIGHT OF FIRST REFUSAL: Landlord and Tenant herein agree that throughout
the term of the Lease, Tenant will have the Right of First Refusal to
expand into vacant contiguous space on the 1st floor. Tenant's right to
expand will be continuous; that is, if space is offered to Tenant and is
later leased to a third party and such space again becomes available,
Tenant's right to lease such space would be reinstated. For the first
three (3) years of the Lease term, the rental rate of the Right of First
Refusal space will be the gross rate currently being paid by Tenant at the
time that such right is exercised. After the first three (3) years of the
Lease term, the rental rate for the Right of First Refusal space shall be
at the-then current market rate.
In either case, Landlord shall provide Tenant with an allowance for
leasehold improvements in an amount equal to ten percent (10%) of the
average base annual rental rate for the balance of the primary term times
the number of square feet of net rentable area (Dollars per square foot per
year) contained therein times the number of years (or portions thereof)
remaining in the primary term.
8) RENEWAL OPTION: Landlord and Tenant herein agree that Tenant shall have
the right to renew for one, five (5) year period at 95% of the then
prevailing "Market Rates". Market rates shall be defined as those offered
to third party tenants (in the building or in buildings of comparable age,
character and location) of Tenants size and financial stature. The renewal
rate and terms shall include all relevant financial parameters of a real
estate transaction, including but not limited to, parking rates, operating
expense base, tenant improvement allowances, etc., further taking into
consideration the following:
- location and/or floor level within the building;
- definition of "rentable" area,
- abatements (including with respect to base rental, operating expenses,
and ad valorem/real estate taxes, and parking charges);
- lease takeovers/assumptions;
- moving allowances;
- relocation allowances;
- refurbishment and repainting allowances;
- any other concessions or inducements;
<PAGE>
- extent of services provided or to be provided;
- distinction between "gross" and "net" lease;
- any other adjustments (including by way of indexes) to base rental;
- term or length of lease;
- and any other relevant term or condition in making such "market value"
rental rate determination.
9) STORAGE: Landlord and Tenant herein agree that for the term of the Lease
plus any renewals thereof, Tenant shall continue to use the storage areas
located on the first and second parking levels, which were constructed for
their use, at no cost.
10) CLEAN-AIR ACT: Landlord and Tenant herein agree that Landlord, at its sole
cost and expense without reimbursement by Tenant, shall be responsible for
all consultation, architectural, and engineering charges, and shall
otherwise timely make (or cause to be made) all alterations, additions,
improvements and/or renovations to the Building, the Building's system and
the Premises such that the Building and the Premises shall, throughout the
term, be in full compliance with all provisions of the Clean Air Act. None
of the cost and expenses of Landlord incurred with respect to the Clear Air
Act compliance shall be included in Operating Expenses.
11) HOLDOVER: Landlord and Tenant herein agree that so long as Tenant is using
good faith efforts to renew and extend its Lease, Landlord agrees that it
will not charge Tenant a holdover penalty as stated in Section 1.04 Holding
Over of its primary lease.
12) LEASE DOCUMENTS: Landlord and Tenant herein agree that the primary lease
document dated March 24, 1988 between Marina One Joint Venture (Landlord)
and Perceptive Systems, Inc. (Tenant), now Perceptive Scientific
Instruments, is hereby extended and modified by lease amendment and will be
utilized for this transaction. In addition to the terms and conditions
outlined above, the following modifications shall be made to the existing
primary lease document.
2.02 ADDITIONAL RENTAL A.5: This section is hereby modified such that
Landlord's management fees shall not exceed three percent (3%) of the gross
rental rate. There will be no management fees charged on escalations.
Second paragraph, third line from the bottom, the words ATTRIBUTED BY
LANDLORD are hereby modified to read REALIZED BY TENANT.
(B1) PAYMENT OBLIGATION - This section is hereby modified such that where
the Landlord has the right to estimate Tenant's Additional Rental, it shall
do so no more than once each lease year and such estimate amount shall not
represent an increase of more than five percent (5%) per year.
ARTICLE 5 SECTION 5.01: This section is hereby modified such that the clause
"Provided Tenant is not in default hereunder," shall be reinstated in its
original location
<PAGE>
5.02 ADDITIONAL SERVICES: This paragraph is hereby modified to include the
following: During the term, Landlord shall provide or cause to be
provided, electricity for normal office purposes, including, but not
limited to, (a) fluorescent and incandescent lighting, (including task and
task ambient lighting systems), and normal office equipment (including, but
not limited to, duplicating/photocopy/facsimile machines, communications
and audiovisual equipment, personal computers, computer terminals,
mini-computers, computer printers, vending machines (limited to employee,
visitor use), employee lunchroom(s), coffee bars, executive or other dining
areas, including kitchen equipment associated therewith, and other
equipment of similar electrical consumption.
5.04 SERVICE INTERRUPTION: Landlord and Tenant herein agree that this section
is hereby modified such that if an interruption of services continues for
thirty (30) days, Tenant shall have the right to cancel the lease with no
further obligation to Landlord except for the balance due for the
unamortized portion of specialty tenant finishes if any.
11.02 CONDITIONS OF SUBLEASE: Landlord and Tenant herein agree that the first
sentence of this section is hereby modified such that Landlord shall have a
period of thirty (30) days following receipt of such notice within which to
notify Tenant in writing.
Landlord and Tenant herein agree that the Item A of this section is hereby
modified as follows : If agreed to by Tenant, cancel the Lease as to the
Premises or portion thereof proposed to be assigned or sublet; or
Landlord and Tenant herein agree that the Item B of this section is hereby
modified such that Tenant shall pay the Landlord all such excess rent and
other excess consideration after deducting usual and customary costs for
leasing commissions, attorney fees and leasehold improvements, within ten
(10) days following receipt thereof by Tenant;
ADDENDUM TO LEASE
ITEM 7 & 8 BASIC LEASE PROVISIONS: Landlord and Tenant herein agree that these
two items shall be deleted in their entirety.
11.01 Landlord and Tenant herein agree that this section should be modified
to read as follows: With the exception of any venture partner,
venture partner subsidiary, division or affiliate of Tenant,.....
SECTION 16 EXPANSION SPACE: Landlord and Tenant herein agree that this section
shall be deleted in its entirety.
SECTION 18 TENANT SIGNAGE IDENTIFICATION: Landlord and Tenant herein agree that
Landlord shall, at its sole cost without reimbursement by Tenant, modify
the exterior signage to read "Perceptive Scientific Instruments, Inc. The
signage design shall be consistent with the existing signage.
<PAGE>
SECTION 21 EXPENSES: Landlord and Tenant herein agree that this section is
hereby modified to include the following exclusions:
(xiv) Costs of Compliance with Environmental Laws including, but not
limited to, the Clear Air Act;
(xv) Costs of Compliance with the Americans with Disabilities Act of
1990, as amended;
PRIOR AGREEMENTS SUPERSEDED: This Agreement and the Underlying Lease constitute
the sole and only agreement of the parties and supersedes any prior
understandings or written or oral agreements between the parties respecting the
subject matter of this Agreement
Signed at League City, Texas this 16 day of May, 1994.
LANDLORD: MARINA ONE JOINT VENTURE
\s\ Arnold C. Tauch \s\ Michael W. McCroskey
- ----------------------------------- ---------------------------------------
By: Arnold C. Tauch, Vice President By: American National Ins. Co.
For:South Shore Venture, Inc. Michael W. McCroskey
General Partner Senior Vice President
Title: Partner
TENANT: PERCEPTIVE SCIENTIFIC INSTRUMENTS, INC.
\s\ James L. Hurn
- ------------------------------------
By: James P Hurn
Title: President and CEO
<PAGE>
EXHIBIT 10.8(j)
DATED 27TH SEPTEMBER 1993
UNDERLEASE
of offices situate on the ground
floor of Block C Phase I
Chester Business Park Chester Cheshire
PARTIES:
CONTINENTAL CAN COMPANY LIMITED (1)
PERCEPTIVE SCIENTIFIC INTERNATIONAL LIMITED (2)
Lawrence Graham
190 Strand
London
WC2R 1JN
0/1 379 0000
AGW
AgwUBCP1CB
<PAGE>
THIS DEED OF UNDERLEASE made the 27th day of September One thousand nine
hundred and ninety three BETWEEN CONTINENTAL CAN COMPANY LIMITED whose
registered office is at Lakeside Chester Business Park Wrexham Road Chester
CH4 9QT (hereinafter called "the Landlord" which expression shall where the
context so admits include the person for the time being entitled to the
reversion immediately expectant on the determination of the term hereby
created) of the one part and PERCEPTIVE SCIENTIFIC INTERNATIONAL LIMITED
whose registered office is at 2 Paddock Walk Delamere Park Cuddington
Northwich Cheshire CW8 2UQ (hereinafter called "the Tenant" which
expression shall where the context so admits include the Tenant's
successors in title and assigns of the Tenant) of the other part
W I T N E S S E T H as follows:
1. DEMISE
THE Landlord HEREBY DEMISES unto the Tenant ALL THAT suite of offices
situate on the ground floor of and being part of the Landlord's building
known as Block C Phase 1 Chester Business Park in the County of Cheshire
(hereinafter called "the Building") which said suite of offices is more
particularly delineated and edged with the colour red on the plan numbered
1 annexed hereto TOGETHER with any fixtures and fittings of the nature of
landlord's fixtures or fittings now or at any time during the term hereby
granted in and upon the said suite of
<PAGE>
offices or any part thereof and serving the same whether exclusively or not
together with all carpets and floor coverings in the said suite of offices
provided by the Landlord which carpets and floor coverings (and the carpets
and floor coverings renewing those so provided) are included wherever
reference is hereinafter made to such fixtures and fittings (which said
suite of offices partitions erections fixtures and fittings are hereinafter
called "the demised premises") TOGETHER with the rights specified in the
First Schedule hereto BUT EXCEPT AND RESERVED unto the Landlord and the
Superior Landlord and their respective successors in title and assigns and
the tenants and occupiers of the other parts of the Building and all other
persons entitled thereto the easements and rights specified in the Second
Schedule hereto TO HOLD the same unto the Tenant SUBJECT to and with the
benefit of the matters referred to in the Fifth Schedule hereto for the
term of FIVE YEARS commencing on the 27th day of September One thousand
nine hundred and ninety three (hereinafter called "the commencement date")
but determinable as hereinafter provided YIELDING AND PAYING THEREFOR
together with any Value Added Tax payable thereon from time to time FIRST
(a) during the period of the first six months beginning on the commencement
date the rent of a PEPPERCORN if demanded (b) during the next ensuing
period of eighteen months beginning on the 27th day of March One thousand
nine hundred and ninety four
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<PAGE>
the yearly rent of TWENTY FIVE THOUSAND POUNDS (L25,000) (c) during the
next ensuing period of twelve months beginning on the 27th day of September
One thousand nine hundred and ninety five the yearly rent of THIRTY SEVEN
THOUSAND FIVE HUNDRED POUNDS (L37,500) and (d) thereafter during the
remainder of the said term the yearly rent of FIFTY THOUSAND POUNDS
(L50,000) the aforesaid yearly rents ("the Yearly Rent") to be paid in each
case without any deduction by equal quarterly payments in advance on the
First day of January the First day of April the First day of July and the
First day of October in every year (hereinafter referred to as "quarterly
days") except the first payment of the said yearly rent of TWENTY FIVE
THOUSAND POUNDS (L25,000) which shall be made on the day immediately
following the expiration of the rent free period in respect of the period
beginning the day after the expiration of the rent free period and ending
on the next quarterly day thereafter
SERVICE CHARGE
AND SECONDLY by way of further rent throughout the said term a service
charge in the sum of One thousand five hundred pounds per annum being the
Tenant's agreed contribution to (a) the Total Cost of Services as defined
in the Third Schedule and (b) the moneys paid or payable by the Landlord to
the Superior Landlord pursuant to the terms of the Second Schedule to the
Superior Lease such charge to be paid without any deduction by equal
-3-
<PAGE>
quarterly payments in advance on the quarterly days except the first
payment which shall be made on the date hereof in respect of the period
beginning on the commencement date and ending on the 30th day of September
One thousand nine hundred and ninety three
-4-
<PAGE>
[FLOOR PLAN]
-5-
<PAGE>
[FLOOR PLAN]
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<PAGE>
2. TENANT'S COVENANTS
THE Tenant HEREBY COVENANTS with the Landlord as follows:
(1) PAYMENT OF RENT
TO pay the reserved rents at the times and in manner aforesaid without
deduction or set off
(2) PAYMENT OF OUTGOINGS
TO defray (or in the absence of direct assessment on the demised
premises to pay to the Landlord on demand (save in so far as the same
are one or more of the items referred to in paragraphs (A)-(E)
inclusive of paragraph (2) of Part I of the Third Schedule or are
matters in respect of which moneys are paid or payable by the Landlord
to the Superior Landlord pursuant to the terms of the Second Schedule
to the Superior Lease) a fair proportion (to be determined by the
Surveyor for the time being of the Landlord whose decision shall be
binding upon the Tenant) of) all existing and future rates taxes
duties assessments charges and impositions levies and outgoings
whatsoever whether parliamentary local or otherwise now or hereafter
payable by law in respect of the demised premises or any part thereof
by the owner landlord tenant or occupier thereof other than:
(a) any tax in respect of rents and other payments under this
Underlease (other than Value Added
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<PAGE>
Tax ther tax thereon intended by statute to be payable by the
Tenant)
(b) any tax or levy in respect of the grant of and arising solely by
reason of this Underlease (and not by reason of the combined
effect of the grant of this Underlease and of some other act or
omission on the part of the Tenant) and
(c) any tax in respect of any dealing with the reversion expectant on
the term hereby granted
(3) REPAIRS ETCETERA
(a) THROUGHOUT the said term (damage by fire and such other risks
against which the Superior Landlord is obliged to insure under
Clause 4(1)(a) or (b) of the Superior Lease and/or such other
risks against which the Landlord or the Superior Landlord shall
have insured excepted save where the insurance moneys or any part
thereof shall be irrecoverable in consequence of any act or
default of the Tenant or any person deriving title under the
Tenant or any of the servants or agents of the Tenant or of any
such person) well and substantially to keep in good and
substantial repair and condition
(i) all the external walls of the demised premises
-8-
<PAGE>
(ii) the plaster and finishes on the internal face of the wall
separating the demised premises from the remainder of the
ground floor of the Building
(iii) the floor of the demised premises (including any false or
raised floor and the joists and/or the supports thereof)
and all floor boards all wood block flooring and all of
the floor finishes and the structural slabs
(iv) the ceiling of the demised premises (up to but excluding
joists or structural slabs)
(v) the glass in all doors and in all windows of the demised
premises
(vi) all doors and window frames of the demised premises
(vii) all fixtures and fittings and all sanitary and water
apparatus and all conducting media forming part of the
demised premises
(viii) all other parts of the interior of the demised premises
(b) TO replace from time to time all fixtures and fittings of the
nature of landlord's fixtures or fittings forming part of the
demised premises which may be or become beyond repair
-9-
<PAGE>
(c) NOT to carry out repairs to any
(i) heating cooling and ventilating apparatus
(ii) sprinkler system
(iii) fire hoses
(iv) emergency lighting system
(v) fire alarm system and/or
(vi) other fire prevention and detection system or any equipment
belong thereto
within but not exclusively serving the demised premises unless in
case of emergency or where the Tenant has given to the Landlord
notice of want of repair under the provisions of Clause 2(8) and
the Landlord has failed to carry out all necessary repairs within
a reasonable period of time of such notice (or sooner in case of
emergency)
(d) (i) To procure that the fire alarm system and/or other fire
prevention and detection system or any equipment belonging
thereto in and exclusively serving the demised premises is
properly and regularly repaired maintained inspected and
serviced by qualified persons and to comply with the terms
and conditions of any guarantee and/or
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<PAGE>
service contract relating to such system or equipment
(ii) Without prejudice to the generality of Clause 2(3)(d)(i)
hereof to take all necessary steps to enter and keep on foot
throughout the said term a maintenance contract or contracts
in a form first approved by the Landlord and the Superior
Landlord (such approvals not to be unreasonably withheld or
delayed) for the repair maintenance inspection and servicing
by qualified persons of the fire alarm system and/or any
other fire prevention and detection system or any equipment
belonging thereto in and exclusively serving the demised
premises
(e) TO clean the exterior of the windows of the demised premises as
and when reasonably necessary but not less frequently than once
in each month
(4) REDECORATION
(a) (SUBJECT as hereinafter provided) in a proper and workmanlike
manner with good quality materials and to the reasonable
satisfaction of the Landlord and the satisfaction of the Superior
Landlord to prepare and paint grain
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<PAGE>
varnish creosote stop whiten colour or otherwise treat all
internal and external parts of the demised premises as have
previously been or are usually so dealt with as to the external
work in the third year and as to the internal work in the fifth
year of the said term (the time in each case being computed from
the commencement date) and in each case in all such work to be
done as well in the last three months of the term (howsoever
determined) and after every internal painting in manner aforesaid
and to the like satisfaction to repaper re-cover or reline the
parts usually papered covered or lined with suitable good quality
paper vinyl covering or fabric or other covering and from time to
time as often as may be necessary and in any event in the last
three months of the term (howsoever determined) to clean all
external stonework and cladding of the demised premises and to
wash down all external tiles faiences glazed bricks and similar
washable surfaces
Provided Always that:-
(i) as regards the external treatment this shall conform with
the existing finishes and there shall be no material change
unless first approved in writing by the
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<PAGE>
Landlord and the Superior Landlord and that as regards the
internal painting and redecorating in the last three months
of the term (unless determined by forfeiture) this shall be
carried out in colours tints and patterns first approved in
writing by the Landlord and the Superior Landlord such
approval not to be unreasonably withheld or delayed
(ii) the Tenant shall not by virtue of this clause be required to
redecorate or treat the exterior or the interior of the
demised premises more than once in any period of twelve
months during or after the expiration of the said term
(b) NOT to paint or permit to be painted or otherwise treated the
sprinkler heads (if any) within the demised premises
(c) NOT to paint or permit to be painted:
(i) any of the woodwork of the demised premises which is at the
date hereof varnished or polished
(ii) (except with an emulsion paint or with such other suitable
type of paint as shall be first approved in writing by the
Landlord's Surveyor whose approval shall not be
unreasonably withheld or
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<PAGE>
delayed in the case of a type of paint which is not oil
based) the ceiling tiles or other covering comprising part
of any false or suspended ceiling in the demised premises
or
(iii) any other part of the demised premises which requires
treatment other than painting
(d) TO renew any sprinkler head painted or otherwise treated by the
Tenant or with its permission in breach of the covenant set out
in paragraph (b) and to renew any other part of the demised
premises painted in breach of the foregoing covenants save that
in the case of woodwork the Tenant may remove the paint therefrom
and varnish or polish the same
(5) WORKS REQUIRED BY STATUTE LOCAL AND OTHER AUTHORITIES
TO observe and perform all requirements of and to do and execute or
cause to be done and executed all such works and things as under or by
virtue of any Acts of Parliament local Acts building regulations or
bye-laws already or hereafter to be passed and rules and regulations
thereunder now are or shall or may be directed or required to be done
or executed upon or in respect of the demised premises or any part
thereof or in respect of the user thereof
-14-
<PAGE>
whether by the owner landlord tenant or occupier thereof and at all
times during the term hereby granted to indemnify and keep indemnified
the Landlord and the Superior Landlord against all claims demands
expenses and liability in respect thereof
(6) PLANNING
(a) AT all times during the term hereby created to comply in all
respects with the provisions and requirements of the Town and
Country Planning Act 1990 the Planning (Listed Buildings and
Conservation Areas) Act 1990 the Planning (Hazardous Substances)
Act 1990 the Planning and Compensation Act 1991 and any orders
plans regulations permissions consents and directions made under
or in pursuance thereof (hereinafter collectively referred to as
"the Planning Acts") and to indemnify (as well after the
expiration of the said term by effluxion of time or otherwise as
during its continuance) and to keep the Landlord and the Superior
Landlord indemnified against all liability whatsoever resulting
from the Tenant's failure to comply with the Planning Acts
including costs and expenses in respect of such matters And
forthwith to produce to the Landlord on receipt by the Tenant of
notice thereof any
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<PAGE>
notice order or proposal therefor made given or issued under or
by virtue of the Planning Acts affecting or relating to the
demised premises and at the reasonable request of the Landlord to
make or join with the Landlord and/or the Superior Landlord in
making every such objection or representation against the same
that the Landlord and/or the Superior Landlord shall reasonably
deem expedient
(b) NOT without the previous consent in writing of the Landlord and
the Superior Landlord (such consents not to be unreasonably
withheld or delayed) to
(i) apply for nor to permit any person deriving title under the
Tenant to apply for any planning permission relating to the
demised premises or to any part thereof or to the use
thereof or of any part thereof and in the event of the
Landlord attaching any reasonable conditions to such consent
as aforesaid not to apply or permit any application for any
such planning permission save in accordance with the said
conditions or
(ii) implement or permit to be implemented any planning
permission
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<PAGE>
(c) IMMEDIATELY after the grant thereof to supply to the Landlord a copy
of any such planning permission and the application therefor and any
correspondence with the Local Planning Authority or drawings
incidental or relating thereto
(7) ALTERATIONS AND ADDITIONS
(a) NOT to injure cut or maim or permit to be injured cut or maimed
any of the timbers or structural walls or other walls or any
other structural part of the demised premises or the Building
(b) NOT without the consent in writing of the Landlord and the
Superior Landlord (such consents not to be unreasonably withheld
or delayed) to alter or permit to be altered the heating cooling
and ventilating apparatus or the sprinkler system forming part of
the demised premises and then only to the reasonable satisfaction
of the Landlord and the Superior Landlord whose reasonable fees
in respect thereof shall be paid by the Tenant
(c) NOT to erect or remove or permit to be erected or removed any
partitions (other than those of a demountable nature) in upon or
from the demised premises without the consent in writing of the
Landlord and of the Superior Landlord
-17-
<PAGE>
(which consents shall not be unreasonably withheld or delayed)
(d) NOT to make or permit to be made any other alteration in or
addition to the demised premises or the architectural decorations
thereof without the previous written consents of the Landlord and
of the Superior Landlord (such consents not be unreasonably
withheld or delayed)
(e) AT the request of the Landlord forthwith (i) to make good any
such timber or structural or other walls or other structural part
injured cut or maimed (ii) to demolish and remove any alteration
or addition made in breach of this sub-clause (7) and (iii) to
remove or replace any partition erected or removed in breach of
this sub-clause (7) and in each case restore the demised premises
to their previous condition to the reasonable satisfaction of the
Landlord and of the Superior Landlord
(f) TO notify the Landlord in writing as soon as possible of
(i) completion of any alterations or additions to the demised
premises and/or after the installation of any fixtures and
fittings which may be installed by the Tenant or any undertenant
and which may become landlord's fixtures and fittings and
(ii) the
-18-
<PAGE>
cost of such alterations or additions and/or reinstatement value
of such fixtures and fittings
(g) IF any addition or alteration to the demised premises shall be
made then at the expiration or sooner determination of the
tenancy the Tenant will if so required by the Landlord at the
Tenant's own cost reinstate and make good to the reasonable
satisfaction of the Landlord the demised premises and restore the
same to the plan and design as if such addition or alteration (or
such of them as may be specified by the Landlord) had not been
made and to pay the expenses incurred by the Landlord (including
legal charges and surveyors' fees) of and incidental to the
superintendence of such reinstatement and making good
(8) NOTICE OF STRUCTURAL AND OTHER REPAIRS
TO report in writing to the Landlord any wants of reparation of the
structure and external parts of the demised premises and of those
parts of the Building and of those areas and things which the Tenant
is by virtue of this Underlease authorised to use (whether in common
with others or not) and of any apparatus for services passing through
or within the demised
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<PAGE>
premises but not serving the demised premises as soon as the same
shall come to the notice of the Tenant
(9) ELECTRICAL SYSTEM
NOT to overload or permit to be overloaded any part of the electrical
system in or serving the demised premises and not except in accordance
with any current codes of practice to make any additions or
alterations to such system
(10) AVOIDANCE OF INSURANCE
(a) NOT to do or allow to be done anything whereby any insurance for
the time being effected on the demised premises or any part
thereof (or any adjoining or neighbouring property for the time
being of the Landlord or the Superior Landlord) of which the
Tenant has knowledge of the terms and conditions may be rendered
void or voidable or be in anywise affected nor do or allow to be
done anything whereby to the knowledge of the Tenant any
additional premium may become payable for the insurance of the
demised premises or any such adjoining or neighbouring property
and to comply with all requirements of the insurers of which the
Tenant is made aware as to fire precautions relating to the
demised premises
(b) IN the event of the demised premises or any part thereof being
destroyed or damaged to give
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<PAGE>
notice in writing thereof to the Landlord forthwith on the
happening of the event
(c) IF the demised premises are damaged or destroyed by a risk
against which the same are insured by the Superior Landlord
pursuant to the covenant in that behalf contained in the Superior
Lease and if due to some act or failure on the part of the Tenant
the cost or part of the cost of rebuilding or reinstating the
demised premises shall not be recoverable from the insurers then
the Tenant shall forthwith on demand pay to the Landlord the
amount not so recoverable
(11) HEAVY ITEMS AND MACHINERY
(a) NOT to take to or permit to be taken to or remain upon the
demised premises any machinery (other than any safe or normal
office machinery not giving rise to a breach of paragraph (b) of
this sub-clause) or any heavy goods or appliances without the
previous written consent of the Landlord or the Superior Landlord
(which shall not be unreasonably withheld or delayed provided
that the installation of such items shall not give rise to a
breach of paragraph (b) of this sub-clause) and to ensure that
the same are placed only in such position as shall be approved by
the Landlord and the Superior
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<PAGE>
Landlord in writing (such approvals not to be
unreasonably withheld or delayed)
(b) NOT to do or bring or permit to be done or brought in or upon the
demised premises or the Building anything which may throw on the
demised premises or the Building any weight or strain in excess
of that which such premises are calculated to bear
(12) AERIALS AND SIMILAR APPARATUS AND INTERFERENCE
(a) NOT without the consents in writing of the Landlord and the
Superior Landlord (which shall not be unreasonably withheld or
delayed) to affix or permit to be affixed to the exterior of the
Building any wireless radio or television aerial or similar
apparatus and not to make any claim against the Landlord or the
Superior Landlord in respect of interference to reception of
wireless radio or television transmissions or to the operation of
any appliance in or upon the demised premises suffered or alleged
to be suffered by reason of the use of electrical or other
apparatus on any adjoining or neighbouring property of the
Landlord or the Superior Landlord
(b) NOT to cause or permit or suffer to be caused interference to
others by any radio or electromagnetic signal emitted by the use
of
-22-
<PAGE>
apparatus operated or installed in or upon the demised premises
(13) PROHIBITION OF GAMING APPARATUS
NOT to install or permit to be installed any amusement or gaming
apparatus or device in or upon the demised premises or any part
thereof
(14) USER
(a) NOT at any time to allow or permit or suffer the demised premises
or any part thereof to be used for sleeping purposes
(b) NOT to hold or permit or suffer to be held any sale by auction or
any exhibition or show or spectacle of any kind upon the demised
premises or any part thereof
(c) NOT to use or permit or suffer to be used the demised premises or
any part thereof for any illegal or immoral purpose or for any
dangerous noxious noisy or offensive purpose whatsoever
(d) NOT to use or permit or suffer to be used the demised premises or
any part thereof for any purpose otherwise than in accordance
with Class B1 of the Schedule to the Town and Country Planning
(Use Classes) Order 1987
(15) ADVERTISEMENTS
NOT without the previous written consents of the Landlord and the
Superior Landlord (which shall not be unreasonably withheld or
delayed) to set up or
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<PAGE>
exhibit upon any part of the demised premises any placard poster
signboard notice or advertisement which shall be visible from outside
the demised premises PROVIDED ALWAYS that the Tenant shall not by
virtue of this sub-clause be prevented from displaying on the easterly
side of the exterior of the demised premises lettering and signs in a
form and location approved by the Landlord and the Superior Landlord
(such approvals not to be unreasonably withheld or delayed)
(16) REGULATIONS
TO observe and cause to be observed at all times (a) reasonable
regulations imposed by the Landlord in respect of the general running
orderliness and management of the Building and the services thereof
and the curtilage thereof as already or from time to time hereafter
notified in writing by the Landlord to the Tenant and (b) the
regulations set out in the Fourth Schedule hereto or as they shall be
altered or added to from time to time by notice in writing by the
Landlord to the tenant AND THIS SUB-CLAUSE shall be without prejudice
to the generality of any other provision contained in these presents
which shall touch and concern the same subjects
(17) NUISANCE OR DAMAGE
(a) NOT to play or permit to be played in the demised premises any
musical instrument
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<PAGE>
gramophone radio radiogram television set tape recorder or
similar apparatus so as to be audible outside the demised
premises
(b) NOT to do or permit or suffer anything in or upon the demised
premises or any part thereof nor to permit anything in or upon
any other part of the Building or in or upon any other area which
the Tenant is by virtue of this Underlease authorised to use
(whether in common with others or not) which may be or become a
nuisance or annoyance or cause damage or inconvenience to the
Landlord or the Superior Landlord or the tenants and occupiers of
any other part of the Building or of other property in the
neighbourhood or to the public local or any other authority
(18) LIGHT AND AIR AND OTHER EASEMENTS
(a) NOT to block up darken or obscure or knowingly permit to be
blocked up darkened or obscured any doorway passage window light
opening or grating belonging to the demised premises nor to do or
suffer to be done anything which may interfere with the access of
light or air to any portion of the Building and to give to the
Landlord immediate notice of any encroachment or attempted
encroachment made in or upon the demised premises or any part
thereof or any act
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<PAGE>
matter or thing whereby or by reason whereof any damage injury or
disturbance may be done or occasioned thereto or to any part
thereof as soon as the same shall come to the notice of the
Tenant
(b) NOT to knowingly permit or suffer any new window light opening
doorway path passage drain or other encroachment right or
easement to be made or acquired into against or upon the demised
premises and in case any such window light opening doorway path
passage drain or other encroachment shall be made or attempted to
be made or any such right or easement attempted to be acquired to
give immediate written notice thereof to the Landlord as soon as
the same shall come to the notice of the Tenant and to permit the
Landlord and the Superior Landlord and their respective Surveyors
servants and agents to enter the demised premises at reasonable
times if necessary to ascertain the nature of such encroachment
or easement and at the request and cost of the Landlord to adopt
such means as may be reasonably required or deemed proper for
preventing such encroachment or the acquisition of any such
easement
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<PAGE>
(c) NOT to give any third party any acknowledgment that the Tenant
enjoys the access of light through any of the windows or openings
in the demised premises or any other right or easement by or with
the consent of such third party nor to pay to such third party
any sum of money nor to enter into any agreement with such third
party for the purpose of inducing or binding such third party to
abstain from obstructing the access of light to any of such
windows or openings or from exercising any other right or
easement and in the event of any of the owners of adjacent or
neighbouring land or buildings doing or threatening to do
anything which obstructs the access of light through any of the
windows or openings in the demised premises or the exercise of
any other right or easement to notify the same to the Landlord as
soon as the same shall come to the notice of the Tenant and to
permit the Landlord or the Superior Landlord if necessary to
bring all such actions as it may think fit in the name of the
Tenant but at the cost of the Landlord or the Superior Landlord
(as the case may be) against any of the owners of the adjacent or
neighbouring land or buildings in respect of the obstruction of
the access of light to any of the windows or
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<PAGE>
openings in the demised premises or the obstruction of the
exercise of any other right or easement PROVIDED ALWAYS that the
Landlord or the Superior Landlord (as the case may be) shall
indemnify the Tenant against all actions losses or damages which
the Tenant may suffer by reason of any act or actions which the
Landlord or the Superior Landlord may do or bring under this
paragraph (c) of this present sub-clause
(19) NOTICE OF NECESSARY REPAIRS AND OTHER MATTERS
TO permit the Landlord and the Superior Landlord and their respective
agents with all necessary workmen materials and appliances at all
reasonable times (or at any time in case of emergency) to enter upon
and examine the state of repair and condition of the demised premises
and the user thereof and to take any photographs measurements plans
and sections thereof and thereupon the Landlord may require the Tenant
by notice in writing to carry out or do any repairs or redecorations
or any other acts deeds or things necessary to be done and for which
the Tenant is liable under these presents and if the Tenant shall not
within one month or (in case of emergency) immediately after service
of such notice commence to comply therewith and thereafter complete
such compliance within three months after service of such
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notice then to permit the Landlord or the Superior Landlord to enter
upon the demised premises to do all or any of the things referred to
in such notice and the cost thereof (which expression shall include
but not be limited to all legal costs and surveyors' fees and other
expenditure whatsoever attendant thereon) shall be paid by the Tenant
on demand and if not so paid the cost aforesaid and interest thereon
as hereinafter provided shall be a debt due to the Landlord from the
Tenant and shall be forthwith recoverable by action
(20) ACCESS OF LANDLORD
TO permit the Landlord and the Superior Landlord and their respective
agents and other persons authorised by any of them with all necessary
workmen materials and appliances at all reasonable times (or at any
time in case of emergency) (i) to enter upon the demised premises for
all or any of the following purposes namely:
(a) taking inventories of the landlord's fixtures and fittings
therein
(b) effecting decorations repairs tests or works to adjoining or
neighbouring property or tests to the demised premises or any
matters acts or things which may be requisite under the
provisions of this Underlease or to comply with any Act of
Parliament statutory instrument
-29-
<PAGE>
order building regulation or other regulation or local bye-law or
otherwise doing as little damage as may be to the demised
premises and all damage thereby occasioned by the Landlord to the
demised premises being made good by the Landlord within a
reasonable time but without payment of compensation for any
annoyance nuisance loss noise vibration or inconvenience caused
(c) inspecting cleansing maintaining testing repairing altering
laying fixing constructing renewing re-laying and connecting up
to any conducting media used or to be used for or in connection
with any adjoining or neighbouring property or for inspecting
cleansing maintaining repairing altering renewing or removing
anything being the property of the Landlord or the Superior
Landlord in or upon but not being part of the demised premises
doing as little damage as may be to the demised premises and all
damage thereby occasioned by the Landlord to the demised premises
being made good by the Landlord within a reasonable time but
without payment of compensation for any annoyance nuisance loss
noise vibration or inconvenience caused
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(d) carrying out the works and providing the services amenities and
facilities referred to in the Third Schedule hereto
(e) enabling prospective purchasers mortgagees or tenants of the
Building or any part thereof and their agents to view the demised
premises
(f) for any purpose connected with management of the Building
and (ii) for all or any such purposes to erect scaffolding and/or
other like apparatus and/or ladders and/or cradles and other like
appliances or apparatus upon the demised premises or any part thereof
or outside the demised premises
(21) NOT TO ASSIGN OR UNDERLET PART OR SHARE POSSESSION
NOT to assign part or underlet part or (save in accordance with Clause
2(22) hereof) part with the possession of the whole or part of the
demised premises or share the demised premises or any part thereof
with any other person or persons
(22) ASSIGNMENT AND UNDERLETTING
(a) NOT at any time during the said term to assign the whole of the
demised premises to any person or company who shall not
previously have entered into a Deed prepared by the Solicitors
for the time being of the Landlord at the cost of the Tenant
(which the Landlord shall instruct its said Solicitors to
prepare)
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containing a covenant by the intended assignee with the Landlord
in the following terms namely that if the intended assignment is
made the intended assignee will perform and observe during the
term assigned the covenants by the Tenant and conditions
contained in this Underlease in the same manner as if such
covenants and conditions were therein repeated with the
substitution of the name of the intended assignee for the name of
the Tenant and with such other alterations as the circumstances
shall render necessary PROVIDED that if such intended assignee
shall be a limited liability company whose shares are not listed
on the United Kingdom Stock Exchange then upon the Landlord's
request in that behalf two (or more if the Landlord so requires)
of its directors (or such other persons or body) of suitable
standing as may be approved by the Landlord shall join in the
said Deed as sureties for such company in order (if more than one
jointly and severally) to covenant with the Landlord as sureties
that the assignee will whilst this Underlease is vested in the
assignee pay the said rents and perform and observe the said
covenants and to indemnify and save harmless the Landlord against
all loss
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damages costs and expenses arising by reason of any default by
the assignee whilst this Underlease is vested in the assignee and
such covenant shall further provide that any neglect or
forbearance of the Landlord shall not release or exonerate the
sureties and shall further provide that upon disclaimer of this
Underlease on behalf of the assignee or upon forfeiture under the
provisions in that behalf hereinafter contained of this
Underlease whilst vested in the assignee the Landlord may within
three months after any such disclaimer or forfeiture but in any
event not later than whichever shall be the earlier of (i) the
expiration of the term hereby granted and (ii) the expiration of
a period of eighty years from the date of the said Deed by notice
in writing require the sureties to accept within three months
after the date of service of such notice a new Underlease of the
demised premises such new Underlease to be for a term equivalent
to the residue which if there had been no disclaimer or
forfeiture would have remained of the term hereby granted and at
the rents as shall be payable hereunder immediately prior to such
disclaimer or forfeiture and subject to the like covenants and to
the like provisos and
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conditions as are contained in this Underlease the said new
Underlease and the rights and liabilities thereunder to take
effect as from the date of such disclaimer or forfeiture and to
be granted at the cost of the sureties in exchange for a
counterpart executed by the sureties
(b) NOT to assign or underlet the whole of the demised premises
without having obtained within three months prior thereto the
consent in writing of the Landlord and of the Superior Landlord
(which consents shall not be unreasonably withheld or delayed)
(c) NOTWITHSTANDING anything herein contained not to create or permit
the creation of any interest derived out of the term hereby
granted howsoever remote or inferior upon the payment of a fine
or premium or at a rent less than the full market rent
(obtainable without taking a fine or premium) of the premises
thereby demised and not to create or permit the creation of any
such derivative interest as aforesaid save by instrument in
writing containing such absolute prohibition as aforesaid on the
part of the underlessee and those that may derive title under
such underlessee
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(d) ON the grant of each Underlease of the demised premises the
Tenant shall:-
(i) obtain a Court Order excluding such Underlease from the
security of tenure provisions of the Landlord and Tenant Act
1954 (as amended) prior to the grant of such Underlease and
(ii) obtain a covenant on the part of the underlessee (A) that
the underlessee will not assign part or underlet the whole
or part or (save in accordance with paragraph (B) hereof)
part with possession of the whole or part of the premises
thereby demised or share the premises thereby demised or any
part thereof with any other person or persons (B) that the
underlessee will not assign the whole of the premises
thereby demised without obtaining within three months prior
thereto the previous written consent of the Landlord under
this present Underlease and of the Superior Landlord (which
consents shall not be unreasonably withheld or delayed)
(e) NOT to knowingly permit or suffer any breach by the underlessee
of any of the provisions of the
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preceding paragraph (d) contained in an Underlease
(f) THE Tenant may share the occupation of the whole or any part of
the demised premises with a company which is a member of the same
group as the Tenant (within the meaning of Section 42 of the
Landlord and Tenant Act 1954) for so long as both companies shall
remain members of that group and otherwise than in a manner that
transfers or creates a legal estate
(23) REGISTRATION
WITHIN one month after any assignment of this present demise or the
grant of any Underlease or sub-Underlease (whether mediate or
immediate) or the assignment of any such Underlease or sub-Underlease
or after any disposition or devolution of the demised premises or any
part thereof or after any Order of Court or private or local Act of
Parliament affecting the demised premises or any part thereof to give
notice thereof in writing to the Landlord or the Solicitors for the
time being of the Landlord and to produce to the Landlord or its said
Solicitors the relevant deed or instrument or a certified copy thereof
and on giving such notice to pay a reasonable fee being not less than
Twenty pounds for the registration thereof
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(24) NOTICES UNDER SECTION 146 OF THE LAW OF PROPERTY ACT 1925
TO pay on demand all reasonable and proper costs and expenses
(including solicitors' costs and surveyors' fees) properly incurred by
the Landlord in reference to any breach giving rise to right of re-
entry under the provisions in that behalf hereinafter contained
whether or not forfeiture is waived or avoided (otherwise than by
relief granted by the Court) and also to pay on demand the like costs
and expenses of any requisite notice relating to any breach by the
Tenant of its obligations in relation to the repair or redecoration of
the demised premises
(25) NOTICE OF RE-LETTING
TO permit the Landlord at any time after a date six months before the
expiration of the said term to affix and retain without interference
upon any part of the demised premises a notice for re-letting the same
PROVIDED ALWAYS that such notice for re-letting shall not obstruct the
access of light to the windows of the demised premises or the Tenant's
trade signs or logo on the exterior of the demised premises AND to
permit persons with written authority from the Landlord or the agent
of the Landlord at reasonable times of the day upon giving reasonable
notice to view the demised premises
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(26) TO INFORM LANDLORD OF NOTICES RECEIVED
FORTHWITH on receipt of notice (whether by advertisement or not) to
give full particulars in writing to the Landlord of any permission
notice or order or proposal for a notice or order made given or issued
to the Tenant by any government department local or public authority
under or by virtue of any statutory powers affecting or likely to
affect the Building or any part thereof and if so required by the
Landlord to produce such permission notice or order or proposal for a
notice or order to the Landlord AND ALSO at the Tenant's expense
without delay to take all necessary steps to comply with any such
notice or order in so far as it relates solely to the demised premises
(27) TO DISCLOSE INFORMATION
IF the Tenant shall make any application to the Landlord or the
Superior Landlord for any consent or approval of the Landlord or the
Superior Landlord required under the terms of this Underlease the
Tenant shall also disclose such information as the Landlord or the
Superior Landlord shall reasonably require in relation to or
incidental to or whatsoever or howsoever concerning or appertaining to
such application as soon as or so often as the Landlord or the
Superior Landlord shall request the same
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<PAGE>
(28) TO PAY COSTS
To pay on demand the reasonable and proper legal charges and
surveyors' fees and other professional fees incurred by or of the
Landlord and the Superior Landlord and the stamp duty on the Licences
and duplicates resulting from all applications by the Tenant for any
consent or approval of the Landlord or the Superior Landlord required
by this Underlease or any Superior Lease including legal charges
surveyors' fees and other professional fees and expenses actually
incurred in cases where consent or approval is reasonably refused or
the application is withdrawn
(29) TO PAY VALUE ADDED TAX
ALL payments to be made pursuant to this Deed shall (save where
otherwise specifically provided) be taken to be exclusive of Value
Added Tax (or any other tax of similar nature that may be substituted
for it or levied in addition to it) properly chargeable in respect of
the supply or supplies giving rise to such payment and in addition to
any moneys due from the Tenant under the terms and provisions of this
Deed the Tenant shall subject to production of a valid Value Added Tax
invoice pay at the respective times when such moneys are due such
Value Added Tax (or any other tax aforesaid) at the
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rate for the time being in force as shall be chargeable in respect of
any such moneys
(30) COSTS OF BAILIFF ETCETERA
TO pay to the Landlord on demand all reasonable and proper costs
charges and expenses including bailiffs' costs solicitors' costs and
surveyors' fees and other professional costs and fees properly
incurred by the Landlord for or in connection with the levy of a
distress for the rents payable hereunder or any part thereof or as a
result of the bailiff being paid the said rents or any part thereof or
other moneys payable by the Tenant hereunder
(31) INTEREST ON OVERDUE PAYMENTS
IF and so often as the Yearly Rent and service charge rent (whether
formally demanded or not) or any other money due from the Tenant under
the provisions of this Underlease shall (in the case of the Yearly
Rent or the service charge rent) be unpaid for seven days or more
after the relevant quarterly day and (in other cases) be unpaid for
seven days or more after written demand therefor then on demand by the
Landlord to pay interest on such unpaid rent and other unpaid moneys
(other than on interest payable under this sub-clause) from (in the
case of the Yearly Rent or service charge rent) the due date until
payment and in the case of other
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unpaid moneys from the date of written demand until payment (and
in either case whether before or after judgment) at the rate of three
per centrum per annum above the base rate of The Royal Bank of
Scotland plc (or such other London Clearing Bank as the Landlord may
from time to time nominate) in force at the due date or such rate as
shall at the due date be equivalent thereto PROVIDED that if payment
shall be received after 2.30 p.m. on any day the same shall be deemed
to have been received on the next working day on which the London
Clearing Banks are open for business
(32) RESPONSIBILITY FOR DAMAGE
TO be responsible for and to indemnify the Landlord against all damage
occasioned to the demised premises or any adjacent or neighbouring
property or the services thereof or to any person or chattel (whether
or not upon the demised premises) caused by any act default or
negligence of the Tenant or the servants agents licensees or invitees
of the Tenant or any other person under the Tenant's control
(33) YIELDING UP
TO yield up the demised premises (but not with trade and other
tenant's fixtures including any partitions installed by the Tenant)
with vacant possession at the determination of the tenancy hereby
created in such state of repair and condition as is in
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accordance with the covenants on the Tenant's part hereinbefore
contained
(34) TO OBSERVE COVENANTS IN SCHEDULED AGREEMENTS ETCETERA
TO observe and perform and be bound by the agreements and/or covenants
and/or stipulations contained or referred to in the documents
specified in the Fifth Schedule hereto so far as the same relate to or
affect the demised premises and are still subsisting and capable of
taking effect and to keep the Landlord indemnified against all claims
costs and expenses in any way relating thereto so far as aforesaid
(35) AMENITY COVENANT
(a) NOT to use or permit or suffer to be used the rights herein
granted save for the purpose of the proper use and enjoyment of
the demised premises
(b) TO observe such reasonable regulations and restrictions on the
use of any areas available for the use or enjoyment of the
occupiers of Chester Business Park and the facilities thereon or
any part or parts thereof which the Company responsible from time
to time for the management of such areas (hereinafter called "the
Company") may consider to be desirable in the interests of
Chester Business Park
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(c) TO permit the Company with its agents and other persons
authorised by it with all necessary workmen and appliances at all
reasonable times on reasonable prior notice (except in case of
emergency) to enter upon the demised premises (where such entry
is absolutely essential for the proper performance of the
Company's obligations in respect of Chester Business Park) for
the purposes of enabling the Company to perform all or any of its
obligations in respect of Chester Business Park but the person
exercising such right shall cause as little nuisance and damage
as possible and make good all damage thereby occasioned as soon
as practically possible to the reasonable satisfaction of the
Tenant
AND this covenant is made by the Tenant for the benefit of the Company
as well as the Landlord
(36) DISPOSAL OF REFUSE
(a) TO ensure that all refuse rubbish scrap and waste material is
until removal stored in proper receptacles in the refuse compound
designated by the Superior Landlord
(b) TO ensure that no less frequently than once a week all refuse
rubbish scrap and waste material and all used tins cans boxes and
other containers which shall have been stored in the
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said refuse compound (other than any stored by the occupiers of
the remainder of the Building) are removed
(37) NOT TO COMMIT A BREACH OF THE TERMS OF THE SUPERIOR LEASE
NOT to do omit suffer or permit in relation to the demised premises
any act or thing which would cause the Landlord to be in breach of the
covenants on the part of the lessee and the conditions contained in
the Superior Lease Provided Always that there shall be excluded from
this covenant any act neglect or default of the Landlord in the
performance and observance of the covenants on the part of the
Landlord and the conditions herein
3. LANDLORD'S COVENANTS
THE Landlord HEREBY COVENANTS with the Tenant as follows:
(1) REPAIR
TO keep or to procure that the Building and any conducting media
serving or intended for the service of the occupiers of the demised
premises whether alone or in common with others are kept in good and
substantial repair and condition PROVIDED ALWAYS that the Landlord
shall not be liable to the Tenant for any want of repair hereinbefore
mentioned unless the Landlord has been given notice thereof by the
Tenant under Clause 2(8) hereof nor in respect of any obligation
hereunder that is to be construed as
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falling within the ambit of any of the Tenant's covenants hereinbefore
contained
(2) INSURANCE
TO use its best endeavours to procure that the Building and landlord's
property owner's liability risks are kept insured by the Superior
Landlord pursuant to the terms of Clause 4(1)(a) and (b) of the
Superior Lease PROVIDED ALWAYS that the Landlord shall not be obliged
to use its best endeavours to procure the insurance of any fixtures or
fittings which may be installed by the Tenant or any person deriving
title under the Tenant and which may become landlord's fixtures and
fittings until the Tenant has notified the Landlord in writing of the
reinstatement value thereof (but so that the Superior Landlord may
from time to time at its reasonable discretion increase the amount of
the insurance in respect of such fixtures and fittings) AND PROVIDED
FURTHER that the Tenant shall on request be entitled to be provided in
each insurance year with a copy of sufficient extracts from such
policy affecting the demised premises as will enable the Tenant to
know the full extent of the premises fixtures and fittings covered
thereby the risks insured against and any exceptions conditions
exclusions or limitations to which such policy is subject
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(3) REINSTATEMENT
FOLLOWING damage or destruction of the Building or any part thereof
including conducting media therein or the Common Parts (as in Part I
of the Third Schedule hereto defined) over which the Tenant has rights
of way or which the Tenant is hereby authorised to use by a peril
against which the same are insured pursuant to the provisions of the
preceding sub-clause (2) of this clause (and provided that notice to
determine has not been given pursuant to sub-clause (7) of the next
following clause) to use its best endeavours to procure that the same
are rebuilt and reinstated by the Superior Landlord in accordance with
the terms of its covenant contained in Clause 4(1)(a) of the Superior
Lease PROVIDED ALWAYS that the Landlord shall not be liable to make up
any deficiency in the insurance moneys arising from or attributable to
any failure by the Tenant to comply with any of the obligations on its
part in these presents contained AND PROVIDED FURTHER that as regards
any fixtures and fittings which have been installed by the Tenant or
by any person deriving title under the Tenant and which have become
landlord's fixtures and fittings the Landlord shall only be liable to
procure the reinstatement or repair of the same after the
reinstatement value thereof has been notified by the
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Tenant to the Landlord as mentioned in the preceding sub-clause (2) of
this clause
(4) QUIET ENJOYMENT
THAT the Tenant pay the said rents hereby reserved and performing and
observing the covenants on the Tenant's part herein contained shall
quietly hold and enjoy the demised premises during the term without
interruption by the Landlord or any person rightfully claiming under
the Landlord
(5) USER OF REMAINDER OF BUILDING
NOT to use the remainder of the Building for any purpose falling
within Classes B2 or B8 of the Schedule to the Town and Country
Planning (Use Classes) Order 1987
(6) SERVICES
Subject to the provisions of Clause 4 (13) hereof to provide the
services specified in the Third Schedule hereto ("the Services") in
accordance with the principles of good estate management
(7) SUPERIOR LEASE
To pay the rents reserved by the Lease under which the Landlord holds
the Building and to perform (so far as the Tenant is not liable for
such performance under the covenants herein contained) the lessee's
covenants and conditions therein contained
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4. PROVISOS
PROVIDED ALWAYS AND IT IS HEREBY AGREED by and between the parties hereto
as follows:
(1) LANDLORD'S DISCLAIMER
NOTWITHSTANDING anything herein contained AND UNLESS due to the
negligence or default of the Landlord or its servants or others under
its control and SAVE to the extent that the Landlord may be liable
under the provisions of the Defective Premises Act 1972 the Landlord
shall not be responsible to the Tenant or the Tenant's licensees
servants agents or other persons in the demised premises or calling
upon the Tenant or the demised premises for any accident or happening
or damage to or loss of any chattel or property sustained in the
Building or on any property over which the Tenant exercises rights nor
for any loss or inconvenience occasioned by (a) the closing for
repairs or other purposes of the Common Parts or any part thereof (b)
any defects or failure in the sprinkler system (if any) or in the hot
and cold water supply the heating cooling or ventilating apparatus (if
any) or in the lighting or in the conducting media (whether of or in
the demised premises or otherwise)
(2) LANDLORD DOES NOT WARRANT PERMITTED USER
NOTWITHSTANDING the covenant as to user on the part of the Tenant
herein contained the Landlord does not
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hereby or in any other way give nor has the Landlord given at any
other time any representation or warranty that such or any other user
is or will be or will remain a permitted user within the provisions of
the Planning Acts and notwithstanding that such user is not a
permitted user within such provisions as aforesaid the Tenant shall
remain fully bound and liable to the Landlord in respect of the
several covenants and conditions herein on the part of the Tenant
contained without being entitled to any compensation of any kind
whatsoever from the Landlord
(3) ALTERATIONS BY LANDLORD
THE Landlord may from time to time make such alterations additions or
substitutions in or to the Building or any part thereof (excluding the
demised premises) or any plant or apparatus in the Building or the
conducting media or the Common Parts as it shall think fit PROVIDED
that in respect of any plant or apparatus or conducting media or
Common Parts (aforesaid) remaining available for use by the Tenant or
in respect of any new plant apparatus conducting media and Common
Parts provided for such use in substitution for those previously
available the same shall be suitable for the enjoyment of the demised
premises and substantially equivalent to those which now exist AND
PROVIDED that the works of
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alteration addition or substitution shall be carried out in such
manner as to cause to the Tenant as little inconvenience as is
reasonably practicable
(4) SETTLEMENT OF DISPUTES
THAT in case any dispute or controversy shall arise between the Tenant
and any other tenant of the Landlord relating to any party or other
wall conducting media or to any other right easement or privilege
whatsoever affecting or relating to the demised premises or any other
part of the Building the same may (if the Landlord so elects) be
settled or determined by the Landlord in such manner as it by writing
shall direct to which the Tenant shall submit
(5) RE-ENTRY
(a) IF the rents hereby reserved or any part thereof shall at any
time be unpaid for twenty one days after becoming payable
(whether formally demanded or not) or if any of the covenants on
the part of the Tenant herein contained shall not be performed or
observed or if there occurs in relation to the Tenant (or where
the Tenant comprises more than one person there occurs in
relation to any of such persons) a Terminating Event (as
hereinafter defined) then and in any such case it shall be lawful
for the Landlord at any time thereafter
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to re-enter upon the demised premises or any part thereof in the
name of the whole and thereupon this demise shall absolutely
determine but without prejudice to the right of action of either
party in respect of any antecedent breach of any of the covenants
on the part of the other party herein contained
(b) FOR the purposes hereof "Terminating Event" means any of the
following:
(i) in relation to an individual:
(a) the individual failing to pay a debt or debts which is
or are in the aggregate equal to or in excess of the
bankruptcy level from time to time and a statutory
demand in respect thereof having been neither complied
with nor set aside
(b) the presentation of a bankruptcy petition in respect of
the individual
(c) the appointment of an interim receiver in respect of
the individual's property or any of it
(d) the making of a bankruptcy order in respect of the
individual
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(ii) in relation to a company:
(a) the presentation of a petition for the winding up of
the company
(b) the passing of a resolution to wind up the company
(c) the making of a winding up order in relation to the
company
(d) any person becoming entitled to appoint an
administrative receiver of the undertaking of the
company or an part of it
(e) the appointment of such an administrative receiver
(f) the presentation of a petition for the making of an
administration order in respect of the company
(g) the making of an administration order in respect of the
company
(h) the directors of the company proposing a voluntary
arrangement
(iii) in relation to any person (whether an individual or a
company):
(a) the person entering into any agreement or making any
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arrangement with creditors for liquidation of the
person's debts by composition or otherwise
(b) the appointment of a receiver in respect of any of the
person's assets
(c) any steps being taken to enforce any security over the
person's property or to repossess goods in the person's
possession under any hire purchase agreement
(d) any distress or execution being levied on any of the
person's assets
(6) LANDLORD'S SERVANTS OR WORKMEN
THE servants or workmen of the Landlord shall be under no obligation
to furnish attendance or other use of his or their services to the
Tenant for the Tenant's private convenience or to accept delivery of
any letters telegrams telephone calls messages or parcels addressed to
the Tenant and any such furnishing of attendance or other use of
services or the acceptance of such letters telegrams telephone calls
messages or parcels is to be considered as rendered and accepted by
any employee of the Landlord as the servant of the Tenant and the
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Landlord shall not be liable for and no claim shall be made against it
for any loss or damage arising out of or in consequence of such
furnishing of attendance or other use of services or acceptance of any
such letters telegrams telephone calls messages or parcels as
aforesaid
(7) CESSER OF RENT
IF the demised premises or any part thereof or the means of access
thereto shall at any time during the said term be rendered incapable
of or unfit for occupation or use as the result of a peril against
which the Building is insured pursuant to the covenant on the part of
the Superior Landlord contained in the Superior Lease the Yearly Rent
and the service charge rent or a fair proportion of the same according
to the nature and extent of the damage sustained shall be suspended
until the demised premises or the means of access thereto (as the case
may be) shall again be rendered fit for occupation or use PROVIDED
that there shall be no cesser of rent if or to such extent as any
insurance policy effected by the Superior Landlord shall have been
rendered void or payment of any insurance moneys shall be properly
withheld by the insurers due to some act or failure of the Tenant or
any person deriving title under the Tenant or any of the servants or
agents of the Tenant or of any such
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person PROVIDED FURTHER that if the Superior Landlord shall not have
completed the rebuilding or reinstatement of the Building or the part
thereof damaged or destroyed within two years after the date of such
damage or destruction either the Landlord or the Tenant shall be
entitled (at any time prior to the completion of such rebuilding or
reinstatement) on giving to the other not less than six months'
previous notice in writing to determine the term hereby granted and at
the expiration of such notice this Underlease and everything herein
contained shall cease and be void and the Tenant shall not be liable
for any dilapidations and shall not be entitled to any compensation
except that (if any) payable under the provisions of the Landlord and
Tenant Act 1954 but without prejudice to the rights and remedies of
the Landlord for any arrears of rent PROVIDED ALSO that any dispute as
to the proportion (if any) of the rents which should be suspended or
as to the period of such suspension which may arise under this sub-
clause shall be referred to the decision of some competent person
(acting as an expert and not as an arbitrator) to be agreed upon by
the Landlord and by the Tenant or (in the event of failure so to
agree) to be nominated on the application of the Landlord or the
Tenant by the President for the time being of the Royal
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Institution of Chartered Surveyors and the decision of such person
(including any determination as to the costs of such decision) shall
accordingly be final and binding on both the Landlord and the Tenant
(8) LANDLORD FREE TO DEAL WITH ADJOINING OR NEIGHBOURING PROPERTY
THE Tenant shall not be entitled to any right of light or air which
will interfere with the free use of any land or buildings adjoining or
neighbouring the demised premises for building or other purposes
(9) TENANT UNABLE TO ENFORCE SIMILAR COVENANTS IN ADJOINING PROPERTY
ETCETERA
(a) NOTHING herein contained shall confer on the Tenant any right to
the benefit of or to enforce any covenant or agreement contained
in any Lease or other instrument relating to any other property
belonging to the Landlord or the Superior Landlord
(b) EACH of the Tenant's covenants herein contained shall remain in
full force both at law and in equity notwithstanding that the
Landlord shall have waived or released temporarily or permanently
revocably or irrevocably or otherwise howsoever a similar
covenant or similar covenants affecting adjoining or neighbouring
premises of the Landlord
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(10) EXCLUSION ORDER
HAVING been authorised so to do by an Order of the Mayor's and City of
London Court dated the 22nd day of September One thousand nine hundred
and ninety three and made pursuant to Section 38(4) of the Landlord
and Tenant Act 1954 (as amended) the parties hereto agree that the
provisions of Sections 24 to 28 of the said Act shall be excluded in
relation to the tenancy hereby created
(11) LANDLORD CAN CHARGE FOR WORK DONE BY IT
IF and so often as the Tenant shall be obliged under the terms hereof
to reimburse the Landlord any costs charges and expenses incurred by
it including solicitors' costs and surveyors' fees and other
professional costs and fees then in respect of any work done by the
Landlord or by any person connected with it or by any person employed
by it the Landlord shall be deemed to have incurred or suffered in
respect thereof a reasonable fee cost or expense not exceeding that
which might properly have been charged or incurred for the same work
by an independent person competent to deal with that work in the
ordinary course of his business
(12) SERVICE OF NOTICES
THIS Deed incorporates the regulations respecting notices contained in
Section 196 of the Law of
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Property Act 1925 as amended by the Recorded Delivery Service Act 1962
(13) INTERRUPTION OF SERVICES
Notwithstanding anything contained in this Underlease the Landlord
shall not be liable to the Tenant nor shall the Tenant have any claim
against the Landlord in respect of any interruption in any of the
Services by reason of unavoidable temporary necessary repair of any
installations or apparatus or by reason of damage thereto or
destruction thereof by fire water act of God strikes lock-outs or
other cause beyond the Landlord's control or by reason of mechanical
or other defect or breakdown frost or other inclement conditions or
unavoidable shortage of fuel materials water or labour except for
failure of the Landlord to remedy any such defect breakdown or
stoppage as soon as reasonably possible after becoming aware of the
same or in case of repair or maintenance in accordance with the terms
of this Underlease
(14) TENANT'S OPTION TO RENEW UNDERLEASE
(i) DEFINITIONS
(a) "the Further Term" means the term of years commencing from the
expiration of the tenancy hereby created and expiring on the
Thirty first day of December Two thousand and one
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(b) "the Market Rent" means the rent agreed between the parties or
determined in accordance with the provisions of the Sixth
Schedule hereto
(c) "the New Underlease" means an underlease of the demised premises
for the Further Term in identical terms to this Underlease save
that:
(i) this Clause 4(14) and the Sixth Schedule shall be omitted
from the New Underlease
(ii) for the rent first reserved by this Underlease there shall
be substituted the Market Rent
(iii)for the term hereby created there shall be substituted the
Further Term
(iv) in Clause 4(10) there shall be substituted the date of the
Exclusion Order relating to the New Underlease
(ii) OPTION
If the Tenant shall serve on the Landlord not less than six
months before the expiration of the tenancy hereby created notice that
it desires to be granted the New Underlease of the demised premises
then provided the Tenant shall on the expiry of the term hereby
granted have paid the rents reserved by and reasonably performed and
observed the covenants herein contained (and subject to
(i) the making by the Court (prior to the date of expiration of
the tenancy hereby
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created) of an Order pursuant to Section 38(4) of the
Landlord and Tenant Act 1954 (as amended) authorising the
exclusion of the provisions of Sections 24-28 of the said
Act in relation to the New Underlease (for which Order the
Landlord and the Tenant shall apply at their joint expense
within five working days of the Market Rent having been
agreed or determined as aforesaid) and
(ii) the Market Rent having been agreed or determined as
aforesaid not less than thirty days prior to the expiration
of the tenancy hereby created)
then (unless the Tenant shall by notice in writing to the Landlord
have withdrawn its request to be granted the New Underlease which it
shall be entitled to do at any time within fourteen days after any
determination of the Market Rent) the Landlord shall grant to the
Tenant the New Underlease on or before the expiration of this
Underlease and the Tenant shall on the execution of the New Underlease
forthwith execute a Counterpart of it PROVIDED that this option shall
become null and void if it is not protected by registration of a
notice under the Land Registration Act 1925 Section 49(1) within the
period of six months from the date
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of this Underlease and the Landlord undertakes to request HM Land
Registry to deposit its Land Certificate to enable a notice under the
Land Registration Act 1925 Section 49(1) to be registered
5. (1) WHEREVER there are two or more persons included in the expression
"Tenant" then any covenants by the Tenant shall be deemed to be made
by each such person severally and by all such persons jointly and by
every two and more of such persons jointly
(2) THE expression "conducting media" shall where the context so requires
mean all or any sewers drains conduits gutters channels watercourses
pipes cables wires ducts and mains and apparatus associated therewith
and all equipment and fittings ancillary thereto
(3) THE expression "Superior Landlord" shall mean the landlord pursuant to
the Superior Lease
(4) THE expression "the Superior Lease" shall mean a lease dated the
Twenty second day of December One thousand nine hundred and ninety two
and made between Rover Group Trustees Limited of the one part and the
Landlord of the other part
6. THE sub-headings herein are inserted for convenience of reference only and
shall not in any way affect the construction meaning or effect of anything
herein contained or govern the rights and liabilities of the parties hereto
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7. (1) REFERENCES to any statute (but not statutory instrument) herein
contained shall be deemed to refer to any statutory modification or
reenactment thereof for the time being in force
(2) REFERENCES herein to "Chester Business Park Limited" or to "Chester
Business Park Management Company Limited" shall include any other person
firm or company which shall from time to time be responsible for the
provision of services facilities or amenities to the whole or any part of
Chester Business Park references to "the Transfer" "the Amenity Transfer"
and "the Amenity Lease" shall include any variation thereof from time to
time and references to "Chester Business Park" shall include such other
adjacent or adjoining land as may from time to time be added thereto and
which will then complement the said Business Park
I N W I T N E S S whereof this Underlease has been executed by the
parties as a Deed the day and year first above written
THE SCHEDULES ABOVE REFERRED TO
THE FIRST SCHEDULE
RIGHTS GRANTED TO THE TENANT
1. The right for the Tenant and persons authorised by the Tenant (in common
with others having a like right and so far as necessary for the enjoyment
of the demised premises):
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(a) of passage and running of water soil gas electricity and of all other
services as are now used by the demised premises through the
conducting media passing through or under the adjoining or
neighbouring property of the Landlord
(b) at all times to use the service roads and footpaths within the
curtilage of the Building intended for the common use of the occupiers
of the Building and the roads and footpaths (shown coloured yellow on
plan number 2 annexed hereto) leading to and from the curtilage of the
Building from and to the public highway known as Herons Way for the
purpose of ingress and egress to and from the demised premises
2. The right for the Tenant to use for parking private motor vehicles and
light vans not exceeding fifteen hundredweight the sixteen car parking
spaces shown shaded brown on the plan numbered two annexed hereto
3. Insofar as the Landlord may grant the same rights of access to and use of
the First Amenity land (as defined in the First Amenity Lease ("the Amenity
Lease") dated the Twenty eighth day of April One thousand nine hundred and
ninety three and made between Chester Business Park Management Company
Limited (1) and Rover Group Trustees Limited (2)) and where appropriate the
facilities thereon and which are to be afforded to the Superior Landlord
pursuant to the Amenity Lease
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4. The right to affix lettering and signs to the easterly side of the exterior
of the demised premises subject to obtaining the consents referred to in
Clause 2(15) hereof
5. The right for the Tenant and its agents and other persons authorised by
them with all necessary workmen materials and appliances at all reasonable
times (or at any time in case of emergency) to enter upon all parts of the
Building not hereby demised and such parts of the curtilage of the Building
immediately adjacent thereto as shall be necessary for the purpose of
performing the Tenant's obligations contained in Clauses 2(3) and 2(4)
hereof doing as little damage as may be in the exercise of such right and
all damage thereby occasioned being made good by the Tenant as soon as
possible
6. The right for the tenant (in common with the Landlord and other occupiers
of the remainder of the Building) to use the refuse compound adjacent to
the Building (or such other refuse compound as may be designated by the
Superior Landlord) for the purpose of complying with the Tenant's
obligation contained in Clause 2(36) hereof
7. The full right of support and shelter now belonging to or enjoyed from
neighbouring or adjoining property
THE SECOND SCHEDULE
EXCEPTIONS AND RESERVATIONS TO THE LANDLORD
AND OTHERS
(1) The right of free and uninterrupted passage and running of water soil gas
electricity and of all other services
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or supplies as are now or hereafter to be used from and to adjoining or
neighbouring property through such of the conducting media serving such
adjoining or neighbouring property now or which may not later than
whichever shall be the earlier of (a) the expiration of the term hereby
granted and (b) the expiration of a period of eighty years from the date
hereof hereafter be in or upon the demised premises
(2) The rights and liberties of entry upon the demised premises mentioned in
the covenants by the Tenant herein contained and without prejudice to the
generality thereof a right of entry to repair maintain inspect test and
renew the fire alarm system in the demised premises
(3) The right at any time and from time to time to open or authorise the
opening of windows in any adjoining or neighbouring premises overlooking
the demised premises
(4) The right to affix lettering and signs to any part of the exterior of the
Building other than the exterior of the demised premises provided that the
access of light to the windows of the demised premises be not thereby
substantially reduced
(5) The right to let any adjoining or neighbouring property for any purpose
save that the remainder of the Building shall not be let for any purpose
falling within Classes B2 or B8 of the Schedule to the Town and Country
Planning (Use Classes) Order 1987
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(6) The full right of support and shelter and all other easements and rights
now or hereafter belonging to or enjoyed by adjacent or neighbouring
property
(7) The right at any time and from time to time to close temporarily for
repairs or any other necessary purposes the car parks the service roads and
footpaths and any other areas within the curtilage of the Building and any
other part of the Building (other than the demised premises) which the
Tenant is by virtue of this Underlease authorised to use (whether in common
with others or not)
(8) The easements rights and privileges excepted and reserved unto Warringtons
plc and its successors in title and to Chester Business Park Limited and
their respective servants agents and all other persons authorised by any of
the foregoing parties by a Transfer (hereinafter called "the Transfer")
dated the Thirtieth day of March One thousand nine hundred and ninety and
made between the said Warringtons plc of the one part and Rover Group
(Hourly Paid) Trustees Limited of the other part (as varied by a Deed of
Variation of Transfer dated the Twenty eighth day of April One thousand
nine hundred and ninety three and made between Warringtons plc (in
administrative receivership) (1) Chester Business Park Management Company
Limited (2) Rover Group Trustees Limited (3) N.J. Hamilton and W.S. Martin
(4) and the easements rights and privileges reserved unto Chester
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Business Park Management Company Limited and all others so entitled
pursuant to the Amenity Lease
THE THIRD SCHEDULE
PART I
THE SERVICE CHARGE
In these presents the following expressions shall have the meanings assigned to
them hereunder:
(1) "the Common Parts" shall mean the car parks the service roads
footpaths and access ways and all other open areas within the
curtilage of the Building (being the area shown edged blue on plan
number 2 annexed hereto) and all other buildings (if any) within the
curtilage of the Building used by the Landlord in connection with the
running maintenance repair and management of the Building (other than
the outbuilding housing (inter alia) the comfort cooling equipment
serving the remainder of the Building)
(2) "the Total Cost of Services" shall mean the aggregate of:
(A) the total cost to the Landlord of repairing and maintaining the
Common Parts and the inspection and testing of the fire alarm
system and/or other fire prevention and detection systems or any
equipment belonging thereto in the Building and not exclusively
serving the demised premises or the remainder of the Building the
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conducting media and all other services in the Building and of
the Common Parts or any part or parts thereof
(B) the total cost to the Landlord of providing services amenities
and facilities for the Common Parts and making all such payments
in relation thereto as the Landlord shall reasonably consider
appropriate or desirable in accordance with the principles of
good estate management
(C) in particular (but without prejudice to the generality of the
foregoing) the total cost to the Landlord of the carrying out of
all the works providing the services amenities and facilities and
making the payments details whereof are specified in Part II of
this Schedule
(D) the fees and expenses of any managing agents employed by the
Landlord for the management of the Building and the Common Parts
PART II
(1) Cleaning the Common Parts
(2) Procuring the supply of water and sewerage services to the Building
including connection charges meter rents standing charges and charges
for consumption
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(3) Provision repair cleansing maintenance decoration and renewal of
landlord's fixtures and fittings in the Common Parts
(4) Repair maintenance and renewal of all boundary walls fences and gates
(5) Inspection cleansing maintenance testing repair alteration laying down
construction renewal and removal of conducting media and all telephone
telex and other information transmission or receiving equipment and
all gas electric and sanitary apparatus in or upon or serving the
Building (other than
(a) those in and upon the said suite of offices hereby demised and
for the repair or renewal of which the Tenant is responsible
under the covenants on the part of the Tenant hereinbefore
contained
(b) those in and upon any other suite or suites of offices in the
Building let to the Landlord pursuant to the Superior Lease or to
any tenant of the Landlord or intended to be so let and for the
repair or renewal of which the Landlord or such tenant or
intended tenant is or would be responsible assuming the like
responsibility for repair and renewal on the part of the Landlord
or such tenant or intended tenant as the Tenant has hereunder and
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(c) the laying down construction renewal and removal of conducting
media for heating cooling and ventilating the Building and
providing hot and cold water)
and the Common Parts and making good all damage (including the making good
of all decorations) arising out of such inspection cleansing maintenance
testing repair alteration laying down construction renewal or removal
(6) The provision repair maintenance and renewal of a notice board and the
services of a signwriter or sign maker for the purpose of displaying
in such manner as the Landlord shall reasonably consider appropriate
the names of the tenants of the Building on the notice board Provided
That such display as aforesaid will at the request of the Tenant
incorporate its company style or logo as from time to time adopted by
the Tenant
(7) Compliance with any Act of Parliament statutory instrument order
building regulation or other regulation or local bye-law relating to
means of escape in case of fire or other hazard or to the Building or
to the Common Parts or making representations against any such matters
in accordance with statutory regulations
(8) Employing such staff as the Landlord reasonably considers proper
whether directly or indirectly for
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the management of the Building and the Common Parts and the provision
of the services herein referred to and all incidental expenditure in
relation to such employment including but without limiting the
generality thereof:
(a) the provision of luncheon vouchers or other meal subsidy
(b) the payment of the statutory and such other insurance health
pension welfare and other payments contributions and premiums
that the Landlord may at its absolute discretion deem desirable
(c) the provision cleaning repair and renewal of all necessary
uniforms and protective clothing
(9) Payment of general and water rates for the Common Parts
(10) Payment of premiums for insurance as required by the Landlord or the
Superior Landlord to cover:
(a) the Building such of the Common Parts as do not form part of the
Building architects' surveyors' engineers' legal and other
consultants' fees and loss of rents or potential rental income of
the Building against fire and any other risks from time to time
insured by the Superior Landlord in accordance with its covenant
contained in the Superior Lease
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(b) Property owner's liability risks of the Landlord and of the
Superior Landlord
(c) The General Insurances provided for in Clause 2(11) of the
Superior Lease
(d) Any other insurances as may be reasonably required by the
Landlord or the Superior Landlord
(11) Costs incurred in ascertaining the reinstatement values for the
purposes of the insurances referred to in the preceding paragraph
(12) Repair maintenance and where necessary resurfacing of the service
roads footpaths and the car parks re-marking spaces repair maintenance
and painting of appurtenant signs and the provision of traffic
direction and control
(13) Provision of any other service amenity or facility and the making of
any other payment which may reasonably be required for the efficient
running of the Building the comfort of the tenants thereof and the
efficient running of the Common Parts
(14) Costs and expenses incurred by the Landlord in making payments to the
Superior Landlord as provided for in Clause 2(5) and (6) of the
Superior Lease
THE FOURTH SCHEDULE
REGULATIONS OF THE BUILDING
(1) (A) The requirements of the Fire Precautions Act 1971 and the Health
and Safety at Work Act 1974
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and all rules and regulations thereunder shall be strictly
complied with
(B) particular tenants shall
(a) cause sufficient fire officers to be appointed
(b) regularly test inspect and maintain fire detection
prevention and fighting equipment within and exclusively
serving the demised premises and keep and produce to the
relevant authorities and to the Landlord and whomsoever the
Landlord may direct records in writing of such tests
inspections and maintenance
(c) at all times maintain clear access through escape routes
(d) fully participate in fire evacuation drills organised in
respect of the Building or parts thereof
(2) (A) No such work shall be carried out to in or upon any part of the
Building when such work involves the use installation or removal
of or the repair alteration or other work whatsoever to materials
dangerous or injurious to health without the Landlord first being
notified of what is proposed
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(B) Works involving the use installation removal repair alteration or
whatsoever of or to the materials aforesaid or the continuation
of works where such materials have been discovered shall only be
carried out or continued (as the case may be) strictly in
accordance with the proper requirements of the Landlord and in
accordance with the best codes of modern practice regard being
had to the use of the Building by others as well as the tenants
or occupiers of the demised premises
(C) The Landlord (acting reasonably) shall have discretion in
considering whether work may be carried out or continued or in
deciding what additional safeguards it requires to be taken in
addition to those which may be imposed under statute building or
other rules regulations or bye-laws
(3) No tea leaves or other matter or things likely to cause an
obstruction are to be placed or thrown in or down the waste pipes
or W.C. lavatory basins or urinals
(4) All necessary steps shall be taken to prevent the overflow or
waste of hot or cold water
(5) There shall be no interference with the heating cooling and
ventilating appliances and installations apart from the normal
switching
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on or off of the appliances in the demised premises for the
comfort of the occupants thereof
(6) Tenants or occupiers shall ensure (so far as they are reasonably
able so to do) that no rubbish or litter is left on the Common
Parts
(7) Tenants or occupiers shall not place or permit or suffer to be
placed or remain in or upon the Common Parts any obstruction
whatsoever
THE FIFTH SCHEDULE
1. The entries in the Property and Charges Registers of H.M. Land
Registry Title Number CH326298
2. Agreement dated 26th October 1983 and made between the Council of the
City of Chester (1) and Sir Alfred McAlpine & Son Limited (2)
3. Agreement dated 14th August 1990 and made between the Council of the
City of Chester (1) Warringtons plc (2) BICC Public Limited Company
(3) and Rover Group (Hourly Paid) Trustees Limited (4)
4. Deed of Grant of Easements dated 30th August 1991 and made between
Rover Group Trustees Limited (1) and British Gas plc (2)
5. Grant of Easement for Water Main dated 4th December 1991 and made
between the Landlord (1) and Wrexham and East Denbighshire Water
Company
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6. Two Agreements both dated 4th March 1992 and made between Rover Group
Trustees Limited (1) and British Telecommunications plc (2)
7. Licence dated 25th June 1992 and made between Rover Group Trustees
Limited (1) and Manweb plc (2)
8. Deed of Variation of Transfer dated 28th April 1993 and made between
Warringtons plc (in administrative receivership) (1) Chester Business
Park Management Company Limited (2) Rover Group Trustees Limited (3)
and N.J. Hamilton and W.S. Martin (4)
9. First Amenity Transfer dated 28th April 1993 and made between
Warringtons plc (in administrative receivership) (1) Chester Business
Park Management Company Limited (2) and N.J. Hamilton and W.S. Martin
(3)
10. First Amenity Lease dated 28th April 1993 and made between Chester
Business Park Management Company Limited (1) and Rover Group Trustees
Limited (2)
11. Supplemental Deed dated 28th April 1993 and made between Warringtons
plc (in administrative receivership) (1) Rover Group Trustees Limited
(2) and N.J. Hamilton and W.S. Martin (3)
THE SIXTH SCHEDULE
MARKET RENT
(1) During the term of the New Underlease the FIRST yearly rent shall be
(subject as hereinafter provided) such sum (hereinafter called "the
said
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- -
sum") as shall be agreed between the Landlord and the Tenant (or
decided by the competent person as hereinafter provided) as
representing the rack rental market value of the demised premises at
the date six months prior to the date of commencement of the term of
the New Underlease (hereinafter called "the date of review") (a) for a
term of five years (b) as between a willing landlord and a willing
tenant (c) with vacant possession (d) without the payment of any fine
or premium (e) upon the suppositions (whether or not facts) that (i)
the Tenant has complied with all the obligations as to repair and
decoration herein imposed on it (but without prejudice to any rights
or remedies of the Landlord in regard thereto) (ii) the demised
premises are fit for immediate occupation and use (iii) no work has
been carried out thereon by the Tenant or any undertenant whether
before or after the commencement date which has diminished the rental
value of the demised premises and (iv) if the Building or any part
thereof or any amenity thereto belonging or any access thereto shall
have been damaged or destroyed as the result of a peril against which
as at the date of such damage or destruction the Landlord or the
Superior Landlord had effected insurance of the same the same had
before the date of review been fully reinstated and
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(f) otherwise on the terms and conditions (other than as to the amount
of rent) to be contained in the New Underlease there being disregarded
(i) any goodwill attributable to the demised premises by reason of any
trade or business carried on therein by the Tenant or any undertenant
and any effect on rent of the fact that the Tenant or any undertenant
is in occupation of the demised premises (ii) any effect on rent of
any improvements or alterations to the demised premises carried out
before or during the said term by the Tenant or any undertenant with
the consent of the Landlord and the Superior Landlord other than any
such effected at the expense of the Landlord or the Superior Landlord
or in pursuance of any obligation to the Landlord whether under the
provisions of this Underlease or any other deed or document (iii) any
effect on rent of any law for the time being in force which imposes a
restraint upon receiving an increase in the rent of the demised
premises
(2) (a) IF the Landlord and the Tenant have not agreed on the amount of
the rent payable under the New Underlease by the date nine months
prior to the date of expiration of this Underlease then and in
any such case the question may at any time after such date be
referred by either of them to the decision of some competent
person
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(hereinafter called "the competent person") (who shall act as an
expert and not as an arbitrator) to be agreed upon by the
Landlord and by the Tenant or (in the event of failure so to
agree within fourteen days of either party having nominated a
proposed competent person) to be a Chartered Surveyor with
experience of lettings of office premises in the area in which
the demised premises are situate (or as near thereto as is
reasonably possible) and whose status shall be that of a partner
in or a director of a commercial practice which in the normal
course of its business handles the letting of office premises
such Chartered Surveyor to be nominated on the application of the
Landlord or the Tenant by the President for the time being of the
Royal Institution of Chartered Surveyors (or his deputy) and the
decision of the competent person (including any determination as
to the costs of such decision) shall accordingly be final and
binding on both the Landlord and the Tenant PROVIDED that if the
competent person shall die or for any other reason shall be
unable to act before he shall give his decision or shall not give
his determination within fifty working days of his nomination
then the
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Landlord and the Tenant shall agree upon another competent person
or (in the event of failure so to agree within fourteen days as
aforesaid) the President of the Royal Institution of Chartered
Surveyors shall be asked to nominate another Chartered Surveyor
with the aforesaid experience and status to act as the competent
person and such procedure may be adopted as often as may be
necessary AND PROVIDED FURTHER that the competent person's fees
shall borne equally between the parties unless he otherwise
directs
(b) (i) THE competent person shall be requested to give notice in
writing within ten working days of his appointment to the
Landlord and the Tenant inviting each to submit within
fifteen working days of the date of service of such notice
(in respect of which time shall be of the essence) one
written statement of representations only and at the
expiration of such period of fifteen working days to supply
to each of them a copy of any statement of representations
received from the other within the time allowed and to give
notice to them both in writing inviting each to submit
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within a further period of ten working days of the date of
service of such notice (in respect of which time shall be of
the essence) one further written statement (to be strictly
confined to observations or counter submissions upon the
contents of the other party's first (if any) written
statement of representations) and at the expiration of such
further period of ten working days to supply to each of them
a copy of any further written statement received from the
other party within the time allowed whereafter he shall
consider the statements properly submitted to him within the
time limits aforesaid (but not otherwise) but he shall not
be in any way limited or fettered thereby and shall decide
upon the amount of the said sum in accordance with his own
judgment
(ii) The competent person shall further be requested to give his
decision within fifty working days of his nomination
(iii)Any notice required to be served under this sub-paragraph
(2) shall comply with the regulations respecting notices
incorporated herein
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<PAGE>
(3) PROVIDED ALWAYS that in no event shall the FIRST Yearly Rent payable
by the Tenant to the Landlord from and including the date of
commencement of the New Underlease be less than the FIRST Yearly Rent
payable by the Tenant to the Landlord immediately before the date of
expiration of the tenancy hereby created
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<PAGE>
THE COMMON SEAL of CONTINENTAL CAN )
COMPANY LIMITED was hereunto )
affixed in the presence of: )
[Seal
Affixed]
Director
Secretary
THE COMMON SEAL of PERCEPTIVE )
SCIENTIFIC INTERNATIONAL LIMITED )
was hereunto affixed in the )
presence of:- )
Director
Secretary
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<PAGE>
EXHIBIT 10.8(k)
TECHNOLOGY LICENSE AGREEMENT
This TECHNOLOGY LICENSE AGREEMENT (the "AGREEMENT") is made and entered
into as of July 31, 1996, by and among PSII ACQUISITION CORP., a Delaware
corporation ("PSII ACQUISITION"), and PERCEPTIVE SCIENTIFIC IMAGING SYSTEMS,
INC., a Delaware corporation ("PSISI") and wholly-owned subsidiary of DIGITAL
IMAGING TECHNOLOGIES, INC., a Delaware corporation ("DITI"), with reference to
the following facts:
A. DITI owns all of the capital stock of Perceptive Scientific
Instruments, Inc., a Delaware corporation ("PSII"), and Perceptive Scientific
Technologies, Inc., a Delaware corporation ("PSTI"). (DITI, PSII and PSTI are
sometimes hereinafter referred to collectively as the "SELLER"). PSII
Acquisition is a newly-formed and wholly-owned subsidiary of International
Remote Imaging Systems, Inc., a Delaware corporation ("IRIS").
B. Seller is the owner of certain intellectual property and other assets
used in the business of developing, manufacturing and marketing digital image
processing and analysis products and services, including the proprietary
PowerGene-TM- product line of genetic analysis instruments.
C. Pursuant to an Asset Purchase Agreement (the "ASSET PURCHASE
AGREEMENT") dated as of July 15, 1996, by and among IRIS and Seller, IRIS agreed
to purchase substantially all of the assets of Seller. In accordance with
Section 12.6 of the Asset Purchase Agreement, IRIS has assigned its rights and
obligations thereunder to PSII Acquisition.
D. PSII Acquisition desires to consummate the acquisition of such assets,
and Seller is willing to do so provided that certain conditions are met,
including the execution of this Agreement by PSII Acquisition.
NOW, THEREFORE, based upon the above premises and in consideration of the
mutual covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. DEFINITIONS.
The following terms shall have the meanings set forth below:
"CONFIDENTIAL INFORMATION" shall mean all information relating to the
Intellectual Property (defined in Section 2.1), except information that is, or
becomes, part of the public domain through no fault of PSISI.
<PAGE>
"COPYRIGHTS" shall mean all U.S. and foreign copyrights, whether or not
registered, acquired by PSII Acquisition from Seller pursuant to the Asset
Purchase Agreement.
"LOSS" shall mean any and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses and court costs incident to
any suit, action, investigation or other proceedings), damages and losses, net
of any insurance proceeds received with respect thereto.
"PATENTS" shall mean all U.S. and foreign patents acquired by PSII
Acquisition from Seller pursuant to the Asset Purchase Agreement.
"PROPRIETARY INFORMATION" shall mean all trade secrets, data, methods, test
results, procedures, processes, techniques, systems, inventions, apparatus,
information, manufacturing and engineering drawings and prints, artwork for
circuit boards, artwork for labels, regulatory and manufacturing documentation
and design specifications, know-how and other proprietary information acquired
by PSII Acquisition from Seller pursuant to the Asset Purchase Agreement.
"SOFTWARE" shall mean all software products, including both source code and
object code, acquired by PSII Acquisition from Seller pursuant to the Asset
Purchase Agreement.
"THIRD PARTY CLAIM" shall mean a claim brought by a third party for which
indemnification is sought pursuant to this Agreement.
"WELL LOG BUSINESS" shall mean the business of developing, manufacturing,
marketing and selling digital image processing and analysis products and
services for use solely in the oil and gas industry.
2. GRANT OF LICENSE TO PSISI.
2.1 GRANT OF LICENSE. Subject to the other provisions of this
Section 2, PSII Acquisition hereby grants to PSISI a worldwide, royalty-free,
exclusive (as against PSII Acquisition and all other persons) license to use the
Patents, Copyrights, Software and Proprietary Information (collectively, the
"INTELLECTUAL PROPERTY") solely for use in connection with the Well Log
Business. PSII Acquisition shall retain the exclusive (as against PSISI) right
to use, and sublicense others to use, the Intellectual Property for all purposes
other than the Well Log Business. PSII Acquisition may not terminate the
foregoing license UNLESS PSISI fails to cure a material breach of the terms of
this Agreement within thirty (30) days after written notice of such breach from
PSII Acquisition or, if such breach cannot reasonably be cured within such
thirty-day period, PSISI fails to promptly commence reasonable efforts to cure
such breach and thereafter diligently pursue such cure to completion.
2.2 NO TRANSFERS. PSISI shall not have the right to sublicense,
encumber, sell, assign or otherwise transfer any rights to the Intellectual
Property without the prior
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written consent of PSII Acquisition, which shall not be unreasonably withheld;
PROVIDED, HOWEVER, that, pursuant to Section 7.4, PSISI may assign its rights
under this Agreement in connection with a merger, consolidation or sale of
substantially all of the assets of PSISI if the successor entity agrees in
writing prior to the assignment to be bound by all the terms and conditions of
this Agreement. Any attempted transfer of such rights in violation of this
Section 2.2 shall be null and void.
3. CONFIDENTIALITY.
3.1 CONFIDENTIALITY OBLIGATIONS. PSISI hereby acknowledges and
agrees that the Intellectual Property contains valuable confidential information
and trade secrets developed or acquired by Seller through the expenditure of
significant amounts of time and money and purchased from Seller by PSII
Acquisition at significant expense. Accordingly, PSISI shall maintain the
confidential nature of, and not disclose to any third party, any Confidential
Information.
3.2 PERMITTED DISCLOSURES. The obligations of confidentiality
contained in this Agreement shall not apply to the disclosure of any
Confidential Information if, and to the extent:
3.2.1 reasonably necessary to market products, including,
without limitation, by making disclosures to prospective customers as will
adequately explain the nature and operation of the product;
3.2.2 reasonably necessary to develop new products,
including, without limitation, by making disclosures to consultants,
contractors, partners or collaborators as will adequately explain the nature and
operation of the proposed product, PROVIDED that any parties to whom
Confidential Information is disclosed under this Section 3.2.2 shall have
previously agreed in writing to be bound by the confidentiality obligations of
this Section 3;
3.2.3 reasonably necessary to secure governmental or
regulatory approvals or clearances; or
3.2.4 the disclosure is required by a judicial order or
decree of governmental law or regulation, provided that PSISI promptly notifies
PSII Acquisition of such requirement and reasonable opportunity is allowed for
PSII Acquisition to obtain a protective order or otherwise proceed under
applicable law to protect its interests.
3.3 INJUNCTIONS; PROOF WAIVED. PSISI agrees that, due to the unique
and proprietary nature of the Confidential Information, the remedies at law for
a breach by PSISI of its obligations under this Section 3 will be inadequate and
that, in the event of such breach, PSII Acquisition shall be entitled to
equitable relief (including without limitation injunctive relief and specific
performance) in addition to all other remedies provided under this Agreement or
available at law. PSISI acknowledges the secret nature and quality of the
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Intellectual Property as legally protectable proprietary information and
intellectual property and agrees to waive proof of such fact in any litigation
or arbitration between the parties.
4. DISCLAIMER OF WARRANTY. PSII Acquisition disclaims any and all
representations and warranties, express or implied, concerning the Intellectual
Property, including without limitation (i) the performance, utility,
reliability, suitability for any particular purpose or accuracy of the
Intellectual Property, (ii) whether the use of the Intellectual Property
licensed hereunder will infringe any patent or other proprietary rights of any
third party, and (iii) whether any of the Intellectual Property is entitled to
protection under patent, copyright or other proprietary laws.
5. ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS. If PSISI has actual
notice of infringement by any person of any Intellectual Property, PSISI shall
promptly inform PSII Acquisition. PSII Acquisition shall have the right, but
not the obligation, at its own expense, to take appropriate action to enforce
such Intellectual Property rights; PROVIDED, HOWEVER, that, if PSII Acquisition
elects to enforce such Intellectual Property rights and the infringement
involves the Well Log Business, PSISI shall have the right to participate by
agreeing to bear a percentage of the costs of such enforcement in such amount as
the parties shall reasonably determine. All amounts recovered in any action to
enforce Intellectual Property undertaken by PSII Acquisition and PSISI, whether
by judgment or settlement, shall be (i) applied first to the repayment of
expenses of enforcement, including legal and other fees and expenses, pro rata
according to the respective percentage of expenses borne by each party and (ii)
applied second to payment of compensation for damages suffered as a result of
such infringement pro rata according to the actual damages suffered by each
party. If, within one (1) month after notice of the infringement of
Intellectual Property rights involving the Well Log Business, PSII Acquisition
has not commenced action to enforce such Intellectual Property rights or
thereafter ceases to diligently pursue such action, PSISI shall have the right,
at its expense, to take appropriate action to enforce such Intellectual Property
rights as its sole remedy hereunder. All amounts received in any action to
enforce Intellectual Property rights involving the Well Log Business undertaken
solely by PSISI at its expense, whether by judgment or settlement, shall be
retained by PSISI. PSII Acquisition and PSISI shall fully cooperate with each
other in the planning and execution of any action to enforce Intellectual
Property rights with respect to the Well Log Business. Neither PSII Acquisition
nor PSISI shall enter into any settlement that includes the grant of a license
under, agreement not to enforce, or any statement prejudicial to the validity or
enforceability of any Intellectual Property rights with respect to the Well Log
Business without the consent of the other, which consent shall not be
unreasonably withheld.
6. INDEMNIFICATION.
6.1 RIGHT OF INDEMNIFICATION. PSISI agrees to indemnify and hold
PSII Acquisition (and PSII Acquisition's respective officers, directors,
employees and agents) harmless from and against the full amount of all Losses
arising out of (a) any use of the Intellectual Property by PSISI or (b) any
breach of this Agreement by PSISI.
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<PAGE>
6.2 PROCEDURES FOR INDEMNIFICATION. If any claim is asserted or any
action or proceeding is brought in respect of which indemnity may be sought,
PSII Acquisition will promptly notify PSISI in writing of such asserted claim or
the institution of such action or proceeding; PROVIDED, HOWEVER, that the PSII
Acquisition's failure to so notify PSISI will not relieve PSISI from any
liability it might otherwise have on account of this indemnity, except to the
extent that PSISI has been materially prejudiced by such failure to notify. If
requested by PSII Acquisition in the aforementioned notice, PSISI shall
undertake full responsibility for the defense of any Third-Party Claim which, if
successful, would result in an obligation of indemnity under this Agreement.
PSISI may contest or settle any such claim on such terms as PSISI may choose,
PROVIDED that PSISI will not have the right, without PSII Acquisition's prior
written consent, to settle any such claim if such settlement (i) arises from or
is part of any criminal action, suit or proceeding, (ii) contains a stipulation
to, confession of judgement with respect to, or admission or acknowledgement of,
any liability or wrongdoing on the part of PSII Acquisition, (iii) relates to
any tax matters, (iv) provides for injunctive relief, or other relief or finding
other than money damages, which is binding on PSII Acquisition, or (v) does not
contain an unconditional release of PSII Acquisition. Such defense will be
conducted by reputable attorneys retained by PSISI at the PSISI's cost and
expense, but PSII Acquisition will have the right to participate in such
proceedings and to be separately represented by attorneys of its own choosing.
PSII Acquisition will be responsible for the costs of such separate
representation unless PSII Acquisition will have reasonably concluded that the
interests of PSII Acquisition and PSISI in the action conflict in such a manner
and to such an extent as to make advisable, consistent with applicable standards
of professional responsibility, the retention of separate counsel for PSII
Acquisition, in which case PSISI will pay for one (but not more than one)
separate counsel chosen by PSII Acquisition.
6.3 COOPERATION. PSISI and PSII Acquisition shall cooperate in
determining the validity of any Third-Party Claim for any Loss for which a claim
of indemnification may be made hereunder. Each party shall also use all
reasonable efforts to minimize all Losses.
7. MISCELLANEOUS.
7.1 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement and any
documents referred to herein or executed contemporaneously herewith constitute
the parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Agreement may not be amended, altered or modified except by a
writing signed by the parties.
7.2 WAIVERS STRICTLY CONSTRUED. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason
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<PAGE>
of any previous waiver, extension of time, delay or omission in exercise, or
other indulgence.
7.3 THIRD-PARTY BENEFITS. None of the provisions of this Agreement
will be for the benefit of, or enforceable by, any third-party beneficiary.
7.4 SUCCESSORS AND ASSIGNS. Except as provided herein to the
contrary, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. PSISI may
not assign any of its rights or delegate any of its obligations under this
Agreement, in whole or in part without the prior written consent of PSII
Acquisition, which shall not be unreasonably withheld; PROVIDED, HOWEVER, that
PSISI may assign its rights under this Agreement in connection with a merger,
consolidation or sale of substantially all of the assets of PSISI if the
successor entity agrees in writing prior to the assignment to be bound by all
the terms and conditions of this Agreement. Any attempt by PSISI to assign or
delegate any portion of this Agreement in violation of this Section 7.4 shall be
null and void.
7.5 REMEDIES NOT EXCLUSIVE. Subject to Section 7.11 (Arbitration of
Disputes), no remedy conferred by any of the specific provisions of this
Agreement is intended to be exclusive of any other remedy, and each and every
remedy will be cumulative and will be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise. The election of any one or more remedies will not constitute a
waiver of the right to pursue other available remedies.
7.6 NOTICES. All notices under this Agreement will be in writing and
will be delivered by personal service or facsimile or certified mail (or, if
certified mail is not available, then by first class mail), postage prepaid, to
such address as may be designated from time to time by the relevant party, and
which will initially be as set forth below. Any notice sent by certified mail
will be deemed to have been given three (3) days after the date on which it is
mailed. All other notices will be deemed given when received. No objection may
be made to the manner of delivery of any notice actually received in writing by
an authorized agent of a party. Notices will be addressed as follows or to such
other address as the party to whom the same is directed will have specified in
conformity with the foregoing:
(a) If to PSII Acquisition:
PSII Acquisition Corp.
9162 Eton Avenue
Chatsworth, California 91311
Attn: Fred H. Deindoerfer
President
Telephone: (818) 709-1244
Facsimile: (818) 700-9661
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With a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attn: Theodore E. Guth, Esq.
Telephone: (310) 277-1010
Facsimile: (310) 203-7199
(b) If to PSISI:
Perceptive Scientific Imaging Systems. Inc.
2950 North Loop West, #1050
Houston, Texas 77092
Attn: James L. Hurn
Chief Executive Officer
Telephone: (713) 956-2165
Facsimile: (713) 956-2185
With a copy to:
Andrews & Kurth LLP
Texas Commerce Tower
600 Travis, Suite 4200
Houston, Texas 77002
Attn: Robert V. Jewell, Esq.
Telephone: (713) 220-4200
Facsimile: (713) 220-4285
7.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without regard to the conflict of laws rules of the State of
Delaware or any other jurisdiction that would call for the application of the
laws of any jurisdiction other than the State of Delaware. Each party hereto
hereby irrevocably consents, for itself and its legal representatives, partners,
successors and assigns, to the exclusive jurisdiction of the Courts of the State
of Delaware for all purposes in connection with any action or proceeding that
arises from or relates to this Agreement, and further agrees that, subject to
Section 7.11 (Arbitration of Disputes), any action arising from or relating to
this Agreement shall be instituted and prosecuted only in the courts of the
State of Delaware, and hereby waives any rights it may have to personal service
of summons, complaint, or other process in connection therewith, and agrees that
service may be made by registered or certified mail to such party at the address
set forth in Section 7.6 (Notices).
7.8 ATTORNEYS' FEES. Should any litigation or arbitration be
commenced (including any proceedings in a bankruptcy court) between the parties
hereto or their
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representatives concerning any provision of this Agreement or the rights and
duties of any person or entity hereunder, the party or parties prevailing in
such proceeding shall be entitled, in addition to such other relief as may be
granted, to the reasonable attorneys' fees and court costs incurred by reason of
such litigation or arbitration.
7.9 HEADINGS. The Section headings in this Agreement are inserted
only as a matter of convenience, and in no way define, limit, or extend or
interpret the scope of this Agreement or of any particular Section.
7.10 SEVERABILITY. 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. To the extent permitted by
applicable law, the parties hereby waive any provision of law that would render
any provision hereof prohibited or unenforceable in any respect.
7.11 ARBITRATION OF DISPUTES. Except for actions seeking injunctive
relief, which may be brought before any court having jurisdiction, any claim
arising out of or relating to (i) this Agreement, including, but not limited to,
its validity, interpretation, enforceability or breach, or (ii) the relationship
between the parties (including its commencement and termination) which are not
settled by agreement between the parties, shall be settled by arbitration
conducted exclusively in Wilmington, Delaware before a board of three
arbitrators, one selected by each party, and the third by the two persons so
selected, all in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") then in effect. The notice of intent
to arbitrate shall name one arbitrator, and the party receiving the notice shall
name the second arbitrator within 15 days or the moving party may select the
second arbitrator from a list supplied by the AAA. In the event that these two
arbitrators cannot agree upon a third arbitrator within 15 days, then the third
arbitrator shall be selected from the list provided by the AAA with the parties
striking names in order with the party striking first to be determined by the
flip of a coin. The parties hereby consent to the in personam jurisdiction of
the courts of the State of Delaware for purposes of confirming any such award
and entering judgment thereon. In any arbitration proceedings hereunder, (a)
all testimony of witnesses shall be taken under oath; (b) discovery will be
allowed to the same extent as available under the rules then applicable to civil
actions under Delaware law; (c) upon conclusion of any arbitration, the
arbitrators shall render findings of fact and conclusions of law in a written
opinion setting forth the basis and reasons for any decision reached and deliver
such documents to each party to this Agreement along with a signed copy of the
award; and (d) the rules of evidence as then applicable to civil actions under
Delaware law shall be applied in the arbitration. Each party agrees that the
arbitration provisions of this Agreement are its exclusive damage remedy and
expressly waives any right to seek redress in another forum. Each party shall
bear the fees of the arbitrator appointed by it, and the fees of the neutral
arbitrators shall be borne equally by each party during the arbitration, but the
fees of all arbitrators shall be borne by the losing party.
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7.12 AGREEMENT NEGOTIATED. The parties hereto are sophisticated and
have consulted legal counsel with respect to this transaction. As a
consequence, the parties do not believe that the presumptions of any statutory
or common law rule relating to the interpretation of contracts against the
drafter of any particular clause should be applied in this case and therefore
waive its effects.
7.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
*** [NEXT PAGE IS SIGNATURE PAGE] ***
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SIGNATURE PAGE TO TECHNOLOGY LICENSE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
"PSII ACQUISITION"
PSII ACQUISITION CORP., a Delaware
corporation
By: /s/ Fred H. Deindoerfer
--------------------------------
Name: Fred H. Deindoerfer
------------------------------
Title: President
-----------------------------
"PSISI"
PERCEPTIVE SCIENTIFIC IMAGING
SYSTEMS, INC., a Delaware
corporation
By: /s/ James L. Hurn
--------------------------------
Name: James L. Hurn
------------------------------
Title: President
----------------------------
S-1
<PAGE>
EXHIBIT 10.9(a)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), NOR UNDER THE SECURITIES LAWS OR "BLUE SKY" LAWS OF ANY
STATE AND HAS NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS
AMENDED. AS A RESULT, SUCH SECURITY MAY NOT BE SOLD OR TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS OR APPLICABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS THEREOF. ANY SALE OR TRANSFER OF THIS SECURITY, OTHER
THAN PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, IS SUBJECT TO THE PRIOR
DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE ISSUER THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS.
8 1/2% SENIOR SUBORDINATED NOTE DUE 2001
$7,000,000 July 31, 1996
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., a Delaware corporation
("IRIS"), for value received, hereby promises to pay to DIGITAL IMAGING
TECHNOLOGIES, INC., a Delaware corporation ("DITI"), the principal sum of Seven
Million Dollars ($7,000,000), together with all accrued and unpaid interest, on
or before July 31, 2001 ("DUE DATE"). This 8 1/2% Senior Subordinated Note due
2001 (the "NOTE") is being issued pursuant to the terms of that certain Asset
Purchase Agreement dated as of July 15, 1996 by and among IRIS, DITI and certain
other parties (the "ASSET PURCHASE AGREEMENT") and in reliance on certain
representations made therein to IRIS.
1. INTEREST. (a) IRIS promises to pay interest on the unpaid
principal amount of this Note at the rate of Eight and One-Half Percent (8 1/2%)
per annum (computed on the basis of a 365-day year) from the date this Note is
issued until maturity. Subject to Section 4 (Subordination), IRIS will pay
interest quarterly on February 1, May 1, August 1 and November 1 of each year,
commencing November 1, 1996, or if any such day is not a business day, on the
next succeeding business day;
(b) All past due principal and interest on this Note
shall bear interest from maturity of such principal or interest (in whatever
manner same may be brought about) at the lower of (i) the rate borne by this
Note plus two percent (2%) per annum or (ii) the maximum legal nonusurious rate
of interest permitted by applicable law ("MAXIMUM RATE").
<PAGE>
2. PREPAYMENT. Subject to Section 4 (Subordination), IRIS may prepay all
or any part of the outstanding principal balance due under this Note at any time
without premium or penalty. Upon subsequent issuance by IRIS of equity
securities generating net proceeds in excess of $14,500,000, IRIS shall
immediately upon receipt of such net proceeds apply fifty percent (50%) of the
excess to the prepayment of this Note. All prepayments shall be applied first
against accrued but unpaid interest to the date of payment and the balance of
such payment shall be applied against the principal hereof.
3. METHOD OF PAYMENT. Principal and interest are payable in lawful money
of the United States of America in immediately available funds to DITI at its
office located at 2950 North Loop West, Suite 1050, Houston, Texas 77092 or at
such other address as designated in writing to IRIS.
4. SUBORDINATION.
4.1 SUBORDINATION TO SENIOR DEBT. The payment of principal and
interest on this Note is subordinated in right of payment, to the extent and in
the manner provided in this Section 4, to the prior payment in full of all
Senior Debt. This subordination is for the benefit of and enforceable by the
holder of the Senior Debt, and DITI shall hold any payments received by DITI in
violation of this Section 4 in trust for the benefit of the holder of the Senior
Debt.
4.2 PREPAYMENTS OF PRINCIPAL. No prepayment of principal shall be
made on account of this Note (i) unless and until all principal and interest
shall have been paid in full with respect to that portion of the Senior Debt
used to pay the cash portion of the purchase price under the Asset Purchase
Agreement or (ii) if, immediately after the payment thereof, IRIS would be in
default with respect to any financial covenant contained in the Senior Credit
Agreement.
4.3 PRINCIPAL AND INTEREST. No payment of principal or interest
shall be made on account of this Note (i) upon the maturity of any part or all
of the Senior Debt, by lapse of time, acceleration or otherwise, unless and
until all matured principal and interest thereon shall have been paid in full,
(ii) upon a default in the payment of principal or interest on any Senior Debt
when the same becomes due and payable, unless and until such default shall have
been cured or waived, or (iii) upon the receipt by IRIS from the holder of
Senior Debt of notice of any other default with respect to the Senior Debt
contractually permitting the holder of the Senior Debt to accelerate the
maturity thereof immediately without further notice or the expiration of any
applicable grace periods, unless and until such other default shall have been
cured or waived.
4.4 SENIOR DEBT. For purposes of this Note, "SENIOR DEBT" shall mean
all principal (not to exceed $11,500,000), interest, fees and other sums payable
from time to time under or with respect to the two Promissory Notes dated July
29, 1996 issued by IRIS in favor of City National Bank in the principal amounts
of $7,800,000 and $1,500,000 (or an aggregate of $9,300,000), in each case, as
amended, restated, extended or otherwise modified from time to time (the "SENIOR
CREDIT
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AGREEMENTS"); provided that the Senior Debt shall not include any extensions or
renewals of the Senior Credit Agreements beyond the Due Date. Senior Debt shall
also include any indebtedness the proceeds of which are used to refinance, renew
or replace Senior Debt in a principal amount which may exceed the principal
amount of the Senior Debt so refinanced, renewed or replaced but in any event
may not exceed $11,500,000 in principal amount; provided that the such
refinancing, renewal or replacement shall not include any extensions or renewals
beyond the Due Date.
4.5 GOVERNING LAW; CONSENT TO JURISDICTION. Notwithstanding Section
10 (Governing Law; Consent to Jurisdiction), the provisions of this Section 4
shall be governed by, and construed and enforced in accordance with, the laws of
the State of California without regard to the conflict of laws rules of the
State of California or any other jurisdiction that would call for the
application of the laws of any jurisdiction other than the State of California.
Each party hereto hereby irrevocably consents, for itself and its legal
representatives, partners, successors and assigns, to the exclusive jurisdiction
of the Courts of the State of California for the limited purpose of any action
or proceeding to interpret or enforce the provisions this Section 4, and further
agrees that any action arising solely from or relating solely to this Section 4
shall be instituted and prosecuted only in the courts of the State of California
located in the County of Los Angeles, and hereby waives any rights it may have
to personal service of summons, complaint, or other process in connection
therewith, and agrees that service may be made by registered or certified mail
to such party at its principal headquarters.
5. DEFAULT. Upon the occurrence of an Event of Default (as hereinafter
defined), DITI may declare the entirety of this Note, principal and interest, to
be immediately due and payable without any notice, and failure to exercise said
option shall not constitute a waiver on the part of DITI of the right to
exercise the same or any other remedy at any other time. Each of the following
conditions or events shall constitute an "Event of Default":
(a) default by IRIS in the payment of any installment of principal
when due hereunder or interest within five (5) days when due hereunder;
(b) a decree or order by a court having jurisdiction in the premises
shall have been entered adjudging IRIS a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
readjustment, arrangement, composition or similar relief for IRIS under the
federal bankruptcy laws or any other similar applicable federal or state
law, and such decree or order shall have continued undischarged and
unstayed for a period of sixty (60) days; or a decree or order of a court
having jurisdiction in the premises for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of IRIS or a
substantial part of the property of IRIS, or for the winding up or
liquidation of its affairs, shall have been entered, and such decree or
order shall have remained in force undischarged and unstayed for a period
of sixty (60) days; or any substantial part of the property of IRIS shall
be sequestered or attached and
3
<PAGE>
shall not be returned to the possession of IRIS or released from such
attachment within sixty (60) days thereafter;
(c) IRIS shall institute proceedings to be adjudicated a voluntary
bankrupt, or shall consent to the filing of a bankruptcy proceeding against
it, shall file a petition or answer or consent seeking reorganization,
readjustment, arrangement, composition or similar relief under the federal
bankruptcy laws, or any other similar applicable federal or state law, or
shall consent to the filing of any such petition, or shall consent to the
appointment of a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of it or of a substantial part of its property, or
shall make an assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become due, or
corporate action shall be taken by IRIS in furtherance of any of the
aforesaid purposes; or
(d) default by IRIS in the payment of principal of, premium (if any)
or interest on or any other payment of money due under, under any
obligation for borrowed money beyond any period of grace provided with
respect thereto, or in the performance of any other agreement, term or
condition contained in any agreement under which any such obligation is
created if (i) the principal amount of such obligation exceeds $500,000 and
(ii) either (x) the default involves the failure to pay principal when due
or (y) the holder(s) of such obligation (or a trustee on behalf of such
holder or holders) accelerates its stated maturity and such default is not
waived or cured.
6. USURY. It is the intention of IRIS and DITI to conform strictly to
all applicable usury laws. It is therefore agreed that (i) in the event that
the maturity hereof is accelerated by reason of an election by DITI, or if same
is prepaid prior to maturity, all unearned interest shall be canceled
automatically or, if theretofore paid, shall either be refunded to IRIS or
credited on the unpaid principal amount of this Note, whichever remedy is chosen
by DITI, (ii) the aggregate of all interest and other charges constituting
interest under applicable law and contracted for, chargeable or receivable under
this Note or otherwise in connection with the transaction for which this Note is
given shall never exceed the maximum amount of interest, nor produce a rate in
excess of the Maximum Rate, and (iii) if any excess interest is provided for, it
shall be deemed a mistake and the same shall either be refunded to IRIS or
credited on the unpaid principal amount hereof and this Note shall be
automatically deemed reformed so as to permit only the collection of the Maximum
Rate and amount of interest. All sums paid or agreed to be paid to the holder
of this Note for the use, forbearance or detention of the indebtedness evidenced
hereby to the full extent allowed by applicable law, shall be amortized,
prorated, allocated and spread through the full term of this Note.
7. WAIVERS. (a) Except as otherwise provided in this Note to the
contrary, IRIS and each surety, endorser or guarantor, if any, waives grace,
notice, demand, presentment for payment, notice of nonpayment, protest, notice
of protest, notice of intention to accelerate, notice of acceleration of the
indebtedness due hereunder
4
<PAGE>
and all other notice, filing of suit and diligence in collecting this Note, and
the enforcing of any of the rights of DITI, and consents and agrees that the
time of payment hereof may be extended without notice at any time and from time
to time, and for periods of time whether or not for a term or terms in excess of
the original term hereof, without notice or consideration to, or consent from
IRIS or any surety, endorser or guarantor.
(b) With regard to any power, remedy or right provided
herein or otherwise available to any party hereunder, (i) no waiver or extension
of time will be effective unless expressly contained in a writing signed by the
waiving party or its representative, and (ii) no alteration, modification or
impairment will be implied by reason of any previous waiver, extension of time,
delay or omission in exercise or other indulgence.
8. COOPERATION. Each party hereto agrees to execute any and all further
documents and writings and to perform such other actions which may be or become
necessary or expedient to effectuate and carry out this Note.
9. SUCCESSORS AND ASSIGNS. This Note shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns. IRIS may not assign this Note without the prior written consent of
DITI. DITI may not assign this Note except (i) to Ed Randall III, an individual
and stockholder of DITI, at any time or (ii) to any third party after two years
from the date hereof.
10. GOVERNING LAW; CONSENT TO JURISDICTION. Subject to Section 4.5
(Subordination--Governing Law; Consent to Jurisdiction), this Note shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without regard to the conflict of laws rules of the State of
Delaware or any other jurisdiction that would call for the application of the
laws of any jurisdiction other than the State of Delaware. Each party hereto
hereby irrevocably consents, for itself and its legal representatives, partners,
successors and assigns, to the exclusive jurisdiction of the Courts of the State
of Delaware for all purposes in connection with any action or proceeding that
arises from or relates to this Note, and further agrees that any action arising
from or relating to this Agreement shall be instituted and prosecuted only in
the courts of the State of Delaware, and hereby waives any rights it may have to
personal service of summons, complaint, or other process in connection
therewith, and agrees that service may be made by registered or certified mail
to such party at its principal headquarters.
11. ATTORNEYS' FEES. DITI shall be entitled to recover any and all
attorneys' fees and court costs required to collect this Note.
*** [NEXT PAGE IS SIGNATURE PAGE] ***
5
<PAGE>
SIGNATURE PAGE TO SENIOR SUBORDINATED NOTE
IN WITNESS WHEREOF, the parties hereto have caused this Note to be duly
executed, as of the day and year first above written.
"IRIS"
INTERNATIONAL REMOTE IMAGING
SYSTEMS, INC., a Delaware corporation
By: /s/ Fred H. Deindoerfer
-------------------------------------
Name: Fred H. Deindoerfer
-----------------------------------
Title: Chairman and President
---------------------------------
"DITI"
DIGITAL IMAGING TECHNOLOGIES, INC., a
Delaware corporation
By: /s/ James L. Hurn
-------------------------------------
Name: James L. Hurn
-----------------------------------
Title: President
----------------------------------
S-1
<PAGE>
Exhibit 10.9(b)
---------------
PROMISSORY NOTE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$1,500,000.00 07-29-1996 06-01-1997 25749 036540813 BEC
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Reference in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C>
BORROWER: INTERNATIONAL REMOTE IMAGING SYSTEMS, LENDER: CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION
INC., A DELAWARE CORPORATION SAN FERNANDO VALLEY COMMERCIAL BANKING CENTER #048000
9162 ETON AVENUE 16133 VENTURA BOULEVARD
CHATSWORTH, CA 91311 ENCINO, CA 91436
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
PRINCIPAL AMOUNT: $1,500,000.00 INITIAL RATE: 8.250% DATE OF NOTE: JULY 29, 1996
PROMISE TO PAY. INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., A DELAWARE
CORPORATION ("BORROWER") PROMISES TO PAY TO CITY NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES
OF AMERICA, THE PRINCIPAL AMOUNT OF ONE MILLION FIVE HUNDRED THOUSAND & 00/100
DOLLARS ($1,500,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST
ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON JUNE 1, 1997. IN ADDITION,
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING
AUGUST 1, 1996, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF
EACH MONTH AFTER THAT. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the City National Bank
Prime Rate (the "Index"). Prime Rate shall mean the rate most recently
announced by Lender at its principal office in Beverly Hills, California, as its
"Prime Rate." Any change in the Prime Rate shall become effective on the same
business day on which the Prime Rate shall change, without prior notice to
Borrower. Lender will tell Borrower the current Index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates
as well. The interest rate change will not occur more often than each day. THE
INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE
UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE EQUAL TO THE INDEX,
RESULTING IN AN INITIAL RATE OF 8.250% PER ANNUM. NOTICE: Under no
circumstance will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is entitled
to A MINIMUM INTEREST CHARGE OF $100.00. Other than Borrower's obligation to
pay any minimum interest charge, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation
to continue to make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment within 10 days of when due. (b) Borrower
breaks any promise Borrower has made to Lender, or Borrower fails to comply with
or to perform when due any other term, obligation, covenant, or condition
contained in this Note or any agreement related to this Note, or in any other
agreement or loan Borrower has with Lender. (c) Any representation or statement
made or furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect either now or at the time made or furnished.
(d) Borrower becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's
property on or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (f) Any of the events
described in this default section occurs with respect to any guarantor of this
Note. (g) A material adverse change occurs in Borrower's financial condition.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance of this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate on this Note to 5.000 percentage points
over the index. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE
IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: FRED H. DEINDOERFER,
P.H.D., PRESIDENT/CEO/CFO; E. EDUARDO BENMAOR, SECRETARY; JEFFREY S. WILLIAMS,
CHIEF OPERATING OFFICER; AND JIMMIE R. KYLE, V.P., MFG & PRODUCT RELIABILITY.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor
is in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
<PAGE>
07-29-1996 PROMISSORY NOTE Page 2
Loan No. 25749 (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; (d) Borrower has applied funds provided pursuant to the Note for
purposes other than those authorized by Lender.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or releases any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and takes any other action deemed necessary by
Lender without the consent of or notice to anyone. All such parties also agree
that Lender may modify this loan without the consent of or notice to anyone
other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., A DELAWARE CORPORATION
BY: /S/ JIMMIE R. KYLE
-----------------------------------------------
JIMMIE R. KYLE, V.P., MFG & PRODUCT RELIABILITY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.20b (c) 1996 CFI ProServices, Inc. All rights reserved. [CA-120 E3.20 F3.20
P3.20 INTER.LN C13.OVL]
<PAGE>
EXHIBIT 10.9(c)
SUPPLEMENTAL TERMS LETTER
July 29, 1996
International Remote Imaging Systems, Inc.
9162 Eton Avenue
Chatsworth, CA 91311
Attention: Jimmie R. Kyle, V.P. Mfg. & Product Reliability
RE: PROMISSORY NOTE DATED JULY 29, 1996, IN THE ORIGINAL PRINCIPAL SUM OF
$1,500,000.00 ("NOTE") EXECUTED BY INTERNATIONAL REMOTE IMAGING
SYSTEMS, INC., A DELAWARE CORPORATION ("BORROWER") IN FAVOR OF CITY
NATIONAL BANK, A NATIONAL BANKING ASSOCIATION ("CNB")
Dear Mr. Kyle:
This is to confirm that CNB will extend the credit facility more completely
described in the enclosed Note, subject to the additional terms and conditions
set forth herein. Capitalized terms not defined in this letter have the
meanings given them in the Note. This letter is hereby incorporated into the
Note (this letter and the Note, collectively, the "Note").
A. ADDITIONAL EVENTS OF DEFAULT.
The following shall constitute additional Events of Default under the Note:
1. Any obligee of Subordinated Debt shall fail to comply with the
subordination provisions of the documents or instruments, including,
without limitation, any subordination agreement, evidencing or relating to
such Subordinated Debt;
2. Failure of Borrower to furnish CNB, within the times specified, the
following statements:
2.1 Within sixty (60) days after the end of each quarterly accounting
period of each fiscal year, a financial statement consisting of not
less than a Form 10-Q.;
2.2 Within ninety (90) days after the close of each fiscal year, a copy of
the annual report, on Form 10-K for such year for Borrower and the
Subsidiaries; and
<PAGE>
Jimmie R. Kyle, V.P. Mfg. & Product Reliability
International Remote Imaging Systems, Inc.
July 29, 1996
Page 2
2.3 Such additional information, reports and/or statements as CNB may,
from time to time, reasonably request;
3. Failure of Borrower to maintain the following:
3.1 Tangible Net Worth plus Subordinated Debt of not less than
$9,500,000.00 at all times;
3.2 A ratio of Total Senior Liabilities to Tangible Net Worth plus
Subordinated Debt of not more than 1.5 to 1 at all times; and
3.3 A ratio of Current Assets to Current Liabilities of not less than 1.0
to 1 at all times.
4. Failure of Borrower within thirty (30) days after written notice by CNB to
Borrower, given after December 1, 1996, to grant CNB a duly perfected
security interest in all patents, copyrights and trademarks held by
borrower.
B. DEFINITIONS.
For purposes of the Note, the following terms have the following meanings:
"CURRENT ASSETS" shall be determined on a consolidated basis for Borrower
and the Subsidiaries in accordance with generally accepted accounting principles
consistently applied, including deposits and securities held by CNB as
collateral, but excluding, however, from the determination of Current Assets,
loans to shareholders, management or employees, amounts due from Subsidiaries or
affiliates, deferred costs, and other intangible assets.
"CURRENT LIABILITIES" shall be determined on a consolidated basis for
Borrower and the Subsidiaries in accordance with generally accepted accounting
principles consistently applied, and shall include without limitation (a) all
principal and accrued interest payments on Subordinated Debt required to be made
within one (1) year after the date on which the determination is made; and
(b) all indebtedness payable to stockholders, affiliates, Subsidiaries or
officers regardless of maturity, unless such indebtedness shall have been
subordinated to CNB, on terms satisfactory to CNB.
"SUBORDINATED DEBT" shall mean indebtedness of Borrower or any Subsidiary,
the repayment of principal and interest of which is subordinated to CNB, on
terms
<PAGE>
Jimmie R. Kyle, V.P. Mfg. & Product Reliability
International Remote Imaging Systems, Inc.
July 29, 1996
Page 3
satisfactory to CNB (including, without limitation, the indebtedness owing to
Digital Imaging Technologies, Inc. ("DITI") evidenced by that certain Seven
Million & 00/100 Dollars ($7,000,000.00), eight and one half percent (8.50%)
Subordinated Note due 2001, dated July 29, 1996 by Borrower in favor if DITI.
"SUBSIDIARY" shall mean any corporation, the majority of whose voting
shares are at any time owned, directly or indirectly by Borrower and/or by one
or more Subsidiaries.
"TANGIBLE NET WORTH" shall mean the total of all assets appearing on a
balance sheet prepared in accordance with generally accepted accounting
principles consistently applied for Borrower and the Subsidiaries on a
consolidated basis, minus (a) all intangible assets, including, without
limitation, unamortized debt discount, affiliate, employee and officer
receivables or advances, goodwill, research and development costs, patents,
trademarks, the excess of purchase price over underlying values of acquired
companies, any covenants not to compete, deferred charges, copyrights,
franchises and appraisal surplus; minus (b) all obligations which are required
by generally accepted accounting principles consistently applied to be reflected
as a liability on the consolidated balance sheet of Borrower and the
Subsidiaries (except Subordinated Debt); minus, (c) the amount, if any, at which
shares of stock of a non-wholly owned Subsidiary appear on the asset side of
Borrower's consolidated balance sheet, as determined in accordance with
generally accepted accounting principles consistently applied; minus
(d) minority interests; and minus (e) deferred income and reserves not otherwise
reflected as a liability on the consolidated balance sheet of Borrower and the
Subsidiaries.
"TOTAL SENIOR LIABILITIES" shall mean, as of any date of determination, the
amount of all obligations that should be reflected as a liability on a
consolidated balance sheet of Borrower and the Subsidiaries prepared in
accordance with generally accepted accounting principles consistently applied,
less Subordinated Debt.
C. ADDITIONAL TERMS AND CONDITIONS.
The following additional terms and conditions shall also apply to the Note:
1. FEES. Borrower shall pay to CNB a non-refundable fee equal to $3,750,
due and payable in full upon execution of this letter and the Note.
<PAGE>
Jimmie R. Kyle, V.P. Mfg. & Product Reliability
International Remote Imaging Systems, Inc.
July 29, 1996
Page 4
2. SUBORDINATION OR DEBT. All obligations of Borrower to Digital Imaging
Technologies, Inc., a Delaware corporation shall be subordinated in right of
repayment to all obligations of Borrower to CNB, as evidenced by and subject to
the terms and provisions of draft eight and one half percent (8.50%) Senior
Subordinated Note due 2001 provided under cover of letter dated July 15, 1996.
3. ENVIRONMENTAL INDEMNIFICATION. Due to the environmentally sensitive
nature of the industry in which Borrower is principally engaged and upon which
CNB will rely as its primary source of repayment, and in consideration of CNB
extending credit to Borrower, Borrower has agreed to indemnify CNB against any
claims that may arise as a result of Borrower's business activities that are
environmental in nature and for which CNB may be named as a liable party.
Borrower agrees that it shall indemnify and hold harmless CNB, its parent
company, subsidiaries and all of their respective directors, officers,
employees, agents, successors, attorneys, and assigns from and against any loss,
damage, cost, expense, or liability directly of indirectly arising out of or
attributable to the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal, or presence of a hazardous substance
on, under, or about Borrower's property or operations or property leased to
Borrower, including but not limited to attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). For these
purposes, the term "hazardous substances" means any substance which is or
becomes designated as "hazardous" or "toxic" under any Federal, state, or local
law. This indemnity shall survive repayment of Borrower's obligations to CNB.
Except for documents and instruments specifically referenced herein or in
the Note, this letter and the Note constitute the entire agreement of the
parties hereto and supersedes any prior or contemporaneous oral or written
agreements, understandings, representations, warranties and negotiations, if
any, which are merged into this letter and the Note. If you agree to accept the
terms of this letter and the Note, please sign the
<PAGE>
Jimmie R. Kyle, V.P. Mfg. & Product Reliability
International Remote Imaging Systems, Inc.
July 29, 1996
Page 5
enclosed acknowledgement copy of this letter, as well as the enclosed Note, and
return them to me on or before July 31, 1996.
Sincerely,
CITY NATIONAL BANK, a national
banking association
By: /s/ Brad Sims
-----------------------------------------------------------
Brad Sims, Senior Vice President/Manager
By: /s/ Bruce E. Corey
-----------------------------------------------------------
Bruce E. Corey, Vice President
Accepted and Agreed this 31 day of
July , 1996.
- ------------------------
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.,
a Delaware corporation
By: /s/ Jimmie R. Kyle
-----------------------------------------------------------
Jimmie R. Kyle, V.P., Mfg. & Product Reliability
<PAGE>
EXHIBIT 10.9(d)
---------------
COMMERCIAL SECURITY AGREEMENT
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFER INITIALS
$1,500,000.00 07-29-1996 06-01-1997 25749 036540813 BEC
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
<TABLE>
<S> <C>
BORROWER: INTERNATIONAL REMOTE IMAGING SYSTEMS, LENDER: CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION
INC., A DELAWARE CORPORATION SAN FERNANDO VALLEY COMMERCIAL BANKING CENTER #048000
9162 ETON AVENUE 16133 VENTURA BOULEVARD
CHATSWORTH, CA 91311 ENCINO, CA 91436
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</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN INTERNATIONAL REMOTE
IMAGING SYSTEMS, INC., A DELAWARE CORPORATION (REFERRED TO BELOW AS "GRANTOR");
AND CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION (REFERRED TO BELOW AS
"LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL,
IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL
INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means INTERNATIONAL REMOTE IMAGING SYSTEMS,
INC., A DELAWARE CORPORATION, its successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more
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07-29-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
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of them, to Lender, as well as all claims by Lender against Grantor, or any one
or more of them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness may be
or hereafter may become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means City National Bank, a National Banking
Association, its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated July 29,
1996, in the principal amount of $1,500,000.00 from Grantor to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
DEPOSIT ACCOUNTS. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding however all IRA, Keogh, and trust accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
Grantor has its chief executive office as 9162 ETON AVENUE, CHATSWORTH, CA
91311. Grantor will notify Lender of any change in the location of
Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon Grantor or (b)
any law, governmental regulation, court decree, or order applicable to
Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide Indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by Grantor; (c)
all storage facilities owned, rented, leased, or being used by Grantor; and
(d) all other properties where Collateral is or may be located. Except in
the ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender.
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07-29-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
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REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of California, without the prior written consent of
Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business and sales of worn
out or obsolete equipment, Grantor shall not sell, offer to sell, or
otherwise transfer or dispose of the Collateral. While Grantor is not in
default under this Agreement, Grantor may sell inventory, but only in the
ordinary course of its business and only to buyers who qualify as a buyer
in the ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer in partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to any
lien, security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written consent
of Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by Lender,
all proceeds from any disposition of the Collateral (except Inventory and
Accounts) (for whatever reason) shall be held in trust for Lender and shall
not be commingled with any other funds; provided however, this requirement
shall not constitute consent by Lender to any sale or other disposition.
Upon receipt, Grantor shall immediately deliver any such proceeds to
Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No effective financing
statement covering any of the Collateral is on file in any public office
other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims and demands of
all other persons.
COLLATERAL SCHEDULES AND LIMITATIONS. As often as Lender shall reasonably
require, and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such Collateral,
including such information as Lender may require, including without
limitation names and addresses of account debtors and agings of accounts
and general intangibles. Insofar as the Collateral consists of inventory
and equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collaterals of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
______________________. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened release
of any hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq.
Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq. or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof and
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07-29-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
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asbestos. The representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for hazardous
wastes and substances. Grantor hereby (a) releases and waives any future
claims against Lender for indemnity or contribution in the event Grantor
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all claims and
losses resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least seven (7) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and
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be payable with any instalment payments to become due during either (i) the term
of any applicable insurance policy or (ii) the remaining term of the Note, or
(c) be treated as a balloon payment which will be due and payable at the Note's
maturity. This Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs and is continuing
10 days after written notice thereof is given by Lender to Grantor, under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days, or such lesser time as required by state law,
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not Indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items
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pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and obligors on
any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts of
Los Angeles County, State of California. This Agreement shall be governed
by and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
<PAGE>
07-29-1996 COMMERCIAL SECURITY AGREEMENT PAGE 7
LOAN NO 25749 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits
of enforceability or validity; however, if the offending provision cannot
be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishes
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 28,
1996.
GRANTOR:
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., A DELAWARE CORPORATION
BY: /S/ JIMMIE R. KYLE
---------------------------------------------------------
JIMMIE R. KYLE, V.P., MFG & PRODUCT RELIABILITY
<PAGE>
EXHIBIT 10.9(e)
CITY NATIONAL PROMISSORY NOTE - FIXED MATURITY
BANK (INTEREST TIED TO PRIME)
Note No. 25750
$7,800,000.00 San Fernando Valley CBC
16133 Ventura Boulevard
Encino, California 91436
July 29, 1996
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL REMOTE IMAGING SYSTEMS,
INC. ("Borrower"), promises to pay to the order of CITY NATIONAL BANK, a
national banking association ("CNB"), at its office in this city, in lawful
money of the United States of America and in immediately available funds, the
principal sum of SEVEN MILLION EIGHT HUNDRED THOUSAND DOLLARS ($7,800,000.00),
with interest thereon from the date of disbursement at a rate computed on the
basis of a 360-day year, actual days elapsed, equal to the "Prime Rate" of CNB,
as it exists from time to time, plus one-quarter of one percent (0.25%) per
year, until December 1, 1996 and plus one percent (1.00%) per year thereafter.
"Prime Rate" shall mean the rate most recently announced by CNB at its principal
office in Beverly Hills as its "Prime Rate." Any change in the Prime Rate shall
become effective on the same business day on which the Prime Rate shall change,
without prior notice to Borrower.
Interest accrued on this Note shall be payable on the first (1st) day of
each month, commencing August 1, 1996. The minimum interest charge or the term
of this Note shall in no event be less than One Hundred Dollars ($100.00).
Principal shall be payable on this note in the amount of (a) $1,800,000.00
on or before December 1, 1996 (which payment may be made from collateral held by
CNB); and (b) $100,000.00 per month with each payment of interest commencing
January 1, 1997. Prepayments of principal may be made, without penalty, and
shall be applied to principal payments due in order of maturity.
Principal and any interest remaining unpaid shall be payable in full on
January 15, 1998.
Provided, however, a payment of all principal plus accrued interest then
due shall be made at such time as Borrower receives the proceeds of a secondary
offering of its capital stock.
<PAGE>
The occurrence of any of the following with respect to any Borrower or any
guarantor of this Note or any general partner of such Borrower or guarantor,
shall constitute an "Event of Default" hereunder:
1. The failure to make any payment of principal or interest within 10 days
when due under this Note;
2. The filing of a petition by or against any of such parties under any
provisions of the BANKRUPTCY CODE;
3. The appointment of a receiver or an assignee for the benefit of creditors;
4. The commencement of dissolution or liquidation proceedings or the
disqualification of any such parties which is a corporation, partnership,
joint venture or any other type of entity;
5. The death or incapacity of any of such parties who is an individual;
6. Any financial statement provided by any of such parties to CNB is false or
misleading in any material respect;
7. Any default in the payment or performance of any obligation, or any default
under any provisions of any contract or instrument pursuant to which any of
such parties has incurred any obligation for borrowed money, if the
principal amount of such obligation exceeds $100,000.00, to any person or
entity, including CNB;
8. Any sale or transfer of all or a substantial or material part of the assets
of any of such parties other than in the ordinary course of business; or
9. Any violation, breach or default under any letter agreement, guaranty,
security agreement, deed of trust or any other contract or instrument
executed in connection with this Note or securing this Note.
10. The failure of Borrower to complete a firm underwritten secondary offering
of Borrower's common stock on or before December 1, 1996 if Borrower is
able to complete such an offering at or above $7.00 per share by such date.
Upon the occurrence of any Event of Default, the holder of this Note, at
the holder's option, may declare all sums of principal and interest outstanding
hereunder to be immediately due and payable without presentment, demand, protest
or notice of dishonor all of which are expressly waived by each Borrower. Each
Borrower agrees to pay all costs and expenses, including reasonable attorneys'
fees, expended or incurred by the holder (or allocable to the holder's in-house
counsel) in connection with the enforcement of this Note or the collection of
any sums due hereunder and irrespective of whether suit is filed. Any principal
or interest not paid within ten days of when due hereunder shall thereafter bear
-2-
<PAGE>
additional interest from its due date at a rate of five percent (5.0%) per year
higher than the interest rate as determined and computed above, and continuing
thereafter until paid.
-3-
<PAGE>
This Note and all matters relating thereto, shall be governed by the laws
of the State of California.
International Remote Imaging Systems, Inc.
By: /s/ Jimmie R. Kyle
----------------------------------------------
Jimmie R. Kyle, V.P. Mfg. & Product
Reliability
BANK USE ONLY
-4-
<PAGE>
EXHIBIT 10.9(f)
SUPPLEMENTAL TERMS LETTER
July 29, 1996
International Remote Imaging Systems, Inc.
9162 Eton Avenue
Chatsworth, CA 91311
Attention: Jimmie R. Kyle, V.P. Mfg. & Product Reliability
RE: PROMISSORY NOTE DATED JULY 29, 1996, IN THE ORIGINAL PRINCIPAL SUM OF
$7,800,000.00 ("NOTE") EXECUTED BY INTERNATIONAL REMOTE IMAGING
SYSTEMS, INC., A DELAWARE CORPORATION ("BORROWER") IN FAVOR OF CITY
NATIONAL BANK, A NATIONAL BANKING ASSOCIATION ("CNB")
Dear Mr. Kyle:
This is to confirm that CNB will extend the credit facility more completely
described in the enclosed Note, subject to the additional terms and conditions
set forth herein. Capitalized terms not defined in this letter have the
meanings given them in the Note. This letter is hereby incorporated into the
Note (this letter and the Note, collectively, the "Note").
A. ADDITIONAL EVENTS OF DEFAULT.
The following shall constitute additional Events of Default under the Note:
1. Any obligee of Subordinated Debt shall fail to comply with the
subordination provisions of the documents or instruments, including,
without limitation, any subordination agreement, evidencing or relating to
such Subordinated Debt;
2. Failure of Borrower to furnish CNB, within the times specified, the
following statements:
2.1 Within sixty (60) days after the end of each quarterly accounting
period of each fiscal year, a financial statement consisting of not
less than a Form 10-Q.;
2.2 Within ninety (90) days after the close of each fiscal year, a copy of
the annual report, on Form 10-K for such year for Borrower and the
Subsidiaries; and
<PAGE>
Jimmie R. Kyle, V.P. Mfg. & Product Reliability
International Remote Imaging Systems, Inc.
July 29, 1996
Page 2
2.3 Such additional information, reports and/or statements as CNB may,
from time to time, reasonably request;
3. Failure of Borrower to maintain the following:
3.1 Tangible Net Worth plus Subordinated Debt of not less than
$9,500,000.00 at all times;
3.2 A ratio of Total Senior Liabilities to Tangible Net Worth plus
Subordinated Debt of not more than 1.5 to 1 at all times;
3.3 A ratio of Current Assets to Current Liabilities of not less than 1.0
to 1 at all times; and
3.4 A ratio of Cash Flow from Operations to Debt Service of not less than
1.1 to 1, from and after December 1, 1996.
4. Failure of Borrower within thirty (30) days after written notice by CNB to
Borrower, given after December 1, 1996, to grant CNB a duly perfected
security interest in all patents, copyrights and trademarks held by
borrower.
B. DEFINITIONS.
For purposes of the Note, the following terms have the following meanings:
"CASH FLOW FROM OPERATIONS" shall be determined on a consolidated basis for
Borrower and the Subsidiaries and shall mean the sum of (a) net income after
taxes earned, plus (b) amortization of intangible assets, plus (c) interest
expense, plus (d) depreciation expensed, plus (e) any other non-cash charges, in
each case, during the twelve month period ending on the date of determination.
"CURRENT ASSETS" shall be determined on a consolidated basis for Borrower
and the Subsidiaries in accordance with generally accepted accounting principles
consistently applied, including deposits and securities held by CNB as
collateral, but excluding, however, from the determination of Current Assets,
loans to shareholders, management or employees, amounts due from Subsidiaries or
affiliates, deferred costs, and other intangible assets.
"CURRENT LIABILITIES" shall be determined on a consolidated basis for
Borrower and the Subsidiaries in accordance with generally accepted accounting
principles consistently
<PAGE>
Jimmie R. Kyle, V.P. Mfg. & Product Reliability
International Remote Imaging Systems, Inc.
July 29, 1996
Page 3
applied, and shall include without limitation (a) all principal and accrued
interest payments on Subordinated Debt required to be made within one (1) year
after the date on which the determination is made; and (b) all indebtedness
payable to stockholders, affiliates, Subsidiaries or officers regardless of
maturity, unless such indebtedness shall have been subordinated to CNB, on terms
satisfactory to CNB.
"DEBT SERVICE" shall mean (a) the aggregate amount of Current Maturity of
Long Term Debt plus (b) all interest incurred on borrowed money during the
twelve month period ending on the date of determination. "Current Maturity of
Long Term Debt" shall mean that portion of Borrower's consolidated long term
liabilities, determined in accordance with generally accepted accounting
principles consistently applied, which shall, by the terms thereof, become due
and payable within one (1) year following the date of the balance sheet upon
which such calculations are based; provided, however, that Current Maturities of
Long Term Debt shall not include (a) the $1,800,000.00 principal payment due
under the Note on or before December 1, 1996 or (b) the $6,000,000.00 principal
payment due on or before January 15, 1998.
"SUBORDINATED DEBT" shall mean indebtedness of Borrower or any Subsidiary,
the repayment of principal and interest of which is subordinated to CNB, on
terms satisfactory to CNB (including, without limitation, the indebtedness owing
to Digital Imaging Technologies, Inc. ("DITI") evidenced by that certain Seven
Million & 00/100 Dollars ($7,000,000.00), eight and one half percent (8.50%)
Subordinated Note due 2001, dated July 29, 1996 by Borrower in favor if DITI.
"SUBSIDIARY" shall mean any corporation, the majority of whose voting
shares are at any time owned, directly or indirectly by Borrower and/or by one
or more Subsidiaries.
"TANGIBLE NET WORTH" shall mean the total of all assets appearing on a
balance sheet prepared in accordance with generally accepted accounting
principles consistently applied for Borrower and the Subsidiaries on a
consolidated basis, minus (a) all intangible assets, including, without
limitation, unamortized debt discount, affiliate, employee and officer
receivables or advances, goodwill, research and development costs, patents,
trademarks, the excess of purchase price over underlying values of acquired
companies, any covenants not to compete, deferred charges, copyrights,
franchises and appraisal surplus; minus (b) all obligations which are required
by generally accepted accounting principles consistently applied to be reflected
as a liability on the consolidated balance sheet of Borrower and the
Subsidiaries (except Subordinated Debt); minus, (c) the amount, if any, at which
shares of stock of a non-wholly owned Subsidiary appear on the asset side of
Borrower's consolidated balance sheet, as determined in accordance with
generally accepted accounting principles consistently applied; minus
(d) minority interests; and minus (e) deferred income and
<PAGE>
Jimmie R. Kyle, V.P. Mfg. & Product Reliability
International Remote Imaging Systems, Inc.
July 29, 1996
Page 4
reserves not otherwise reflected as a liability on the consolidated balance
sheet of Borrower and the Subsidiaries.
"TOTAL SENIOR LIABILITIES" shall mean, as of any date of determination, the
amount of all obligations that should be reflected as a liability on a
consolidated balance sheet of Borrower and the Subsidiaries prepared in
accordance with generally accepted accounting principles consistently applied,
less Subordinated Debt.
C. ADDITIONAL TERMS AND CONDITIONS.
The following additional terms and conditions shall also apply to the Note:
1. FEES. Borrower shall pay to CNB a non-refundable fee equal to
$31,005.00, due and payable in full upon execution of this letter and the Note.
2. SUBORDINATION OF DEBT. All obligations of Borrower to Digital Imaging
Technologies, Inc., a Delaware corporation shall be subordinated in right of
repayment to all obligations of Borrower to CNB, as evidenced by and subject to
the terms and provisions of draft eight and one half percent (8.50%) Senior
Subordinated Note due 2001 provided under cover of letter dated July 15, 1996.
3. ENVIRONMENTAL INDEMNIFICATION. Due to the environmentally sensitive
nature of the industry in which Borrower is principally engaged and upon which
CNB will rely as its primary source of repayment, and in consideration of CNB
extending credit to Borrower, Borrower has agreed to indemnify CNB against any
claims that may arise as a result of Borrower's business activities that are
environmental in nature and for which CNB may be named as a liable party.
Borrower agrees that it shall indemnify and hold harmless CNB, its parent
company, subsidiaries and all of their respective directors, officers,
employees, agents, successors, attorneys, and assigns from and against any loss,
damage, cost, expense, or liability directly or indirectly arising out of or
attributable to the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal, or presence of a hazardous substance
on, under, or about Borrower's property or operations or property leased to
Borrower, including but not limited to attorneys' fees (including the reasonable
estimate of the allocated cost of in-house counsel and staff). For these
purposes, the term "hazardous substances" means any substance which is or
becomes designated as "hazardous" or "toxic" under any Federal, state, or local
law. This indemnity shall survive repayment of Borrower's obligations to CNB.
<PAGE>
Jimmie R. Kyle, V.P. Mfg. & Product Reliability
International Remote Imaging Systems, Inc.
July 29, 1996
Page 5
Except for documents and instruments specifically referenced herein or in
the Note, this letter and the Note constitute the entire agreement of the
parties hereto and supersedes any prior or contemporaneous oral or written
agreements, understandings, representations, warranties and negotiations, if
any, which are merged into this letter and the Note. If you agree to accept the
terms of this letter and the Note, please sign the enclosed acknowledgement copy
of this letter, as well as the enclosed Note, and return them to me on or before
July 31, 1996.
Sincerely,
CITY NATIONAL BANK, a national
banking association
By: /S/ Brad Sims
-------------------------------------------------------
Brad Sims, Senior Vice President/Manager
By: /S/ Bruce E. Corey
-------------------------------------------------------
Bruce E. Corey, Vice President
Accepted and Agreed this 31 day of
-----
July , 1996.
-------------
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.,
a Delaware corporation
By: /s/ Jimmie R. Kyle
-------------------------------------------------------
Jimmie R. Kyle, V.P. Mfg. & Product
Reliability
<PAGE>
EXHIBIT 10.9(g)
COMMERCIAL PLEDGE AGREEMENT
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$7,800,000.00 07-29-1996 09-01-1996 25750 036540813 BEC
- --------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
</TABLE>
<TABLE>
<S> <C>
BORROWER: INTERNATIONAL REMOTE IMAGING SYSTEMS, LENDER: CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION
INC., A DELAWARE CORPORATION SAN FERNANDO VALLEY COMMERCIAL BANKING CENTER #048000
9162 ETON AVENUE 16133 VENTURA BOULEVARD
CHATSWORTH, CA 91311 ENCINO, CA 91436
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS COMMERCIAL PLEDGE AGREEMENT IS ENTERED INTO BETWEEN INTERNATIONAL REMOTE
IMAGING SYSTEMS, INC., A DELAWARE CORPORATION (REFERRED TO BELOW AS "GRANTOR");
AND CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION (REFERRED TO BELOW AS
"LENDER").
GRANT OF SECURITY INTEREST. FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT
TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement:
AGREEMENT. The word "Agreement" means this Commercial Pledge Agreement, as
this Commercial Pledge Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Pledge Agreement from time to time.
COLLATERAL. The word "Collateral" means the following specifically
described property, which Grantor has delivered or agrees to deliver (or
cause to be delivered or appropriate book-entries made) immediately to
Lender, together with all Income and Proceeds as described below:
SECURITIES DELIVERED TO LENDER, DESCRIBED IN COLLATERAL RECEIPTS
ISSUED BY LENDER FROM TIME TO TIME TO OWNER.
In addition, the word "Collateral" includes all property of Grantor
(however owned), in the possession of Lender (or in the possession of a
third party subject to the control of Lender), whether now or hereafter
existing and whether tangible or intangible in character, including without
limitation each of the following:
(a) ALL PROPERTY TO WHICH LENDER ACQUIRES TITLE OR DOCUMENTS OF
TITLE.
(b) ALL PROPERTY ASSIGNED TO LENDER.
(c) ALL PROMISSORY NOTES, BILLS OF EXCHANGE, STOCK CERTIFICATES,
BONDS, SAVINGS PASSBOOKS, TIME CERTIFICATES OF DEPOSIT, INSURANCE
POLICIES, AND ALL OTHER INSTRUMENTS AND EVIDENCES OF AN OBLIGATION.
(d) ALL RECORDS RELATING TO ANY OF THE PROPERTY DESCRIBED IN THIS
COLLATERAL SECTION, WHETHER IN THE FORM OF A WRITING, MICROFILM,
MICROFICHE, OR ELECTRONIC MEDIA.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means INTERNATIONAL REMOTE IMAGING SYSTEMS,
INC., A DELAWARE CORPORATION, its successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INCOME AND PROCEEDS. The words "Income and Proceeds" mean all present and
future income, proceeds, earnings, increases, and substitutions from or for
the Collateral of every kind and nature, including without limitation all
payments, interest, profits, distributions, benefits, rights, options,
warrants, dividends, stock dividends, stock splits, stock rights,
regulatory dividends, distributions, subscriptions, monies, claims for
money due and to become due, proceeds of any insurance on the Collateral,
shares of stock of different par value or no
<PAGE>
07-29-1996 COMMERCIAL PLEDGE AGREEMENT PAGE 2
LOAN NO 25750 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
par value issued in substitution or exchange for shares included in the
Collateral, and all other property Grantor is entitled to receive on
account of such Collateral, including accounts, contract rights, documents,
instruments, chattel paper, and general intangibles.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means City National Bank, a National Banking
Association, its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated July 29,
1996, in the principal amount of $7,800,000.00 from Grantor to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
OBLIGOR. The word "Obligor" means and includes without limitation any and
all persons or entities obligated to pay money or to perform some other act
under the Collateral.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
DEPOSIT ACCOUNTS. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding however all IRA, Keogh, and trust accounts.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.
Grantor represents and warrants to Lender that:
OWNERSHIP. Grantor is the lawful owner of the Collateral free and clear of
all security interests, liens, encumbrances and claims of others except as
disclosed to and accepted by Lender in writing prior to execution of this
Agreement.
RIGHT TO PLEDGE. Grantor has the full right, power and authority to enter
into this Agreement and to pledge the Collateral.
BINDING EFFECT. This Agreement is binding upon Grantor, as well as
Grantor's heirs, successors, representatives and assigns, and is legally
enforceable in accordance with its terms.
NO FURTHER ASSIGNMENT. Grantor has not, and will not, sell, assign,
transfer, encumber or otherwise dispose of any of Grantor's rights in the
Collateral except as provided in this Agreement.
NO DEFAULTS. There are no defaults existing under the Collateral, and
there are no offsets or counterclaims to the same. Grantor will strictly
and promptly perform each of the terms, conditions, covenants and
agreements contained in the Collateral which are to be performed by
Grantor, if any.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold the
Collateral until all the Indebtedness has been paid and satisfied and thereafter
may deliver the Collateral to any Grantor. Lender shall have the following
rights in addition to all other rights it may have by law:
MAINTENANCE AND PROTECTION OF COLLATERAL. Lender may, but shall not be
obligated to, take such steps as it deems necessary or desirable to
protect, maintain, insure, store, or care for the Collateral, including
payment of any liens or claims against the Collateral. Lender may charge
any cost incurred in so doing to Grantor.
<PAGE>
07-29-1996 COMMERCIAL PLEDGE AGREEMENT PAGE 3
LOAN NO 25750 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCOME AND PROCEEDS FROM THE COLLATERAL. Lender may receive all Income and
Proceeds and add it to the Collateral. Grantor agrees to deliver to Lender
immediately upon receipt, in the exact form received and without
commingling with other property, all Income and Proceeds from the
Collateral which may be received by, paid, or delivered to Grantor or for
Grantor's account, whether as an addition to, in discharge of, in
substitution of, or in exchange for any of the Collateral.
APPLICATION OF CASH. At Lender's option, Lender may apply any cash,
whether included in the Collateral or received as Income and Proceeds or
through liquidation, sale, or retirement, of the Collateral, to the
satisfaction of the Indebtedness or such portion thereof as Lender shall
choose, whether or not matured.
TRANSACTIONS WITH OTHERS. Lender may (a) extend time for payment or other
performance, (b) grant a renewal or change in terms or conditions, or (c)
compromise, compound or release any obligation, with any one or more
Obligors, endorsers, or Guarantors of the Indebtedness as Lender deems
advisable, without obtaining the prior written consent of Grantor, and no
such act or failure to act shall affect Lender's rights against Grantor or
the Collateral.
ALL COLLATERAL SECURES INDEBTEDNESS. All Collateral shall be security for
the Indebtedness, whether the Collateral is located at one or more offices
or branches of Lender and whether or not the office or branch where the
Indebtedness is created is aware of or relies upon the Collateral.
COLLECTION OF COLLATERAL. Lender, at Lender's option may, but need not,
collect directly from the Obligors on any of the Collateral all Income and
Proceeds or other sums of money and other property due and to become due
under the Collateral, and Grantor authorizes and directs the Obligors, if
Lender exercises such option, to pay and deliver to Lender all Income and
Proceeds and other sums of money and other property payable by the terms of
the Collateral and to accept Lender's receipt for the payments.
POWER OF ATTORNEY. Grantor irrevocably appoints Lender as Grantor's
attorney-in-fact, with full power of substitution, (a) to demand, collect,
receive, receipt for, sue and recover all Income and Proceeds and other
sums of money and other property which may now or hereafter become due,
owing or payable from the Obligors in accordance with the terms of the
Collateral; (b) to execute, sign and endorse any and all instruments,
receipts, checks, drafts and warrants issued in payment for the Collateral;
(c) to settle or compromise any and all claims arising under the
Collateral, and in the place and stead of Grantor, execute and deliver
Grantor's release and acquittance for Grantor; (d) to file any claim or
claims or to take any action or institute or take part in any proceedings,
either in Lender's own name or in the name of Grantor, or otherwise, which
in the discretion of Lender may seem to be necessary or advisable; and (e)
to execute in Grantor's name and to deliver to the Obligors on Grantor's
behalf, at the time and in the manner specified by the Collateral, any
necessary instruments or documents.
PERFECTION OF SECURITY INTEREST. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or constituting
the Collateral. If the Collateral consists of securities for which no
certificate has been issued, Grantor agrees, at Lender's option, either to
request issuance of an appropriate certificate or to execute appropriate
instructions on Lender's forms instructing the issuer, transfer agent,
mutual fund company, or broker, as the case may be, to record on its books
or records, by book-entry or otherwise, Lender's security interest in the
Collateral. Grantor hereby appoints Lender as Grantor's irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN
THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH
FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care
in the physical preservation and custody of the Collateral in Lender's
possession, but shall have no other obligation to protect the Collateral or its
value. In particular, but without limitation, Lender shall have no
responsibility for (a) any depreciation in value of the Collateral or for the
collection or protection of any Income and Proceeds from the Collateral, (b)
preservation of rights against parties to the Collateral or against third
persons, (c) ascertaining any maturities, calls, conversions, exchanges, offers,
tenders, or similar matters relating to any of the Collateral, or (d) informing
Grantor about any of the above,
<PAGE>
07-29-1996 COMMERCIAL PLEDGE AGREEMENT PAGE 4
LOAN NO 25750 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
whether or not Lender has or is deemed to have knowledge of such matters.
Except as provided above, Lender shall have no liability for depreciation or
deterioration of the Collateral.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
DETERIORATION OF COLLATERAL VALUE. The market value of the Collateral
falls below a specified amount determined by Lender from time to time, and
Grantor does not, by the close of business on the next business day after
Lender has sent written notice to Grantor of the deterioration, either (a)
reduce the amount of the Indebtedness to the amount required by Lender or
(b) increase the cash value of Collateral to the amount required by Lender
by lodging with Lender additional collateral security acceptable to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:
ACCELERATE INDEBTEDNESS. Declare all Indebtedness, including any
prepayment penalty which Grantor would be required to pay, immediately due
and payable, without notice of any kind to Grantor.
COLLECT THE COLLATERAL. Collect any of the Collateral and, at Lender's
option and to the extent permitted by applicable law, retain possession of
the Collateral while suing on the Indebtedness.
SELL THE COLLATERAL. Sell the Collateral, at Lender's discretion, as a
unit or in parcels, at one or more public or private sales. Unless the
Collateral is perishable or threatens to decline speedily in value or is of
a type customarily sold on a recognized market, Lender shall give or mail
to Grantor, or any of them, notice at least ten (10) days in advance of the
time and place of any public sale, or of the date after which any private
sale may be made. Grantor agrees that any requirement of reasonable notice
is satisfied if Lender mails notice by ordinary mail addressed to Grantor,
or any of them, at the last address Grantor has given Lender in writing.
If a public sale is held, there shall be sufficient compliance with all
requirements of notice to the public by a single publication in any
newspaper of general circulation in the county where the Collateral is
located, setting forth the time and place of sale and a brief description
of the property to be sold. Lender may be a purchaser at any public sale.
REGISTER SECURITIES. Register any securities included in the Collateral in
Lender's name and exercise any rights normally incident to the ownership of
securities.
SELL SECURITIES. Sell any securities included in the Collateral in a
manner consistent with applicable federal and state securities laws,
notwithstanding any other provision of this or any other agreement. If,
because of restrictions under such laws, Lender is or believes it is unable
to sell the securities in an open market transaction, Grantor agrees that
Lender shall have no obligation to delay sale until the securities can be
registered, and may make a private sale to one or more persons or to a
restricted group of persons, even though such sale may result in a price
that is less favorable than might be obtained in an open market
transaction, and such a sale shall be considered commercially reasonable.
If any securities held as Collateral are "restricted securities" as defined
in the Rules of the Securities and Exchange Commission (such as Regulation
D or Rule 144) or state securities departments under state "Blue Sky" laws,
or if Grantor is an affiliate of the issuer of
<PAGE>
07-29-1996 COMMERCIAL PLEDGE AGREEMENT PAGE 5
LOAN NO 25750 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the securities, Grantor agrees that neither Grantor nor any member of Grantor's
family will sell or dispose of any securities of such issuer without obtaining
Lender's prior written consent.
FORECLOSURE. Maintain a judicial suit for foreclosure and sale of the
Collateral.
TRANSFER TITLE. Effect transfer of title upon sale of all or part of the
Collateral. For this purpose, Grantor irrevocably appoints Lender as its
attorney-in-fact to execute endorsements, assignments and instruments in
the name of Grantor and each of them (if more than one) as shall be
necessary or reasonable.
OTHER RIGHTS AND REMEDIES. Have and exercise any or all of the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, at law, in equity, or otherwise.
APPLICATION OF PROCEEDS. Apply any cash which is part of the Collateral,
or which is received from the collection or sale of the Collateral, to
reimbursement of any expenses, including any costs for registration of
securities, commissions incurred in connection with a sale, attorney fees
as provided below, and court costs, whether or not there is a lawsuit and
including any fees on appeal, incurred by Lender in connection with the
collection and sale of such Collateral and to the payment of the
Indebtedness of Grantor to Lender, with any excess funds to be paid to
Grantor as the interests of Grantor may appear. Grantor agrees, to the
extent permitted by law, to pay any deficiency after application of the
proceeds of the Collateral to the Indebtedness.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or by any other writing, shall be cumulative
and may be exercised singularly or concurrently. Election by Lender to
pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, GRANTOR
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys's fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor agrees to keep Lender informed at all times of
Grantor's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
<PAGE>
07-29-1996 COMMERCIAL PLEDGE AGREEMENT PAGE 6
LOAN NO 25750 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid
and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AGREEMENT,
AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JULY 29, 1996.
GRANTOR:
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC., A DELAWARE CORPORATION
By: /s/ Jimmie R. Kyle
---------------------------------------------------------
JIMMIE R. KYLE, V.P. MFG & PRODUCT RELIABILITY
<PAGE>
EXHIBIT 11
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six months ended June 30
1995 1996
----------- ---------
<S> <C> <C>
Actual Weighted Average Shares Outstanding for the Period 5,485,933 6,319,602
Dilutive Effects of Stock Options and Warrants Using Average
Market Price 0 279,883
------------ ---------
Total Shares Based on Shares Outstanding and the
Assumption that All Share Equivalents Are Exercised at
Average Stock Market Price 5,485,933 6,599,485
Additional Dilutive Effect of Stock Options and Warrants
Being Exercised Using Ending Market Price 0 315,658
------------ ---------
Total Shares Based on Shares Outstanding and the
Assumption That All Stock Options and Warrants are
Exercised at Ending Market Price 5,485,933 6,915,143
------------ ---------
------------ ---------
Net Income Applicable to Fully Diluted Earnings Per Share ($2,518,996) 867,469
------------ ---------
------------ ---------
Fully Diluted Net Income (loss) Per Share ($ .46) $ .13
-------- ------
-------- ------
<CAPTION>
Three months ended June 30
1995 1996
----------- ---------
Actual Weighted Average Shares Outstanding for the Period 5,529,772 6,325,026
Dilutive Effects of Stock Options and Warrants Using Average
Market Price 0 574,039
----------- ---------
Total Shares Based on Shares Outstanding and the
Assumption that All Share Equivalents Are Exercised at
Average Stock Market Price. 5,529,772 6,899,065
Additional Dilutive Effect of Stock Options and Warrants
Being Exercised Using Ending Market Price 0 21,502
----------- ---------
Total Shares Based on Shares Outstanding and the
Assumption That All Stock Options and Warrants are
Exercised at Ending Market Price 5,529,772 6,920,567
----------- ---------
----------- ---------
Net Income Applicable to Fully Diluted Earnings Per Share ($2,916,490) $425,251
----------- ---------
----------- ---------
Fully Diluted Net Income (loss) Per Share ($ .53) $ .06
------ ------
------ ------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,228,504
<SECURITIES> 2,635,902
<RECEIVABLES> 4,696,226
<ALLOWANCES> 87,759
<INVENTORY> 3,954,626
<CURRENT-ASSETS> 14,524,203
<PP&E> 4,237,850
<DEPRECIATION> 2,849,929
<TOTAL-ASSETS> 23,676,223
<CURRENT-LIABILITIES> 3,093,598
<BONDS> 0
0
0
<COMMON> 63,778
<OTHER-SE> 20,302,246
<TOTAL-LIABILITY-AND-EQUITY> 23,676,223
<SALES> 9,129,016
<TOTAL-REVENUES> 168,367
<CGS> 4,494,652
<TOTAL-COSTS> 3,754,896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,366
<INCOME-PRETAX> 0
<INCOME-TAX> 175,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 867,469
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
