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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 For the fiscal year ended December 31, 1997. [No Fee
Required]
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- and Exchange Act of 1934 [No Fee Required] For the transition period
from _______________________ to _______________________________
Commission File number 0-27082
FUISZ TECHNOLOGIES LTD.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C>
Delaware 52-1579474
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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14555 Avion at Lakeside
Chantilly, Virginia 20151
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (703) 995-2400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this form 10-K. [ ]
As of March 27, 1998, the aggregate market value of the Common stock of the
Registrant (based upon the average bid and asked prices of the Common Stock as
reported by the National Association of Securities Dealers, Inc. through its
Automated Quotation System) held by nonaffiliates of the Registrant was
approximately $286,600,000.
As of March 27, 1998, 22,256,462 shares of Common Stock of the Registrant were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS OF THE
REGISTRANT, TO BE HELD MAY 21, 1998, ARE INCORPORATED BY REFERENCE INTO PART
III, ITEMS 10-13 OF THIS FORM 10-K.
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PART I
BUSINESS
GENERAL
The Company is engaged in the development, manufacture and
commercialization of its proprietary technologies for a wide range of
pharmaceutical, nutraceutical and food applications. The Company's primary
focus is on the commercialization of products incorporating its CEFORM
microsphere technology and its Shearform technology, including controlled
release and rapid dissolve over-the-counter ("OTC") and prescription (or
"ethical") pharmaceuticals.
Since the beginning of 1997, the Company has taken a number of steps
to promote the commercialization of its technologies in a range of
pharmaceutical, nutraceutical and food applications. The Company has made
significant advances in the development of its CEFORM microspheres and rapid
dissolve tablet manufacturing capabilities. Independent studies commissioned by
the Company indicate that the Company can engineer CEFORM microspheres with
controlled release and taste-masked characteristics which not only match
existing dissolution profiles of specified OTC and prescription drugs, but that
also improve the absorption rate of currently marketed drugs. The Company is
now able to manufacture its rapid dissolving Flash Dose tablets on conventional
tablet press machinery, resulting in a faster and more cost effective
manufacturing process, greater tablet integrity and compatibility with
conventional high speed packaging processes. In addition, the Company has
acquired, a number of domestic and international businesses with pharmaceutical
product licenses and manufacturing, marketing and distribution capabilities.
The Company expanded its research and development facilities during
1997 by completing and opening three laboratories - one each in Chantilly,
Virginia and Sandyford, Ireland for pharmaceuticals and one in Sterling,
Virginia for food products. The Company also completed construction of a
facility to support commercial scale production of certain pharmaceutical
products utilizing the Company's proprietary technologies. In addition, the
Company intends to expand the manufacturing plant at its recently acquired
Clonmel subsidiary in Ireland by constructing commercial scale facilities for
use with the Company's proprietary technologies with a planned capacity of more
than two billion dosage units annually. In the nutraceutical segment, the
Company recently introduced and is now marketing its Soft Chew calcium
supplements through Pangea. In the food ingredient sector, the Company has
entered into an exclusive manufacturing and selling agreement with ConAgra,
Inc. for use of the Company's technology in the manufacture and sale of
emulsifiers, salt replacing agents and other food ingredients in the North and
South American markets.
Utilizing its CEFORM microsphere technology, the Company can produce
microspheres of pharmaceutical compounds with modified absorption properties,
if required, which can be coated to create controlled release or taste-masked
pharmaceutical products. These coated microspheres, which may be incorporated
into rapid dissolving formats utilizing the Company's Shearform technology or
into conventional oral drug delivery formats such as capsules, are uniform in
size and shape and, the Company believes, have enhanced controlled release and
taste-masking characteristics when compared to pharmaceuticals processed
through other currently available techniques. The Company believes that its
CEFORM microsphere technology is superior to competitors' microparticle
technology because the CEFORM manufacturing process involves fewer steps, does
not require the use of solvents, and results in microspheres that are stable
enough to be processed with conventional tableting and packaging processes. In
addition, the Company believes its CEFORM microsphere technology allows for
higher drug loading and more uniform coating than competing technologies.
Utilizing its Shearform technology, the Company has developed a
variety of rapid dissolving oral dosage formulations. These oral dosage formats
are compatible with the Company's CEFORM microsphere technology and include:
- Flash Dose, a tablet which dissolves in the mouth in several
seconds with or without water.
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- EZ Chew, a chewable tablet which dissolves in the mouth with a few
chews.
- Dry Sachet/Spoon Dose, an innovative unit dosage system that
delivers a dry powder mixture which dissolves almost
instantaneously in the mouth.
The Company's Shearform technology also has been used to develop the
Company's Soft Chew nutraceutical products, including mineral and vitamin
supplements. In addition, the Company's Shearform technology has broad
applications for food product ingredients.
Since the beginning of 1997, the Company has announced a number of new
development collaborations. The Company believes that its collaborative
partners turn to the Company to improve their product performance or compliance
in terms of (i) clinical effect (for example, faster absorption of an analgesic
product resulting from the application of the Company's CEFORM technology),
and/or (ii) consumer acceptance (for example combining the Company's CEFORM
microspheres in a Shearform matrix dosage to produce pleasant tasting, rapid
dissolving Flash Dose tablets for pediatric, geriatric or other users who have
difficulty in swallowing conventional dosage forms). For major OTC products,
the Company generally seeks to partner with large pharmaceutical companies who
have or wish to acquire a significant franchise in a particular market segment.
For proprietary prescription products, the Company offers its technologies to
patent holders for development of product extensions or enhanced drug delivery
formulations. Under the Company's collaborative agreements, the Company
generally retains CEFORM microsphere manufacturing rights and, where
appropriate, also seeks to manufacture the Company's proprietary dosage
formulations, such as Flash Dose tablets.
The Company has commenced self-funded development projects in
instances where it believes that a high market potential exists (such as where
patent protection has ceased for an active ingredient or will cease within
three to five years) with the objective of developing improved delivery or
dosage characteristics, e.g., faster or improved absorption, controlled release
and/or taste-masked products. Application of the Company's technology to drugs
reaching the end of their patent protection may permit reformulations or
product extensions of such drugs and generate new patent protection
for valuable drug compounds or otherwise maintain use of the originating
company's product. The Company intends to seek partnering agreements for
commercialization of self-funded projects with major pharmaceutical companies.
With respect to customer-funded and Company-funded development collaborations,
the Company will seek to retain comarketing rights in the pharmaceutical
products for sale through its own distribution channels, principally those
being acquired in major European markets.
During 1997, the Company opened offices in Dublin, Ireland for its
international administrative and business development activities and
established a research and development facility outside of Dublin. In
preparation for entering major European markets with Fuisz products, the
Company also initiated and completed three business acquisitions. In March
1998, the Company completed a fourth business acquisition in Germany. The four
business acquisitions included Laboratoires Murat ("Murat"), Clonmel Healthcare
Limited ("Clonmel"), Istoria Farmaceutici ("Istoria") and Dr. Rentschler GmbH &
Co. Medizin KG ("Dr. Rentschler"). In addition, the Company acquired rights to
an analgesic drug, Cebutid(TM), for distribution in France and a folic acid
product, Foliben(TM), for sale in Italy. In the U.S., Pangea Ltd. ("Pangea")
was acquired which permitted the Company to launch its first U.S. product in
September 1997.
STRATEGY
The Company's objective is to continue to develop and improve its
proprietary technologies and to expand the applications of its technologies in
the OTC and prescription pharmaceutical, nutraceutical and food markets. The
Company is pursuing this objective with the following strategy:
- Develop Existing and New Collaborative Customer-Funded Agreements.
In order to increase market exposure of its products and to
capitalize on its collaborative partners' market position and
distribution capabilities, the Company intends to continue to
develop its projects with its existing collaborative partners and
to seek new collaborative partners who will fund further product
development projects incorporating the Company's technology. The
Company's existing
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collaborative arrangements typically provide for a customer-funded
development project and contemplate a licensing arrangement (which
may be entered into at the same time as the development project or
at a later date) under which, if a project is commercialized by
the collaborative partner, the Company would receive license fees
and royalty payments from product sales. The Company believes that
such arrangements may also serve to validate the Company's
technologies in the pharmaceutical markets and thereby assist the
Company in attracting additional licensing arrangements on
favorable terms.
- Pursue Company-Funded Products for Further Collaboration. In
order to pursue enhanced royalty or marketing terms over those
obtained under customary development and licensing agreements, the
Company intends to develop drug formulations through
Company-funded projects in market segments where the Company
believes there is strong market potential and that its technology
may provide a significant competitive advantage, such as markets
for ethical drugs for which patents have or are about to expire.
Application of the Company's technology to drugs reaching the end
of their patent protection may permit reformulations or product
extensions of such drugs which in turn can obtain new patent
protection for valuable drug compounds or otherwise maintain use
of the originating company's product. After carrying such projects
to an appropriate development stage, the Company will offer
companies that are seeking to maintain or expand their market
share an opportunity to enter into marketing agreements covering
the Company-funded products.
- Enhance Manufacturing Capability. The Company whenever practical
seeks to retain manufacturing rights to its products to capture
greater revenue and generate production economies that may not be
available to pharmaceutical companies seeking to apply the
Company's technologies to only one or a few products. In order to
manufacture products using the Company's technologies, the Company
has put in place a current Good Manufacturing Practice ("cGMP")
laboratory facility and recently completed construction of a
full-scale cGMP manufacturing facility at its Chantilly, Virginia
headquarters. The Company also is planning to construct an
additional commercial-scale manufacturing plant at its Clonmel
facility. In addition to manufacturing products for its licensees,
the Company's manufacturing facilities will be available for
products that the Company wishes to sell through its own
distribution networks.
- Expand Proprietary Products Sales Through Acquired Marketing and
Distribution Channels. The Company intends to capitalize on the
co-marketing rights that it has retained (principally outside of
North America) on products subject to certain of its collaborative
development agreements. To implement this strategy, the Company
has acquired and may pursue further acquisitions of marketing and
distribution organizations with existing product sales that it
believes have been or in the near term will be financially
self-sufficient and which it believes will serve as a platform to
sell products for which the Company has retained co-marketing
rights.
- Recruit and Retain Key Personnel. The Company has negotiated to
retain certain key owners or employees of its recently acquired
businesses and has sought to hire qualified scientists and key
employees who have demonstrated their capabilities at other drug
development companies. The Company expects to continue to recruit
additional talent from the pharmaceutical industry to strengthen
its operations, while seeking to retain senior executives as part
of its acquisition strategy. Between January 1, 1996 and December
31, 1997, the Company increased its research and development staff
by 103 employees, its manufacturing and operations staff by 136
employees and its sales and administrative staff by 108 employees.
- Protect Proprietary Technology. The Company has sought and
intends to continue to pursue protection for its technology in the
United States and key international markets. The Company has been
granted 67 U.S. patents and has filed a substantial number of
applications for additional U.S. patents, as well as corresponding
patent applications outside the United States, relating to the
Company's technology.
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INDUSTRY OVERVIEW
The global market for OTC and prescription drugs has become more
competitive and experienced other significant changes in recent years in
response to increased emphasis on containing healthcare costs. These changes in
the healthcare industry have also had an impact on participants in the
pharmaceutical industry. In particular, healthcare providers and payors have
implemented a variety of strategies to reduce the cost of medical care,
including the use of drugs having greater efficacy and/or higher patient
compliance, the use of generic versions of prescription and OTC drugs and the
use of OTC remedies when appropriate. Pharmaceutical companies have responded
to these concerns by developing treatments with improved efficacy, reduced
complications and side effects, easier dosing and lower costs. In addition,
many pharmaceutical companies are extending their presence in a particular
therapeutic area with the introduction of non-prescription, or OTC, versions of
a prescription drug.
As pharmaceutical companies adjust to the evolving healthcare
industry, they must differentiate their products in an increasingly crowded
therapeutic market. To do this effectively, they must develop products or
product extensions that can successfully compete in the generic and OTC market
for drugs, develop products or product extensions that enhance patient
compliance and brand loyalty, and accomplish this within a highly regulated and
cost-constrained environment.
The Company believes that its proprietary technologies can improve
product performance and consumer acceptance of prescription pharmaceutical
products. In some circumstances, the Company's CEFORM technology may be applied
to develop new drug delivery forms or to produce reformulations, such as
reduced dosages for the pediatric market. Application of the Company's
technology to drugs reaching the end of their patent protection may permit
reformulations or product extensions of such drugs which may permit new patent
protection of valuable drug compounds or otherwise maintain use of the
originating company's product.
In the OTC markets, competition typically is intense since most OTC
drugs do not enjoy patent protection. For this reason, several pharmaceutical
companies typically compete for sales of the same or equivalent OTC drugs.
Product differentiation and brand name identity are critical to marketing
success in this context, and pharmaceutical companies are continually seeking
new methods of distinguishing their products from those of their competitors.
In addition to the use of extensive advertising, packaging innovations and
flavor differences, pharmaceutical companies attempt to differentiate their OTC
products using improved drug dosage formats.
The Company believes that incorporating its rapid dissolving
technology into OTC products can provide a fundamental differentiating
characteristic, and a sustainable marketing advantage, for pharmaceutical
companies that offer their products in this format. The Company believes that
many consumers of OTC drugs will prefer its rapid dissolving tablets and
granules to more conventional oral drug delivery formats, such as traditional
tablets, capsules, liquid gel capsules and syrups. In particular, rapid
dissolving formulations may be especially attractive to consumers who
experience difficulty in swallowing conventional tablets or capsules, such as
pediatric or geriatric consumers.
TECHNOLOGY AND PRODUCT APPLICATIONS
The Company's core proprietary technologies are its CEFORM microsphere
and Shearform technologies. The Company's CEFORM microsphere technology allows
pharmaceutical compounds to be formulated to provide for various delivery
profiles such as rapid absorption, long-acting performance, taste isolation and
targeted delivery. The Company's Shearform technology can be utilized to
produce rapid dissolving, chewable tablet and powder dosing pharmaceutical
formulations and certain nutraceutical formulations. In addition, the Company's
Shearform technology has broad applications for food product ingredients.
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CEFORM MICROSPHERE TECHNOLOGY
The Company has focused extensive activity on developing and applying
its CEFORM microsphere technology. This technology allows the Company to
produce uniformly sized and shaped microspheres of pharmaceutical compounds
which the Company believes demonstrate utilization and processing advantages
over other drug processing and delivery technologies. The proprietary CEFORM
manufacturing process produces microspheres which are almost perfectly
spherical, have a diameter that is typically 150-180 microns (or approximately
twice the diameter of human hair), and allow for high drug content.
In utilization terms, independent studies have indicated that CEFORM
microspheres can be formulated without loss of bioavailability for a variety of
drug delivery criteria ranging from improved or faster absorption to
long-acting controlled delivery products. Based on development work to date,
the Company believes that a wide range of OTC and prescription drugs may be
processed using its CEFORM microsphere technology and that CEFORM microspheres
can be useful in taste isolation and taste masking. The flexibility of the
CEFORM technology also enables CEFORM microspheres to be used in solid or
liquid formulations at high dosage levels and to be incorporated into a wide
range of dosage forms, including the Company's rapid dissolving formulations,
such as the Flash Dose, EZ Chew and Dry Sachet/Spoon Dose formulations, as well
as conventional tablets, capsules, suspensions, effervescent tablets and
sachets.
In processing terms, the Company's CEFORM microspheres can be produced
using a continuous, single-step and solvent-free process which the Company
believes to be available for a wide range of pharmaceutical applications and to
involve a simpler manufacturing process than competing microparticle production
techniques. Due to the very brief application of heat and the wide range of
temperatures which can be used, even drugs which are thermally unstable may be
formulated into microspheres without degradation. The Company also believes
that all excipients used in the generation of CEFORM microspheres are standard
Generally Recognized As Safe ("GRAS") materials. Currently, the Company can
process CEFORM microspheres in batch sizes of at least 120 Kg under cGMP
conditions. In its collaborative agreements, the Company typically has retained
manufacturing rights to its CEFORM microspheres.
The Company's microspheres, depending on desired release
characteristics or chosen oral dosage format, can be formulated for enhanced
absorption (CEFORM EA), or taste isolation (CEFORM TI), and may be further
coated for controlled release (CEFORM CR), provided with an enteric coating
(CEFORM EC), or combined into a "fast/slow" release combination (CEFORM EA/CR).
The microspheres are then blended and/or compressed into the pre-selected oral
delivery dosage format.
- CEFORM EA represents a major advancement in Fuisz's technology.
Early results of human tests indicate that Fuisz proprietary
formulations for certain drugs allow the drug to be absorbed
faster and/or more efficiently by the body.
- CEFORM TI microspheres provide significant taste masking
capabilities. For more complete taste isolation, extreme
uniformity of the microspheres allow them to be evenly coated with
a micro-thin layer of polymeric material. This material forms a
physical barrier around the microsphere preventing a bitter
tasting drug or burning sensation from occurring by stopping raw
drug from touching the tongue or mouth. At the same time, the
thinness of the coating does not significantly affect the drug's
bioavailability.
- CEFORM CR microspheres can be coated to control how, where and
when a drug is released in the body. The benefits of controlled
release include reducing the number of times per day a drug must
be taken to maintain therapeutic levels (thus improving compliance
with a doctor's orders) or maintaining sufficient amounts of drug
in the blood over a longer period.
- CEFORM EC microspheres can be coated to dissolve in the
gastrointestinal tract after passage through the stomach.
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CEFORM EA/CR is the process where by the Company formulates two types
of CEFORM microspheres that are combined in the same dosage format to achieve
the benefits of both quick release and sustained absorption. This would be
particularly useful for certain analgesics, anti-inflammatories, and
cardiovascular medications.
SHEARFORM TECHNOLOGY
The Company's Shearform technology is used to produce matrices of
saccharides, polysaccharides or other carrier materials, which are then
processed into amorphous fibers or flakes and recrystallized to a predetermined
level. This process is used to produce the Company's Flash Dose and other rapid
dissolving formulations, as well as its Soft Chew products. The Shearform
technology can also be applied to food product ingredients to provide for
enhanced flavoring and performance.
Pharmaceutical Applications
To produce the Company's rapid dissolving formulations, a carrier
material produced using the Shearform Matrix technology is processed together
with a pharmaceutical compound, which may be in the form of CEFORM
microspheres. The result is a microscopic crystalline floss that can be formed
into a matrix in which the voids or cavities contain the active pharmaceutical
compound. The floss provides adhesive properties for bonding with active
pharmaceutical compounds. When placed on the tongue, the crystalline floss
rapidly dissolves, leaving the active drug ingredient to be ingested or
absorbed. The Company's experience indicates that the Shearform process does
not change the physical or chemical characteristics of a pharmaceutical
compound, and the Company expects that this would be true for most drugs.
In addition to its application in rapid dissolving formulations, the
Company believes its Shearform technology has several beneficial attributes,
including (i) compatibility with pharmaceutical compounds (including CEFORM
microspheres) that have been coated to mask their unpleasant taste, which is
critical in a rapid dissolving formulations because the pharmaceutical compound
is exposed directly to the mouth; (ii) capability of achieving high dosage
levels, allowing the Company in many cases to match the range of doses
available in conventional tablets or capsules; and (iii) potential availability
for a wide variety of pharmaceutical compounds and for pharmaceutical
combinations, such as multi-symptom cough and cold medications.
In contrast to traditional wet granulation production techniques, the
Company's Shearform matrix tablet production methods use dry granulation
processes. The Company believes that its dry granulation processes are less
costly than the freeze-drying and effervescent processes employed in
manufacturing competing rapid dissolving tablet technologies. Because the
Company's Flash Dose tablet formulations can be processed on a conventional
high-speed tablet press, the Company believes that it can manufacture its rapid
dissolve tablets more efficiently than other competing rapid dissolve
technologies.
The Company has developed a number of dosage formats for
pharmaceutical products employing the Company's Shearform technology:
Flash Dose. Flash Dose is a tablet that dissolves in the mouth in
several seconds with or without water. The tablet can incorporate
pharmaceutical compounds processed using the Company's CEFORM microsphere
technology or using traditional taste-masking techniques. Flash Dose tablets
can incorporate large doses of drug and can be manufactured and blister
packaged on standard equipment.
EZ Chew. EZ Chew is a chewable tablet produced through a modified
Shearform matrix that dissolves in the mouth with a few chews to provide a
texture and taste that consumers may find superior to conventional chewables.
Like Flash Dose tablets, EZ Chew tablets use both Shearform and CEFORM
technologies. The manufacturing process is similar to that of Flash Dose
tablets but can incorporate an even larger drug dosage and also be packaged in
conventional bottles.
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Dry Sachet/Spoon Dose. Spoon Dose is an innovative unit dosage system
designed to deliver a dry powder mixture of pharmaceutical compounds into the
mouth. The dosage format can be poured directly in the mouth from a foil
packet, sachet, or on a spoon, and taken with or without water. Spoon Dose
relies on a blend of CEFORM microspheres and various excipients to deliver a
drug formulation which turns to a pleasant tasting, creamy-textured syrup when
placed in the mouth. Dry Sachet/Spoon Dose systems can incorporate a broad
range of drugs and compounds and are manufactured by a cost-effective process.
Food Applications
The Company's Shearform technology also has broad applications for
improving the performance of food product ingredients. The Company's food
product development efforts focus on producing long-lasting flavor systems and
enhancing the performance of food ingredients such as emulsifiers, salt
replacing agents and sweeteners. The Company has entered into an exclusive
manufacturing and selling agreement with ConAgra, Inc. ("ConAgra") in order to
promote rapid commercialization of food product ingredients incorporating the
Company's technologies in North and South America. The Company is exploring
similar arrangements to cover food ingredients sales in Europe and Japan.
In confection and food applications, the Company's Shearform Matrix
technology can be used to produce spheres containing flavor and sweetener which
function as sustained release flavor delivery systems. The Company's sustained
release flavor delivery technology has been incorporated into chewing gums, in
which flavor release of 40 minutes has been achieved, a duration more than
double that of typical chewing gums. This attribute is useful in conventional
chewing gums, for which long lasting flavor is desirable, or in functional
chewing gums, such as medicated gums, for which long-lasting flavor is
essential to promote user compliance.
Nutraceuticals
Using the Company's Shearform technology, a range of Soft Chew
products have been developed. The first product, a calcium supplement intended
to reduce the risk of osteoporosis, was commercially launched in September 1997
through the Company's Pangea subsidiary. The Company expects that future
products will include such items as multi-vitamins, fiber drinks, breath
fresheners, as well as a matrix to be used in nutritional bars.
Veterinary Products
The Company's CEFORM and Shearform technologies also have applications
in the veterinary drug market for companion animals. Pursuant to a
collaboration with IDEXX Laboratories, Inc., ("IDEXX") a leader in the animal
health field, the Company is identifying a portfolio of pharmaceutical products
for companion animals which can be developed using the CEFORM technology. The
Company believes that the taste elimination achievable with the Company's
CEFORM microsphere technology, combined with quick oral dissolution of Flash
Dose tablets, should make it easier to administer such pharmaceuticals to
companion animals.
COLLABORATIVE AGREEMENTS
The Company has agreements with a number of companies for the
development of products utilizing the Company's technology and, in some
instances, has entered into license agreements with such parties. In addition
to its current collaborative partners, the Company is engaged in active
discussions with a number of other companies to enter into similar
arrangements.
The Company's collaborative arrangements typically provide for a
development project which may be followed by commercialization pursuant to a
licensing arrangement. If a development project is successful, the
collaborative partner may elect to proceed to commercialize the product
pursuant to a definitive license agreement. Under the license agreements, the
Company expects that its licensee typically will be responsible for marketing
and distributing the products incorporating the Company's technology. The
Company typically will retain the right to manufacture CEFORM microsphere
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formulations of the pharmaceutical product and, where appropriate, also will
seek to secure an agreement to handle tableting manufacture of the product,
applying either the Company's proprietary rapid dissolve formulations or
traditional manufacturing processes. The Company's existing license agreements
generally provide for a one-time license fee upon execution, certain milestone
or scheduled license payments and an ongoing royalty equal to a percentage of
net sales of the licensee's products utilizing the licensed technology, subject
in certain cases to minimum royalty payments. The licensee typically is granted
the right, which may be exclusive or coexclusive with the Company or another
party, to market and in some cases to manufacture products incorporating the
Company's technology for a designated class of products in a designated
territory. In general, however, under existing license agreements the licensee
has no contractual obligation to bring the product to market despite the
Company's completion of the development and formulation phases of a project.
The collaborative partner typically can terminate the development and license
agreements at any time, although the agreements generally provide that any fees
previously paid to the Company are non-refundable.
The Company has collaborations with numerous pharmaceutical companies
including SmithKline Beecham Corporation, Whitehall Robins Healthcare, a
division of American Home Products Corporation and The Boots Company plc, for
development of oral dosage formulations of OTC products. In addition, the
Company has agreements for prescription products with Astra AB, Kos
Pharmaceuticals Inc., Intelligent Polymers Limited, a related company of
Biovail Corporation International, IDEXX Laboratories, Inc., Bayer AG, Pfizer,
Inc., Merck & Co., Inc. and Hoechst Marion Roussel. In the food ingredients
market, the Company has entered into an agreement with ConAgra. During 1997,
revenue received from ConAgra accounted for more than 10% of the Company's
total consolidated revenues.
COMMERCIALIZATION OF OTC AND PRESCRIPTION DRUGS BY THE COMPANY
In order to pursue enhanced royalty or marketing terms over those
obtainable under customary development and licensing agreements, the Company
intends to develop drug formulations under its own research and development
projects in markets where it believes there is strong market potential and that
its technology may provide a significant competitive advantage, such as markets
for ethical drugs for which patents have or are about to expire. The Company
currently has 10 active Company-funded development projects covering a range of
OTC and prescription pharmaceutical formulations. After carrying such projects
to an appropriate development stage, the Company intends to offer companies
that are seeking to maintain or expand their market share an opportunity to
enter into marketing agreements covering the Company-funded products. With
respect to customer-funded and Company-funded development collaborations, the
Company intends to seek to retain co-marketing rights in the pharmaceutical
products for sale through its own distribution channels, principally those
being acquired in major European markets.
MANUFACTURING
The Company has been actively developing its manufacturing
capabilities in order to position the Company to manufacture its own and its
collaborators' requirements for CEFORM microspheres and products. The Company
believes that by manufacturing products incorporating its technologies, it will
be able to earn greater revenue and realize production economies of scale that
may not be available to a pharmaceutical company licensing the Company's
technology for only one or a few products. The Company intends to leverage its
retained co-marketing rights, its Company-funded projects and other proprietary
technologies and its manufacturing capacity by acquiring businesses, products
and marketing capabilities, primarily in overseas markets.
The Company expanded its research and development facilities during
1997 by completing and opening three laboratories - one each in Chantilly,
Virginia and Sandyford, Ireland for pharmaceuticals and one in Sterling,
Virginia for food products. The Company also completed construction of a
facility to support commercial scale production of certain pharmaceutical
products utilizing the Company's proprietary technologies. In addition, the
Company intends to expand the manufacturing plant at its Clonmel facility in
Ireland by constructing commercial scale facilities for use with the Company's
proprietary technologies with a planned capacity of more than two billion
dosage units annually.
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The Company's Clonmel site currently includes a cGMP and FDA approved
facility for both antibiotics and multipurpose pharmaceutical manufacture.
In addition to developing manufacturing capabilities on its own, third
parties or the Company's licensees may, under certain circumstances,
manufacture products incorporating the Company's proprietary technologies.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on
expanding the potential commercial applications of its proprietary drug and
food delivery technologies. The Company expects that a significant amount of
its research and development efforts will be funded by collaborative partners
but intends to continue to invest in internal research and development to
enhance its technology and to develop new applications. The Company received
$5.4 million for client-sponsored research and development activities in 1997
(and $2.4 million and $2.0 million in 1996 and 1995, respectively) and spent
$10.7 million on Company-sponsored research and development in 1997 (versus
$6.3 million and $2.4 million in 1996 and 1995, respectively).
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to aggressively protect its proprietary
technology by a variety of means including applying for patents in the United
States and in appropriate foreign countries. The Company has been granted 67
U.S. patents and has filed a substantial number of additional U.S. patent
applications, as well as corresponding patent applications outside the United
States, relating to the Company's technology.
The Company also relies upon trade secrets and other unpatented
proprietary know-how in its product development activities. The Company's
employees are required to enter into agreements providing for confidentiality
and the assignment of rights to inventions made by them while in the employ of
the Company. The Company also has entered into nondisclosure agreements which
are intended to maintain the secrecy of its confidential information delivered
to third parties for research and other purposes.
GOVERNMENT REGULATIONS
The Company's research and development activities and the
manufacturing and marketing of products incorporating the Company's technology
are subject to regulation by numerous governmental agencies in the United
States and in other countries. In the United States, the Company expects that
the U.S. Food and Drug Administration (the "FDA") will regulate the Company's
products and technologies in three different categories depending on the
specific product: as drugs, as dietary supplements or as food ingredients. In
addition, the Company's manufacturing activities will be subject to the FDA's
current Good Manufacturing Practices ("cGMP") regulations. If the Company or
any of its customers fail to comply with FDA regulations, the FDA may take a
variety of regulatory actions against the Company or such customers, including
initiating product recalls, enjoining further sales of the product, seizing and
destroying existing products, halting operations and imposing criminal
liability on the manufacturer. Approval of the Company's products by regulatory
authorities in countries outside the United States must be obtained prior to
the commencement of marketing of such products in such countries. The
requirements governing the conduct of clinical trials and product approvals
vary widely from country to country, and the time required for approval may be
longer or shorter than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general, each
country at this time has its own procedures and requirements.
FDA Regulations of Drugs
The FDA may regulate the Company's pharmaceutical products as OTC or
prescription drugs, depending on the regulatory status of the drug in which the
Company's technology is used. OTC drugs
Page 9
<PAGE> 11
using the Company's products may be regulated under the OTC monograph process
or the more complex and lengthy new drug application ("NDA"), depending upon
the specific drug product. OTC monographs establish conditions under which a
drug category is generally recognized as safe and effective ("GRASE") by the
FDA for use in OTC products. Drugs listed in OTC monographs (such as aspirin,
acetaminophen or antacids) that meet specified doses and labeling requirements,
comply with specified testing procedures and are manufactured in compliance
with cGMPs do not require a separate approval process for marketing. If the
Company's OTC drug product is not covered by an OTC monograph but is
demonstrated to be bioequivalent to a marketed product, the Company may
petition the FDA for approval by an Abbreviated NDA ("ANDA"). Additionally, if
the Company or its licensee has an existing NDA for an OTC drug such as
ibuprofen, the Company may obtain market approval by filing a Supplemental NDA
("SNDA"). An SNDA or the more lengthy NDA may be required for an OTC monograph
drug approval if the FDA believes that the incorporation of the Company's
technology changes or reduces the drug's safety or efficacy, or where the
Company has incorporated its microsphere technology to create a controlled
release or extended release formulation of a current OTC monograph product.
The Company's drug products marketed in the U.S. that are not subject
to a monograph will also be regulated by the ANDA, SNDA or NDA approval
processes. ANDA approval may be sufficient for new versions of drugs
equivalent to an existing drug that is subject to a full NDA. In the event
that there are any modifications to the drug, including changes in indication,
manufacturing process, active ingredients, labeling or a change in
manufacturing facility, an SNDA may be required. An SNDA may be required for
reformulated pharmaceutical products (products already in the market based on
an approved NDA), if the reformulated pharmaceutical product can be shown to
have equivalent bioavailability (the rate and extent to which the active
ingredient is absorbed from the drug product by the body and becomes available
at the site of action) as compared to the approved product. Marketing of OTC
or prescription drug products outside the U.S. will require the Company to
comply with appropriate requirements of foreign regulatory agencies, which vary
widely from country to country.
FDA Regulation of Dietary Supplements of Vitamins and Minerals
The Company expects that certain OTC products and nutraceuticals
incorporating the Company's technology will be regulated by the FDA as dietary
supplements. The applicable statute and regulations regulate among other
things, the labeling and advertising of health claims and statements of
nutritional support. Governments outside the United States may also have
separate regulatory mechanisms for dietary supplements with which the Company
will have to comply to market its products.
FDA Regulation of Food Ingredients
The Company's products used as food ingredients are regulated by the
FDA as foods under the Federal Food, Drug and Cosmetic Act of 1938 (the "Act"),
which requires that materials used in food products and the food products
themselves must meet certain manufacturing, purity and labeling requirements.
In addition, manufacturers of ingredients added to food must generally
establish that such ingredients are Generally Recognized as Safe ("GRAS"),
either through an application process or through a self-affirmation process
that may be challenged by the FDA. If such requirements are met, no regulatory
approval is required for foods.
In addition to the FDA regulatory framework for product approvals, the
Company is subject to regulation under state and federal laws, including
requirements regarding occupational safety, laboratory practices, environmental
protection and hazardous substance control, and may be subject to other present
and possible future local, state, federal and foreign regulations. To date,
compliance with federal, state and local laws and regulations relating to
protection of the environment have had no material effect upon the capital
expenditures, results of operations or competitive position of the Company.
Environmental regulations may be expected to increasingly affect the Company as
it expands its manufacturing activities.
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<PAGE> 12
Good Manufacturing Practices
The FDA has issued comprehensive, binding regulations setting forth
stringent minimum cGMPs for the preparation of pharmaceuticals, food products
and food ingredients. Failure to comply with cGMP regulations will subject the
product, as well as the person responsible for the noncompliance, to regulatory
action. Pharmaceutical cGMP requirements specify detailed criteria for
personnel, buildings and facilities, equipment, control of components and drug
product containers and closures, warehousing and distribution procedures,
laboratory controls, records and reports and returned and salvaged drug
products. Key personnel involved in the manufacture and control of drugs must
have appropriate education, training and/or experience. cGMPs for food
products and ingredients generally cover the sanitary practices of personnel,
construction of buildings and facilities, design and care of equipment and
production and process controls, and, for certain products, record keeping
requirements to ensure efficient recall of foods found to be contaminated.
The FDA conducts periodic, unannounced inspections of food and drug
production facilities to ensure compliance with cGMPs. Failure to maintain
compliance with cGMPs could result in regulatory action, including recall,
injunction or seizure.
COMPETITION AND MARKETS
The markets for prescription and OTC pharmaceutical products, drug
delivery systems and food products are highly competitive. In the
pharmaceutical market, the Company will compete with other providers of oral
drug delivery systems, including rapid dissolving tablets and other delivery
forms, to attract licensees. In addition, the products of the Company's
licensees which incorporate the Company's technologies will compete with
products of other pharmaceutical companies for sales to the ultimate consumer.
Other providers of drug delivery systems and food ingredients products include
major pharmaceutical and diagnostic companies, companies specializing in drug
delivery technology, chemical companies, food ingredient companies, consumer
food companies and other companies, universities and institutions. Many of
these competitors have substantially greater financial and technical resources
and production and marketing capabilities than the Company. Technological
advances by the Company's competitors which result in processes or technologies
superior to those of the Company could render the Company's proprietary
technology obsolete or lead to competition from other companies.
Among the technologies expected to provide competition for the
Company's rapid dissolving tablets are the Zydis(R) technology developed by
Scherer, which is based on a freeze dried gelatin tablet, and the OraSolv(R)
technology of CIMA, which produces an effervescent tablet. The principal
competitive factors in the market for rapid dissolving tablet technologies are
compatibility with taste-masking techniques, dosage capacity, drug
compatibility, cost and ease of manufacture and required capital investment for
manufacturing. The Company believes that its rapid dissolving tablet technology
competes favorably with respect to these factors. Both Scherer and CIMA have,
however, preceded the Company in the market for rapid dissolving tablets and
each has been successful in licensing its technology to a number of
pharmaceutical companies. The Company also believes that certain pharmaceutical
companies may be developing other rapid dissolving tablet technologies which
might be competitive with the Company's technology. CIMA has a license from
Beecham Group plc, an affiliate of SmithKline, one of the Company's
collaborative partners, pursuant to which CIMA licenses certain of its
technology and pays a royalty based on sales of its rapid dissolving tablets.
The Company understands that technology upon which the Scherer tablets are
based is owned by a subsidiary of American Home Products, the parent of
Whitehall, one of the collaborative partners of the Company. As a result, both
Whitehall and SmithKline may have an incentive to utilize technologies
developed by the Company's competitors, although, to date, the Company does not
believe these relationships have had a material adverse effect on the Company.
There can be no assurance that the Company will be able to compete effectively
with these technologies in either their current versions or in improved
versions that might be developed. In addition, other collaborative partners of
the Company may be involved in development of technologies that compete with
those of the Company. One or more of these technologies could in the future
provide competition for the Company's products and technologies. The Company's
microsphere products will compete with commercially available
Four of the Company's subsidiaries provide a substantial portion of
their products and services in Europe. Consequently, the Company derives a
significant portion of its consolidated revenues from its European operations
(see "Notes to Consolidated Financial Statements").
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<PAGE> 13
products, such as those produced by Eurand America (a division of American Home
Products), as well as taste-masked pharmaceutical products manufactured
internally by pharmaceutical companies.
EMPLOYEES
As of December 31, 1997 the Company had 411 employees, of which 155
were engaged in manufacturing and operations, 134 were engaged directly in
scientific and product research and development and 122 were engaged in sales
and administrative functions. Of the 411 employees, 248 were employed by the
Company's international subsidiaries. All hourly employees of Clonmel are
members of the Services, Industrial, Professional, Technical Union ("SIPTU") or
are otherwise covered pursuant to the terms of a collective bargaining
agreement with SIPTU. Management believes it maintains good relations with its
employees.
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EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of December
31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard C. Fuisz, M.D. 58 Chairman of the Board of Directors
Kenneth W. McVey 58 President and Chief Executive Officer of the Company and
Director
S. Rao Cherukuri 54 Executive Vice President, General Manager, Food and
Nutraceuticals, Worldwide
Adrian M. Gerber 59 Executive Vice President, Business Development and
Licensing
Michael Myers, Ph.D. 35 Executive Vice President, Pharmaceutical Operations
Patrick D. Scrivens 44 Executive Vice President, Chief Financial Officer,
Assistant Secretary and Treasurer
James L. Wilcox 46 Vice President and General Counsel
</TABLE>
Richard C. Fuisz, M.D., founder of the Company, has served as the
Chairman of the Board since 1989. Until April 1997, Dr. Fuisz was also the
Company's President and Chief Executive Officer. From 1975 until 1982, Dr.
Fuisz was President and Chief Executive Officer of Medcom, a publicly traded
medical training company, which was subsequently acquired by Baxter Healthcare
Corporation. Inventor of the Company's core technology, Dr. Fuisz founded the
Company in June 1988. Dr. Fuisz received his B.S. and M.D. from Georgetown
University.
Kenneth W. McVey joined the Company in December 1996 as a director and
as President and Chief Executive Officer of Fuisz International Holdings
Limited, a wholly-owned subsidiary of the Company. In April 1997, Mr. McVey was
also appointed as President and Chief Executive Officer of the Company. Mr.
McVey has spent more than thirty years in the pharmaceutical industry. Prior to
joining the Company, Mr. McVey served as President of Elan Pharma
International, a division of Elan Corporation PLC ("Elan") and as Executive
Vice President of Elan responsible for commercial and business development,
licensing and intellectual property. He served on the Board of Directors of
Elan from 1992 until 1996.
S. Rao Cherukuri joined the Company in 1992 as Vice President,
Research and Development, OTC and Consumer Products. From 1981 to 1992, Mr.
Cherukuri was employed by Warner Lambert Company, a multinational
pharmaceutical company, most recently as Director, Worldwide Technology,
Consumer Products Research and Development. Mr. Cherukuri holds a B.S. and an
M.S. from Andhra University and an M.B.A. from the University of Pennsylvania.
Adrian M. Gerber joined the Company in February 1996 as Executive Vice
President, Business Development and Licensing. In 1990 Mr. Gerber joined ALZA
Corporation, a pharmaceutical company, as Executive Vice President, Business
Development, and was appointed Executive Vice President, Commercial Development
in 1994. In October 1995 Mr. Gerber left ALZA to form Adrian Gerber Inc., a
bio-pharmaceutical business development organization. Mr. Gerber received a
degree from Natal School of Pharmacy in Durban, South Africa in 1961. Mr.
Gerber resigned as Executive Vice President, Business Development and Licensing
on December 31, 1997.
Dr. Michael Myers joined the Company in November 1995 as Vice
President, Sustained Release. In April 1996, Dr. Myers was promoted to
Executive Vice President of Pharmaceutical Operations. From 1987 to 1995, Dr.
Myers worked for Elan Corporation PLC, a leading drug delivery company, most
recently as Head of Pharmaceutical Development. Dr. Myers holds a B.Sc. and a
Ph.D. from University College, Cork, Ireland.
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<PAGE> 15
Patrick D. Scrivens joined the Company in April 1994 as Executive Vice
President and Chief Financial Officer and in November 1995, assumed the
additional position of Treasurer. From February 1993 to March 1994, Mr.
Scrivens was a private consultant to telemarketing and ATM networking
companies. From 1988 to February 1991, Mr. Scrivens served as Chief Financial
Officer for William Schneider, Inc., an international jewelry manufacturing
company ("Schneider") and from February 1991 to January 1993 served as its
Chief Executive Officer. Mr. Scrivens holds a B.S. from the University of
Maryland and is a Certified Public Accountant.
James L. Wilcox joined the Company in November 1995 as Vice President
and General Counsel. From 1983 to 1995, Mr. Wilcox served in a number of legal
and management positions at Abbott Laboratories, a leading multinational
pharmaceutical company, most recently as Associate Division Counsel responsible
for intellectual property and licensing. Mr. Wilcox holds a B.S. from Bowling
Green State University and a J.D. from the University of Toledo College of Law.
ITEM 2. PROPERTIES
The Company leases approximately 105,000 square feet of laboratory,
production and office space in Northern Virginia. Of the leased facilities,
approximately 11,000 square feet are leased through February 2002, 17,000
square feet are leased through December 2002, and the remaining space is leased
through the year 2005 with a five-year renewal option. In January 1997, the
Company purchased approximately 3,000 square feet of office space in Dublin,
Ireland for administrative and business development uses and entered into a
lease for approximately 6,000 square feet of laboratory space outside of
Dublin.
The Company also owns two buildings through its Clonmel subsidiary in
Clonmel, Ireland. One building contains approximately 48,000 square feet of
cGMP manufacturing, laboratory and office space. The other building contains
approximately 25,000 square feet of cGMP manufacturing space.
The Company leases approximately 15,000 square feet of office space
through its Pangea, Murat and Istoria subsidiaries in Georgia, Paris, France
and Padova Italy, respectively.
The Company believes that these facilities are adequate to meet the
Company's short-term needs and that any additional required space will be
available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On December 20, 1995, the Company completed its initial public
offering of Common Stock at a price of $8.00 per share. The Common Stock is
admitted for trading on The Nasdaq Stock Market's National Market under the
symbol "FUSE." The following table sets forth the high and low sale prices per
share of Common Stock, as reported by Nasdaq, for the periods indicated. These
quotations and sales prices do not include retail mark-ups, mark-downs or
commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1996:
First Fiscal Quarter.......................................... 18.17 9.83
Second Fiscal Quarter......................................... 31.50 16.25
Third Fiscal Quarter.......................................... 19.75 9.50
Fourth Fiscal Quarter......................................... 16.00 7.25
Year Ended December 31, 1997:
First Fiscal Quarter.......................................... 9.50 5.62
Second Fiscal Quarter......................................... 10.50 5.37
Third Fiscal Quarter.......................................... 16.00 8.50
Fourth Fiscal Quarter......................................... 14.18 7.69
</TABLE>
According to records of the Company's transfer agent, as of March 6,
1998, the Company had approximately 267 stockholders of record. Because many of
such shares are held by brokers and other institutions on behalf of
stockholders, the Company is unable to estimate the total number of
stockholders represented by these record holders.
The Company has never paid cash dividends on its Common Stock and does
not anticipate doing so in the foreseeable future. The Company currently
intends to retain future earnings to fund the development and growth of its
business.
RECENT SALES OF UNREGISTERED SECURITIES
In consideration of the acquisition of all of the outstanding ordinary
share capital of Clonmel on September 1, 1997, the Company issued one million
shares of common stock of the Company to the previous shareholders of Clonmel,
valued at a price of $10.65 per share (based on the weighted average of shares
traded from July 25, 1997 to July 31, 1997), which are subject to a contractual
restriction on transfer. The shares were issued under Regulation S of the
Securities Act of 1933.
In consideration of the acquisition of all of the outstanding stock of
Istoria on October 17, 1997, the Company issued 94,406 shares of common stock
of the Company to the previous shareholders of Istoria, valued at a price of
$13.17 per share (based on the weighted average of shares traded from September
9, 1997 to September 15, 1997), which are subject to a contractual restriction
on transfer. The shares were issued under Regulation S of the Securities Act
of 1933.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the Company
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Report. The consolidated
statement of operations data for the years ended December 31, 1997, 1996 and
1995 and the consolidated balance sheet data at December 31, 1997 and 1996 are
derived from the consolidated financial statements of the Company, audited by
Coopers & Lybrand L.L.P., independent accountants, included elsewhere in this
Report. The statement of operations data for the years ended December 31, 1994
and 1993 and the balance sheet data at December 31, 1995, 1994 and 1993 are
derived from financial statements audited by Coopers & Lybrand L.L.P. that are
not included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- -------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Operating revenues:
Product sales . . . . . . . . . . . . . . $ 11,968 $ 48 $ 56 $ 26 $ 55
Research and development . . . . . . . . . 5,390 2,426 2,002 843 616
Licensing fees . . . . . . . . . . . . . . 4,630 5,760 3,400 500 --
Royalties . . . . . . . . . . . . . . . . 210 292 200 -- --
--------- --------- --------- -------- ----------
Total operating revenues . . . . . . . . 22,198 8,526 5,658 1,369 671
--------- --------- --------- -------- ----------
Operating expenses:
Cost of sales . . . . . . . . . . . . . . 7,807 -- -- -- --
Research and development . . . . . . . . . 16,110 8,740 4,352 3,337 2,496
General and administrative . . . . . . . . 12,272 8,862 4,103 4,183 3,924
Depreciation and amortization . . . . . . 2,439 703 387 320 314
Other operating expenses . . . . . . . . . 4,694 -- -- -- --
---------- --------- -------- -------- ----------
Total operating expenses . . . . . . . . 43,322 18,305 8,842 7,840 6,734
---------- --------- -------- -------- ----------
Net operating loss . . . . . . . . . . . . (21,124) (9,779) (3,184) (6,471) (6,063)
Net interest income (expense) . . . . . . . 1,523 2,973 (87) (142) 64
Cumulative effect of change in
accounting principle . . . . . . . . . . . -- -- -- -- (708)
----------- --------- -------- -------- ---------
Net loss . . . . . . . . . . . . . . . . . $ (19,601) $ (6,806) $ (3,271) $ (6,613) $ (6,707)
========== ========= ======== ======== =========
Net loss per share (basic and diluted) . . $ (0.92) $ (0.35) $ (0.34) $ (0.69) $ (0.70)
========== ========= ======== ======== =========
Weighted average shares outstanding
(basic and diluted) . . . . . . . . . . . 21,234 19,496 9,763 9,603 9,554
========== ========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ----- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities . . . . . . . . . . . . . . $ 88,937 $ 60,500 $ 32,721 $ 4,288 $ 2,266
Working capital . . . . . . . . . . . . . 77,936 57,855 30,438 3,282 1,877
Total assets . . . . . . . . . . . . . . 170,120 69,083 34,394 6,140 3,570
Total liabilities . . . . . . . . . . . . 109,339 4,892 2,492 4,200 2,652
Redeemable preference shares
of subsidiary . . . . . . . . . . . . . 1,173 - - - -
Accumulated deficit . . . . . . . . . . . (49,055) (29,435) (22,629) (19,358) (12,745)
Total stockholders' equity . . . . . . . $ 59,608 $ 64,191 $ 31,902 $ 1,940 $ 918
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NOTICE CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements that involve risks
and uncertainties. The actual future results of Fuisz Technologies Ltd. may
differ materially due to a number of factors, including those discussed below
under "Risk Factors."
OVERVIEW
Fuisz Technologies Ltd., a Delaware corporation, was formed on June 9,
1988 (Fuisz Technologies Ltd., together with its wholly owned subsidiaries, is
referred to collectively herein as the "Company"). The Company is engaged in
the development, manufacture and commercialization of its proprietary
technologies for a wide range of pharmaceutical, nutraceutical and food
applications. The Company's primary focus is on the commercialization of
products incorporating its CEFORM microsphere technology and its Shearform
technology, including controlled release and rapid dissolve over-the-counter
("OTC") and prescription (or "ethical") pharmaceuticals.
Prior to the quarter ended September 30, 1997, the Company did not
have significant commercial revenues and its efforts had been principally
devoted to research and development; therefore, the Company was considered to
be in the development stage. However, as a result of the Company's 1997
business acquisitions (see below) and the launch of its Soft Chew calcium
supplement product, the Company's operating revenues for the quarters ended
September 30, 1997 and December 31, 1997, include product sales of $2,567,000
(unaudited) and $8,668,000 (unaudited), respectively, or 87% and 75% of total
operating revenues, respectively. Commencing with the quarter ended September
30, 1997, the Company is no longer considered to be in the development stage.
During 1997, the Company significantly expanded its operations with
the i) opening of offices in Dublin, Ireland for its international
administrative and business development activities, ii) establishment of a
research and development facility outside of Dublin, iii) completion of four
business acquisitions, iv) purchase of two product licenses and v) expansion of
its research and development and production facilities in Virginia. The four
business acquisitions included Laboratoires Murat ("Murat"), Pangea Ltd.
("Pangea"), Clonmel Healthcare Limited ("Clonmel") and Istoria Farmaceutici
("Istoria"), which are collectively referred to herein as the "Acquired
Companies." Each of the acquisitions was accounted for as a purchase and,
accordingly, their operating results have been included in the Company's
consolidated financial statements since the respective dates of acquisition.
Three of the Acquired Companies provide a substantial portion of their products
and services in Europe. Consequently, the Company derives a significant
portion of its consolidated revenues from its European operations (see "Notes
to Consolidated Financial Statements").
The Company has not been profitable to date, on a full fiscal year
basis, and expects to incur additional losses in the near term, primarily due
to the continuation of its research and development activities and the
expansion of its manufacturing operations.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Operating revenues were $22,198,000 for 1997, compared to $8,526,000
for 1996, an increase of $13,672,000, or 160%. The revenue increases were
primarily due to the inclusion of $11,968,000 of product sales from the
Acquired Companies occurring after the respective dates of acquisition. The
Company expects revenues from product sales to increase in 1998, reflecting
full year revenues from the Acquired Companies, and revenues from the
acquisition of Dr. Rentschler GmbH & Co. Medizin KG in 1998 (see below). The
1997 revenue increases over 1996 were also due to increases in development fees
due to the Company's additional collaborative development agreements.
Page 17
<PAGE> 19
Cost of sales was $7,807,000 for 1997, with no corresponding amount
for 1996. The increase was due to the inclusion of the cost of product sales by
the Acquired Companies. The Company expects that cost of sales will further
increase in 1998, reflecting full year cost of sales of the Acquired Companies.
Research and development expenses were $16,110,000 for 1997, compared
to $8,740,000 for 1996, an increase of $7,370,000, or 84%. The increases were
primarily due to increases in research personnel and materials and supplies
necessary to support the Company's additional development and license
agreements and the Company's continued emphasis on developing its own product
applications.
General and administrative expenses were $12,272,000 for 1997,
compared to $8,862,000 for 1996, an increase of $3,410,000, or 38%. The
increases were primarily due to increases in personnel and expanded
administrative activities primarily associated with the operations of the
Acquired Companies and the start-up of the international facilities in Ireland.
General and administrative expenses for 1996 included $3,000,000 of noncash
compensation expense related to stock granted in the fourth quarter of 1996
(see below). The Company expects that general and administrative expenses will
increase in 1998 as a result of the inclusion of a full year of expenses from
the Acquired Companies.
Other operating expenses for 1997 represent the effect of two,
one-time, nonrecurring charges totaling $4,694,000. There is no corresponding
amount for 1996. The Company recorded a one-time non-recurring charge of
$2,400,000 in the second quarter of 1997 arising from the settlement of certain
litigation against the Company. The Company recorded a one-time noncash charge
of $2,294,000 in the third quarter of 1997 relating to certain stock warrants
exercisable at $25 per share and issued pursuant to the Company's collaborative
agreement with ConAgra, Inc.
Net interest income was $1,523,000 for 1997, compared to $2,973,000
for 1996, a decrease of $1,450,000, or 49%. The decrease in net interest
income for 1997 was primarily due to a decrease in the average balances of
funds available for investment.
As a result of the foregoing, the net loss was $19,601,000 for 1997
compared to a net loss of $6,806,000 for 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Operating revenues were $8,526,000 for 1996 compared to $5,658,000 for
1995, an increase of $2,868,000, or 51%. The increase was primarily due to
development and licensing fees attributable to additional development and
licensing agreements entered into by the Company.
Research and development expenses were $8,740,000 for 1996 compared to
$4,352,000 for 1995, an increase of $4,388,000, or 101%. The increase was
primarily due to increases in research personnel and facility expansion to
support the Company's additional development and license agreements and the
Company's increased emphasis on developing its technologies and products.
General and administrative expenses were $8,862,000 for 1996 compared
to $4,103,000 for 1995, an increase of $4,759,000, or 116%. The increase was
primarily due to $3,000,000 of noncash compensation expense related to stock
granted in the fourth quarter of 1996 to the newly named President and CEO of
Fuisz International Holdings Limited, expanded administrative and business
development activities, both domestically and abroad, and patent filing costs.
Net interest income was $2,973,000 for 1996 compared to net interest
expense of $87,000 for 1995, an increase in net interest income of $3,060,000.
The increase in net interest income was primarily due to funds generated from
the Company's IPO and the Secondary Offering of the Company's common stock in
April 1996 which were available for investment in 1996.
As a result of the foregoing, the net loss was $6,806,000 for 1996,
compared to a net loss of $3,271,000 in 1995.
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LIQUIDITY AND CAPITAL RESOURCES
Until December 1995, the Company financed its operations primarily
through private sales of its equity securities, issuances of convertible debt,
and license and development fees. On December 20, 1995, the Company completed
its initial public offering of 4,125,000 shares of common stock (the "IPO") at
a price of $8.00 per share. The Company received net proceeds from the IPO of
approximately $29.8 million. On May 3, 1996, the Company completed a
registered public offering of 3,900,000 shares of common stock (the "Secondary
Offering") at a price of $25.00 per share. Of the 3,900,000 shares of common
stock offered in the Secondary Offering, 1,125,000 shares were sold by the
Company and 2,775,000 shares were sold by certain selling stockholders. The
Company received net proceeds from the Secondary Offering of approximately
$35.8 million.
On October 22, 1997, the Company privately placed $75.0 million
aggregate principal amount of 7% Convertible Subordinated Debentures (the
"Debentures") due October 15, 2004, which were resold under Rule 144A and
Regulation S of the Securities Act of 1933. The Company received net proceeds
of approximately $72.8 million related to the sale of the Debentures. The
Debentures are convertible into the Company's common stock at the option of the
holder at any time at or before maturity, unless previously redeemed, at $13.25
per share, subject to adjustment upon the occurrence of certain events. The
Debentures are subordinated to the Company's present and future Senior
Indebtedness (as defined) and interest is payable semiannually. The Company
intends to use the net proceeds from the sale of the Debentures for
acquisition of businesses, products and marketing and distribution capabilities,
and the funding of capital expenditures, working capital (which may include
interest payments on the Debentures) and general corporate purposes.
As of December 31, 1997, the Company's portfolio of cash and
marketable securities totaled $88.9 million (including $10.3 million which is
pledged as collateral for the installment notes issued in connection with the
purchase of Clonmel), compared to $60.5 million as of December 31, 1996. Major
uses of cash during 1997 included $8.0 million for the Company's acquisitions
(see above), $2.4 million in product license acquisitions, $14.9 million in
capital expenditures (including deposits made related thereto) and $16.1
million of research and development expenses.
On March 12, 1998, the Company completed the acquisition of all the
issued and outstanding equity interests of Dr. Rentschler GmbH & Co. Medizin
KG ("Dr. Rentschler"), a subsidiary of Dr. Rentschler Arzneimittel GmbH & Co.,
a pharmaceutical sales and distribution company based in Laupheim, Germany, for
an aggregate price of DM 35.0 million (approximately $19.2 million) in cash.
During the next several years, the Company will periodically evaluate
additional acquisitions of businesses, products and technologies that extend or
enhance the Company's current business and line of products.
During 1998, the Company anticipates capital expenditures ranging from
$17.0 to $19.0 million. Such expenditures will be used to further expand and
improve the Company's laboratory and production facilities in both Virginia and
Ireland.
The Company has a $15.0 million equipment leasing line of credit (the
"Equipment LOC") with an outside group of lenders. The Equipment LOC is
available through June 30, 1999, provides equipment financing under three- or
four-year operating leases, and may be utilized to finance a portion of the
1998 capital expenditures mentioned above. Through December 31, 1997, the
Company has financed approximately $3.3 million of equipment under the
Equipment LOC.
The Company's long-term debt consists of notes payable of $92.7
million as of December 31, 1997. Notes payable is comprised of $75.0 million
related to the Debentures, $11.1 million related to the Clonmel installment
notes, net of discount, and $6.6 million related to term loans and other
long-term obligations, net of discount. Maturities of notes payable during
1998, excluding maturities which are being financed, will be approximately $2.6
million. The Company has available international banking lines of credit
totaling approximately $2.4 million for short-term financing.
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The Company expects to continue to incur substantial expenses related
to further research and development of its technologies and products, increased
staffing levels, acquisition and support of patent rights, additional capital
equipment for research and development activities and facility expansion.
The Company expects to incur additional losses in the near term. The
Company expects that, at least for the near term, its revenues will be derived
principally from product sales, development and license fees and, to a lesser
extent, royalties from collaborative partners. In addition, pending
disbursement for capital expenditures and working capital, the Company expects
to realize income from the investment of the funds generated in its public
offerings and convertible debt offering. The Company believes that the
currently available funds and internally generated cash flow will be adequate
to meet the Company's cash needs through 1999.
The Company's capital needs, however, will depend on many factors,
including revenues from product sales, continued progress in the research and
development of the Company's technologies, the ability of the Company to
establish and maintain additional collaborative agreements with others and the
terms thereof, payments received from collaborative partners under research and
development agreements, the cost involved in filing and enforcing patent
claims, and the status of competitive products and other factors. If the
Company's currently available funds and internally generated cash flow are not
sufficient to satisfy its financing needs, the Company would be required to
seek additional funding through other arrangements with collaborative partners,
through bank borrowings and through public or private sales of its securities,
including equity securities. There can be no assurance that additional funds,
if required, will be available to the Company on favorable terms, if at all.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued two new standards
which are effective for reporting periods beginning after December 15, 1997.
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," requires additional disclosures with respect to certain
changes in assets and liabilities that previously were not required to be
reported as results of operations for the period. The Company will begin
making the additional disclosures required by SFAS No. 130 in the first quarter
of 1998. SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," requires financial and descriptive information with
respect to "operating segments" of an entity based on the way management makes
internal operating decisions. The Company will begin making the disclosures
required by SFAS No. 131 with financial statements for the period ending
December 31, 1998.
IMPACT OF YEAR 2000
The Company is developing plans to address the possible exposures
related to the impact on its computer systems of the Year 2000. Key financial,
information and operational systems are being assessed and plans are being
developed to address system modifications required by December 31, 1999. The
financial impact of making the required systems changes is not expected to be
material to the Company's consolidated financial position, results of
operations or cash flows. There can be no assurance, however, that the Company
will be able to identify all aspects of its business that are subject to Year
2000 problems, or identify Year 2000 problems of customers or suppliers that
affect the Company's business. There also can be no assurance that the
Company's software vendors are correct in their assertions that the software is
Year 2000 compliant or that the Company's estimate of the cost of systems
preparation for Year 2000 compliance will prove ultimately to be accurate.
RISK FACTORS
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
results for 1998 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
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LEVERAGE
The Company's indebtedness is significant in relation to its
stockholders' equity. Such debt accounted for approximately 60% of the
Company's total capitalization as of December 31, 1997. Prior to its recent
acquisitions, the Company's revenues have been generally limited to
non-recurring research and development fees and license fees pursuant to the
Company's collaborative agreements and not from product sales. The annual
interest expense to the Company relating to the Debentures will be $5,250,000
(assuming none of the Debentures has been converted). There can be no assurance
that the Company's revenue stream and earnings will be sufficient to enable the
Company to cover its interest obligations on the Debentures or to enable it to
repay principal upon maturity of the Debentures.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT
The Company has incurred net losses in each year since its inception,
including net losses of approximately $19.6 million during the year ended
December 31, 1997. These losses have resulted in an accumulated deficit of
$49.1 million at December 31, 1997. The Company expects to incur additional
losses in the near term.
The Company's ability to generate significant revenue and become
profitable will be dependent in large part on the ability of the Company to
enter into additional collaborative agreements and on the ability of the
Company and its collaborators to successfully manufacture and commercialize
products incorporating the Company's technologies. To date, the Company has not
received any significant revenue from sales of, or royalties from, products
incorporating its proprietary technologies.
PRODUCTS IN DEVELOPMENT STAGE
Currently, the Company's Soft Chew calcium supplements are the only
commercially available products utilizing the Company's proprietary technology,
and the Company has not realized significant revenues from sales or royalties
of products incorporating its proprietary technologies. Most of the Company's
potential product applications are in the research or development stage. Since
inception, the Company's operating revenue has consisted principally of
research and development fees and license fees. To achieve profitable
operations, the Company, alone or with others, must successfully complete
development of its products, obtain any necessary regulatory approvals,
complete manufacturing scale-up and introduce and market its products.
PRODUCT COMMERCIALIZATION
A component of the Company's strategy is to leverage its proprietary
technology to develop, manufacture and commercialize its own products. Such
products include those that are subject to existing development and license
agreements where the Company has retained co-exclusive manufacturing and
marketing rights to the end-user products and others that are the subject of
self-funded development programs of the Company. The development of commercial
scale manufacturing facilities and marketing efforts by the Company will
require significant commitments of capital by the Company. Although several of
the businesses recently acquired by the Company have manufacturing and
marketing experience, prior to such acquisitions, the Company has had limited
manufacturing experience and no marketing experience. There can be no assurance
that the Company can successfully develop or capitalize on such experience, or
that the Company's products will be accepted in the marketplace.
Commercialization efforts by the Company may compete with activities of the
Company's collaborative partners, most of which have greater financial
resources than the Company. Moreover, there can be no assurance that the
Company's active pursuit of its own efforts to develop and commercialize
products using the Company's proprietary technology will not otherwise
adversely affect the Company's relations with its existing and potential
collaborative partners.
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ACQUISITION RISKS
One element of the Company's strategy is to capitalize on retained
co-marketing rights by acquiring marketing and distribution organizations with
existing product sales that the Company believes have been or in the near term
will be financially self-sufficient and which it believes will serve as a
platform to sell products incorporating the Company's proprietary technologies.
The Company has consummated five acquisitions since the beginning of 1997 and
may consider additional transactions in the future. There can be no assurance
that any such transaction will be completed, that completed acquisitions will
be successfully integrated or that, once integrated, such acquisitions will
achieve levels of revenue, profitability or productivity comparable to those
historically achieved by such acquired businesses or products or otherwise
perform as expected. Acquisitions involve special risks, including risks
associated with unanticipated liabilities and contingencies, diversion of
management attention and possible adverse effects on earnings resulting from
increased goodwill amortization, increased interest costs, the issuance of
additional securities and difficulties related to the integration of the
acquired business or products. There can be no assurance that acquired entities
will generate positive cash flows and/or profits. Four of the businesses
acquired by the Company are located in Europe. Foreign acquisitions may
subject the Company to the further risks of assimilating differences in foreign
business practices, hiring and retaining qualified personnel, overcoming
language barriers, limiting asset transfers, changes in foreign regulations and
political turmoil. There can be no assurance that the Company will be able
successfully to identify additional suitable acquisition candidates, complete
additional acquisitions or successfully integrate acquired businesses into its
operations. The failure to integrate acquired businesses into its operations
could have a material adverse effect on the Company's business, financial
condition and results of operations, including cash flow.
LIMITED MANUFACTURING EXPERIENCE; RISK OF MANUFACTURING SCALE-UP
Products incorporating the Company's CEFORM or Shearform technology
have not been manufactured by the Company or by its collaborative partners on a
commercial scale and, to date, the Company has had limited commercial
experience with its nutraceutical products, which have been manufactured by
third parties in limited quantities. The Company currently plans to retain
rights to manufacture commercial quantities of pharmaceutical compounds
processed using the Company's CEFORM microsphere technology and to conduct
other manufacturing operations. Prior to the Company's recent acquisition of
Clonmel, the Company had limited experience manufacturing pharmaceutical
products for commercial purposes. The Company intends to use Clonmel's
facilities in Ireland for manufacturing activities and is currently taking
steps to expand this facility so that it may be used to manufacture products
employing the Company's proprietary technology. There can be no assurance that
manufacturing and control problems will not arise as the Company begins to
scale up manufacturing facilities or that manufacturing can be scaled up in a
timely manner or at a commercially reasonable cost to enable production in
sufficient quantities. Failure by the Company to successfully develop
commercial-scale manufacturing facilities and develop in a timely manner or at
a commercially reasonable cost the facilities necessary to manufacture
products utilizing the Company's technology will have a material adverse effect
on the Company. If such manufacturing or control problems arise or if the
Company is not able to successfully scale-up manufacturing in a timely or cost
effective manner for any reason, the Company's business could be materially
adversely affected.
As part of the Company's strategy, the Company seeks to manufacture
products incorporating the Company's technologies and has been expanding its
manufacturing capabilities. In the past the Company has entered into license
agreements that grant the Company's collaborative partners the exclusive right
to utilize the Company's technology to manufacture, or to sublicense the right
to manufacture, the pharmaceutical products covered by such license agreements,
other than the right to manufacture CEFORM microspheres (which right generally
is retained by the Company on an exclusive basis). There can be no assurance
that the Company's collaborative partners will contract with the Company to
manufacture licensed products using the Company's technology. Failure of the
Company's collaborative partners to contract with the Company for the
manufacture of products could have a material adverse effect on the Company's
business, financial condition or results of operations.
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In connection with the manufacture of pharmaceuticals and food
ingredient products, the Company will be required to adhere to cGMP regulations
enforced by the U.S. Food and Drug Administration ("FDA") through its
facilities inspection program. The Company also will be required to comply with
manufacturing standards prescribed by various federal, state and local
regulatory agencies in the United States and other countries.
DEPENDENCE UPON COLLABORATIVE PARTNERS; POTENTIAL CONFLICTS OF INTEREST
Although the Company intends to develop and commercialize certain of
its own products, the Company also has and anticipates that it will continue to
enter into collaborative arrangements with other companies, which will market
and manufacture products incorporating the Company's technologies. The
Company's prospects are, therefore, in part dependent upon the Company's
ability to attract and retain collaborative partners and to develop products
and manufacturing processes that meet the requirements of such collaborative
partners. There can be no assurance that the Company's existing or future
collaborative arrangements will result in successful product commercialization.
In addition, the Company is applying significant resources to Company-funded
development of products for which it later intends to seek collaborative
partners. There can be no assurance that the Company will be able to enter into
collaborative agreements with respect to such Company-funded projects.
The amount and timing of resources which the parties to collaborative
arrangements with the Company devote to these activities is not within the
control of the Company. If any of the Company's collaborators breaches or
terminates its agreement with the Company or otherwise fails to conduct its
collaborative activities in a timely manner, the development or
commercialization of the product candidate or research program under such
collaborative agreement may be delayed, and the Company may be required to
devote unforeseen additional resources to such development or
commercialization, or terminate such programs. The termination of collaborative
arrangements could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
disputes will not arise in the future with respect to the ownership or rights
to any technology developed with third parties. These and other possible
disagreements between collaborators and the Company could lead to delays in the
collaborative research, development or commercialization of certain product
candidates, or could require or result in litigation or arbitration, which
would be time consuming and expensive and would have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company will also be dependent upon the testing, regulatory approval and
marketing efforts and, in certain cases, the manufacturing capabilities of its
collaborative partners. The Company anticipates that most licensees will be
given the exclusive or co-exclusive right to market products incorporating the
Company's technologies for a particular class of products for a particular
territory. The amount and timing of resources to be devoted by the Company's
collaborators to marketing are not within the control of the Company and there
can be no assurance that the Company's existing collaborative efforts will
result in the commercialization of products.
In addition, the Company's collaborators may develop, either alone or
with others, products that compete with the development and marketing of the
Company's product candidates. Competing products, either developed by the
Company's collaborators or to which the collaborators have rights, may result
in the Company's collaborators withdrawing research, development or marketing
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
NO ASSURANCE OF PRODUCT LICENSES; OTHER RISKS ASSOCIATED WITH COLLABORATIVE
AGREEMENTS
The Company has entered into development agreements with collaborative
partners for products using the Company's technologies. Pursuant to these
agreements, the Company typically has agreed to develop product prototypes for
the collaborative partner's evaluation. A definitive license agreement for the
manufacture and marketing of a product or products may be entered into at the
same time as the development agreement relating to such product, or at a later
date. In any event, under the Company's existing collaborative agreements,
collaborative partners generally have the right to abandon a product, and
consequently to terminate funding, at any time and for any reason without
penalty. Collaborative partners are also generally free to market products
using drug delivery or other technologies that are
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competitive with those of the Company. A decision by a collaborative partner to
delay introduction or abandon one or more of its products incorporating the
Company's technology or to adopt a competing technology could adversely affect
the Company's business, financial condition and results of operations.
The Company's license agreements currently in effect generally
provide, and it is expected that future license agreements will provide, for
the Company to receive a payment at the time of execution of the agreement,
additional scheduled payments or payments based on the attainment of certain
milestones and royalty payments based on net sales of products by the licensee.
The timing and amount of such payments will fluctuate, and such fluctuations
could have a material adverse effect on the Company's cash position and results
of operations.
In addition, royalty rates for licenses of the Company's technologies
for OTC products are expected, consistent with industry practices, to be lower
than royalty rates for licenses relating to prescription products.
LIMITED MARKETING AND SALES EXPERIENCE
Prior to the Company's recent acquisitions of Pangea, Murat, Clonmel
and Istoria, the Company had no marketing and sales experience. To date, the
only commercially available product incorporating the Company's proprietary
technology is a Soft Chew calcium supplement which is currently being
distributed by Pangea. There can be no assurance that the Company will be able
to successfully integrate the sales and marketing resources of its subsidiaries
into its current operations. Pangea's sales and marketing system involves
independent sales representatives who purchase products from the Company. The
Company, therefore, has limited control over actual sales activities. There can
be no assurance that Pangea or the Company's other recently acquired
subsidiaries will provide adequate sales and distribution networks for the
Company's products. The Company may require additional capital and/or third
party commitments to effectively sell and market the Company's products.
RISKS INHERENT IN INTERNATIONAL OPERATIONS
On a pro forma basis, giving effect to the Company's recent
acquisitions of Pangea, Murat, Clonmel and Istoria, the Company's international
operations accounted for 73% of consolidated net revenues for the year ending
December 31, 1997 and 79% for the year ended 1996. The Company has made
significant investments in its European subsidiaries and may make additional
acquisitions outside the United States. As such, the Company's financial
results could be adversely affected by fluctuations in foreign exchange rates.
Fluctuations in the value of foreign currencies affect the dollar value of the
Company's net investment in foreign subsidiaries, with this fluctuation being
included in a separate component of stockholders' equity. Operating results of
foreign subsidiaries are translated into U.S. dollars at average monthly
exchange rates. In addition, the U.S. dollar value of transactions based in
foreign currency (collection on foreign sales or payments for foreign
purchases) also fluctuates with exchange rates. At present, the Company's
largest foreign currency exposure results from activity in Irish pounds, French
francs and Italian lire.
Foreign operations may subject the Company to the further risks of
assimilating differences in foreign business practices, hiring and retaining
qualified personnel, overcoming language barriers, limiting asset transfers,
changes in foreign regulations and political turmoil.
CONSUMER ACCEPTANCE OF NEW TABLET FORM
Rapid dissolving tablets, a significant product application for the
Company's technology, represent a relatively new drug delivery format that has
had limited commercial exposure. As a consequence, the Company's revenues will
be dependent upon ultimate consumer acceptance of the Company's rapid
dissolving tablets as an alternative to conventional oral dosage forms. In
particular, the commercial success of the Company's rapid dissolving tablet
form will depend on whether consumers will pay more for, or buy more of, a
pharmaceutical product marketed in this format and whether this consumer
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appeal will make it economical for the Company's collaborative partners to
license the Company's technology or to pursue commercialization of products
utilizing this drug delivery format.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company operates in a highly competitive and rapidly evolving
field, and new developments are expected to continue at a rapid pace,
especially in the drug delivery market. Competition from large pharmaceutical,
nutraceutical, food, consumer product and industrial companies including its
collaborators, joint ventures, academic institutions and other public and
private research organizations is expected to be intense. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company and many have
substantially greater experience in conducting clinical trials, obtaining
regulatory approvals and manufacturing and marketing pharmaceutical,
nutraceutical, food and other commercial products.
PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in large part on its ability to obtain
patents, maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. The Company has been granted 67 U.S.
patents and has filed a substantial number of applications for additional U.S.
patents, as well as corresponding patent applications outside the United
States, relating to the Company's technologies. There can be no assurance that
any of the pending patent applications will be approved, that the Company will
develop additional proprietary products that are patentable, that any patents
issued to the Company will provide the Company with competitive advantages or
will not be challenged by any third parties or that the patents of others will
not prevent the commercialization of products incorporating the Company's
technologies. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate any of the Company's products
or, if patents are issued to the Company, design around the Company's patents.
Any of the foregoing actions or results could have a material adverse effect on
the Company.
GOVERNMENT REGULATION AND PRODUCT APPROVAL
Manufacturing and sales of products and potential products by the
Company and its collaborative partners may be subject to extensive regulation
by the FDA and by comparable agencies in foreign countries. Although the nature
and extent of regulation varies by type of product, in general, products must
meet standards regarding safety and efficacy, manufacturing practices, labeling
and purity. In addition, certain products must receive FDA approval prior to
marketing. The FDA has extensive enforcement powers, including the power to
withhold approvals of new products, to initiate product recalls, to seize
products, to delay or prevent product sales and to halt operations.
In addition, governments outside the United States will each have
their own set of regulatory standards, and possibly regulatory approvals, with
which the Company or its collaborators must comply to market products
incorporating the Company's technologies. Any failure to comply with such
standards, or to obtain such approvals, would adversely affect the Company.
The Company is also subject to numerous environmental and safety laws
and regulations. Any violation of, and the cost of compliance with, these
regulations could adversely impact the Company's operations.
FINANCING REQUIREMENTS AND ACCESS TO CAPITAL
Implementation of the Company's business strategy will require
significant expenditures of capital. The Company believes that the currently
available funds and internally generated cash flow will be sufficient to meet
its operating needs through the end of 1999. The Company's ability to meet its
future capital requirements, however, will depend on many factors, including
the ability of the Company to establish and maintain existing collaborative
arrangements and establish and maintain new collaborative arrangements with
others; the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims; complying with regulatory requirements; competing
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technological and market developments; changes in the Company's existing
research relationships; and the effectiveness of product commercialization
activities and arrangements. In addition, if the Company elects, or is required
by its collaborative partners, to engage in significant commercial-scale
manufacturing beyond its current plans, to conduct significant marketing
activities, or to seek, independent of its collaborative partners, regulatory
approvals for its products, the Company will require substantial funds for
these purposes. If the Company's currently available funds and internally
generated cash flow are not sufficient to satisfy its financing needs, the
Company would be required to seek additional funding through other arrangements
with corporate collaborators, through bank borrowings or through public or
private sales of its securities, including equity securities. Any such
collaboration could result in limitations on the Company's ability to control
the research, development and commercialization of resulting products, if any,
as well as its profits therefrom. In addition, the terms of any future bank
borrowings could place restrictions on the Company's ability to take certain
actions, and any equity financing could result in dilution to the Company's
stockholders. The Company does not currently have any committed sources of
additional capital.
PRODUCT LIABILITY AND INSURANCE
The development and sale of products in the pharmaceutical,
nutraceutical and food areas involve an inherent risk of product liability
claims. There can be no assurance that product liability claims will not be
filed against the Company for products sold by others that incorporate the
Company's technologies or that such companies would not seek indemnification or
other relief from the Company for any such claims brought against them. In
addition, there can be no assurance that product liability claims will not be
filed directly against the Company with respect to products manufactured by it.
A product liability claim could have a material adverse effect on the business
or financial condition of the Company. The Company currently maintains product
liability insurance in amounts which it believes are appropriate. There can be
no assurance, however, that product liability insurance will continue to be
available to the Company in the future on acceptable terms, if at all, or that,
if available, the coverages will be adequate to protect the Company against
future product liability claims.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as a part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Those portions of the Company's definitive proxy statement, to be
filed with the Commission on or about April 9, 1998 (the "Proxy Statement")
appearing under the caption (i) "Election of Directors," beginning with the
subsection "Nominees" up to, but not including the subsection "Committees and
Board Meetings" and (ii) "Section 16(a) Beneficial Ownership Reporting
Compliance" are incorporated herein by reference.
Information regarding executive officers of the Company is located
under the caption "Executive Officers" appearing at Part I, Item 1 of this Form
10-K.
ITEM 11. EXECUTIVE COMPENSATION
Those portions of the Proxy Statement appearing under the caption (i)
"Executive Compensation," up to, but not including "Report of the Compensation
Committee on Executive Compensation," (ii) "Compensation Committee Interlocks
and Insider Participation" and (iii) " Directors Compensation" are incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
That portion of the Proxy Statement appearing under the caption
"Security Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
That portion of the Proxy Statement appearing under the caption
"Compensation Committee Interlocks and Insider Participation" is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements are filed as a part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are filed as a part of
this report:
None.
Page 28
<PAGE> 30
3. EXHIBITS
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Commission. The Company will
furnish copies of exhibits at a reasonable fee (covering the expense of
furnishing copies) upon request.
<TABLE>
<S> <C>
3.1* - Fourth Amended and Restated Certificate of Incorporation of the Registrant, as
amended.
3.2* - Certificate of Amendment of the Certificate of Incorporation of the
Registrant.
3.3* - Amended and Restated Bylaws of the Registrant.
4.1 Indenture, dated as of October 17, 1997, between the
Company and the Bank of New York. (Filed as Exhibit 4.2
with the Company's registration statement on Form S-3,
Registration No. 333-41037)
4.2 Registration Rights Agreement, dated as of October 22,
1997, by and among the Company, Smith Barney Inc., Credit
Suisse First Boston Corporation and Lehman Brothers,
Inc. (Filed as Exhibit 4.3 with the Company's
registration statement on Form S-3, Registration No.
333-41037).
10.1*# - 1991 Stock Option Plan.
10.1A*# - Amendment to 1991 Stock Option Plan.
10.2*# - 1994 Stock Incentive Plan, as amended.
10.3*# - 1994 Director Stock Option Plan, as amended.
10.4*# - 1994 Employee Stock Purchase Plan, as amended.
10.5* - Warrants issued to Edgewater Private Equity Fund L.P. and John Pappajohn,
dated June 14, 1994.
10.6* - 1995 Common Stock Purchase Warrants.
10.7* - Lease Agreements between Avion (Fairfax) Associates, L.P. and the Company,
each dated December 10, 1993.
10.8* - Lease Agreement by and between Avion (Fairfax) Associates, L.P. and the
Company, dated July 19, 1995.
10.9 - Sublease Agreement by and between Global Mail, Ltd. and the Company, dated
February 10, 1997.
10.10*# - Employment Agreement between Patrick D. Scrivens and the Company, dated
October 19, 1994. (Filed as Exhibit 10.20 with the Company's registration
statement on Form S-1, Registration No. 33-99092).
10.11+# - Employment Agreement between Kenneth W. McVey and the Company, dated December
16, 1996.
10.12+# - Employment Agreement between Adrian M. Gerber and the Company, dated December
7, 1995
10.13+# - Employment Agreement between Michael Myers and the Company, dated October 24,
1995.
10.14 - Lease Agreement by and between Avion (Fairfax) Associates, L.P. and the
Company, dated January 17, 1997
10.15 - Stock Purchase Agreement for the acquisition of Pangea, Ltd. dated May 20,
1997.
10.16 - Share Purchase Agreement for the acquisition of Clonmel Healthcare Limited
dated July 29, 1997.
10.17 - Warrant Agreement with ConAgra, Inc. (to be filed by amendment)
10.18# - Amendments to the 1994 Director Stock Option Plan, 1994 Employee Stock
Purchase Plan and 1994 Stock Incentive Plan of the Company
10.19 - Deed of Lease Agreement by and between Shaw Road Business Park, L.L.C., dated
January 30, 1998.
10.20# - Resignation Agreement between Adrian M. Gerber and the Company, dated January
12, 1998.
10.21# - Executive Management Bonus Incentive Plan
21.1 - Subsidiaries of the Registrant.
23.1 - Consent of Coopers and Lybrand L.L.P.
27.1 - Financial Data Schedule.
</TABLE>
- --------------------
* Incorporated by reference to the Company's registration statement on Form
S-1, Registration No. 33-99092.
# Management contract or compensatory plan.
+ Incorporated by reference to the Company's 1996 annual report on Form 10-K,
Comm. File No. 0-27082, filed March 31, 1997.
(b) REPORTS ON FORM 8-K
Current report on Form 8-K/A, dated October 3, 1997, amending
previous filing a Form 8-K, filed September 3, 1997, regarding the
Acquisition of all of the issued ordinary share capital of Clonmel
Healthcare Ltd., by providing financial statements of Clonmel.
Current report on Form 8-K, dated October 20, 1997, regarding
Acquisition of Istoria Farmaceutici.
Current report on Form 8-K, dated October 23, 1997, regarding Private
Placement of $75.0 million aggregate principal amount of the 7%
Convertible Subordinated Debentures due 2004
Page 29
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FUISZ TECHNOLOGIES LTD.
By: /S/
-----------------------------------
Kenneth W. McVey
Chief Executive Officer
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<S> <C>
March 31, 1998 By: /S/
----------------------------------------
Kenneth W. McVey
Chief Executive Officer
March 31, 1998 By: /S/
----------------------------------------
Patrick D. Scrivens
Chief Financial Officer
Directors:
March 31, 1998 /S/
------------------------------------------------
Richard C. Fuisz, M.D.
March 31, 1998 /S/
------------------------------------------------
John R. Fuisz
March 31, 1998 /S/
------------------------------------------------
Louis Lauer
March 31, 1998 /S/
------------------------------------------------
Antone J. Lazos
March 31, 1998 /S/
------------------------------------------------
Kenneth W. McVey
March 31, 1998 /S/
------------------------------------------------
Donald E. O'Neill
March 31, 1998 /S/
------------------------------------------------
Fredrik C. Schreuder
March 31, 1998 /S/
------------------------------------------------
Daniel Tierney
</TABLE>
Page 30
<PAGE> 32
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
FUISZ TECHNOLOGIES LTD.
We have audited the accompanying consolidated balance sheets of Fuisz
Technologies Ltd. and its subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Fuisz
Technologies Ltd. and its subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
McLean, Virginia
February 25, 1998
F-2
<PAGE> 34
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,548 $ 5,282
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,134 55,218
Accounts receivable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,237 1,997
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,375 --
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,263 250
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,557 62,747
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,255 --
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . 22,941 4,958
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,883 116
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,484 1,262
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,120 $ 69,083
========= =========
LIABILITIES, REDEEMABLE PREFERENCE SHARES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,042 $ --
Current portion of notes payable . . . . . . . . . . . . . . . . . . . . . . . . 2,605 --
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,047 2,470
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,305 1,051
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622 1,371
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 17,621 4,892
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,055 --
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,131 --
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532 --
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,339 4,892
--------- ---------
Commitments and contingencies
Redeemable preference shares of subsidiary . . . . . . . . . . . . . . . . . . . . . 1,173 --
--------- ---------
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 1,000,000 shares;
none issued or outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $.01 per share; authorized 50,000,000 shares;
issued and outstanding 22,189,462 and 20,684,529 shares, respectively . . . . . 222 207
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,332 93,419
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,055) (29,435)
Cumulative foreign currency translations . . . . . . . . . . . . . . . . . . . . . (891) --
-------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,608 64,191
-------- ---------
Total liabilities, redeemable preference shares and stockholders' equity $170,120 $ 69,083
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 35
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Operating revenues:
Product sales ........................................... $ 11,968 $ 48 $ 56
Research and development ................................ 5,390 2,426 2,002
Licensing fees .......................................... 4,630 5,760 3,400
Royalties ............................................... 210 292 200
--------- --------- ---------
Total operating revenues ............................ 22,198 8,526 5,658
--------- --------- ---------
Operating expenses:
Cost of sales ........................................... 7,807 -- --
Research and development ................................ 16,110 8,740 4,352
General and administrative .............................. 12,272 8,862 4,103
Depreciation and amortization ........................... 2,439 703 387
Other operating expenses ................................ 4,694 -- --
--------- --------- ---------
Total operating expenses ............................. 43,322 18,305 8,842
--------- --------- ---------
Net operating loss .......................................... (21,124) (9,779) (3,184)
--------- --------- ---------
Other income (expense):
Interest income ......................................... 3,013 2,977 193
Interest expense ........................................ (1,490) (4) (280)
--------- --------- ---------
Total other income (expense) ......................... 1,523 2,973 (87)
--------- --------- ---------
Net loss .................................................... $(19,601) $ (6,806) $ (3,271)
========= ========= =========
Net loss per share (basic and diluted) ...................... $ (0.92) $ (0.35) $ (0.34)
========= ========= =========
Weighted average shares outstanding (basic and diluted) ..... 21,234 19,496 9,763
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 36
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK
--------------- ------------ -------------- ADDITIONAL
PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 .............. 1,323,356 $ 13,233 8,794,368 $ 87,945 -- $ -- $ 21,521,940
Issuance of warrants in connection with
debt financing ...................... -- -- -- -- -- -- 224,000
Initial public offering of Common
Stock, $8.00 per share,
net of expenses ..................... -- -- 4,125,000 41,250 -- -- 29,743,783
Conversion of Series A, B, C and D
Convertible Preferred Stock ......... (1,323,356) (13,233) 4,621,845 46,218 -- -- (32,985)
Conversion of Convertible
Subordinated Notes .................. -- -- 497,774 4,977 -- -- 2,995,023
Amortization of deferred compensation ... -- -- -- -- -- -- --
Net loss ................................ -- -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------- ------------
Balance, December 31, 1995 .............. -- -- 18,038,987 180,390 -- -- 54,451,761
Secondary public offering of Common
Stock, $25.00 per share,
net of expenses ..................... -- -- 1,894,550 18,946 -- -- 35,763,738
Repayment of obligations under Section
16(b) of the Securities
Exchange Act of 1934 ................ -- -- -- -- -- -- 40,107
Exercise of stock options ............... -- -- 430,880 4,308 -- -- 897,029
Exercise of warrants .................... -- -- 39,160 392 -- -- 129,402
Purchase of treasury stock .............. -- -- -- -- (100,000) (775,004) --
Issuance of 380,952 shares of stock in
connection with employment
agreement ................ -- -- 280,952 2,809 100,000 775,004 2,222,184
Amortization of deferred compensation ... -- -- -- -- -- -- (85,743)
Net loss ................................ -- -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------- ------------
Balance, December 31, 1996 .............. -- -- 20,684,529 206,845 -- -- 93,418,478
Exercise of stock options ............... -- -- 215,699 2,157 -- -- 740,876
Exercise of warrants .................... -- -- 194,828 1,949 -- -- 995,469
Issuance of 1,000,000 warrants in
connection with license agreement ... -- -- -- -- -- -- 2,293,829
Common stock issued in connection with
business acquisitions ............... -- -- 1,094,406 10,944 -- -- 11,882,855
Foreign currency
translation adjustments ............. -- -- -- -- -- -- --
Dividends on redeemable
preference shares ................... -- -- -- -- -- -- --
Net loss ................................ -- -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------- ------------
Balance, December 31, 1997 .............. -- $ -- 22,189,462 $ 221,895 -- $ -- $109,331,507
========== ========== ========== ========= ========= ========= ============
</TABLE>
<TABLE>
<CAPTION>
DEFERRED
CUMULATIVE COMPENSATION
FOREIGN ON STOCK
ACCUMULATED CURRENCY OPTIONS
DEFICIT TRANSLATIONS GRANTED TOTAL
------- ------------ ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1994 .............. $(19,357,887) $ -- $ (325,267) $ 1,939,964
Issuance of warrants in connection with
debt financing ...................... -- -- -- 224,000
Initial public offering of Common
Stock, $8.00 per share,
net of expenses ..................... -- -- -- 29,785,033
Conversion of Series A, B, C and D
Convertible Preferred Stock ......... -- -- -- --
Conversion of Convertible
Subordinated Notes .................. -- -- -- 3,000,000
Amortization of deferred compensation ... -- -- 224,014 224,014
Net loss ................................ (3,271,103) -- -- (3,271,103)
------------- ---------- ----------- ------------
Balance, December 31, 1995 .............. (22,628,990) -- (101,253) 31,901,908
Secondary public offering of Common
Stock, $25.00 per share,
net of expenses ..................... -- -- -- 35,782,684
Repayment of obligations under Section
16(b) of the Securities
Exchange Act of 1934 ................ -- -- -- 40,107
Exercise of stock options ............... -- -- -- 901,337
Exercise of warrants .................... -- -- -- 129,794
Purchase of treasury stock .............. -- -- -- (775,004)
Issuance of 380,952 shares of stock in
connection with employment agreement -- -- -- 2,999,997
Amortization of deferred compensation ... -- -- 101,253 15,510
Net loss ................................ (6,805,693) -- -- (6,805,693)
------------- ---------- ----------- ------------
Balance, December 31, 1996 .............. (29,434,683) -- -- 64,190,640
Exercise of stock options ............... -- -- -- 743,033
Exercise of warrants .................... -- -- -- 997,418
Issuance of 1,000,000 warrants in
connection with license agreement ... -- -- -- 2,293,829
Common stock issued in connection with
business acquisitions ............... -- -- -- 11,893,799
Foreign currency translation
adjustments ......................... -- (891,000) -- (891,000)
Dividends on redeemable preference
shares .............................. (19,000) -- -- (19,000)
Net loss ................................ (19,601,000) -- -- (19,601,000)
------------- ---------- ----------- ------------
Balance, December 31, 1997 .............. $(49,054,683) $(891,000) $ -- $59,607,719
============= ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 37
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED,
DECEMBER 31,
-------------------------------------------
1997 1996 1995
----------- --------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss ..................................................... $(19,601) $ (6,806) $ (3,271)
Adjustments to reconcile net loss to net cash used by
operating activities, net of effects of
business acquisitions:
Depreciation and amortization ............................. 2,439 703 387
Amortization of deferred financing costs .................. 74 -- --
Amortization of discount on notes payable ................. 364 -- --
Noncash compensation expense .............................. -- 3,015 224
Noncash warrant issue expense ............................. 2,294 -- --
Noncash interest expense .................................. -- -- 224
Increase (decrease) in cash resulting from changes in working
capital items, net of effects of business acquisitions:
Accounts receivable and other current assets .............. (2,703) (2,050) (51)
Accounts payable and other liabilities 873 2,458 863
--------- --------- ---------
Net cash used by operating activities .................. (16,260) (2,680) (1,624)
--------- --------- ---------
Investing activities:
Increase in marketable securities ............................ (28,171) (45,051) (10,167)
Capital expenditures ......................................... (12,789) (4,449) (108)
Acquisitions of businesses, net of acquired cash ............. (8,021) -- --
Additions to intangibles ..................................... (2,403) -- --
Increase in other assets ..................................... (2,068) (1,114) (4)
--------- --------- ---------
Net cash used by investing activities...... ............ (53,452) (50,614) (10,279)
--------- --------- ---------
Financing activities:
Net proceeds from sale of subordinated convertible debentures 72,750 -- --
Net proceeds from sale of Common Stock ....................... -- 35,824 30,251
Purchases of treasury stock .................................. -- (775) --
Proceeds from exercise of stock options ...................... 743 901 --
Proceeds from exercise of stock warrants ..................... 997 130 --
Net borrowings under line of credit agreements ............... (1,338) -- --
Payments of debt obligations ................................. (2,283) (58) (82)
--------- --------- ---------
Net cash provided by financing activities...... ........ 70,869 36,022 30,169
--------- --------- ---------
Effect of exchange rate changes on cash .......................... (891) -- --
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............. 266 (17,272) 18,266
Cash and cash equivalents, beginning of period ................... 5,282 22,554 4,288
--------- --------- ---------
Cash and cash equivalents, end of period ......................... 5,548 5,282 22,554
Marketable securities, end of period ............................. 83,389 55,218 10,167
--------- --------- ---------
Cash, cash equivalents and marketable securities, end of period . $ 88,937 $ 60,500 $ 32,721
========= ========= =========
Supplemental cash flow disclosures:
Cash paid for interest ....................................... $ 105 $ 52 $ 310
========= ========= =========
Noncash investing and financing activities:
Conversion of debt into equity ............................. $ -- $ -- $ 3,000
========= ========= =========
Equipment acquired under capital leases .................... $ -- $ -- $ 45
========= ========= =========
Offering and acquisition costs financed in accounts payable $ 406 $ -- $ 466
========= ========= =========
Common stock issued in connection with business acquisitions $ 11,894 $ -- $ --
========= ========= =========
Issuance of installment notes in connection with business
and product acquisitions, net of discount of $2,082 ...... $ 15,437 $ -- $ --
========= ========= =========
Accrued dividends .......................................... $ 19 $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 38
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Business
Fuisz Technologies Ltd., a Delaware corporation, was formed on June 9, 1988
(Fuisz Technologies Ltd., together with its wholly owned subsidiaries, is
referred to collectively herein as the "Company"). The Company is engaged in
the development, manufacture and commercialization of its proprietary
technologies for a wide range of pharmaceutical, nutraceutical and food
applications. The Company's primary focus is on the commercialization of
products incorporating its CEFORM microsphere technology and its Shearform
technology, including controlled release and rapid dissolve over-the-counter
("OTC") and prescription (or "ethical") pharmaceuticals.
Prior to the quarter ended September 30, 1997, the Company did not have
significant commercial revenues and its efforts had been principally devoted to
research and development; therefore, the Company was considered to be in the
development stage. However, as a result of the Company's 1997 business
acquisitions (see note 3) and the launch of its Soft Chew calcium supplements,
the Company's operating revenues for the quarters ended September 30, 1997 and
December 31, 1997, include product sales of $2,567,000 (unaudited) and
$8,668,000 (unaudited), respectively, or 87% and 75% of total operating
revenues, respectively. Commencing with the quarter ended September 30, 1997,
the Company is no longer considered to be in the development stage.
Registration statements
On December 20, 1995, the Company completed its Initial Public Offering (the
"Offering") of 4,125,000 shares of Common Stock at a price of $8.00 per share.
The Company received net proceeds from the Offering of approximately $29.8
million.
On May 3, 1996, the Company completed a secondary offering (the "Secondary
Offering") of 3,900,000 shares of common stock at a price of $25.00 per share.
Of the 3,900,000 shares of common stock offered in the Secondary Offering,
1,125,000 shares were sold by the Company and 2,775,000 shares were sold by
certain selling stockholders. Pursuant to the underwriters over-allotment
option for the Secondary Offering, on May 9, 1996, the Company sold an
additional 368,000 shares of common stock and certain selling stockholders sold
an additional 217,000 shares of common stock at a price of $25.00 per share.
The Company did not receive any proceeds from the sale of shares by the selling
stockholders, except for $1.1 million relating to the exercise of 401,550 stock
options. The Company received net proceeds from the Secondary Offering
(including the $1.1 million relating to the exercise of stock options and the
sale of the additional shares pursuant to the underwriters over-allotment
option) of approximately $35.8 million.
On October 22, 1997, the Company privately placed $75.0 million aggregate
principal amount of 7% Convertible Subordinated Debentures (the "Debentures" -
see note 11 for description) due October 15, 2004, which were resold under Rule
144A and Regulation S of the Securities Act of 1933. The Company received net
proceeds of approximately $72.8 million related to the sale of the Debentures.
The Company subsequently filed a registration statement for the Debentures and
the underlying Common Stock, which was declared effective on December 8, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Fuisz
Technologies Ltd. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
Foreign currency translation
The financial statements of the foreign subsidiaries were prepared in their
respective local currencies and translated into U.S. dollars based on the
current exchange rate at the end of the period for the balance sheet and a
weighted-average rate for the period on the statement of operations.
Translation adjustments are reflected as foreign currency translation
adjustments in
F-7
<PAGE> 39
Stockholders' Equity and accordingly have no effect on net loss. Transaction
adjustments for all foreign subsidiaries are included as part of net loss.
Net loss per share
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." Basic earnings per share is computed
by dividing the net loss available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net earnings available to common
shareholders by the weighted average number of common shares outstanding after
giving effect to all dilutive potential common shares that were outstanding
during the period. Potential common shares are not included in the computation
of diluted earnings per share if they are antidilutive. The Company did not
have any dilutive potential common shares for the years ended December 31,
1997, 1996 and 1995. Net loss available to common stockholders was increased
by $19,000 for dividends payable on redeemable preference shares for the year
ended December 31, 1997. Net loss available to common stockholders was not
adjusted for the year ended December 31, 1996. Earnings per share for all
other periods presented conforms to SFAS No. 128.
Research and development and license fees
The Company has entered into various collaborative arrangements with major
U.S. and international pharmaceutical and consumer products companies. Research
and development fees received that relate to future periods of performance are
deferred and are recognized over the period of performance under the terms of
the related agreements. License fees are recognized as revenue pursuant to the
terms of the related agreements.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with a maturity
of three months or less to be cash equivalents.
Concentration of Risks
The Company has invested its excess cash generally in obligations of the
United States Government, commercial paper and money market funds with strong
credit ratings and deposits with a commercial bank. The Company has not
experienced any losses on its investments. The Company's accounts receivable
are due primarily from its collaborative partners. The Company periodically
assesses the amounts due from these collaborative partners and provides
allowances for anticipated losses when necessary. At December 31, 1997 and
1996, there were no significant allowances for doubtful accounts.
The Company derives a significant portion of its consolidated revenues from
its European operations (see note 15).
The Company had one customer (13% from Customer A) during 1997, three
customers (37% from Customer B, 24% from Customer C and 17% from Customer D)
during 1996 and three customers (56% from Customer B, 15% from Customer E and
11% from Customer F) during 1995 that accounted for more than 10% of total
consolidated revenues. At December 31, 1997, none of the Company's customers
accounted for greater than 10% of total consolidated accounts receivable.
There were four customers at December 31, 1996, that accounted for 85% of total
consolidated accounts receivable.
Inventory
Inventory is stated at the lower of cost (principally standard cost which
approximates actual cost on a first-in, first-out basis) or market.
Property and equipment
Furniture and equipment is carried at cost and depreciated using the
straight-line method over estimated useful lives ranging from three to eight
years. Buildings are carried at cost and depreciated using the straight-line
method over estimated useful lives of forty years. Equipment acquired under
capital leases is recorded at the present value of the lease payments and
amortized over estimated useful lives ranging from three to seven years.
Leasehold improvements are carried at cost and amortized using the
straight-line method over the lesser of the estimated useful life or the
remaining lease term. Amortization of construction-in-progress will begin when
construction is complete. Expenditures for maintenance and repairs are charged
to
F-8
<PAGE> 40
operating expense when incurred. When items are sold or retired, the related
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in the statement of operations.
Intangible assets
Goodwill and the cost of acquired trademarks, product licenses and patents
are amortized on a straight-line basis over periods ranging from 5 to 20 years.
Long-lived Assets
The Company evaluates the recoverability of the carrying value of property
and equipment and intangible assets in accordance with the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
Of." The Company considers historical performance and anticipated future
results in its evaluation of potential impairment. Accordingly, when
indicators of impairment are present, the Company evaluates the carrying value
of these assets in relation to the operating performance of the business and
future and undiscounted cash flows expected to result from the use of these
assets. Impairment losses are recognized when the sum of expected future cash
flows are less than the assets' carrying value. No such impairment losses have
been recognized to date.
Income taxes
Deferred income taxes are recognized for the tax consequences in future years
of differences between the financial statement and tax bases of assets and
liabilities at each year-end, based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances have been established to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is the sum
of tax payable for the period and the change during the period in deferred tax
assets and liabilities.
Fair value of financial instruments
The Company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents, marketable securities, accounts
receivable, accounts payable, accrued liabilities, term loans and installment
notes approximate fair value due to the relatively short maturity of these
instruments. The fair value of the Debentures as of December 31, 1997 was
approximately $67,500,000.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued two new standards which
are effective for reporting periods beginning after December 15, 1997. SFAS
No. 130, "Reporting Comprehensive Income," requires additional disclosures with
respect to certain changes in assets and liabilities that previously were not
required to be reported as results of operations for the period. The Company
will begin making the additional disclosures required by SFAS No. 130 in the
first quarter of 1998. SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," requires financial and descriptive
information with respect to "operating segments" of an entity based on the way
management makes internal operating decisions. The Company will begin making
the disclosures required by SFAS No. 131 with financial statements for the
period ending December 31, 1998.
3. ACQUISITIONS
During 1997, the Company acquired four companies (the "Acquired
Companies"), each of which have been accounted for as a purchase and,
accordingly, their operating results have been included in the Company's
consolidated financial statements since the respective dates of acquisition.
F-9
<PAGE> 41
Laboratoires Murat
In April 1997, the Company acquired all of the outstanding capital
stock of Laboratoires Murat ("Murat"), a privately-owned pharmaceutical sales
and distribution company based in Paris, France for an aggregate purchase price
of approximately $5.0 million in cash, which includes acquisition costs. The
excess of the aggregate purchase price over the fair market value of net assets
acquired of approximately $4.5 million is being amortized over 10 years.
Pangea, Ltd.
In May 1997, the Company acquired all of the outstanding capital stock
of Pangea, Ltd. ("Pangea"), a U.S. nationwide marketer of nutritional
supplements and skincare products, for approximately $1.1 million in cash,
which includes acquisition costs. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $2.0 million
is being amortized over 10 years.
Prior to the closing of the transaction, one of the Company's
directors was also a director and stockholder of Pangea. At the closing, the
director received $500,000 of the purchase price for his Pangea shares and
repayment in full of $200,000 in loans to Pangea. In addition, the Company's
Chairman was also a director of Pangea but received no compensation with
respect thereto.
Clonmel Healthcare Limited
In September 1997, the Company acquired all of the outstanding
ordinary share capital of Clonmel Healthcare Limited ("Clonmel"), a private
manufacturer of branded generic pharmaceutical products in the Republic of
Ireland. The total consideration of $22.1 million consisted of : (i) one
million shares of common stock of the Company, valued at a price of $10.65 per
share (based on the weighted average price of shares traded from July 25, 1997
to July 31, 1997), which are subject to a contractual restriction on transfer,
(ii) an IRL8,335,000 ($12,327,000 at the date of acquisition) non-interest
bearing note due in three installments through January 2000 (the payments of
which have been financed with a bank term loan facility) and (iii) related
acquisition costs. In addition, $500,000 of contingent consideration is
payable to the seller if Clonmel executes certain contracts for the manufacture
and supply of various pharmaceutical products. The face amount of the
installment note has been discounted at a rate of 10%. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $14.6 million is being amortized over 20 years.
Redeemable preference shares. In connection with the acquisition of
Clonmel, the Company assumed the obligation of the 750,000 cumulative
redeemable preference shares of Clonmel. Cumulative dividends of 3% on 300,000
shares and 6.5% on 450,000 shares are payable annually. The Company is
required to redeem 150,000 shares in February 1998 and 600,000 shares in June
1998 at a redemption rate of IRL1 per share plus accrued dividends.
Istoria Farmaceutici
In October 1997, the Company acquired substantially all of the
outstanding stock of Istoria Farmaceutici ("Istoria"), a marketer of
pharmaceutical products based in Padova, Italy. The total consideration
consisted of : (i) 94,406 shares of common stock of the Company, valued at a
price of $13.17 per share (based on the weighted average price of shares traded
during the period September 9, 1997 to September 15, 1997) and (ii) $2.2
million in cash, which includes acquisition costs. The excess of the aggregate
purchase price over the fair market value of net assets acquired of
approximately $2.6 million is being amortized over 10 years.
F-10
<PAGE> 42
Pro forma information
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the Acquired Companies as
if the acquisitions had occurred January 1, 1996 (a full year of goodwill
amortization and interest cost is included for both 1997 and 1996).
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
---------------------
1997 1996
------ ------
<S> <C> <C>
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,062 $ 41,813
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,059) (10,336)
Net loss per share (basic and diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.00) $ (0.50)
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only. They do not purport to be indicative of the results of
operations which actually would have resulted had the Acquired Companies been
included in the Company's consolidated financial statements as of January 1,
1996. In addition, they do not purport to be indicative of future consolidated
results of operations of the Company.
Subsequent Acquisition
In March 1998, the Company completed the acquisition of all of the
issued and outstanding equity interests of Dr. Rentschler GmbH & Co. Medizin
KG ("Dr. Rentschler"), a subsidiary of Dr. Rentschler Arzneimittel GmbH & Co.,
a pharmaceutical sales and distribution company based in Laupheim, Germany, for
an aggregate purchase price of DM 35.0 million (approximately $19.2 million) in
cash.
4. MARKETABLE SECURITIES
Marketable securities at December 31, 1997 and 1996, are carried at amortized
cost and consist of direct obligations of the United States Government and
commercial paper with strong credit ratings with remaining maturities of one to
three years. These investments are considered as available-for-sale as defined
by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company's investments are held for an unspecified period of
time and are sold to meet its liquidity needs. Accordingly, the Company has
classified these investments as current assets. Amortized cost of marketable
securities approximates market; therefore, no adjustment has been made to
stockholders equity as a result of changes in market value to these securities.
Interest income is accrued as earned.
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
U.S. Government and its agencies ........................................................ $ 19,763 $ 37,754
U.S. debt securities .................................................................... 23,929 17,464
Commercial paper/certificates of deposit ................................................ 29,442 --
--------- ---------
$ 73,134 $ 55,218
========= =========
</TABLE>
5. INVENTORY
Inventory consists of the following at December 31, 1997.
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
1997
---------------
<S> <C>
Raw materials .......................................................................... $ 1,874
Work in process ........................................................................ 1,130
Finished goods ......................................................................... 2,371
--------
$ 5,375
========
</TABLE>
F-11
<PAGE> 43
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, stated at cost, is comprised of the following
at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------
1997 1996
---------- -----------
<S> <C> <C>
Buildings ........................................................................... $ 4,834 $ --
Production and laboratory equipment ................................................. 10,118 4,356
Office furniture, computers and equipment ........................................... 2,442 1,094
Leasehold improvements .............................................................. 1,107 754
Construction-in-progress ............................................................ 7,510 607
-------- ---------
26,011 6,811
Less accumulated depreciation and amortization ...................................... (3,070) (1,853)
--------- ---------
$ 22,941 $ 4,958
========= =========
</TABLE>
Construction-in-progress consists primarily of costs incurred in connection
with the design and construction of the Company's manufacturing and lab
facilities.
7. INTANGIBLE ASSETS
Intangible assets, stated at cost, consists of the following at December 31,
1997 and 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------
1997 1996 USEFUL LIVES
------------- ---------- ----------------
<S> <C> <C> <C>
Goodwill ................................................................ $ 23,649 $ -- 10 - 20
Product licenses/trademarks ............................................. 12,163 -- 5 - 10
Patents and other ....................................................... 290 187 5 - 17
---------- ---------
36,102 187
Less accumulated amortization ........................................... (1,219) (71)
---------- ---------
$ 34,883 $ 116
========== =========
</TABLE>
Amortization expense was $1,001,000 and $12,000 for the years ended December
31, 1997 and 1996, respectively.
8. ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other consists of the following at December 31, 1997
and 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Interest payable ................................................................... $ 1,090 $ --
Personnel costs .................................................................... 1,233 660
Other .............................................................................. 1,982 391
--------- --------
$ 4,305 $ 1,051
========= ========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain of its office, laboratory, warehouse and operating
facilities under operating leases which expire at various dates through the
year 2005. Most of the leases provide the Company with certain early
cancellation rights, as well as renewal options. The facility leases generally
require the Company to pay for utilities, taxes, insurance and maintenance
costs, in addition to the base rent, which, generally increases by 3% per annum
after the first year. Total rent expense for facility leases was approximately
$818,000, $522,000 and $380,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
F-12
<PAGE> 44
The Company has a $15.0 million equipment leasing line of credit (the
"Equipment LOC") with an outside group of lenders. The Equipment LOC is
available through June 30, 1999 and provides equipment financing under three or
four year operating leases. These operating leases provide the Company with
the option after the initial lease term either to purchase the property at the
then fair value or renew its lease at the then fair rental value for a
negotiated renewal term. The Company has leased certain of its equipment under
this Equipment LOC as well as other operating leases which expire at various
dates through the year 2001. Total rent expense for equipment leases was
approximately $283,000, for the year ended December 31, 1997 (1996 and 1995
amounts were not material).
Future minimum lease payments required under operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR (IN THOUSANDS)
---- -----------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,053
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,025
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,028
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,874
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,157
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . 2,648
----------
Total $ 11,785
============
</TABLE>
Capital leases
The Company also leases certain of its equipment under capital leases. As of
December 31, 1997, property, plant and equipment includes $251,000 (net of
$39,000 of accumulated amortization) of assets under capital leases. During
January 1998, the Company entered into an office equipment capital lease valued
at approximately $349,000. Future minimum payments under these capital leases
are as follows:
<TABLE>
<CAPTION>
YEAR (IN THOUSANDS)
---- ----------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 144
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
-----------
Total minimum lease payment . . . . . . . . . . . . . . . . . . 580
Less amount representing interest . . . . . . . . . . . . . . . (29)
-----------
Present value of net minimum lease payments . . . . . . . . . . $ 551
===========
</TABLE>
Legal proceedings
In April 1996, a former officer of the Company filed a lawsuit alleging among
other things breach of contract under various stock option and employment
agreements. In July 1997, the Company reached a settlement of this matter and
the lawsuit was dismissed with prejudice. The Company recorded a one-time
non-recurring charge of $2.4 million during the second quarter of 1997 related
to the settlement.
10. LINES OF CREDIT
The Company has several international banking lines of credit which allow it
to borrow in the applicable local currency. These lines of credit total $2.4
million (using exchange rates as of December 31, 1997) and are concentrated in
Ireland, France and Italy. The Company's lines of credit generally provide
borrowing at the bank reference rate plus 1-2%, which varies depending on the
country where the funds are borrowed.
F-13
<PAGE> 45
11. NOTES PAYABLE
Notes payable consists of the following at December 31, 1997:
<TABLE>
<CAPTION>
DESCRIPTION (IN THOUSANDS)
----------- -----------------
<S> <C>
Convertible subordinated debentures ............................................... $ 75,000
Clonmel installment notes, net of discount of $861 ................................ 11,041
Term loans and other, net of discount of $870 ..................................... 6,619
------------
92,660
Less current portion .............................................................. (2,605)
------------
Long-term notes payable ........................................................... $ 90,055
============
</TABLE>
Convertible subordinated debentures. On October 22, 1997, the Company
privately placed $75.0 million aggregate principal amount of 7% Convertible
Subordinated Debentures (the "Debentures") due October 15, 2004 which were
resold under Rule 144A and Regulation S of the Securities Act of 1933. The
Company received net proceeds of approximately $72.8 million related to the
sale of the Debentures. The Debentures are convertible into the Company's
common stock at the option of the holder at any time at or before maturity,
unless previously redeemed, at $13.25 per share, subject to adjustment upon the
occurrence of certain events. The Debentures are subordinated to the Company's
present and future Senior Indebtedness (as defined). The Debentures are
redeemable in whole or in part, at the option of the Company, at 104%, 103%,
102% and 101% in 2000, 2001, 2002 and 2003, respectively. Interest is payable
semiannually on April 15 and October 15.
Clonmel installment notes. In connection with the acquisition in September
1997 of Clonmel, the Company is obligated under an IRL8,335,000 ($12,327,000 at
the date of acquisition) non-interest bearing note due in three installments
through January 2000 (the payments of which have been financed with a bank term
loan facility). The face amount of the installment note has been discounted at
a rate of 10%.
Payment of the Clonmel installment notes is guaranteed by a bank. In support
of the guarantee, the Company pledged approximately $10.3 million in cash and
all of Clonmel's assets. The cash which is pledged under this guarantee is
shown as restricted marketable securities in the accompanying consolidated
balance sheets.
Term loans and other. The Company has several term loans with banks in
Ireland, France and Italy. These term loans are payable in quarterly or annual
installments plus interest generally at rates equal to the banks reference rate
plus 1 - 2%. The term loans mature at various dates through the year 2002. In
addition, the Company has installment note obligations for the purchase of
product and trademark rights which have generally been discounted at a rate of
10%.
The weighted average interest rate on all of the above notes payable was 7.5%
at December 31, 1997. Total long-term debt maturities during each of the five
years ending December 31, 2002 are $2,605,000, $2,084,000, $1,748,000,
$1,777,000 and $11,425,000.
12. CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock and 1,000,000 shares of undesignated Preferred Stock. None of the
Preferred Stock is outstanding. The Company has reserved sufficient shares of
Common Stock for issuance upon exercise of stock options and stock warrants.
Stock Repurchase Program
In November 1996, the Board of Directors authorized a stock repurchase
program under which the Company is authorized to repurchase up to 1,000,000
shares of the Company's common stock for reissuance upon the exercise of
employee stock options and for other compensation programs utilizing the
Company's stock. During 1996, the Company repurchased 100,000 shares of common
stock at a cost of approximately $775,000. In December 1996, the 100,000
repurchased shares were reissued to an officer/director of the Company in
connection with an employment agreement.
F-14
<PAGE> 46
Preferred stock
Pursuant to the closing of the Offering in 1995, each share of the Series A,
Series B, Series C and Series D Convertible Preferred Stock converted
automatically into shares of Common Stock at the rates of 3.0000:1, 4.5045:1,
3.0426:1, and 3.8462:1, respectively. Upon the closing of the Offering, the
Company eliminated all series of convertible preferred stock.
Options and Stock Purchase Plans
The Board of Directors has adopted the 1991 Stock Option Plan (the "1991
Option Plan"), the 1994 Stock Incentive Plan (the "1994 Option Plan"), the 1994
Employee Stock Purchase Plan (the "Stock Purchase Plan"), and the 1994 Director
Stock Option Plan (the "Director Option Plan") (collectively, the "Plans")
under which 4,900,000 shares of Common Stock have been reserved for issuance
upon exercise of options granted to officers, employees, directors and
consultants of the Company.
The Company's 1991 Option Plan provided for formula option awards to
non-employee directors and discretionary awards to employees, consultants,
advisors, officers, or directors of the Company. In May 1994, the Board adopted
and the stockholders of the Company approved the 1994 Option Plan, the Stock
Purchase Plan and the Director Option Plan and provided that no further grants
may be made under the 1991 Option Plan.
Under the Company's 1994 Option Plan, a variety of awards, including stock
options, stock appreciation rights and restricted and unrestricted stock grants
may be made to the Company's employees, officers, consultants and advisors who
are expected to contribute to the Company's future growth and success. The
Compensation Committee of the Board of Directors administers the 1994 Option
Plan and determines the price and other terms upon which awards shall be made.
Stock options may be granted either in the form of incentive stock options or
non-statutory stock options and are granted at fair market value. Options or
other awards that are granted under the Plan but expire unexercised are
available for future grants.
Under the Company's Stock Purchase Plan, which has been inactive through
December 31, 1997, employees and officers of the Company are eligible to
participate in semiannual plan offerings in which payroll deductions may be
used to purchase shares of Common Stock. The purchase price of such shares is
85% of the fair market value of the Common Stock at the lower of the value at
either the commencement date or termination date of the offering under the
Stock Purchase Plan.
The Director Option Plan provides that each new non-employee director first
elected will receive a nonstatutory option to purchase 30,000 shares of Common
Stock upon his or her initial election. In addition, each non-employee director
will receive an annual nonstatutory option to purchase 3,000 shares of Common
Stock under the Director Option Plan during his or her tenure. All options
granted to directors under the Director Option Plan have an exercise price
equal to the fair market value of the Common Stock on the date of grant and
expire the earlier of 90 days after the optionee ceases to serve as a director
of the Company or ten years after the date of grant. Options granted under the
Director Option Plan are fully vested and are exercisable when granted.
Options granted under the 1991 Option Plan and the 1994 Option Plan generally
vest over a two- to four-year period. Options to purchase approximately
1,918,000 and 1,471,000 shares were vested and exercisable at December 31, 1997
and 1996, respectively, with weighted average exercise prices of $6.12 and
$7.38, respectively. The weighted average fair value per share of options
granted during 1997 and 1996 was $4.79 and $11.26, respectively. As of December
31, 1997, the weighted average remaining contractual life of options
outstanding was 7.9 years. Options outstanding at December 31, 1997 have
exercise prices ranging from $1.78 to $25.00, respectively. Options of
approximately 475,000 shares were available for future grant at December 31,
1997, under all plans. Stock option activity since December 31, 1994 is as
follows:
F-15
<PAGE> 47
<TABLE>
<CAPTION>
1994 WEIGHTED
1991 1994 DIRECTOR AVERAGE
STOCK STOCK STOCK EXERCISE
PRE-PLAN OPTION INCENTIVE OPTION PRICE
GRANTS PLAN PLAN PLAN TOTAL PER SHARE
----------- --------- ---------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ..... 287,850 1,914,336 361,500 30,000 2,593,686 $ 2.80
Granted ................... -- -- 984,777 15,000 999,777 $ 8.01
Exercised ................. -- -- -- -- -- --
Forfeited ................. (91,950) (518,420) (111,000) -- (721,370) $ 3.66
-------- --------- --------- -------- ----------
Balance, December 31,. 1995 .... 195,900 1,395,916 1,235,277 45,000 2,872,093 $ 4.57
Granted ................... -- -- 798,350 15,000 813,350 $ 17.94
Exercised ................. (195,900) (596,630) (39,900) -- (832,430) $ 2.43
Forfeited ................. -- (39,750) (345,800) -- (385,550) $ 16.38
--------- --------- --------- -------- ----------
Balance, December 31, 1996 ..... -- 759,536 1,647,927 60,000 2,467,463 $ 8.02
Granted ................... -- -- 1,246,175 100,000 1,346,175 $ 8.43
Exercised ................. -- (146,325) (39,374) (30,000) (215,699) $ 3.45
Forfeited ................. -- (1,125) (314,834) -- (315,959) $ 22.32
--------- --------- --------- -------- ----------
Balance, December 31, 1997 ..... -- 612,086 2,539,894 130,000 3,281,980 $ 7.05
========= ========= ========= ======== ==========
</TABLE>
The following table summarizes additional information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted Weighted
Average Weighted Average
Remaining Average Exercise
Range of Number Contractual Exercise Number Price of
Exercise Prices Outstanding Life Price Exercisable Exercisable
------------------------ --------------- --------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 0.0000 - $ 2.5000 70,500 3.3 $ 1.78 70,500 $ 1.78
$ 2.5001 - $ 5.0000 802,838 5.9 $ 3.47 746,084 $ 3.47
$ 5.0001 - $ 7.5000 739,600 8.8 $ 7.20 302,500 $ 7.22
$ 7.5001 - $ 10.0000 1,377,792 8.5 $ 8.33 705,525 $ 8.07
$ 10.0001 - $ 12.5000 218,400 9.2 $ 11.00 61,921 $ 10.98
$ 12.5001 - $ 15.0000 67,850 9.2 $ 13.14 26,668 $ 13.00
$ 22.5001 - $ 25.0000 5,000 8.3 $ 25.00 5,000 $ 25.00
--------- --- -------- --------- --------
3,281,980 7.9 $ 7.05 1,918,198 $ 6.12
========= === ======== ========= ========
</TABLE>
During 1996, the Board of Directors authorized the exchange of 134,800 stock
options originally granted during 1996 under the 1994 Stock Incentive Plan at
exercise prices ranging from $8.00 to $30.25 for 134,800 stock options having
an exercise price of $10.375 and $7.6875, the fair market value on the dates of
exchange.
During 1997, the Board of Directors authorized the exchange of 287,500 stock
options originally granted during 1996 under the 1994 Stock Incentive Plan at
exercise prices ranging from $15.17 to $25.00 for 287,500 stock options having
an exercise price of $7.25, the fair market value on the date of exchange.
The Company has adopted the disclosure-only provisions of SFAS No. 123 as
they pertain to financial statement recognition of compensation expense
attributable to option grants. If the Company had elected to recognize
compensation cost for the 1994 Stock Incentive Plan and the 1994 Director Stock
Option Plan consistent with SFAS No. 123, the Company's net loss and net loss
per share on a proforma basis would be:
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net loss -- as reported .................................................... $ (19,601) $ (6,806)
Net loss -- pro forma ...................................................... (24,497) (10,931)
Net loss per share (basic and diluted) -- as reported ...................... (0.92) (0.35)
Net loss per share (basic and diluted) -- pro forma ........................ (1.15) (0.56)
</TABLE>
F-16
<PAGE> 48
The fair value of each option grant was estimated using the Black-Scholes
option pricing model with the following weighted average assumptions for each
year:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Risk-free interest rate ............................................................ 6.28% 6.33%
Expected life of options -- years .................................................. 6 6
Expected stock price volatility .................................................... 50% 70%
Expected dividend yield ............................................................ 0.0% 0.0%
</TABLE>
Warrants
In connection with the issuance of convertible notes payable in May 1994, the
Company issued warrants to purchase an aggregate of 60,000 shares of Common
Stock. These warrants have an exercise price of approximately $5.30 per share
and expire in May 1999. As of December 31, 1997, all of these warrants are
outstanding. The Company estimated a fair value of $1.24 per share of
underlying Common Stock attributable to these warrants. No resulting expense
has been reflected on the Company's financial statements, as such amounts are
immaterial.
In connection with a line of credit agreement entered into in October 1995,
the Company issued warrants to purchase 132,000 shares of Common Stock at an
exercise price of $5.00 per share. As of December 31, 1997, all of these
warrants are outstanding. The Company estimated a fair value of $1.69 per share
of underlying Common Stock attributable to these warrants. Because the line of
credit was terminated in December 1995, the resulting expense of $224,000 was
fully amortized to expense during the fourth quarter of 1995.
In June 1997, the Company entered into a license agreement (the "Agreement")
with ConAgra, Inc. ("ConAgra"). Pursuant to the Agreement, the Company granted
to ConAgra a warrant to purchase one million shares of Common Stock at $25 per
share. The warrant became fully exercisable on August 11, 1997 and expires on
August 11, 2007, subject to an early termination date of December 15, 2002 if
certain revenue milestones are not achieved. The Company recorded a noncash
charge equal to the fair value of the warrant of $2.3 million in the third
quarter of 1997.
All of the warrants issued by the Company contain anti-dilutive provisions
that adjust the number of shares of Common Stock available for purchase under
the warrant or the exercise price, upon the subsequent issuance of certain
equity securities or equivalents below the respective exercise prices of the
warrants. During 1997, warrantholders exercised 194,828 warrants (originally
granted prior to 1994) generating proceeds to the Company of approximately
$997,000. At December 31, 1997, warrantholders could purchase an aggregate
number of shares of Common Stock totaling 1,192,000 at exercise prices ranging
from $5.00 to $25.00 per share.
13. RELATED PARTY TRANSACTIONS
On October 19, 1995, the Company entered into a $2.2 million line of credit
agreement with a commercial bank. The loan was guaranteed by five parties,
some of whom were either directors or stockholders of the Company, and the
guarantee was collateralized by letters of credit in the aggregate amount of
$2.2 million. In consideration for the guarantee and letters of credit posted
by these parties, the Company issued warrants to purchase an aggregate of
132,000 shares of Common Stock (see Note 12). The line of credit was terminated
in 1995 simultaneously with the closing of the Offering.
14. INCOME TAXES
The tax effects of the temporary differences giving rise to the Company's
deferred taxes at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------
1997 1996
--------------------------------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards ......................................... $ 21,012 $ 10,734
General business credit carryforwards .................................... 204 204
Other .................................................................... 1,181 30
Valuation allowance ...................................................... (22,397) (10,968)
------------ -----------
Net deferred taxes .................................................. $ -- $ --
============ ==========
</TABLE>
Realization of net deferred tax assets at the balance sheet dates is
dependent on the Company's ability to generate future taxable income which is
uncertain. Accordingly, a full valuation allowance was recorded against these
assets as of December 31, 1997 and 1996.
F-17
<PAGE> 49
As of December 31, 1997, the Company has available net operating loss
carryforwards of approximately $56,297,000 and general business credit
carryforwards of $204,000. These loss and credit carryforwards expire at
various dates beginning in 1998. There may be limitations on the annual
utilization of these net operating losses and general business credits as a
result of certain changes in ownership that have occurred since the Company's
inception. The Company's total net operating loss carryforwards include
$14,424,000 related to the exercise of non-qualified stock options. The tax
benefit of $5,481,000 related to the exercise of these options will be credited
to stockholders' equity when realized.
15. SEGMENT INFORMATION
The Company provides products and services worldwide. Summarized financial
information by geographic region for 1997 is as follows (including goodwill and
amortization expense related thereto):
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------
IDENTIFIABLE
TOTAL ASSETS AT
REVENUE NET LOSS YEAR-END
------------ ------------ --------------
<S> <C> <C> <C>
North America .......................................................... $ 12,948 $ (17,303) $ 107,353
Europe ................................................................. 9,250 (2,298) 62,767
--------- ----------- ----------
Total .................................................................. $ 22,198 $ (19,601) $ 170,120
--------- ----------- ----------
</TABLE>
F-18
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
------- NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
------ ---------------------- ----
<S> <C>
3.1* Fourth Amended and Restated Certificate of Incorporation of the Registrant, as
amended.
3.2* Certificate of Amendment of the Certificate of Incorporation of the
Registrant.
3.3* Amended and Restated Bylaws of the Registrant.
4.1 Indenture, dated as of October 17, 1997, between the Company
and the Bank of New York. (Filed as Exhibit 4.2 with the
Company's registration statement on Form S-3, Registration No.
333-41037).
4.2 Registration Rights Agreement, dated as of October 22, 1997, by
and among the Company, Smith Barney Inc., Credit Suisse First
Boston Corporation and Lehman Brothers, Inc. (Filed as Exhibit
4.3 with the Company's registration statement on Form S-3,
Registration No. 333-41037).
10.1*# 1991 Stock Option Plan.
10.1A*# Amendment to 1991 Stock Option Plan.
10.2*# 1994 Stock Incentive Plan, as amended.
10.3*# 1994 Director Stock Option Plan, as amended.
10.4*# 1994 Employee Stock Purchase Plan, as amended.
10.5* Warrants issued to Edgewater Private Equity Fund L.P. and John Pappajohn,
dated June 14, 1994.
10.6* 1995 Common Stock Purchase Warrants.
10.7* Lease Agreements between Avion (Fairfax) Associates, L.P. and the Company,
each dated December 10, 1993.
10.8* Lease Agreement by and between Avion (Fairfax) Associates, L.P. and the
Company, dated July 19, 1995.
10.9 Sublease Agreement by and between Global Mail, Ltd. and the Company, dated
February 10, 1997.
10.10*# Employment Agreement between Patrick D. Scrivens and the Company, dated
October 19, 1994. (Filed as Exhibit 10.20 with the Company's registration
statement on Form S-1, Registration No. 33-99092).
10.11+# Employment Agreement between Kenneth W. McVey and the Company, dated December
16, 1996.
10.12+# Employment Agreement between Adrian M. Gerber and the Company, dated December
7, 1995.
10.13+# Employment Agreement between Michael Myers and the Company, dated October 24,
1995.
10.14 Lease Agreement by and between Avion (Fairfax) Associates, L.P. and the
Company, dated January 17, 1997
10.15# Stock Purchase Agreement for the acquisition of Pangea, Ltd. dated May 20,
1997.
10.16 Share Purchase Agreement for the acquisition of Clonmel Healthcare Limited
dated July 29, 1997.
10.17 Warrant Agreement with ConAgra, Inc. (to be filed by amendment)
10.18# Amendments to the 1994 Director Stock Option Plan, 1994 Employee Stock
Purchase Plan and 1994 Stock Incentive Plan of the Company
</TABLE>
<PAGE> 51
<TABLE>
<S> <C>
10.19 Deed of Lease Agreement by and between Shaw Road Business Park, L.L.C., dated
January 30, 1998.
10.20# Resignation Agreement between Adrian M. Gerber and the Company, dated January
12, 1998.
10.21 Executive Management Bonus Incentive Plan
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
</TABLE>
- ------------------
* Incorporated by reference to the Company's registration statement on Form
S-1, Registration No. 33-99092.
# Management contract or compensatory plan.
+ Incorporated by reference to the Company's 1996 annual report on Form 10-K,
Comm. File No. 0-27082, filed March 31, 1997.
<PAGE> 1
Exhibit 10.14
FUISZ TECHNOLOGIES LTD.
1/16/97
21373701
LEASE
BY AND BETWEEN
AVION (FAIRFAX) ASSOCIATES, L.P.
("Landlord")
AND
FUISZ TECHNOLOGIES LTD.
("Tenant")
Multi-tenant Flex Lease
for Virginia
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. TERMS................................................................ 1
-----
2. DELIVERY OF POSSESSION............................................... 3
----------------------
3. PAYMENT OF RENT...................................................... 3
---------------
4. SECURITY DEPOSIT..................................................... 3
----------------
5. USES................................................................. 4
----
6. LATE CHARGES......................................................... 5
------------
7. REPAIRS AND MAINTENANCE.............................................. 6
-----------------------
8. UTILITIES AND SERVICES............................................... 7
----------------------
9. COST OF SERVICES AND UTILITIES....................................... 8
------------------------------
10. PROPERTY TAXES....................................................... 11
--------------
11. TENANT'S INSURANCE................................................... 13
------------------
12. LANDLORD'S INSURANCE................................................. 14
--------------------
13. DAMAGE OR DESTRUCTION................................................ 15
---------------------
14. MACHINES AND EQUIPMENT; REMOVAL OF PERSONAL PROPERTY................. 16
----------------------------------------------------
15. ACCEPTANCE OF PREMISES............................................... 16
----------------------
16. TENANT IMPROVEMENTS AND ALTERATIONS.................................. 17
-----------------------------------
17. ACCESS............................................................... 17
------
18. WAIVER OF SUBROGATION................................................ 18
---------------------
19. INDEMNIFICATION...................................................... 18
---------------
20. ASSIGNMENT AND SUBLETTING............................................ 19
-------------------------
21. ADVERTISING/SIGNS.................................................... 20
-----------------
22. LIENS................................................................ 21
-----
23. DEFAULT.............................................................. 21
-------
24. SUBORDINATION AND ATTORNMENT......................................... 25
----------------------------
25. SURRENDER OF POSSESSION.............................................. 26
-----------------------
26. NON-WAIVER........................................................... 26
----------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
27. HOLDOVER............................................................. 26
--------
28. CONDEMNATION......................................................... 27
------------
29. NOTICES.............................................................. 27
-------
30. MORTGAGEE PROTECTION................................................. 27
--------------------
31. COSTS AND ATTORNEYS' FEES............................................ 28
-------------------------
32. BROKERS.............................................................. 28
-------
33. LANDLORD'S LIABILITY AND DEFAULT..................................... 28
--------------------------------
34. ESTOPPEL CERTIFICATES................................................ 29
---------------------
35. FINANCIAL STATEMENTS................................................. 30
--------------------
36. TRANSFER OF LANDLORD'S INTEREST...................................... 30
-------------------------------
37. RIGHT TO PERFORM..................................................... 30
----------------
38. SUBSTITUTED PREMISES................................................. 31
--------------------
39. SALES AND AUCTIONS................................................... 31
------------------
40. ACCESS TO ROOF....................................................... 31
--------------
41. SECURITY............................................................. 32
--------
42. AUTHORITY OF TENANT.................................................. 32
-------------------
43. NO ACCORD OR SATISFACTION............................................ 32
-------------------------
44. MODIFICATION FOR LENDER.............................................. 33
-----------------------
45. PARKING.............................................................. 33
-------
46. GENERAL PROVISIONS................................................... 33
------------------
47. RULES AND REGULATIONS................................................ 35
---------------------
48. LANDLORD'S LIEN...................................................... 36
---------------
49. WAIVER OF JURY TRIAL................................................. 36
--------------------
</TABLE>
EXHIBIT A - LOCATION AND DIMENSIONS OF PREMISES
EXHIBIT B - SPECIAL STIPULATIONS
EXHIBIT C - WORK LETTER - INTENTIONALLY OMITTED
EXHIBIT D - RULES AND REGULATIONS
EXHIBIT E - FORM OF ESTOPPEL CERTIFICATE
EXHIBIT F - FORM OF SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
<PAGE> 4
THIS LEASE is made this 17th day of January, 1997, by and between AVION
(FAIRFAX) ASSOCIATES, L.P. ("Landlord"), c/o Trammell Crow Real Estate Services,
Inc., 1115 30th Street, N.W., Washington, D. C. 20007, and FUISZ TECHNOLOGIES
LTD., a Delaware corporation ("Tenant"), with a mailing address of 3810 Concorde
Parkway, Suite 100, Chantilly, Virginia 22021.
R E C I T A L S:
Landlord, for and in consideration of the rents and all other charges and
payments hereunder and of the covenants, agreements, terms, provisions and
conditions to be kept and performed hereunder by Tenant, demises and leases to
Tenant, and Tenant hereby hires and takes from Landlord, the premises described
below (the "Premises"), subject to all matters hereinafter set forth and upon
and subject to the covenants, agreements, terms, provisions and conditions of
this Lease for the term hereinafter stated.
NOW THEREFORE Landlord and Tenant agree to the following, unless otherwise
specifically modified by provisions of this Lease:
1. TERMS.
1.1 Premises. The Premises demised by this Lease are 32,493 rentable
square feet located in the Flex I Building (the "Building") located at 3701
Concorde Parkway, Chantilly, Virginia 22021 together with a nonexclusive right
to use parking and other common areas. The location and dimensions of the
Premises are shown on Exhibit A attached hereto and incorporated herein by
reference. Landlord and Tenant acknowledge and agree that the rentable square
footage set forth above has been determined, and the rentable square footage of
any additional space added to the Premises shall be determined, in accordance
with "Standard Method of Measuring Floor Area in Office Buildings", provided by
the Secretariat, Buildings Owners and Managers Association International (ANSI
Z65.1-1980), approved July 31, 1980. No easement for light or air is
incorporated in the Premises.
1.2 Agreed Areas. The parties agree that the total rentable area of the
Building, the area of the Premises, and the Tenant's percentage of the Building
are as follows:
Total rentable area of the building: 49,068 sq. ft.;
Area of Premises: 32,493 sq. ft.; and
Tenant's percentage of the Building: 66.22%
1.3 Lease Term. The parties agree that the term of this Lease (the "Term"
or the "Lease Term") shall be for approximately one hundred and two (102)
months.
<PAGE> 5
The Lease Commencement Date shall be the later of (i) February 1,
1997 or (ii) the execution of this Lease and the Lease Expiration Date shall be
July 31, 2005.
1.4 Rent. The basic rent (the "Base Rent") shall be as set forth in
Exhibit B attached hereto and incorporated herein by reference. In addition to
the Base Rent, Tenant shall pay all amounts designated as additional rent
("Additional Rent") under this Lease including, without limitation, Tenant's pro
rata share of Operating Costs as described in Section 9, and Tenant's pro rata
share of Property Taxes as described in Section 10, all of which along with Base
Rent shall be deemed rent ("Rent") due under this Lease.
1.5 Initial Payment. Tenant shall pay Landlord upon execution of this
Lease Twenty-three Thousand Nine Hundred Seven and 63/100 Dollars ($23,907.63)
representing the first month's Base Rent except if the Lease Commencement Date
is a date other than the first day of a month, then Tenant shall then pay to
Landlord a prorata share of the first month's Base Rent.
1.6 Notice and Payment Addresses.
Notice Addresses:
If to Landlord:
Avion (Fairfax) Associates, L.P.
c/o Trammell Crow Real Estate Services, Inc.
1115 30th Street, N.W.
Washington, D. C. 20007
If to Tenant:
Fuisz Technologies Ltd.
3810 Concorde Parkway
Suite 100
Chantilly, Virginia 22021
Attn: Mr. Patrick D. Scrivens
Either party may, by written notice, designate a new address to which all
notices hereunder shall be directed.
1.7 Lease Year. Each twelve (12) month period within the Lease Term shall
be referred to herein as a "Lease Year." The first Lease Year shall commence on
the Lease Commencement Date and terminate on the last day of the twelfth full
calendar month after such Lease Commencement Date. Each subsequent Lease Year
shall commence on the date immediately following the last day of the preceding
Lease Year and shall continue for a period of twelve (12) full calendar months,
except that the last Lease Year of the Lease
2
<PAGE> 6
Term shall terminate on the date this Lease expires or is otherwise terminated.
2. DELIVERY OF POSSESSION.
Tenant hereby accepts the Premises "AS IS" and acknowledges and agrees
Landlord shall have no obligation to construct any tenant improvements to the
Premises or make any alterations or additions thereto or to provide any tenant
improvement allowance to Tenant.
3. PAYMENT OF RENT.
Tenant shall pay Landlord the Rent including Additional Rent or other
payments due under this Lease without prior notice, deduction or offset, in
lawful money of the United States. Rent (including any monthly payments of
Estimated Costs Allocable to the Premises (as defined below) payable in
accordance with this Lease) shall be paid in advance on or before the first
(1st) day of each month, except that the first month's Base Rent shall be paid
upon the execution hereof, at the address noted in Section 1.6, or to such other
party or at such other place as Landlord may hereafter from time to time
designate in writing. Rent and other amounts due under this Lease for any
partial month at the beginning or end of the Lease Term shall be prorated. All
other payments required to be made by Tenant to Landlord under this Lease for
which the payment period is not otherwise specified herein shall be made no
later than ten (10) business days after Landlord provides an invoice to Tenant
specifying the amount of such payment obligation.
4. SECURITY DEPOSIT.
As security for its full and faithful performance of this Lease, Tenant
has previously paid to Landlord a security deposit of $12,766.50 pursuant to the
Existing Leases (as such term is defined in No. 5 of Exhibit B) which shall be
retained by Landlord pursuant to and in accordance with the terms of this Lease.
If Tenant defaults with respect to any covenant or condition of this Lease,
including but not limited to the payment of Rent or any other payment due under
this Lease (and such default shall continue beyond any applicable cure period),
Landlord may apply all or any part of the security deposit to the payment of any
sum in default or any other sum which Landlord may be required to or may
reasonably deem necessary to spend or incur by reason of Tenant's default. In
such event, Tenant shall, upon demand, deposit with Landlord the amount so
applied to replenish the security deposit. Within thirty (30) days of the
expiration or sooner termination of this Lease, Landlord will refund Tenant the
security deposit less any amounts necessary to cure any default of Tenant under
this Lease.
3
<PAGE> 7
5. USES.
5.1 Permitted Uses. Landlord acknowledges that Tenant intends to use the
Premises to develop, manufacture and market pharmaceutical delivery systems,
which use shall include, without limitation, performing laboratory work,
including wet laboratory work. Landlord consents to such use of the Premises by
Tenant. Tenant shall not do any act in or about the Premises that is unlawful.
Tenant shall not commit or allow to be committed any waste upon the Premises, or
any public or private nuisance or any other act or thing which disturbs the
quiet enjoyment of any other tenant in the Building. Tenant, at its expense,
shall comply with all laws, statutes, ordinances, governmental rules,
regulations and requirements now existing or hereafter in effect relating to its
use, operation or occupancy of the Premises; provided, however that, subject to
Tenant's obligations pursuant to Section 16, Landlord shall comply with all
laws, statutes, ordinances, governmental rules, regulations and requirements now
existing or hereinafter in effect that are generally applicable to the Building
and the Premises (e.g., if local codes change and require the installation of
new systems, such as a sprinkler system, in the Building and the Premises,
Landlord shall be responsible for causing the Building and the Premises to
comply subject, however, to reimbursement for such costs by Tenant as part of
Other Operating Costs, as that term is defined in Section 9.1.3). Tenant shall
observe such reasonable rules and regulations as may be adopted with respect to
all tenants in the Building and made available to Tenant by Landlord from time
to time for the safety, care and cleanliness of the Premises or the Building and
for the preservation of good order therein, provided that such rules and
regulations do not interfere with the Food and Drug Administration's
requirements imposed upon Tenant to observe "current good manufacturing
practices" and with the necessity of Tenant to protect its trade secrets.
5.2 Hazardous Substances. The term "Hazardous Substances," as used in this
Lease shall mean all pollutants, contaminants, toxic or hazardous wastes, or any
other substances, the use and/or removal of which is required or the use of
which is restricted, prohibited or penalized by an "Environmental Law," which
term shall mean any federal, state or local law or ordinance relating to
pollution or protection of the environment. Tenant hereby agrees that (i) no
activity will be conducted on the Premises that will produce any Hazardous
Substances, except for such activities that are a part of the ordinary course of
the Tenant's business activities (the "Permitted Activities") provided said
Permitted Activities are conducted in accordance with all Environmental Laws and
Tenant shall be responsible for obtaining any required permits and paying any
fees and providing any testing required by any governmental agency; (ii) the
Premises will not be used in any manner for the storage of any Hazardous
Substances except for the temporary storage of such materials that are used in
the ordinary
4
<PAGE> 8
course of Tenant's business (the "Permitted Materials") provided such Permitted
Materials are properly used and stored in a manner and location meeting all
Environmental Laws; (iii) no portion of the Premises will be used as a landfill
or a dump; (iv) Tenant will not install any underground tanks of any type; (v)
Tenant will not allow any surface or subsurface conditions to exist or come into
existence that constitute, or with the passage of time may constitute, a public
or private nuisance; (vi) Tenant will not permit Hazardous Substances to be
brought onto the Premises, except for the Permitted Materials described above,
and if so brought or found located thereon, the same shall be immediately
removed, with proper disposal, and all required cleanup procedures shall be
diligently undertaken pursuant to all Environmental Laws at Tenant's sole cost
and expense. If at any time during or after the Lease Term, the Premises is
found to be so contaminated or subject to said conditions as a result of an act
or omission of Tenant, Tenant agrees to indemnify and hold Landlord harmless
from all claims, demands, actions, liabilities, costs, expenses, damages and
obligations of any nature arising from or as a result of the use of the Premises
by Tenant. The foregoing indemnification and the responsibility of Tenant shall
survive the termination or expiration of this Lease.
6. LATE CHARGES.
6.1 Administrative Late Charge. Tenant hereby acknowledges that late
payment to Landlord of Rent or Additional Rent or other sums due hereunder will
cause Landlord to incur administrative costs and loss of investment income not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. If any Rent, Additional Rent or other sum due from
Tenant is not received on or before its due date by Landlord or Landlord's
designated agent within five (5) days after receipt of written notice by Tenant,
then Tenant shall pay to Landlord immediately upon Landlord's demand therefore a
late charge equal to three percent (3%) of such overdue amount, plus any
attorneys' fees and costs incurred by Landlord by reason of Tenant's failure to
pay Rent and other charges when due hereunder. The parties hereby agree that
such late charges represent a fair and reasonable estimate of the administrative
cost that Landlord will incur by reason of Tenant's late payment and is not
intended as a penalty. Landlord's acceptance of such late charges shall not
constitute a waiver of Tenant's default with respect to such overdue amount or
estop Landlord from exercising any of the other rights and remedies granted
hereunder.
6.2 Additional Late Charge. In addition to the administrative late charge
provided for under Section 6.1, above, if any Rent, Additional Rent or other sum
due from Tenant to Landlord is not paid as and when due under this Lease, such
unpaid amount shall bear interest from the date due until the date paid at an
annual rate of interest equal to the prime rate of interest as
5
<PAGE> 9
published in the Wall Street Journal (or any successor publication thereto) from
time to time plus two percent (2%).
Initials:
Landlord Tenant
------ ------
7. REPAIRS AND MAINTENANCE.
7.1. Landlord Repair and Maintenance Responsibilities. Landlord shall, at
its cost and expense, maintain and repair, or cause to be maintained and
repaired, the common areas of the Building (such as lobbies, elevators, stairs,
and corridors); the roof, foundations, exterior walls and other structural
elements of the Building; the plumbing (located outside of the Premises),
existing heating, air conditioning and other existing utility systems serving
the Building located outside of the Premises; the landscaping, paving, parking
lots and other external common areas surrounding the Building; and the
underground utility and sewer pipes and other utility connections outside the
exterior walls of Tenant's Premises, if any; provided, however, that to the
extent any such repair is rendered necessary by (i) the gross negligence or
willful misconduct of Tenant, its agents, customers, employees, independent
contractors, guests or invitees or (ii) any improvement or upgrade made to such
utility system by Tenant or at Tenant's request, Tenant shall be obligated to
reimburse Landlord for all costs sustained by Landlord in connection with such
repair, as Additional Rent hereunder, which reimbursement shall be due no later
than thirty (30) days after Landlord's written demand therefor. Landlord shall
provide termite and pest extermination, exterior window washing and regular
removal of trash, garbage and debris to the Premises. All expenses incurred by
Landlord pursuant to this Section 7.1 (to the extent not payable directly by
Tenant as above provided) will be included within "Other Operating Costs" as
defined in Section 9.1.3 below.
7.2. Tenant Repair and Maintenance Responsibilities. Tenant shall be
responsible for repairs and maintenance to the interior of the Premises,
including janitorial service, and the upgraded portion of any utility system
made by Tenant or at Tenant's request to the extent Landlord is not responsible
therefor under Section 7.1; provided, however, that to the extent any such
repair is rendered necessary by the gross negligence or willful misconduct of
Landlord, its agents, customers, employees, independent contractors, guests or
invitees, Landlord shall be obligated to reimburse Tenant for all costs
sustained by Tenant in connection with such repair, which reimbursement shall be
due no later than thirty (30) days after Tenant's written demand therefor.
Landlord shall be under no obligation to inspect the Premises. Tenant shall
promptly report in writing to Landlord any defective condition known to it that
exists in the Premises which Landlord is required to repair. Notwithstanding
anything to the contrary contained in
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this Section 7, Tenant shall, at its own cost and expense, enter into a
regularly scheduled preventive maintenance/service contract with a maintenance
contractor for servicing all heating and air conditioning systems and equipment
within the Premises. The maintenance contractor and the contract must be
approved by Landlord, such approval not to be unreasonably withheld, conditioned
or delayed. The service contract must include all services suggested by the
equipment manufacturer within the operation/ maintenance manual and must become
effective (and a copy thereof delivered to Landlord) within thirty (30) days of
the date Tenant takes possession of the Premises.
8. UTILITIES AND SERVICES.
8.1 Services. Tenant shall have access to the Premises twenty-four (24)
hours per day, seven (7) days per week. Landlord shall install separate meters
for electricity, gas, water and other utilities serving the Premises or shall
otherwise cause such utilities to be separately allocated and billed to the
Premises. Tenant shall pay the cost of such utility service used by Tenant in
connection with its occupancy of the Premises directly to the applicable utility
company or to Landlord as Additional Rent (if such utility service is billed to
Landlord instead of Tenant). Tenant shall pay its proportionate share of Costs
of Common Area Utilities to Landlord in accordance with the terms set forth in
Section 9. Landlord shall not be liable for any loss, injury or damage to
property caused by or resulting from any variation, interruption, or failure of
such services due to any cause whatsoever, or from failure to make any repairs
or perform any maintenance. In no event shall Landlord be liable to Tenant for
(a) any damage to the Premises, or (b) any loss, damage or injury to any
property therein or thereon, or (c) any claims for the interruption of or loss
to Tenant's business or for any indirect damages or consequential losses
occasioned by bursting, rupture, leakage or overflow of any plumbing or other
pipes or other similar cause in, above, upon or about the Premises or the
Building. If any public utility or governmental body shall require Landlord or
Tenant to restrict the consumption of any utility or reduce any service to the
Premises or the Building, Landlord and Tenant shall comply with such
requirements, without any abatement or reduction of the Rent, Additional Rent or
other sums payable by Tenant hereunder.
8.2 Recycling Regulations. Tenant shall comply, at its sole cost and
expense, with all orders, requirements and conditions now or hereafter imposed
by any ordinances, laws, orders and/or regulations (hereinafter collectively
called "regulations") of any governmental body having jurisdiction over the
Premises or the Building, whether required of Landlord or otherwise, regarding
the collection, sorting, separation and recycling of waste products, garbage,
refuse and trash (hereinafter collectively called "waste products") including
but not limited to the separation of such
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waste products into receptacles reasonably approved by Landlord and the removal
of such receptacles in accordance with any collection schedules prescribed by
such regulations. Landlord reserves the right (a) to refuse to accept from
Tenant any waste products that are not prepared for collection in accordance
with any such regulations, (b) to require Tenant to arrange for waste product
collection at Tenant's sole cost and expense, using a contractor reasonably
satisfactory to Landlord, and (c) to require Tenant to pay all costs, expenses,
fines, penalties or damages that may be imposed on Landlord or Tenant by reason
of Tenant's failure to comply with any such regulations. Notwithstanding the
foregoing, the costs of collecting waste materials to be recycled shall be
included in Other Operating Costs, as set forth in Section 9.1.3, below. The
cost of all other expenses, fines, penalties or damages that may be imposed on
Landlord or Tenant resulting from Tenant's noncompliance relating to waste
products shall be borne solely by Tenant.
9. COST OF SERVICES AND UTILITIES.
9.1 Definitions. In addition to the Rent, Tenant shall pay to Landlord the
Actual Costs Allocable to the Premises (as defined in Section 9.1.6, below), as
Additional Rent and the payments shall be made as provided herein, using the
following definitions:
9.1.1 "Operating Costs" shall include Costs of Utilities and Other
Operating Costs.
9.1.2 "Costs of Utilities" shall mean all expenses paid or incurred by
Landlord for electricity, including any surcharges imposed, water, gas, sewers,
oil and utility services for the common areas of the Building, land and parking
and other common areas provided to or used by Tenant.
9.1.3 "Other Operating Costs" shall mean all other expenses paid or
incurred by Landlord for maintaining, operating, repairing, and managing (i) the
Building, (ii) the personal property used in conjunction therewith, (iii) the
Building roof, and (iv) the land upon which the Building is situated. Such costs
shall include, without limitation, Property Taxes (as defined in Section
10.1.1), supplies and cleaning services (for the Building only, not the
Premises), garbage and trash collection, personal property taxes, replacement
lighting, maintenance and service contracts, wall and window washing, towel
service, machinery, equipment, a reasonable management fee (not to exceed four
(4%) percent of monthly Base Rent), window glass replacement and repair,
landscaping services of independent contractors (including, without limitation,
ice and snow removal), compensation (including employment taxes and fringe
benefits) of all persons who perform duties in connection with the management,
operation, maintenance and repair of the Building (but only for a pro rata
portion of such persons' time actually spent on matters relating to the
Building),
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the personal property and equipment used in conjunction therewith and the land
upon which the Building is situated but only for a pro rata portion of the cost
of such personal property or equipment based on the amount of time such personal
property or equipment is used in connection with the Building and all curbs and
sidewalks adjacent to the same, capital improvements to the Building which are
required by local or governmental authorities or which are reasonably expected
to reduce Operating Costs, insurance premiums, repair, replacement and
maintenance costs required by any applicable federal, state or local law now or
hereafter in effect, permits and inspection fees, legal fees and costs incurred
in connection with contesting the amounts or the imposition of any Property
Taxes, and accounting fees and any other expense or charge whether or not
hereinbefore described which, in accordance with generally accepted accounting
and management practices, would be considered an expense of maintaining,
operating, replacing or repairing the Building, the personal property and
equipment used in conjunction therewith, and the land upon which the Building is
situated and all curbs and sidewalks adjacent to the same, excluding: (a) costs
of any special services rendered to individual tenants (including Tenant), for
which a special, separate charge shall be made (and shall be payable within
thirty (30) days of written demand); (b) Property Taxes; and (c) depreciation or
amortization of costs required to be capitalized in accordance with generally
accepted accounting practices (except that Other Operating Costs shall include
amortization in accordance with generally accepted accounting principles of any
capital improvements which are made pursuant to the requirement of any local or
governmental authority which are reasonably expected to reduce Operating Costs
or which are required to be made by Landlord pursuant to Section 7.
9.1.4 "Calendar Year" shall mean the twelve-month period commencing
January 1 and ending December 31.
9.1.5 "Actual Costs" shall mean the actual expense paid or incurred by
Landlord for Operating Costs during any Calendar Year of the Lease Term.
9.1.6 "Actual Costs Allocable to the Premises" shall mean the Tenant's
prorata share of the Actual Costs determined by Tenant's percentage of the
Building described in Section 1.2.
9.1.7 "Estimated Costs Allocable to the Premises" shall mean
Landlord's estimate of Actual Costs Allocable to the Premises for the following
Calendar Year to be given by Landlord to Tenant pursuant to Section 9.2.
9.2 Estimated Costs Allocable to the Premises. Prior to the commencement
of each Calendar Year (or, if the Lease Commencement Date falls on a date other
than January 1, for the partial calendar year consisting of the period through
December 31, 1997
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(hereinafter, "Partial Calendar Year")), Landlord shall furnish Tenant a written
statement of the Estimated Costs Allocable to the Premises for such Calendar
Year (or Partial Calendar Year) and a calculation of the payments to be made by
Tenant as follows: One-twelfth (1/12th) of the amount, shall be payable by
Tenant as Additional Rent as provided in Section 3 for each month during such
Calendar Year (or Partial Calendar Year). If at any time or times during such
Calendar Year (or Partial Calendar Year), it appears to Landlord that the
Estimated or Actual Costs Allocable to the Premises will vary from Landlord's
estimate by more than five percent (5%) on an annualized basis, Landlord may, by
written notice to Tenant, revise its estimate for such Calendar Year (or Partial
Calendar Year) and payments by Tenant of the Estimated Costs Allocable to the
Premises for such Calendar Year (or Partial Calendar Year) shall be based on
such revised estimate.
9.3 Actual Costs. Within one hundred twenty (120) days after the close of
each Calendar Year (or Partial Calendar Year) during the Lease Term, Landlord
shall deliver to Tenant a written statement setting forth the Actual Costs
Allocable to the Premises during the preceding Calendar Year (or Partial
Calendar Year). Landlord certifies to Tenant that, where possible, all of the
above costs have been incurred as the result of competitive bidding with
independent contractors in "arms length" negotiations, and that Landlord will
use commercially reasonable, good faith efforts to obtain the lowest price for
quality work and materials on Tenant's behalf. If such costs for any Calendar
Year (or Partial Calendar Year) exceed Estimated Costs Allocable to the Premises
paid by Tenant to Landlord pursuant to Section 9.2, Tenant shall pay the amount
of such excess to Landlord as Additional Rent within thirty (30) days after
receipt of such statement by Tenant. If such statement shows such costs to be
less than the amount paid by Tenant to Landlord pursuant to Section 9.2, then
the amount of such overpayment by Tenant shall be credited by Landlord to the
next Rent payable by Tenant. Tenant shall have the right, on an annual basis, at
Landlord or Landlord's property manager's place of business, to audit any of
Landlord's records to substantiate the statement delivered by Landlord setting
forth Tenant's Actual Costs Allocable to the Premises during the preceding
Calendar Year. If such audit shows any variance from Landlord's statement of
Actual Costs Allocable to the Premises, Landlord or Tenant, as the case may be,
shall reimburse the other for such variance within thirty (30) days after demand
therefor. To the extent such audit reveals a discrepancy in Tenant's favor
greater than five percent (5%), Landlord shall reimburse Tenant for the
reasonable costs of such audit within thirty (30) days after demand for such
reimbursement.
9.4 End of Term. If this Lease terminates on a day other than the last day
of a Calendar Year, the amount of any adjustment to Estimated Costs Allocable to
the Premises with respect to the Calendar Year in which such termination occurs
shall be prorated on the basis which the number of days from the commencement of
such
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Calendar Year to and including such termination date bears to 365; and any
amount payable by Landlord to Tenant or Tenant to Landlord with respect to such
adjustment shall be payable within thirty (30) days after delivery by Landlord
to Tenant of the statement of Actual Costs Allocable to the Premises with
respect to such Calendar Year.
9.5 Further Adjustment. In the event Landlord shall furnish any utility or
service which is included in the definition of Operating Costs to less than
ninety-five percent (95%) of the rentable area of the Building because (i) the
average occupancy level of the Building for the Calendar Year (or Partial
Calendar Year) in question was not ninety-five percent (95%) or more of full
occupancy, (ii) any such utility or service is not required by or provided to
one or more of the tenants or occupants of the Project, or (iii) any tenant or
occupant is itself obtaining or providing any such utility or services, then the
Actual Costs for such year shall be increased to equal the total expenses that
Landlord reasonably estimates it would have incurred if Landlord had provided
all such utilities and services to all tenants and occupants in the Project, and
shall be allocated among the tenants by the Landlord to reflect those costs
which would have occurred had the Building been ninety-five percent (95%)
occupied during the year in question and such utilities and services provided to
all tenants. The intent of this Section 9.5 is to ensure that the reimbursement
of all Operating Costs is fair and equitably allocated among the tenants
receiving the utilities and services in question.
10. PROPERTY TAXES.
10.1 Contribution to Property Taxes. In addition to the Base Rent provided
in Section 1.4, Tenant shall pay to Landlord as one of the Operating Costs
associated with the Premises, its share of the Property Taxes under this Section
10. Landlord confirms that it is the intention of the parties that this Article
10 supplement Article 9, but not result in double payment of Tenant's share of
Property Taxes. Tenant's share of Property Taxes shall be determined as provided
herein, utilizing the following definitions:
10.1.1 "Property Taxes" shall mean any form of assessment, license,
fee, rent tax, levy, penalty (if a result of Tenant's delinquency), or tax
(other than net income, estate, succession, inheritance, transfer or franchise
taxes), imposed by any authority having the direct or indirect power to tax, or
by any city, county, state or federal government or any improvement or other
district or division thereof, on the Building or any part thereof (or on
Landlord with respect thereto), the land, the parking area, or any other legal
or equitable interest of Landlord in the same, or any rental income derived
therefrom, excluding personal property taxes payable by Tenant on the property
of Tenant located within the Premises, as indicated in Section 10.4 herein.
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10.1.2 The term "Calendar Year" shall mean the period defined in
Section 9.1.4. The term "Partial Calendar Year" shall be as defined in Section
9.2.
10.1.3 The term "Tenant's Share of Property Taxes" shall mean the
amount of Property Taxes payable during any Calendar Year (or Partial Calendar
Year) during the Lease Term by Landlord multiplied by Tenant's percentage of the
Building described in Section 1.2.
10.2 Tenant's Estimated Share of Property Taxes. Prior to the commencement
of each Calendar Year (or Partial Calendar Year), Landlord shall furnish Tenant
with a written statement setting forth the estimate of Tenant's Share of
Property Taxes for such Calendar Year (or Partial Calendar Year) and a
calculation of the payments to be made by Tenant as follows: One-twelfth
(1/12th) of the amount, shall be payable by Tenant as Additional Rent as
provided in Section 3 for each month during such Calendar Year (or Partial
Calendar Year).
10.3 Actual Property Taxes. Within one hundred twenty (120) days after the
close of each Calendar Year during the Lease Term, Landlord shall deliver to
Tenant a written statement setting forth the Tenant's Share of Property Taxes
during the preceding Calendar Year. If such amount exceeds the Tenant's
estimated Share of Property Taxes pursuant to Section 10.2, Tenant shall pay the
amount of such excess to Landlord as Additional Rent within thirty (30) days
after receipt of such statement by Tenant. If such statement shows such amount
to be less than the amount paid by Tenant to Landlord pursuant to Section 10.2,
then the amount of such overpayment shall be credited by Landlord to the next
immediate Rent payable by Tenant. Tenant shall have the right, on an annual
basis, at Landlord or Landlord's property manager's place of business, to audit
any of Landlord's records to substantiate the statement delivered by Landlord
setting forth Tenant's Share of Property Taxes during the preceding Calendar
Year. If such audit shows any variance from Landlord's statement of Tenant's
Share of Property Taxes for the preceding Calendar Year, Landlord or Tenant, as
the case may be, shall reimburse the other for such variance within thirty (30)
days after demand therefor. To the extent such audit reveals a discrepancy in
Tenant's favor greater than five percent (5%), Landlord shall reimburse Tenant
for the reasonable costs of such audit within thirty (30) days after demand for
such reimbursement.
10.4 Taxes on Tenant's Personal Property. Tenant shall pay, prior to
delinquency, all personal property taxes payable with respect to all property of
Tenant located in the Premises or the Building and shall provide promptly, upon
request of Landlord, written proof of such payment. This obligation shall apply
throughout the Lease Term.
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10.5 End of Term. If this Lease terminates on a day other than the last
day of a Calendar Year, the amount of any adjustment between the estimated and
actual Tenant's Share of Property Taxes with respect to the Calendar Year in
which such termination occurs shall be prorated on the basis of a 365-day year;
and any amount payable by Landlord to Tenant or Tenant to Landlord with respect
to such adjustment shall be payable within thirty (30) days after delivery by
Landlord to Tenant of the statement of Tenant's Share of Property Taxes with
respect to such Calendar Year.
10.6 Tax Contest. Tenant may, alone or along with any other tenant of the
Building, at its or their sole cost and expense, in its or their own name(s)
and/or in the name of Landlord, dispute and contest any Property Taxes by
appropriate proceedings diligently conducted in good faith, but only after
Tenant and all other tenants, if any, joining with Tenant in such contest have
deposited with Landlord the amount so contested and unpaid, or their
proportionate shares thereof, as the case may be, which shall be held by
Landlord without obligation for interest until the termination of the
proceedings, at which time the amount(s) deposited shall be applied by Landlord
toward the payment of the items held valid (plus any court costs, interest,
penalties, and other liabilities associated with the proceedings), and Tenant's
share of any excess shall be returned to Tenant. Tenant further agrees to pay to
Landlord, within thirty (30) days following demand therefor, Tenant's share (as
among tenants which participated in the contest) of all court costs, interest,
penalties, and other liabilities relating to such proceedings. Tenant hereby
indemnifies and agrees to hold Landlord harmless from and against any cost,
damage or expense (including reasonable attorneys' fees) in connection with such
proceedings.
11. TENANT'S INSURANCE.
11.1 Insurance Coverage. Tenant shall during the Lease Term procure at its
expense and keep in force the following insurance: (i) Commercial general
liability insurance naming the Landlord and Landlord's managing agent as
additional insurers against any and all claims for bodily injury and property
damage occurring in or about the Premises. Such insurance shall have a combined
single limit of not less than One Million Dollars ($1,000,000.00) per occurrence
with a Two Million Dollars ($2,000,000.00) aggregate limit and excess umbrella
liability insurance in the amount of Two Million Dollars ($2,000,000.00). Such
liability insurance shall be primary and not contributing to any insurance
available to Landlord and Landlord's insurance shall be in excess thereto. In no
event shall the limits of such insurance be considered as limiting the liability
of Tenant under this Lease; (ii) Personal property insurance insuring all
equipment, trade fixtures, inventory, fixtures and personal property located
within the Premises for perils covered by the causes of loss. Such insurance
shall be written on a replacement cost basis in an amount equal to one hundred
percent
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(100%) of the full replacement value of the aggregate of the foregoing; (iii)
Workers' compensation insurance in accordance with statutory laws and
employers' liability insurance with a limit of not less than One Hundred
Thousand Dollars ($100,000.00) per employee and a Five Hundred Thousand Dollars
($500,000.00) policy limit; and (iv) Such other insurance as Landlord deems
necessary and prudent (if in the reasonable opinion of Landlord, the coverage
becomes inadequate and is less than is commonly maintained by tenants of
similar buildings in the area with similar uses or required by Landlord's
beneficiaries or mortgagees of any deed of trust or mortgage encumbering the
Premises.
11.2 Policy Requirements. The policies required to be maintained by Tenant
shall be with companies rated AX or better in the most current issue of Best's
Insurance Reports. Insurers shall be licensed to do business in the state in
which the Premises are located and domiciled in the U.S.A. Any deductible
amounts under any insurance policies required hereunder shall not exceed One
Thousand Dollars ($1,000.00). Certificates of insurance (certified copies of the
policies may be required) shall be delivered to Landlord prior to the Lease
Commencement Date and annually thereafter prior to the expiration date of the
old policy. Tenant shall have the right to provide insurance coverage which it
is obligated to carry pursuant to the terms hereof in a blanket policy, provided
such blanket policy expressly affords coverage to the Premises and to Landlord
as required by this Lease. Each policy of insurance shall provide notification
to Landlord at least thirty (30) days prior to any cancellation except for ten
(10) days notice for nonpayment of premium.
11.3 Non-Coverage. In the event Tenant does not purchase the insurance
required by this Lease or keep the same in full force and effect, Landlord may,
but shall not be obligated to, purchase the necessary insurance and pay the
premium. Tenant shall repay to Landlord, as Additional Rent, any and all
reasonable expenses (including attorneys' fees) and damages which Landlord may
sustain by reason of the failure of Tenant to obtain and maintain insurance.
12. LANDLORD'S INSURANCE.
At all times during the Lease Term, Landlord will maintain (a) fire and
extended coverage insurance covering the replacement cost of the Building, and
(b) public liability and property damage insurance in an amount customary for
properties which are comparable to the Building, determined by Landlord in its
sole discretion. Landlord shall also have the right to obtain such other types
and amounts of insurance coverage on the Building and Landlord's liability in
connection with the Building as are customary or advisable for a first class
office building in the Washington, D. C.-Suburban Maryland-Suburban Virginia
metropolitan area, as determined by Landlord in Landlord's sole discretion.
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Tenant acknowledges and agrees that all premiums for insurance obtained by
Landlord pursuant to this Article 12 shall be included within "Other Operating
Costs", as such term is defined in Section 9.1.3 above. Landlord shall provide
to Tenant, within ten (10) business days after the execution of this Lease, a
certificate of insurance evidencing Landlord's compliance with the terms of this
Article 12.
13. DAMAGE OR DESTRUCTION.
13.1 Notification. If the Building should be damaged or destroyed by any
peril covered by the insurance to be provided by Landlord, Tenant shall give
immediate notice thereof to Landlord and Landlord shall at its sole cost and
expense thereupon proceed with reasonable diligence to rebuild and repair the
Building to substantially the condition in which it existed prior to such damage
or destruction, except that Landlord shall not be required to rebuild, repair or
replace any part of the partitions, fixtures, additions and other improvements
including, without limitation, the Improvements, the Rooftop Equipment and the
Roof Improvements which may have been placed in, on or about the Premises by
Tenant and except that Tenant shall pay to Landlord, upon demand, Tenant's
proportionate share of any applicable deductible amount specified under
Landlord's insurance (said deductible amount not to exceed Ten Thousand Dollars
($10,000.00)). The Rent payable hereunder shall be equitably abated from the
date of such damage. Notwithstanding anything herein to the contrary, in the
event the holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made by any such holder whereupon all rights and
obligations hereunder shall cease and terminate. Landlord's obligations to
repair and restore the Building are limited to the amount of insurance proceeds
actually received by Landlord. In the event that such insurance proceeds are not
sufficient to repair or restore the Building and Landlord does not agree to
provide sufficient additional funds to complete the repair or restoration, this
Lease shall terminate and Landlord and Tenant shall have no further rights or
obligations hereunder.
13.2 Business Interruption. Other than rental abatement as and to the
extent provided in Section 13.1, no damages, compensation or claim shall be
payable by Landlord for inconvenience or loss of business arising from
interruption of business, repair or restoration of the Building or Premises.
13.3 Repairs. Landlord's obligations should it elect to repair, shall be
limited to the base Building, common areas and the interior improvements
installed by Landlord. Anything herein to the contrary notwithstanding, if the
Premises are destroyed or
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damaged during the last twelve (12) months of the Lease Term, then Landlord may,
at its option, cancel and terminate this Lease as of the date of the occurrence
of such damage.
14. MACHINES AND EQUIPMENT; REMOVAL OF PERSONAL PROPERTY.
14.1 Machines and Equipment. Landlord acknowledges that Tenant intends to
install in the Premises, without limitation, laboratory and pharmaceutical
processing equipment. Landlord consents to the installation and Tenant's
operation and use of such equipment and machinery in the Premises. Landlord also
acknowledges and consents to the fact that Tenant may install additional
machinery and equipment of similar type, nature, size and use in the Premises
during the Lease Term. Tenant, at its expense, shall comply with all laws,
statutes, ordinances and governmental rules, regulations and requirements
governing the installation, operation and removal of such equipment. To the
extent that any machines, mechanical equipment and materials belonging to Tenant
cause vibration, noise, cold, heat or fumes that may be transmitted to any other
leased space in the Building to such a degree as to be objectionable to any
other tenant in the Building, such equipment or machines shall be placed,
maintained, isolated, stored and/or vented by Tenant at its sole expense so as
to absorb and prevent such vibration, noise, cold, heat or fumes.
14.2 Removal of Personal Property. Upon the expiration or sooner
termination of the Lease Term, Tenant shall remove all of its machinery,
equipment, personal property and trade fixtures and shall return the Premises to
Landlord broom clean but without any refurbishing. With respect to an earlier
termination of this Lease by Landlord, Tenant shall have a reasonable period of
time (not to exceed fifteen (15) days) in which to remove all such equipment,
personal property and fixtures. All items of Tenant's personal property that are
not removed from the Premises or the Building by Tenant at the termination of
this Lease or within a reasonable period of time (not to exceed fifteen (15)
days) when Landlord has the right of reentry shall be deemed abandoned and
become the exclusive property of Landlord, without further notice to or demand
upon Tenant. If the Premises are not surrendered as and when aforesaid, Tenant
shall indemnify Landlord against all claims, losses, cost expense (including
reasonable attorneys' fees) and liability resulting from the delay by Tenant in
so surrendering the same, including without limitation any claims made by any
succeeding occupant founded on such delay. Tenant's obligation under this
Section 14.2 shall survive the expiration or termination of this Lease.
15. ACCEPTANCE OF PREMISES.
Unless Landlord has expressly agreed in this Lease to perform certain
tenant improvement work in the Premises, Tenant shall be
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deemed to have accepted the Premises on the Lease Commencement Date in an "AS
IS" condition.
16. TENANT IMPROVEMENTS AND ALTERATIONS.
16.1 Tenant Improvements.
[Intentionally Omitted]
16.2 Tenant Alterations. Other than with respect to the Improvements set
forth in Section 16.1 hereof, Tenant shall not make or allow to be made any
alterations, additions or improvements to or on the Premises or the Building
without first obtaining the written consent of Landlord, which consent shall not
unreasonably be withheld, conditioned or delayed. Any such alterations,
additions or improvements shall be made at Tenant's sole expense, according to
plans and specifications approved in writing by Landlord, in compliance with all
applicable laws, by a licensed contractor, and in a good and workmanlike manner.
17. ACCESS.
Tenant shall permit Landlord and its agents to enter the Premises at all
reasonable times to inspect the same; to show the Premises to prospective
tenants (during the last six (6) months of the Term), or interested parties such
as prospective lenders and purchasers; to exercise its rights under this Lease;
to clean, repair, alter or improve the Premises or the Building; to discharge
Tenant's obligations when Tenant has failed to do so within a reasonable time
after written notice from Landlord; to post notices of nonresponsibility and
similar notices and "For Sale" signs and to place "For Lease" signs upon or
adjacent to the Building or the Premises at any time within twelve (12) months
of the expiration of the Lease Term. Tenant shall permit Landlord and its agents
to enter the Premises at any time in the event of an emergency. Notwithstanding
the foregoing, any nonemergency access to the Premises by Landlord or its agents
shall be subject to the following conditions: (i) written notice to Tenant at
least two (2) days in advance of the proposed inspection, (ii) Landlord shall
designate in writing the names of those persons authorized by Landlord to make
such inspection, (iii) Tenant may require an authorized representative of Tenant
to accompany the inspection, and (iv) any information obtained by Landlord or
its agents pursuant to such inspection which information constitutes a trade
secret or is otherwise unique to Tenant's business shall not be disclosed or
disseminated to any other party and shall be held in strict confidence. Landlord
hereby agrees to indemnify Tenant for any loss, damage, claim or demand suffered
by Tenant as a result of a breach by Landlord of its covenants and agreements
contained in this Article 17 by reason of Landlord's gross negligence or wilful
misconduct. In the event that any prospective tenant wishes to inspect any
portion of the Premises which is a restricted access
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area, Tenant may require such prospective tenant to execute a confidentiality
agreement in favor of Tenant in form and substance reasonably satisfactory to
Tenant. When reasonably necessary, Landlord may temporarily close entrances,
doors, corridors, elevators or other facilities without liability to Tenant by
reason of such closure.
18. WAIVER OF SUBROGATION.
18.1 Tenant's Waiver. Whether the loss or damage is due to the negligence
of Landlord or Landlord's agents or employees, or any other cause, Tenant hereby
releases Landlord and Landlord's agents and employees from responsibility for
and waives its entire claim of recovery for (i) any loss or damage to the
personal property of Tenant located in the Building, including the Building
itself, arising out of any of the perils which are covered by Tenant's property
insurance policy, with extended coverage endorsements, or (ii) loss resulting
from business interruption or loss of rental income, at the Premises, arising
out of any of the perils which are capable of being covered by the business
interruption or by the loss of rental income insurance policy held by Tenant.
Tenant shall cause its insurance carrier(s) to consent to such waiver of all
rights of subrogation against Landlord, and to issue an endorsement to all
policies of insurance obtained by Tenant confirming that the foregoing release
and waiver will not invalidate such policies.
18.2 Landlord's Waiver. Whether due to the negligence of Tenant or
Tenant's agents or employees, or any other cause, Landlord hereby releases
Tenant and Tenant's agents and employees from responsibility for and waives its
entire claim of recovery for (i) any loss or damage to the personal property of
Landlord located in the Building, including the Building itself, arising out of
any of the perils which are covered by Landlord's property insurance policy,
with extended coverage endorsements, or (ii) loss resulting from business
interruption or loss of rental income, at the Premises, arising out of any of
the perils which are covered by the business interruption or by the loss of
rental income insurance policy held by Landlord. Landlord shall cause its
insurance carrier(s) to consent to such waiver of all rights of subrogation
against Tenant.
19. INDEMNIFICATION.
Tenant shall defend, indemnify and hold harmless Landlord, its agents,
employees, officers, directors, partners and shareholders from and against any
and all liabilities, judgments, demands, causes of action, claims, losses,
damages, costs and expenses, including reasonable attorneys' fees and costs,
arising out of the use, occupancy, conduct, operation, or management of the
Premises by, or the willful misconduct or gross negligence of, Tenant, its
officers, contractors, licensees, agents, servants, employees,
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guests, invitees, or visitors. This indemnification shall survive expiration or
earlier termination of this Lease. This provision shall not be construed to make
Tenant responsible for loss, damage, liability, expense, judgments, demands,
causes of action, claims, including reasonable attorney's fees and costs caused
by the gross negligence or willful misconduct of Landlord, or its officers,
contractors, licensees, agents, employees, invitees, servants, guests or
visitors.
20. ASSIGNMENT AND SUBLETTING.
20.1 Landlord's Consent. Tenant shall not assign, encumber, mortgage,
pledge or license the Premises or this Lease, or sublease all or any part of the
Premises, or permit the use of the Premises by any party other than Tenant,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed. When Tenant requests Landlord's
consent to such assignment or sublease, it shall notify Landlord in writing, at
least thirty (30) days prior to the commencement date of the proposed sublease
or assignment, of the name and address of the proposed assignee or subtenant and
the nature and character of the business of the proposed assignee or subtenant
and shall provide financial information including financial statements of the
proposed assignee or subtenant. Tenant shall also provide Landlord with a copy
of the proposed sublet or assignment agreement. Landlord and Tenant hereby
acknowledge and agree that Landlord, in determining whether or not to withhold
or give its consent, shall consider the following factors as reasonable criteria
for its decision: (i) whether the proposed assignee or subtenant has a financial
strength similar to that of Tenant as of the commencement of the Lease Term,
(ii) whether the proposed assignee or subtenant has a good business reputation,
and (iii) whether the proposed use of the Premises will negatively impact on the
value or marketability of the Building or overburden the Common Area facilities
of the Building. Landlord shall have the option (to be exercised within fourteen
(14) days after Landlord's receipt of Tenant's request with all required
information included) to cancel this Lease or the portion of this Lease that
relates to the subleased premises (as applicable) effective as of the
commencement date stated in the proposed sublease or assignment. If Landlord
shall not exercise its option within the time set forth above, its consent to
any proposed assignment or sublease shall be deemed given and Tenant shall then
be permitted without any further consent of Landlord to assign or sublet the
Premises in accordance with the assignment or sublet agreement provided to
Landlord. Nothing contained in this Section 20.1 shall be deemed to prohibit any
transfer of any ownership interest in Tenant or to require Landlord's consent
thereto.
20.2 Approved Subleases and Assignments. If Landlord approves an
assignment or sublease as herein provided, Tenant shall pay to Landlord, as
Additional Rent due under this Lease, as applicable
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(i) in the case of a sublease, an overage amount equal to the difference, if
any, between the Rent allocable to that part of the Premises affected by such
sublease pursuant to this Lease, and the rent paid by the subtenant to Tenant in
connection with the sublease which are approved by Landlord in its reasonable
discretion, and (ii) in the case of an assignment, an overage amount equal to
the consideration, if any, received by Tenant for such assignment. Such overage
amounts shall be due and payable by Tenant to Landlord within ten (10) days of
Tenant's receipt of payment from the subtenant or assignee. Overage amounts in
the case of a sublease shall be calculated and adjusted (if necessary) on a
Lease Year (or partial Lease Year) basis, and there shall be no cumulative
adjustment for the term. No consent to any assignment or sublease shall
constitute a further waiver of the provisions of this Section, and all
subsequent assignments or subleases may be made only as set forth in Section
20.1 hereinabove with the prior written consent of Landlord, which consent shall
not unreasonably be withheld, conditioned or delayed. An assignee of Tenant, at
the option of Landlord, shall become directly liable to Landlord for all
obligations of Tenant hereunder and shall assume all such obligations in writing
in a form satisfactory to Landlord in its reasonable discretion, but no sublease
or assignment by Tenant shall relieve Tenant of any liability hereunder. Any
assignment or sublease without Landlord's prior written consent shall be void,
and shall, at the option of the Landlord, constitute a default under this Lease.
21. ADVERTISING/SIGNS.
Landlord and Tenant acknowledge and agree that Tenant shall have the right
to retain the monument sign and the other signage Tenant currently has at the
Building. Further, Landlord shall allow Tenant to have one (1) exterior sign on
the Building. The exterior sign shall be erected, maintained and removed by
Tenant at Tenant's sole cost and expense. The exact location of the exterior
sign shall be mutually agreed upon by Landlord and Tenant. Tenant shall not have
the right to assign this right to signage to any sublessee, transferee or
assignee of this Lease or the Premises, nor may such sublessee, transferee or
assignee enjoy the use or benefit of such right (except an assignee or subtenant
approved by Landlord in writing). The design, construction, size, color and all
other aspects of such exterior signage shall conform with the established sign
criteria for the office complex of which the Building is a part and shall be
subject to Landlord's prior written consent, which consent may be withheld or
conditioned in Landlord's reasonable discretion. Tenant shall promptly repair
any damage to the Building resulting from the installation, construction,
maintenance or removal of such signage. Upon the expiration of Tenant's right to
such signage as provided hereinabove or otherwise upon the termination or
expiration of this Lease, Tenant shall promptly remove the signs at its sole
cost and expense. Tenant agrees to indemnify and hold Landlord harmless for any
cost,
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expense, loss (normal wear and tear excepted) or other liability associated with
the installation, construction, maintenance and removal of the signs. Such signs
shall comply with all applicable local government restrictions and shall comply
with any rules or guidelines for the Building or surrounding development. Tenant
shall not display any other sign, graphics, notice, picture, or poster, or any
advertising matter whatsoever, anywhere in or about the Premises or the Building
at places visible from anywhere outside or at the entrance to the Premises
without first obtaining Landlord's written consent thereto, such consent to be
at Landlord's reasonable discretion.
22. LIENS.
Tenant shall keep the Premises and the Building free from any liens
arising out of any work performed, materials ordered or obligations incurred by
or on behalf of Tenant, and Tenant hereby agrees to indemnify and hold Landlord,
its agents, employees, independent contractors, officers, directors, partners,
and shareholders harmless from any liability, cost or expense for such liens.
Tenant shall cause any such lien imposed to be released of record by payment or
posting of the proper bond acceptable to Landlord within thirty (30) days after
the earlier of imposition of the lien or written request by Landlord. Tenant
shall give Landlord written notice of Tenant's intention to perform work on the
Premises which might result in any claim of lien at least thirty (30) days prior
to the commencement of such work to enable Landlord to post and record a notice
of nonresponsibility or other notice deemed proper before commencement of any
such work. If Tenant fails to remove any lien within the prescribed thirty (30)
day period, then Landlord may do so at Tenant's expense and Tenant's
reimbursement to Landlord for such amount, including attorneys' fees and costs,
shall be deemed Additional Rent. Tenant shall have no power to do any act or
make any contract which may create or be the foundation for any lien, mortgage
or other encumbrance upon the reversion or other estate of Landlord, or of any
interest of Landlord in the Premises.
23. DEFAULT.
23.1 Tenant's Default. A default under this Lease by Tenant shall exist if
any of the following occurs:
23.1.1 If Tenant fails to pay Rent, Additional Rent or any other sum
required to be paid hereunder within ten (10) days after written notice to
Tenant; or
23.1.2 If Tenant fails to perform any term, covenant or condition of
this Lease except those requiring the payment of money to Landlord as set forth
in Section 23.1.1 above, and Tenant fails to cure such breach within thirty (30)
days after written notice from Landlord where such breach could reasonably be
cured
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within such thirty (30) day period; provided, however, that where such failure
could not reasonably be cured within the thirty (30) day period, that Tenant
shall not be in default if it commences such performance within the thirty (30)
day period and diligently thereafter prosecutes the same to completion, such
grace period not to exceed a maximum of forty-five (45) days in the aggregate,
and no such grace period to be permitted in the event of any one or more of the
following: (i) there exists a risk of prosecution of the Landlord, (ii) there
exits a reasonable possibility of danger to the health or safety of the
Landlord, the Tenant, Tenant's invitees, or any other occupants of, or visitors
to, the Building, (iii) the default relates to the maintenance of insurance
obligations, (iv) the default relates to the assignment and subletting
provisions, and (v) the default relates to a violation of Section 5.2 of this
Lease; the determination as to whether or not any such conditions exist to be
made in Landlord's reasonable discretion; and
23.1.3 If Tenant or any guarantor of this Lease shall (i) make an
assignment for the benefit of creditors, (ii) acquiesce in a petition in any
court in any bankruptcy, reorganization, composition, extension or insolvency
proceedings, (iii) seek, consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or of any guarantor of this Lease and
of all or any part of Tenant's or such guarantor's property, (iv) file a
petition seeking an order for relief under the Bankruptcy Code, as now or
hereafter amended or supplemented, or by filing any petition under any other
present or future federal, state or other statute or law for the same or similar
relief, or (v) fail to win the dismissal, discontinuation or vacating of any
involuntary bankruptcy proceeding within thirty (30) days after such proceeding
is initiated; or
23.1.4 If Tenant shall have abandoned or vacated all or
substantially all of the Premises for more than ninety (90) consecutive days
after written notice by Landlord to Tenant.
23.2 Remedies. Upon the occurrence of any of such events of default
described in Section 23.1 above, Landlord shall have the option to pursue any
one or more of the following remedies without any notice or demand whatsoever:
23.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails so to do, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages to rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying such Premises or any
part thereof, without being liable for prosecution or any claim of damages.
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23.2.2 Enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying such Premises or any
part thereof, and relet the Premises and receive the Rent therefor.
23.2.3 Enter upon the Premises, without being liable for prosecution
or any claim for damages therefore, and do whatever Tenant is obligated to do
under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand
for any expenses which Landlord may incur by thus effecting compliance with
Tenant's obligations under this Lease.
23.2.4 After obtaining a judgment or an order from a court with
jurisdiction, alter all locks and other security devices at the Premises without
terminating this Lease.
23.2.5 Notwithstanding anything to the contrary contained herein,
Tenant shall retain for all times to which the terms of the Lease apply all
rights and privileges accorded a commercial Tenant under the law, statutory and
otherwise, of the Commonwealth of Virginia and nothing contained herein shall be
deemed a waiver of any said rights or privileges. Notwithstanding anything to
the contrary contained herein, so long as Tenant is occupying the Premises, no
act which would deny Tenant possession of the Premises or access thereto shall
be taken by Landlord unless Landlord has, prior to taking such action, obtained
the right to do so from a court with jurisdiction.
23.3 Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises by Tenant, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord and Tenant. No such alteration of locks or other security devices and
no removal or other exercise of dominion by Landlord over the property of Tenant
or others at the Premises shall be deemed unauthorized or constitute a
conversion, Tenant hereby consenting, after any event of default, to the
aforesaid exercise of dominion over Tenant's property within the Premises. All
claims for damages by reason of such reentry and/or repossession and/or
alteration of locks or other security devices are hereby waived, as are all
claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process. Tenant agrees
that any reentry by Landlord may be pursuant to judgment obtained in forcible
detainer proceedings or other legal proceedings and Landlord shall not be liable
to trespass or otherwise.
23.4 In the event Landlord elects to terminate the Lease by reason of an
event of default, then notwithstanding such termination, Tenant shall be liable
for and shall pay to Landlord, at the address specified for notice to Landlord
herein, the sum of all rental and other indebtedness accrued to date of such
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termination, plus, as damages, an amount equal to the difference between the
total present value of the rental hereunder for the remaining portion of the
Lease Term (had such term not been terminated by Landlord prior to the date of
expiration stated in Section 1.3 and the then present value of the then fair
rental value of the Premises for such period.
23.5 Subject to the provisions of Section 1.3, in the event that Landlord
elects to repossess the Premises without terminating the Lease, then Tenant
shall be liable for and shall pay to Landlord, at the address specified for
notice to Landlord herein, all rental and other indebtedness accrued to the date
of such repossession, plus rental required to be paid by Tenant to Landlord
during the remainder of the Lease Term until the date of expiration of the term
as stated in Section 1.3 diminished by any net sums thereafter received by
Landlord through reletting the Premises during said period (after deducting
expenses incurred by Landlord as provided below). In no event shall Tenant be
entitled to any excess of any rental obtained by reletting over and above the
rental herein reserved. Actions to collect amounts due by Tenant to Landlord
under this subparagraph may be brought from time to time, on one or more
occasion, without the necessity of Landlord's waiting until expiration of the
Lease Term.
23.6 In case of any event of default or breach by Tenant, Tenant shall
also be liable for and shall pay to Landlord, at the address specified for
notice to Landlord herein, in addition to any sum provided to be paid above,
brokers' fees incurred by Landlord in connection with reletting the whole or any
part of the Premises; the costs of removing and storing Tenant's or other
occupant's property; the reasonable costs of repairing, altering, remodelling or
otherwise putting the Premises into condition acceptable to a new tenant or
tenants; and all reasonable expenses incurred by Landlord in enforcing or
defending Landlord's rights and/or remedies including reasonable attorney's
fees.
23.7 In the event of termination or repossession of the Premises for an
event of default, Landlord shall make commercially reasonable efforts to
mitigate damages to relet or to attempt to relet the Premises, or any portion
thereof, or to collect rental after reletting; and in the event of reletting,
Landlord may relet the whole or any portion of the Premises for any period to
any tenant and for any use and purpose.
23.7.1 If Tenant should fail to make any payment or cure any default
hereunder within the time herein permitted, Landlord, without being under any
obligation to do so and without thereby waiving such default, may make such
payment and/or remedy such other default for the account of Tenant (and enter
the Premises for such purpose), and thereupon Tenant shall be obligated to, and
hereby agrees, to pay Landlord, upon demand, all costs,
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expenses and disbursements (including reasonable attorney's fees) incurred by
Landlord in taking such remedial action.
23.8 In the event that Landlord shall have taken possession of the
Premises pursuant to the authority herein granted then Tenant shall have a
reasonable period of time (not to exceed fifteen (15) days) in which to remove
its furniture, fixtures, equipment and other property located on the Premises,
and if Tenant fails to do so within such reasonable period then Landlord shall
have the right to all or any portion of such furniture, fixtures, equipment and
other property located thereon and to place same in storage at any premises
within the County in which the Premises is located; and in such event, Tenant
shall be liable to Landlord for costs incurred by Landlord in connection with
such removal and storage. Landlord shall also have the right to relinquish
possession of all or any portion of such furniture, fixtures, equipment and
other property to any person ("Claimant") claiming to be entitled to possession
thereof who presents to Landlord a copy of any instrument represented to
Landlord by Claimant to have been executed by Tenant (or any predecessor of
Tenant) granting Claimant the right under various circumstances to take
possession of such furniture, fixtures, equipment or other property, without the
necessity on the part of Landlord to inquire into the authenticity of said
instrument's copy of Tenant's or Tenant's predecessor's signature thereon and
without the necessity of Landlord making any nature of investigation or inquiry
as to the validity of the factual or legal basis upon which Claimant purports to
act; and Tenant agrees to indemnify and hold Landlord harmless from all cost,
expense, loss, damage and liability incident to Landlord's relinquishment of
possession of all or any portion of such furniture, fixtures, equipment or other
property to Claimant. The rights of Landlord herein stated shall be in addition
to any and all other rights which Landlord has or may hereafter have at law or
in equity; and Tenant stipulates and agrees that the rights herein granted
Landlord are commercially reasonable.
24. SUBORDINATION AND ATTORNMENT.
Tenant accepts this Lease subject and subordinate to any mortgage(s)
and/or deed(s) of trust now or at any time hereafter constituting a lien or
charge upon the Premises or the Improvements situated thereon, provided,
however, that if the mortgagee, trustee, or holder of any such mortgage or deed
of trust elects to have Tenant's interest in this Lease superior to any such
instrument, then by notice to Tenant from such mortgagee, trustee or holder,
this Lease shall be deemed superior to such lien, whether this Lease was
executed before or after said mortgage or deed of trust. Tenant shall at any
time hereafter on demand execute any instruments, releases or other documents
which may be required by any mortgagee for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage, provided, however,
that so long as Tenant is not in default, this
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Lease shall not be divested, terminated or in any way affected by foreclosure of
mortgage or deed of trust, or deed in lieu of foreclosure. Tenant shall execute
and deliver to Landlord a Subordination, Non-Disturbance and Attornment
Agreement in the form attached hereto as Exhibit F (the "SNDA") in order to
confirm the foregoing subordination within ten (10) days after Landlord's
written request. If Tenant does not provide Landlord with the SNDA within ten
(10) days after Landlord's written request, then Tenant hereby authorizes
Landlord to execute such subordination documents acting as duly authorized agent
for Tenant.
25. SURRENDER OF POSSESSION.
Upon expiration of the Lease Term, Tenant shall promptly and peacefully
surrender the Premises to Landlord in as good condition as when received by
Tenant from Landlord or as thereafter improved, reasonable use and wear and tear
excepted, all to the reasonable satisfaction of Landlord. If the Premises are
not surrendered in accordance with the terms of this Lease, Tenant shall
indemnify Landlord and its agent, employees, independent contractors, officers,
directors, partners, and shareholders against any loss or liability including
reasonable attorneys' fees and costs, and including liability to succeeding
tenants, resulting from delay by Tenant in so surrendering the Premises. This
indemnification shall survive termination of this Lease.
26. NON-WAIVER.
Waiver by Landlord of any breach of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant, or
condition(s), or any subsequent breach of the same or any other term, covenant
or condition of this Lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent.
27. HOLDOVER.
If Tenant shall, without the written consent of Landlord, hold over after
the expiration of the Lease Term, Tenant shall be deemed a tenant at sufferance,
which tenancy may be terminate as provided by applicable state law. During such
tenancy, Tenant agrees to pay to Landlord, each month, one hundred twenty-five
percent (125%) of the Rent and Additional Rent payable by Tenant for the last
month of the Lease Term. Tenant shall give to Landlord thirty (30) days prior
written notice of any intention to quit the Premises. Tenant shall be entitled
to thirty (30) days prior written notice to quit the Premises, except in the
event of non-payment of Rent in advance or the breach of any other covenant or
the existence of a default, or upon expiration of the Lease Term as provided
herein, in which event Tenant shall not be entitled to any notice to quit, the
usual notice to quit being hereby expressly waived.
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28. CONDEMNATION.
If twenty percent (20%) or more of the Premises or of such portion of the
Building as may be required for the reasonable use of the Premises, are taken by
eminent domain or sale under threat of condemnation by eminent domain, this
Lease shall automatically terminate as of the date title vests in the condemning
authority, and all Rent, Additional Rent, and other payments shall be paid to
that date. Landlord reserves all rights to damages to the Premises for any
partial or entire taking by eminent domain, and Tenant hereby assigns to
Landlord any right Tenant may have to such damages or award, and Tenant shall
make no claim against Landlord or the condemning authority for damages for
termination of Tenant's leasehold interest or for interference with Tenant's
business. Tenant shall have the right to claim and recover separately from the
condemning authority compensation for any loss which Tenant may incur for
Tenant's moving expenses, business interruption or taking of Tenant's personal
property (not including Tenant's leasehold interest).
29. NOTICES.
All notices and demands which may be required or permitted to be given to
either party hereunder shall be in writing, and shall be delivered personally,
by telecopy (with confirming copy by United States certified mail) or sent by
United States certified mail, postage prepaid, return receipt requested, or by
Federal Express or other reputable overnight carrier, to the addresses set out
in Section 1.6, and to such other person or place as each party may from time to
time designate in a notice to the other. Notice shall be deemed given upon the
earlier of actual receipt, refusal of delivery or on the date which is three (3)
days after the date of mailing.
30. MORTGAGEE PROTECTION.
Tenant agrees to give any mortgagee(s) and/or trust deed holder(s), by
registered mail, a copy of any notice of default served upon the Landlord,
provided that prior to such notice Tenant has been notified in writing (by way
of notice of assignment of rents and leases, or otherwise) of the addresses of
such mortgagee(s) and/or trust deed holder(s). Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the mortgagee(s) and/or trust deed holder(s) shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
if within such thirty (30) days any mortgagee and/or trust deed holder(s) has
commenced and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), in which event Tenant shall not have the right
to
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pursue any claim against Landlord, such mortgagee and/or such trust deed
holder(s), including but not limited to any claim of actual or constructive
eviction, so long as such remedies are being so diligently pursued.
31. COSTS AND ATTORNEYS' FEES.
If either party shall bring any action against the other, arising out of
this Lease, including any suit by Landlord for the recovery of Rent, Additional
Rent or other payments hereunder, or possession of the Premises, the losing
party shall pay to the prevailing party a reasonable sum for attorneys' fees and
costs in such suit, at trial and on appeal, and such attorneys' fees and costs
shall be deemed to have accrued on the commencement of such action.
32. BROKERS.
Landlord and Tenant represent and warrant to each other that neither
Landlord nor Tenant nor its officers or agents nor anyone acting on its behalf
has dealt with any real estate broker other than Trammell Crow Real Estate
Services, Inc. who represented Landlord (and who shall be paid by Landlord
pursuant to a separate agreement) in the negotiating or making of this Lease and
Landlord and Tenant agree to indemnify and hold each other and the others'
agents, employees, partners, directors, shareholders and independent contractors
harmless from all liabilities, costs, demands, judgments, settlements, claims
and losses, including reasonable attorneys fees and costs, incurred by such
party in conjunction with any such claim or claims of any other broker or
brokers claiming to have interested Tenant in the Building or Premises or
claiming to have caused Tenant to enter into this Lease.
33. LANDLORD'S LIABILITY AND DEFAULT.
Anything in this Lease to the contrary notwithstanding covenants,
undertakings and agreements herein made on the part of the Landlord are made and
intended not for the purpose of binding Landlord personally or the assets of
Landlord but are made and intended to bind only the Landlord's interest in the
Premises and Building, as the same may, from time to time, be encumbered and no
personal liability shall at anytime be asserted or enforceable against Landlord
or its stockholders, officers or partners or their respective heirs, legal
representatives, successors and assigns on account of this Lease or on account
of any covenant, undertaking or agreement of Landlord in this Lease. In
addition, in no event shall Landlord be in default of this Lease unless Tenant
notifies Landlord of the precise nature of the alleged breach by Landlord, and
Landlord fails to cure such breach within thirty (30) days after the date of
Landlord's receipt of such notice (provided that if the alleged breach is of
such a nature that it cannot reasonably
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be cured within such thirty (30) day period, then Landlord shall not be in
default if Landlord commences a cure within such thirty (30) day period and
diligently thereafter prosecutes such cure to completion). In the event that
Landlord does not cure the default within such thirty (30) day period or does
not diligently proceed to cure such default if such default is not capable of
being cured with such thirty (30) day period, Tenant shall have the right to
cure such default on Landlord's behalf and Landlord shall promptly reimburse
Tenant for all reasonable, out-of-pocket expenses incurred by Tenant in
connection with such cure.
34. ESTOPPEL CERTIFICATES.
Tenant shall, from time to time, within thirty (30) days of Landlord's
written request, execute, acknowledge and deliver to Landlord or its designee a
written statement stating: the date this Lease was executed and the date it
expires; the date the Tenant entered occupancy of the Premises; the amount of
Rent, Additional Rent and other charges due hereunder and the date to which such
amounts have been paid; that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended in any way (or specifying the
date and terms of any agreement so affecting this Lease); that this Lease
represents the entire agreement between the parties as to this leasing; that all
conditions under this Lease to be performed by the Landlord have been satisfied
(or specifying any such conditions that have not been satisfied); that all
required contributions by Landlord to Tenant on account of Tenant's improvements
have been received (or specifying any such contributions that have not been
received); that on this date there are no existing defenses or offset which the
Tenant has against the enforcement of this Lease by the Landlord; that no Rent
has been paid more than one (1) month in advance; that no security has been
deposited with Landlord (or, if so, the amount thereof); or any other matters
evidencing the status of this Lease, as may be required either by a lender
making a loan to Landlord to be secured by a deed of trust or mortgage against
the Building, or a purchaser of the Building. Landlord and Tenant hereby approve
the form of the Estoppel Certificate attached hereto as Exhibit E. It is
intended that any such statement delivered pursuant to this paragraph may be
relied upon by a prospective purchaser of Landlord's interest or a mortgagee of
Landlord's interest or assignee of any mortgage upon Landlord's interest in the
Building. If Tenant fails to respond within ten (10) business days of receipt by
Tenant of a written request by Landlord as herein provided, Tenant shall be
deemed to have given such certificate as above provided without modification and
shall be deemed to have admitted the accuracy of any information supplied by
Landlord to a prospective purchaser or mortgagee. Landlord shall, from time to
time, within thirty (30) days of Tenant's written request, execute, acknowledge
and deliver to Tenant or its designee a written statement stating such factual
matters with respect to the Lease as Tenant may reasonably request.
29
<PAGE> 33
35. FINANCIAL STATEMENTS.
Within fifteen (15) days after Landlord's request (but no more often than
two (2) times in a calendar year), Tenant shall deliver to Landlord the current
financial statements of Tenant, including a balance sheet and profit and loss
statement for the most recent prior year, all prepared in accordance with
generally accepted accounting principles consistently applied. The financial
statements and the information contained therein shall be kept in strict
confidence by Landlord and its management company and shall not be disclosed or
otherwise disseminated to any other party except any current or potential
mortgagee or purchaser of the Building which current or potential mortgagee or
purchaser shall execute, at Tenant's request, a confidentiality agreement in
favor of Tenant in form and substance reasonably satisfactory to Tenant.
Landlord hereby agrees to indemnify Tenant for any loss, damage, claim or demand
suffered by Tenant as a result of a breach by Landlord of its covenants and
agreements contained in this Article 35 by reason of Landlord's gross negligence
or wilful misconduct.
36. TRANSFER OF LANDLORD'S INTEREST.
In the event of any transfer(s) of Landlord's interest in the Premises or
the Building, other than a transfer for security purposes only, the transferor
shall be automatically relieved of any and all obligations and liabilities on
the part of Landlord accruing from and after the date of such transfer, and
Tenant agrees to attorn to the transferee.
37. RIGHT TO PERFORM.
If Tenant shall fail to pay any sum of money, other than Rent and
Additional Rent, required to be paid by it hereunder or shall fail to perform
any other act on its part to be performed hereunder, and (except in the event of
emergency in which case no grace or cure period shall be applicable or required)
such failure shall continue for ten (10) days, Landlord may, but shall not be
obligated so to do, and without waiving or releasing Tenant from any obligations
of Tenant, make any such payment or perform any such other act on Tenant's part
to be made or performed as provided in this Lease. Landlord shall have (in
addition to any other right or remedy of Landlord) the same rights and remedies
in the event of the nonpayment of sums due under this section as in the case of
default by Tenant in the payment of Rent. All sums paid by Landlord and all
penalties, interest and costs in connection therewith, shall be due and payable
by Tenant on the next day after such payment by Landlord, together with interest
thereon at the maximum rate of interest permitted by law from such date to the
date of payment.
30
<PAGE> 34
38. SUBSTITUTED PREMISES.
[Intentionally Omitted]
39. SALES AND AUCTIONS.
Tenant may not display or sell merchandise outside the exterior walls and
doorways of the Premises and may not use such areas for storage. Tenant agrees
not to install any exterior lighting, amplifiers or similar devices in or about
the Premises. Tenant shall not conduct or permit to be conducted any sale by
auction in, upon or from the Premises whether said auction be voluntary,
involuntary, pursuant to any assignment for the payment of creditors or pursuant
to any bankruptcy or other insolvency proceedings.
40. ACCESS TO ROOF.
Except as set forth in this Section 40, Tenant shall have no right of
access to the roof of the Premises or the Building.
40.1 Rooftop Equipment. Tenant may install, at its sole cost, certain
additional HVAC and utility equipment (the "Rooftop Equipment") on the roof of
the Building, subject to Landlord's prior written approval, not to be
unreasonably withheld, of plans and specifications for the Rooftop Equipment and
the type and placement of all cabling and wiring ancillary thereto. Landlord
shall not charge Tenant Additional Rent for the use of space on the roof for the
Rooftop Equipment. Tenant shall be responsible for obtaining and maintaining all
approvals, permits and licenses required by Fairfax County, Reston or any
federal, state or local government for installation and operation of the Rooftop
Equipment and shall pay all fees attendant thereto. If the Rooftop Equipment is
installed, Tenant shall have sole responsibility for the maintenance, repair and
replacement thereof and of all cabling and wiring ancillary thereto and Tenant
will be responsible for bearing the costs to repair any damage cause to the roof
or Building by the installation of the Rooftop Equipment.
Additionally, Tenant covenants and agrees that:
(a) The Rooftop Equipment shall not unreasonably interfere with the
standard use of the Building by other tenants;
(b) Tenant shall fully insure against damage occasioned by the
installation and/or operation of the Rooftop Equipment;
(c) Landlord shall retain the right to designate the placement of the
Rooftop Equipment and to require such reasonable "screening" type
improvements to the Building, as may be required to maintain its
cosmetic appearance;
31
<PAGE> 35
(d) If Tenant accesses the roof without a designated representative of
Landlord, the burden of proof for any damages subsequent to such
access shall be upon Tenant;
(e) Tenant agrees to indemnify Landlord (and its agents, employees,
officers, representatives and shareholders) and hold Landlord (and
its agents, employees, officers, representatives and shareholders)
harmless from all loss, cost, damage and expense, including
reasonable attorneys fees, incurred by Landlord (and its agents,
employees, officers, representatives and shareholders) as a result
of the installation, maintenance, presence, use or removal of any
Rooftop Equipment; and
(f) Tenant's rights to install, operate and maintain the Rooftop
Equipment as contained in this provision shall not be transferable
or assignable to an assignee or subtenant (except to an assignee or
subtenant that was approved by Landlord in writing) without the
express written consent of Landlord which can be granted or withheld
in Landlord's sole discretion.
40.2 Roof Improvements. Tenant may, at its sole cost and expense,
construct certain improvements on the roof of the Building (the "Roof
Improvements") subject to Landlord's prior written approval, not to be
unreasonably withheld, of Tenant's plans and specifications. The Roof
Improvements shall be substantially similar to the roof improvements made by
Tenant at the 3725 Concorde Parkway building. The Roof Improvements shall be in
a location reasonably agreed upon by Landlord and Tenant. Landlord reserves the
right to require Tenant, at its cost and expense, to screen the Roof
Improvements to maintain the Building's appearance. The plans and specifications
and the Roof Improvements, after construction, shall comply with all applicable
federal, state and local laws, rules, regulations and ordinances. Tenant shall
be solely responsible for obtaining all required approvals, permits and licenses
with respect to the construction and operation of the Roof Improvements. At the
expiration of earlier termination of this Lease, Tenant shall promptly remove
the Roof Improvements and all cabling and wiring ancillary thereto, shall
restore the roof of the Building to the condition that existed prior to the
installation of the Roof Improvements and shall be responsible for all damage to
the roof or the Building in connection with such removal.
40.3 Additional Roof Improvements. Landlord acknowledges that Tenant may
request that Tenant be allowed to construct additional Roof Improvements and
Landlord hereby agrees to reasonably consider such request.
32
<PAGE> 36
41. SECURITY.
Tenant hereby agrees to the exercise by Landlord and its agents and
employees, within their sole discretion, of such security measures as it deems
necessary for the Building. Landlord hereby acknowledges that Tenant shall
employ such security measures with respect to the interior of the Premises as
Tenant deems reasonably necessary.
42. AUTHORITY OF TENANT.
If Tenant is a corporation or partnership, each individual executing this
Lease on behalf of said corporation or partnership represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation or partnership, and that this Lease is binding upon said corporation
or partnership.
43. NO ACCORD OR SATISFACTION.
No payment by Tenant or receipt by Landlord of a lesser amount than the
Rent and other sums due hereunder shall be deemed to be other than on account of
the earliest Rent or other sums due, nor shall any endorsement or statement on
any check or accompanying any check or payment be deemed an accord and
satisfaction; and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or other sum and to pursue
any other remedy provided in this Lease.
44. MODIFICATION FOR LENDER.
[Intentionally Omitted]
45. PARKING.
Tenant shall have the right to park in the Building parking facilities in
common with other tenants of the Building upon such terms and conditions,
established by Landlord at any time during the term of this Lease. Landlord
shall provide Tenant the nonexclusive right to ninety-eight (98) parking spaces.
Landlord shall not charge Tenant a parking fee at any time during the Lease Term
or any extensions or renewals thereof. In the event Tenant occupies additional
space in the Building, Tenant shall have the right to park additional
automobiles in the Building's parking lot based on the ratio of three (3)
parking spaces for each additional one thousand (1,000) square feet leased.
Tenant agrees not to overburden the parking facilities and agrees to cooperate
with Landlord and other tenants in use of the parking facilities. Landlord
reserves the right in its absolute discretion to determine whether the parking
facilities are becoming overburdened and to allocate and assign parking spaces
among Tenant and other tenants, and to reconfigure the parking area and modify
the existing ingress
33
<PAGE> 37
to and egress from the parking area as Landlord shall deem appropriate.
46. GENERAL PROVISIONS.
46.1 Acceptance. This Lease shall only become effective and binding upon
full execution hereof by Landlord and delivery of a signed copy to Tenant.
46.2 Joint Obligation. If there be more than one Tenant, the obligations
hereunder imposed shall be joint and several.
46.3 Marginal Headings, Etc. The marginal headings, Table of Contents,
lease summary sheet and titles to the articles of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part hereof.
46.4 Choice of Law. This Lease shall be governed by and construed in
accordance with the laws of the State in which the Premises are located (without
regard to the choice of law and/or conflict of law principles applicable in such
State).
46.5 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, inure to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
46.6 Recordation. Except to the extent otherwise required by law, neither
Landlord nor Tenant shall record this Lease, but a short-form memorandum hereof
may be recorded at the request of Landlord at Landlord's sole cost and expense.
46.7 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 quiet
possession of the Premises for the Lease Term hereof, free from any disturbance
or molestation by Landlord, or anyone claiming by, through or under Landlord,
but in all events subject to all the provisions of this Lease.
46.8 Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, and
Landlord's obligation shall be excused during the period in which it is unable
to fulfill such obligations, if and to the extent such inability or delay is
caused by reason of strike, labor troubles, acts of God, or any other cause
beyond the reasonable control of the Landlord, which may be referred to in this
Lease as "Force Majeure." Tenant's obligations hereunder (other than the payment
of Rent, Additional Rent or any other sum) shall be excused during the period in
which Tenant is
34
<PAGE> 38
unable to fulfill such obligations if and to the extent such inability or delay
is due to Force Majeure.
46.9 Partial Invalidity. Any provision of this Lease which shall prove to
be invalid, void, or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provision(s) shall remain in full force
and effect.
46.10 Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.
46.11 Entire Agreement. This Lease together with the Exhibits attached
hereto, contains the entire agreement of the parties hereto and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties, not embodied herein, shall be of any force or effect. The Exhibits
attached hereto are incorporated herein and made a part of this Lease by this
reference.
46.12 Survival. All indemnities set forth in this Lease shall survive the
expiration or earlier termination of this Lease.
46.13 Consents. If any provision of this Lease subjects any action,
inaction, activity or other right or obligation of Tenant to the prior consent
or approval of Landlord, Landlord shall be deemed to have the right to exercise
its sole and unfettered discretion in determining whether to grant or deny such
consent or approval, unless the provision in question states that Landlord's
consent or approval "shall not be unreasonably withheld", in which event
Landlord's consent shall be subject to Landlord's sole, but reasonable,
discretion.
46.14 Saving Clause. In the event (but solely to the extent) the
limitations on Landlord's liability set forth in Section 8.2 of this Lease would
be held to be unenforceable or void in the absence of a modification holding the
Landlord liable to Tenant or to another person for injury, loss, damage or
liability arising from Landlord's omission, fault, negligence or other
misconduct on or about the Premises, or other areas of the Building appurtenant
thereto or used in connection therewith and not under Tenant's exclusive
control, then such provision shall be deemed modified as and to the extent (but
solely to the extent) necessary to render such provision enforceable under
applicable law. The foregoing shall not affect the application of Article 33 of
this Lease to limit the assets available for execution of any claim against
Landlord.
46.15 Reservation. Nothing herein set forth shall be deemed or construed
to restrict Landlord from making any modifications to any of the parking and/or
common areas serving the Building and/or Premises as of the date of execution
hereof, and
35
<PAGE> 39
Landlord expressly reserves the right to make any modifications to such areas as
Landlord may deem appropriate, including but not limited to, the addition or
deletion of temporary and/or permanent improvements therein, and/or the
conversion of areas now dedicated for the non-exclusive common use of tenants
(including Tenant) to the exclusive use of one (1) or more tenants or licensees
within the Building.
47. RULES AND REGULATIONS.
Tenant agrees to comply with the Rules and Regulations attached hereto as
Exhibit D, and with any reasonable additions thereto and modifications thereof
adopted from time to time by Landlord and delivered to Tenant. Landlord shall
not be responsible to Tenant for the nonperformance of any of said rules and
regulations by any other tenants or occupants of the Building.
48. LANDLORD'S LIEN.
[Intentionally Omitted]
49. WAIVER OF JURY TRIAL.
Landlord and Tenant hereby waive trial by jury in any action, proceeding
or counterclaim brought by either of them against the
36
<PAGE> 40
other on all matters arising out of this Lease, or the use and occupancy of the
Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
day and year first above written.
LANDLORD:
AVION (FAIRFAX) ASSOCIATES, L.P.
By: Trammell Crow Real Estate Services,
Inc., agent
By: [SIG]
----------------------------
Name: [SIG]
--------------------------
Title: SENIOR VICE PRESIDENT
-------------------------
TENANT:
FUISZ TECHNOLOGIES LTD., a Delaware
corporation
By: /s/ RICHARD C. FUISZ
-----------------------------
Name: RICHARD C. FUISZ
-----------------------------
Title: CHAIRMAN & CEO
-----------------------------
37
<PAGE> 41
EXHIBIT A
LOCATIONS AND DIMENSIONS OF PREMISES
[To be provided by Trammell Crow Real Estate Services, Inc.]
<PAGE> 42
EXHIBIT B
SPECIAL STIPULATIONS
These Special Stipulations are hereby incorporated into this Lease and in
the event they conflict with any provision of this Lease, the Special
Stipulations shall control.
1. Rent.
During the Lease Term, Tenant shall pay Base Rent as follows:
<TABLE>
<CAPTION>
Months of the Base Rent Rate Per Rentable Monthly Rent Payment
Lease Term Square Foot Per Annum (Base Rent only)
- ---------- --------------------------- ----------------
<S> <C> <C>
Lease Commencement
Date - 03/31/97 --- $23,907.63
04/01/97 - 11/30/97 --- 24,206.35
12/01/97 - 03/31/98 --- 24,624.96
04/01/98 - 11/30/98 --- 24,932.64
12/01/98 - 11/30/99 $ 9.28 25,127.92
12/01/99 - 11/30/00 9.56 25,886.09
12/01/00 - 11/30/01 9.85 26,671.34
12/01/01 - 11/30/02 10.14 27,456.59
12/01/02 - 11/30/03 10.44 28,268.91
12/01/03 - 11/30/04 10.76 29,135.39
12/01/04 - 07/31/05 11.08 30,001.87
</TABLE>
B. Base Rent during a Renewal Term (as that term is defined in
Paragraph No. 2 of this Exhibit B), if Tenant exercises its renewal
option in accordance with this Lease, shall be determined in
accordance with Paragraph No. 2 of this Exhibit B.
2. Renewal Option. Provided that (i) both at the time of the exercise of the
option hereinafter set forth and at the time of commencement of the Renewal Term
(as hereinafter defined) this Lease is in full force and effect and provided
further that Tenant is not then in default hereunder beyond the expiration of
any applicable notice and cure period provided for in this Lease and (ii) Tenant
is in occupancy of at least fifty percent (50%) of the Premises for the purpose
of conducting its own business, Tenant is hereby granted the option to renew the
Lease Term for one (1) additional period of sixty (60) months each (a "Renewal
Term"), such Renewal Term to commence at the expiration of the initial Lease
Term. Tenant shall exercise its option to renew by delivering notice of such
election (the "Renewal Notice") to Landlord not less than nine (9) months prior
to the expiration of the initial Lease Term. In the event that Landlord does not
receive the Renewal Notice prior to the expiration of such
<PAGE> 43
time period (time being of the essence with respect thereto), then such option
to renew the Lease Term shall, upon the expiration of such time period, become
null and void and be of no further force or effect and Tenant shall, at the
request of Landlord, execute an instrument in form and substance acceptable to
Landlord confirming such facts. The Renewal Term shall be upon the same terms
and conditions of this Lease except that the Base Rent during the Renewal Term
shall be at an annual rate equal to ninety five percent (95%) of the then
current fair market rental rate for leases comparable to this Lease for space
comparable to the Premises in the Building taking into account such factors as
tenant improvement allowances, rent concessions, and rental escalations (the
"FMR"). The FMR shall be determined by Landlord and Tenant by mutual agreement;
however, if Landlord and Tenant cannot agree in writing on the FMR within ten
(10) days after Tenant's notice of its election to renew, the FMR shall be
determined by the Three Broker Method set forth below. Tenant shall have no
option to renew this Lease beyond the expiration of the Renewal Term, and the
Premises shall be delivered in their existing condition (on an "as is" basis) at
the time the Renewal Term commences.
The "Three Broker Method" shall operate as follows: The FMR shall be based
upon ninety-five percent (95%) of the current fair market rental rate for
comparable space in comparable buildings in the Chantilly, Virginia area,
(taking into account concessions which are being offered in the marketplace)
which shall be determined by a board of three (3) licensed real estate brokers,
one of whom shall be named by Landlord, one by Tenant, and the two so appointed
shall select a third broker. Each member of the board of brokers shall be
licensed in Virginia as a real estate broker, specializing in the field of
commercial office leasing in the Chantilly area of Virginia, having no less than
ten (10) years' experience in such field, and recognized as ethical and
reputable within the field. Landlord and Tenant agree to make their appointments
promptly after Landlord and Tenant are unable to agree upon the FMR. The two (2)
brokers selected by Landlord and Tenant shall select the third broker within ten
(10) days after they both have been appointed, and each broker, within fifteen
(15) days after the third broker is elected, shall submit his or her
determination of the FMR. The FMR shall be the determination of the broker that
is not the highest or the lowest (or, if two brokers reach an identical
determination, the determination of such two brokers). Landlord and Tenant shall
each pay the fee of the broker selected by it, and they shall equally share the
payment of the fee of the third broker.
The FMR shall be the Base Rent with respect to the Premises during the
first year of the Renewal Term and shall thereafter escalate during the
remainder of the Renewal Term at three percent (3%) per annum over the prior
year's Base Rent.
3. Cancellation Option. Notwithstanding anything to the contrary contained in
this Lease, provided Tenant is not in default hereunder, Tenant shall have the
option to terminate this Lease,
B-2
<PAGE> 44
effective as of July 31, 2003 (the "Cancellation Date") by providing Landlord
with written notice of such option election (the "Cancellation Notice"). Such
Cancellation Notice shall be effective only if it is given to Landlord at least
six (6) months prior to the Cancellation Date (the "Cancellation Notice
Deadline"); accordingly, if Tenant has not given its Cancellation Notice to
Landlord prior to the Cancellation Notice Deadline, the Cancellation Option
shall terminate and be of no further force or effect. As a condition precedent
to the cancellation of this Lease pursuant to the provisions of this paragraph,
Tenant shall pay to Landlord $35,000 as a cancellation fee which shall be
payable by Tenant to Landlord at least thirty (30) days prior to the
Cancellation Date. It is hereby acknowledged that any such amount required to be
paid by Tenant in connection with such early termination is not a penalty but a
reasonable pre-estimate of the loss incurred by Landlord as a result of such
early termination of this Lease (which loss is impossible to calculate more
precisely) and, in that regard, constitutes liquidated damages with respect to
such loss. Tenant shall continue to be liable for its obligations under this
Lease to and through the Cancellation Date, including, without limitation,
Additional Rent that accrues pursuant to the terms of the Lease, with all of
such obligations surviving the early termination of the Term of this Lease. The
rights granted to Tenant under this paragraph are personal to Tenant, and in the
event of any assignment of this Lease or sublease by Tenant (except to an
assignee which is approved by Landlord in writing), this Cancellation Option
shall thenceforth be void and of no further force or effect.
4. Right of First Refusal. Landlord hereby grants to Tenant an on-going right of
first refusal (the "Right of First Refusal") to lease any other space in the
Building which becomes available for lease (the "Refusal Space") during the term
of this Lease. If Landlord receives a bona fide offer to lease all or any part
of the Refusal Space which Landlord intends to accept or if Landlord makes a
bona fide offer to lease all or any part of the Refusal Space which the
prospective tenant intends to accept, then Landlord shall deliver written notice
of such offer to Tenant (the "Refusal Notice") and Tenant shall have the right
to exercise the Right of First Refusal upon the terms and conditions set forth
in such Refusal Notice, within ten (10) business days after receipt of the
Refusal Notice. If Tenant fails to timely exercise its Right of First Refusal,
Tenant shall be deemed to have rejected the Refusal Space designated in the
Refusal Notice and Landlord shall have the right to lease the Refusal Space to
the third party upon terms and conditions set forth in the Refusal Notice. In
the event Tenant accepts Landlord's offer, Tenant shall execute a new lease for
the Refusal Space under the terms and conditions set forth in the Refusal
Notice. If Tenant fails to or elects not to exercise the Right of First Refusal
and the third party prospective tenant does not lease the Refusal Space, the
Refusal Space shall again become subject to the Right of First Refusal herein
contained as to any
B-3
<PAGE> 45
subsequent third party offer submitted to Landlord. In the event Tenant fails to
or elects not to exercise the Right of First Refusal and the third party
prospective tenant does lease the Refusal Space, if the Refusal Space again
becomes available for lease, then the Refusal Space shall again become subject
to the Right of First Refusal.
5. Termination of Existing Leases. This Lease shall act as a termination and
replacement of the following: (i) Lease Agreement dated December 10, 1993 with
respect to a portion of the Premises (9,093 rsf commonly known as Premises A)
and (ii) Lease Agreement dated December 10, 1993 with respect to a portion of
the Premises (7,929 rsf commonly known as Premises C) (collectively, the
"Existing Leases") effective as of the Lease Commencement Date.
B-4
<PAGE> 46
EXHIBIT C
WORK LETTER
[Intentionally Omitted]
<PAGE> 47
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks in front of Premises shall not be obstructed by Tenant or
used by Tenant for any purpose other than ingress and egress from and to
Tenant's offices. Tenant shall remove promptly, at its own expense,
without the use of chemical agents, any debris from the sidewalks in front
of Premises. Landlord shall in all cases obtain the right to control or
prevent access thereto by any person whose presence, in Landlord's
judgment, would be prejudicial to the safety, peace, character or
reputation of the Building or of any Tenant of the Property.
2. The toilet rooms, water closets, sinks, faucets, plumbing and other
service apparatus of any kind shall not be used by Tenant for any purpose
other than those for which they were installed, and no sweepings, rubbish,
rags, ashes, chemicals or other refuse or injurious substances shall be
placed therein or used in connection therewith by Tenant.
3. No skylight, window, door or transom of the Building shall be covered or
obstructed by Tenant, and no window shade, blind, curtain, screen, storm
window, awning or other material shall be installed or placed on any
window or in any window space, except as approved in writing by Landlord.
If Landlord has installed or hereafter installs any shade, blind or
curtain in the Premises, Tenant shall not remove it without first
obtaining Landlord's written consent thereto.
4. No sign, lettering, insignia, advertisement, notice or other thing shall
be inscribed, painted, installed, erected or placed in any portion of the
Premises which may be seen from outside the Building, or on any window,
space or other part of the exterior or interior of the Building, unless
first approved in writing by Landlord. Names on suite entrances shall be
provided by and only Landlord and at Tenant's expense, using in each
instance lettering of a design and in a form consistent with the other
lettering in the Building, and first approved in writing by Landlord.
Tenant shall not erect any stand, booth or showcase or other article or
matter in or upon the Premises and/or the Building without first obtaining
Landlord's written consent thereto.
5. Tenant shall not place any additional lock upon any door within the
Premises or elsewhere upon the Property, without Landlord's prior written
approval, such approval not to be unreasonably withheld, and shall
surrender all keys for all such locks, at the end of the Term. Landlord
shall provide Tenant with one set of keys to the Premises when Tenant
assumes possession thereof.
<PAGE> 48
6. Tenant shall not do or permit to be done anything which obstructs or
interferes with the rights of any other tenant or the Property. Tenant
shall not keep anywhere within the Property any matter having an offensive
odor, or any kerosene, gasoline, benzine, camphene, fuel or other
explosive or highly flammable material except for small amounts of
chemicals used in Tenant's ordinary course of business, stored in a safe
manner meeting all regulations and standards including, but not limited
to, fire marshall codes/environmental protection agency rules, regulations
and standards and OSHA requirements and for which Tenant is reasonably
insured. No bird, fish or other animal shall be brought into or kept in or
about the Premises.
7. If Tenant desires to install signalling, telegraphic, telephonic,
protective alarm or other wires, apparatus or devices within the Premises,
Tenant shall need Landlord's prior written approval, such approval shall
not be unreasonably withheld. Landlord shall have the right (a) to prevent
or interrupt the transmission of excessive, dangerous or annoying current
of electricity or otherwise into or through the Building or the Premises,
(b) to require the changing or wiring connections or layout at Tenant's
expense, to the extent that Landlord may reasonably deem necessary, (c) to
require compliance with such reasonable rules as Landlord may establish
relating thereto, and (d) in the event of noncompliance with such
requirements or rules, immediately to cut wiring or do whatever else it
considers necessary to remove the danger, annoyance or electrical
interference with apparatus in any part of the Building. Each wire
installed by Tenant must be clearly tagged at each distributing board and
junction box and elsewhere where required by Landlord with the number of
the office to which such wire leads and the purpose for which it is used,
together with the name of Tenant or other concern, if any, operating or
using it.
8. Tenant shall have access to the Premises at all reasonable times. Landlord
shall in no event be responsible for admitting or excluding any person
from the Premises. In case of invasion, hostile attack, insurrection, mob
violence, riot, public excitement or other commotion, explosion, fire or
any casualty, Landlord shall have the right to bar or limit access to the
Building to protect the safety of occupants or the Property, or any
property within the Property.
9. Tenant and its employees, agents and invitees shall observe and comply
with the driving and parking signs and markers on the Premises surrounding
the Building.
10. Landlord shall have the right to rescind, suspend or modify the Rules and
Regulations and to promulgate such other Rules or Regulations as, in
Landlord's reasonable judgment, are from
D-2
<PAGE> 49
time to time needed for the safety, care, maintenance, operation or
cleanliness of the Building, or for the preservation of good order
therein. Upon Tenant's having been given notice to the taking of any such
action, the Rules and Regulations as so rescinded, suspended, modified or
promulgated shall have the same force and effect as if in effect at the
time at which Tenant's Lease was entered into (except that nothing in the
Rules and Regulations shall be deemed in any way to alter or impair any
provision of such Lease).
11. The use of any room within the Building as sleeping quarters is strictly
prohibited at all times.
12. Nothing in these Rules and Regulations shall give any Tenant any right or
claim against Landlord or any other person if Landlord does not enforce
any of them against any other Tenant or person (whether or not Landlord
has the right to enforce them against such Tenant or person), and no such
nonenforcement with respect to any tenant shall constitute a waiver of the
right to enforce them as to Tenant or any other Tenant person.
Notwithstanding anything above to the contrary, Landlord will enforce the
Rules and Regulations uniformly with all tenants.
D-3
<PAGE> 50
EXHIBIT E
TENANT ESTOPPEL CERTIFICATE
Date: _________________, 19__
To: Allstate Life Insurance Company ("Lender")
Allstate Plaza West M2C
3100 Sanders Road
Northbrook, Illinois 60062
Attn: Commercial Mortgage Division
From: Fuisz Technologies Ltd. ("Tenant")
3701 Concorde Parkway
Chantilly, Virginia 22021
Re: Multiple Suites, 3701 Concorde Parkway, Chantilly,
Virginia 22021 (the "Property")
The undersigned lessee ("Tenant") under that certain lease dated
______________, 1997, amended ____________, 19__ and ______________, 19__
("Lease") by and between Tenant and Avion (Fairfax) Associates, L.P., as lessor
("Landlord") covering premises commonly known as Flex I Building (the
"Premises") certifies the following as of the date hereof:
a. Tenant is the lessee under the Lease demising the Premises. The term of
the Lease commenced on February 1, 1997 and will expire on July 31, 2005.
b. Tenant certifies to Lender that: (a) the Lease has been properly
executed by Tenant and is presently in full force and effect without amendment
or modification except as noted in the first paragraph; (b) the Premises
consists of 32,493 rentable square feet; (c) the current monthly Base Rent is
$____________ and the current annual Base Rent is $______________; (d) all
construction required by the Lease to be made by Landlord has been completed and
any payments, credits or abatements required to be given by Landlord to Tenant
have been given; (e) no installment of Rent under the Lease other than current
monthly Rent has been paid more than thirty (30) days in advance; (f) Tenant is
not in arrears on any Rent or other charges payable by Tenant under the Lease;
(g) Tenant has accepted and is occupying the Premises; (h) the Lease has not
been assigned nor the Premises subleased by Tenant; (i) to Tenant's knowledge,
Landlord is not in default under the Lease and, to Tenant's knowledge as of the
date hereof, no event has occurred which, with the giving of notice or passage
of time, or both, could result in a default by Landlord; (j) to Tenant's
knowledge, Tenant has no existing defenses, offsets, liens, claims or credits
against the rentals under the Lease or against the enforcement of the Lease by
Landlord; (k) Tenant has not been granted any options to extend
<PAGE> 51
or terminate the term of the Lease earlier than the date specified in paragraph
1, except as may be specified in the Lease, and Tenant has not been granted any
options nor rights of first refusal to purchase the Premises or the Property;
and (l) Tenant has not received notice of violation of any federal, state,
county or municipal laws, regulations, ordinances, orders or directives relating
to the use or condition of the Premises or the Property.
c. This certification is made with the knowledge that the Lender is about
to provide Landlord with financing which shall be secured by a Deed of Trust,
Security Agreement and Assignment of Rents, Leases and Contracts ("Mortgage")
upon the Property. Tenant further acknowledges and agrees that Lender and
Lender's respective successors and assigns holding the Mortgage at any time
after the date of this Certificate shall have the right to rely on the
information contained in this Certificate.
7. The undersigned is authorized to execute this Tenant Estoppel
Certificate on behalf of Tenant.
FUISZ TECHNOLOGIES LTD., a Delaware
corporation
By:
-------------------------------
Its:
------------------------------
E-2
<PAGE> 52
EXHIBIT F
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
[RETURN TO ALLSTATE'S OUTSIDE COUNSEL]
- --------------------------------
- --------------------------------
- --------------------------------
- --------------------------------
THIS AGREEMENT is dated the ____ day of _________, 19__, between ALLSTATE
LIFE INSURANCE COMPANY ("Lender") and FUISZ TECHNOLOGIES LTD., a Delaware
corporation ("Tenant").
RECITALS:
1. Tenant has executed that certain lease dated __________, 1997 (the
"Lease") with Avion (Fairfax) Associates, L.P., as lessor ("Landlord"), covering
the Premises in that certain building located at 3701 Concorde Parkway,
Chantilly, Virginia 22021 (the "Property") and more particularly described in
Exhibit A attached hereto and made a part hereof, by this reference; and
2. Lender has made or has agreed to make a mortgage loan to the Landlord
secured by a mortgage or deed of trust on the Property which includes an
assignment of Landlord's interest in the Lease (the "Mortgage"); and
3. Tenant and Lender desire to confirm their understanding with respect to
the Lease and the Mortgage.
NOW, THEREFORE, in consideration of the covenants, terms, conditions,
agreements contained herein, the parties hereto agree as follows:
a. The Lease is and shall continue to be subject and subordinate in all
respects to the Mortgage and the lien created thereby, and to any advancements
made thereunder and to any consolidations, extensions, modifications or renewals
thereof.
b. Tenant agrees to give Lender a copy of any notice of default served on
Landlord by certified mail, return receipt requested, with postage prepaid, at
Allstate Plaza West M2C, 3100 Sanders Road, Northbrook, Illinois 60062, Attn:
Commercial Mortgage Division Servicing Manager. If Landlord fails to cure such
default within the time provided in the Lease, Lender shall have the right, but
not the obligation to cure such default on behalf of Landlord within thirty (30)
calendar days after the time
<PAGE> 53
provided for in the Lease or within a reasonable period if such default cannot
be cured within that time and Lender is proceeding with due diligence to cure
such default. In such event Tenant shall not terminate the Lease while such
remedies are being diligently pursued by Lender. Further, Tenant shall not, as
to Lender, require cure of any such default which is not susceptible of cure by
Lender.
c. So long as Tenant is not in default under the Lease, Tenant's
possession and occupancy of the Premises shall not be disturbed by Lender during
the term of the Lease or any extension thereof.
d. If Lender obtains the right to possession of the Premises or if
Landlord's interest under the Lease is transferred to Lender by foreclosure,
deed in lieu of foreclosure, or otherwise, and, subject to Tenant's performance
of its obligation under the Lease, then the Lease will continue in full force
and effect and Lender shall recognize the Lease and Tenant's rights thereunder
and Tenant shall make full and complete attornment to Lender as substitute
Landlord upon the same terms, covenants and conditions as provided in the Lease.
e. If Lender succeeds to Landlord's interest under the Lease, Lender shall
not be:
(a) liable for any act or omission of Landlord or any prior
landlord; or
(b) subject to any offsets or defenses which Tenant might have
against Landlord or any prior landlord; or
(c) required or obligated to credit Tenant with any Rent or
Additional Rent for any rental period beyond the then current
month which Tenant might have paid Landlord or any prior
landlord; or
(d) bound by any amendments or modifications of the Lease made
without Lender's consent, other than exercise of rights,
options or elections contained in the Lease, including without
limitation, options to extend the term of the Lease; or
(e) liable for the return of any security deposit unless such
security deposit shall have been actually received by Lender.
In the event of receipt of any such security deposit, Lender's
obligations with respect thereto shall be limited to the
amount of such security deposit actually received by Lender,
and Lender shall be entitled to
F-2
<PAGE> 54
all rights, privileges and benefits of Landlord set forth in
the Lease with respect thereto.
f. The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Furthermore, the provisions of this Agreement shall be binding upon any
guarantor of Tenant's obligations under the Lease. The words, "Lender,"
"Landlord" and "Tenant" shall include their respective heirs, legatees,
executors, administrators, beneficiaries, successors and assigns.
g. Any notices to Tenant hereunder shall be effective upon mailing notice
to Tenant by certified mail, return receipt requested, with postage prepaid, at
the address set forth in the Lease or at such other address as Tenant may
designate in writing to Lender at the address set forth in paragraph 2.
h. This Agreement contains the entire agreement between the parties and no
modifications shall be binding upon any party hereto unless set forth in a
document duly executed by or on behalf of such party.
i. This Agreement may be executed in multiple counterparts, all of which
shall be deemed originals and with the same effect as if all parties had signed
the same document. All of such counterparts shall be construed together and
shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
LENDER: TENANT:
ALLSTATE LIFE INSURANCE COMPANY FUISZ TECHNOLOGIES LTD., a
Delaware corporation
By: By:
--------------------------- ----------------------------------
Its:
-----------------------------
By:
---------------------------
Its Authorized Signatories
F-3
<PAGE> 55
STATE OF ______________ )
) SS:
COUNTY OF _____________ )
On _____________, 19__, before me, __________________________, a Notary
Public in and for the State of __________________________, personally appeared
_________________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument, and acknowledged to me that he or she executed the same
in his or her authorized capacity and that, by his or her signature on the
instrument, the person or the entity upon behalf of which he or she acted,
executed the instrument.
WITNESS my hand and official seal.
-----------------------------
Notary Public in and for said
State
[NOTARIAL SEAL]
STATE OF ______________ )
) SS:
COUNTY OF _____________ )
On ______________, 19__, before me, ________________________, a Notary
Public in and for the State of ______________, personally appeared
________________________ and __________________________, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the persons whose
names are subscribed to the within instrument, and acknowledged to me that they
executed the same in their authorized capacities and that, by their signatures
on the instrument, the person(s) or the entity upon behalf of which they acted
executed the instrument.
WITNESS my hand and official seal.
-----------------------------
Notary Public in and for said
State
[NOTARIAL SEAL]
F-4
<PAGE> 56
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
I, the undersigned, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that ______________________ and
_______________________________, authorized signatories for ALLSTATE LIFE
INSURANCE COMPANY, an Illinois insurance corporation, personally known to me to
be the same persons who executed the within instrument, appeared before me on
_______________, 19__, in person, and acknowledged that they executed the within
instrument as their free and voluntary act, for the uses and purposes therein
set forth.
-------------------------------
Notary Public
[NOTARIAL SEAL]
F-5
<PAGE> 1
Exhibit 10.15
STOCK PURCHASE AGREEMENT
BY AND AMONG
FTL ACQUISITION INC.,
PANGEA, LTD.
AND
THE STOCKHOLDERS, OPTIONHOLDERS
AND WARRANTHOLDER OF
PANGEA, LTD.
DATED AS OF
MAY 20, 1997
<PAGE> 2
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and dated
as of May 20, 1997, by and among FTL Acquisition Inc., a corporation
organized under the laws of the State of Delaware ("Purchaser"), Pangea,
Ltd., a corporation formed under the laws of the State of Delaware
("Pangea"), and the stockholders of Pangea listed on Attachment A (the
"Stockholders") and the option holders and warrant holders of Pangea,
listed on Attachment B hereto (the "Optionholders") (each such
Stockholder and Optionholder listed on Attachments A and B is referred to
herein individually as a "Seller" and all such Stockholders and
Optionholders are referred to herein collectively as "Sellers").
RECITALS
WHEREAS, Stockholders own beneficially and of record all of the
issued and outstanding shares of common stock, par value $.01 per share,
of Pangea (the "Common Stock") and all of the issued and outstanding
shares of Series A Convertible Preferred Stock, par value $.01 per share,
of Pangea (the "Series A Preferred Stock" and together with the Common
Stock, the "Shares"); and
WHEREAS, the Optionholders own beneficially and of record all of
the options, warrants or other rights ("Options") to acquire any Shares
outstanding as of the date hereof; and
WHEREAS, Purchaser desires to acquire the Shares from the
Stockholders and cancel all of the Options held by the Optionholders, and
Sellers desire to sell the Shares to Purchaser and cancel all of the
Options, all upon the terms and subject to the conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and of
the mutual covenants, representations, warranties and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings specified below:
"Affiliate" shall have the meaning prescribed by Rule 12b-2 of the
regulations promulgated pursuant to the Exchange Act.
"Agreement" shall have the meaning set forth in the Preamble hereto.
<PAGE> 3
"Balance Sheet Date" shall have the meaning set forth in Section
3.08 hereof.
"Closing" shall have the meaning set forth in Section 2.03 hereof.
"Closing Date" shall have the meaning set forth in Section 2.03
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder.
"Common Stock" shall have the meaning set forth in the Recitals
hereto.
"Contracts" shall have the meaning set forth in Section 3.14 hereof.
"Edgewater" shall have the meaning set forth in Section 3.01(b)
hereof.
"Environmental Requirements" shall mean all applicable United
States statutes, regulations, rules, ordinances, codes, licenses,
permits, orders, approvals, plans, authorizations, concessions,
franchises, and agreements of all Governmental Authorities having
jurisdiction and all applicable judicial and administrative and
regulatory decrees, judgments or orders and all covenants running with
the land that relate to the protection of health or the environment (but
not including worker health or safety), all of which as in effect on or
before the Closing Date.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Financial Statements" shall have the meaning set forth in Section
3.06(a) hereof.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Authority" shall mean any court, agency, department,
ministry, commission, board or other administrative or governmental body
of the United States or any state or jurisdiction thereof.
"Hazardous Materials" shall mean any substance: (i) that is defined
as a "hazardous waste," "hazardous substance," "hazardous material" or
"pollutant or contaminant" under any Environmental Requirements; (ii)
that is toxic, explosive, corrosive, flammable, infectious, reactive,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is
regulated by any Governmental Authority; (iii) the presence of which on
any Real Property or Leased Property causes or threatens to cause a
nuisance upon such property or to adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons on or about
any Real Property or Leased Property; (iv) the presence of which on
adjacent properties could constitute a
Pangea Stock Purchase Agreement 2
<PAGE> 4
trespass by Pangea; (v) that is or contains petroleum, petroleum
products, petroleum derivatives, natural gas or liquefied natural gas; or
(vi) that contains PCBs, asbestos (whether friable or nonfriable) or urea
formaldehyde foam insulation.
"Indemnified Party" shall mean a Purchaser Indemnfied Party or a
Seller Indemnified Party, as the case may be.
"Investment" shall mean any company, corporation, partnership,
joint venture, limited liability company or other entity in which Pangea
or any Subsidiary, directly or indirectly, has, or pursuant to any
agreement or agreements will have the right to acquire by any means, an
equity or profit interest in excess of five percent (5%) of the equity or
profit interests thereof.
"IRS" shall mean the United States Internal Revenue Service.
"Laws" shall mean, collectively, any statute, law, rule,
regulation, ordinance, order, decree, action, restriction, requirement or
policy of the United States or any state or jurisdiction thereof.
"Leased Property" shall mean any lease of real property under which
Pangea is a lessee, lessor, sublessee, or sublessor.
"Material Adverse Change" shall mean any major adverse change in
the results of operations, condition (financial or otherwise), assets,
liabilities (whether absolute, accrued, contingent or otherwise), or
business of Pangea.
"Material Adverse Effect" shall mean any major adverse effect upon
the condition (financial or otherwise), assets, properties, or business
of Pangea.
"Optionholders" shall have the meaning set forth in the Preamble
hereto.
"Options" shall have the meaning set forth in the Recitals hereto.
"Pangea" shall have the meaning set forth in the Preamble hereto.
"Purchase Price" shall have the meaning set forth in Section
2.02(a) hereof.
"Purchaser Indemnfied Party" shall have the meaning set forth in
Section 6.01 hereof.
"Real Property" shall mean any real property owned by Pangea or in
which Pangea has legal, equitable, or beneficial title.
"Receivables" shall have the meaning set forth in Section 3.13
hereof.
Pangea Stock Purchase Agreement 3
<PAGE> 5
"Representative" shall mean, with respect to any party to this
Agreement, that party's affiliates, directors, officers, employees,
agents and advisors, including, without limitation, attorneys,
accountants, consultants, bankers and financial advisors.
"Seller Indemnfied Party" shall have the meaning set forth in
Section 6.02 hereof.
"Sellers" shall have the meaning set forth in the Preamble hereto.
"Sellers' Representative" shall mean Edgewater Private Equity Fund,
L.P. or its designee.
"Series A Preferred Stock" shall have the meaning set forth in the
Recitals hereto.
"Shares" shall have the meaning set forth in the Recitals hereto.
"Stockholders" shall have the meaning set forth in the Preamble
hereto.
"Subsidiary" shall mean any company, corporation, partnership,
joint venture, limited liability company or other entity in which Pangea
directly or indirectly, owns or controls, or pursuant to any agreement or
agreements in the future may have the right to acquire by any means, any
equity or profit interest equal to or greater than fifty percent (50%) of
the equity or profit interests thereof.
"Tax Returns" shall mean all reports, returns, statements, forms or
other documents or information required to be filed with a taxing
authority with respect to the Taxes of Pangea.
"Taxes" shall mean all federal, state, local or foreign income,
gross receipts, windfall profits, severance, property, production, sales,
use, license, excise, franchise, employment, withholding, alternative
minimum or add-on minimum or similar taxes imposed on the income,
properties or operations of Pangea, together with any interest, additions
or penalties with respect thereto and any interest in respect of such
additions or penalties.
"Third Party Claim" shall have the meaning set forth in Section
6.02 hereof.
"Transactions" shall have the meaning set forth in Section 2.03(a)
hereof.
Pangea Stock Purchase Agreement 4
<PAGE> 6
ARTICLE II
SALE OF STOCK AND TERMS OF PAYMENT
2.01 THE SALE.
On the terms and subject to the conditions set forth herein, at the
Closing (i) each Stockholder shall sell, transfer, convey, assign and
deliver to Purchaser and Purchaser shall purchase, acquire and accept
from each Stockholder, all of the Shares owned by such Stockholder and
(ii) each Optionholder shall cancel and extinguish all Options owned by
such Optionholder.
2.02 THE PURCHASE PRICE.
(a) In consideration of the aforesaid sale, transfer, conveyance,
assignment and delivery of the Shares and cancellation of the Options,
Purchaser hereby agrees on the terms and subject to the conditions set
forth herein, to pay to Sellers, in payment therefor, the sum of One
Million Twenty Three Thousand Dollars ($1,023,000) (the "Purchase Price").
(b) Payment of the Purchase Price shall be made by wire transfer
of immediately available funds to the account designated by Sellers'
Representative, or by such other means as may be agreed upon by Sellers'
Representative and Purchaser. Purchaser will pay the Purchase Price to
Sellers' Representative and each Seller hereby acknowledges that receipt
of funds by Sellers' Representative shall be deemed receipt of payment by
such Seller. Sellers' Representative hereby agrees to distribute
payments of the Purchase Price to each Seller in accordance with
Attachment 2.02B.
2.03 THE CLOSING.
(a) On the terms and subject to satisfaction of the conditions
set forth herein, the closing of the transactions contemplated hereby
(the "Transactions") will take place at the offices of Gibson, Dunn &
Crutcher LLP, 1050 Connecticut Avenue, N.W., Washington, D.C., at 11:00
a.m. Eastern Standard Time, on May 20, 1997, or at such other place or
time as the parties may agree (the "Closing"). The date and time at
which the Closing actually occurs is hereinafter referred to as the
"Closing Date." All events occurring at the Closing will, unless
otherwise specified, be deemed to have occurred simultaneously.
(b) At the Closing,
(i) Purchaser will deliver to Sellers' Representative the
Purchase Price, as set forth in Section 2.02(b) hereof.
(ii) Each Stockholder shall deliver to Purchaser
certificates evidencing the Shares owned by such Seller, duly endorsed
for transfer and with all transfer stamps attached. All stock transfer
and other Taxes and charges, if any, that are required to be paid or
withheld
Pangea Stock Purchase Agreement 5
<PAGE> 7
in connection with the sale and transfer of the Shares to Purchaser will
be paid in full by Sellers.
(iii) Each Optionholder shall surrender to Purchaser for
cancellation all executed agreements evidencing the Options owned by such
Optionholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby represents and warrants to Purchaser as follows:
3.01 STOCK OWNERSHIP; CAPACITY TO SELL.
(a) Each Stockholder or Optionholder is the beneficial and record
owner of the number of Shares or Options to acquire the number of Shares
set forth opposite each Seller's name on Attachment A or Attachment B
hereto, as the case may be. Each Seller holds such Shares or Options
free and clear of all liens or other encumbrances (other than liens
created by this Agreement) and neither the Shares nor the Options, or any
Shares issuable upon exercise of the Options, are subject to any
preemptive rights or restriction on their transferability (other than
restrictions on transfer under applicable federal and state securities
laws). At the Closing, Purchaser will acquire good and marketable title
to all of the Shares free and clear of all liens or other encumbrances.
(b) Edgewater Private Equity Fund, L.P. ("Edgewater") is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has all requisite partnership power to
own and to dispose of its Shares.
(c) The Edgewater has full partnership power and authority to
execute and deliver this Agreement and to consummate the Transactions.
The execution and delivery of this Agreement and the consummation of the
Transactions have been duly and validly authorized by the general partner
of Edgewater and no other proceedings on the part of Edgewater are
necessary to authorize the execution and delivery of this Agreement or
the consummation of the Transactions.
(d) Each individual Seller has the full right, power and
authority to execute and deliver this Agreement and to consummate the
Transactions. This Agreement has been duly and validly executed and
delivered by each Seller and constitutes a valid and binding agreement of
each Seller, enforceable against each Seller in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforceability
of creditors' rights generally, and except that the remedy of specific
performance or similar equitable relief may be subject to equitable
defenses and to the discretion of the court before which enforcement is
sought.
Pangea Stock Purchase Agreement 6
<PAGE> 8
3.02 ORGANIZATION; QUALIFICATION.
(a) Pangea is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Pangea
is duly qualified or licensed to do business as a foreign corporation and
is in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except in any jurisdiction where
failure to be so qualified does not have a material effect on its ability
to conduct business or bring any lawsuit or action after such failure is
remedied. Schedule 3.02 hereto sets forth, as of the date hereof, each
jurisdiction in which Pangea is qualified to do business as a foreign
corporation. Sellers have heretofore delivered to Purchaser complete and
correct copies of the certificate of incorporation and by-laws of Pangea
as in effect on the date hereof.
(b) The certificate of incorporation and the by-laws and all
amendments thereto, and the minute books, stock ledgers and stock
transfer records of Pangea furnished to Purchaser for review are accurate
and complete in all material respects. Such stock ledgers and stock
transfer records reflect all issuances, registrations of transfer and
cancellations of all shares of capital stock of each Pangea and the
certificates representing all canceled shares of Common Stock and Series
A Preferred Stock have been returned to each respective entity's stock
ledger. All meetings of the shareholders and board of directors (and
committees thereof) of Pangea since March 6, 1995 were duly called and
held, and a quorum was present and acting throughout each such meeting,
except in each case where any such failure does not impair the current
business activities, operations, and/or status of Pangea in any material
respect.
3.03 CAPITALIZATION OF PANGEA.
(a) The authorized capital stock of Pangea consists solely of
Thirty Five Million (35,000,000) shares, par value $.01, of which (X)
Twenty Five Million (25,000,000) are designated Common Stock, of which
Eight Hundred Thousand (800,000) shares are issued and outstanding and
(Y) Ten Million (10,000,000) are designated as Preferred Shares, of which
(i) One Million Eight Hundred Thirty Five Thousand (1,835,000) shares are
designated Series A Preferred Stock, of which One Million Six Hundred
Thirty Five Thousand (1,635,000) shares are issued and outstanding and
(ii) Eight Million One Hundred Sixty Five Thousand (8,165,000) shares are
undesignated.
(b) Other than the Options, there is no subscription, option,
warrant, call right, agreement or commitment relating to the issuance,
sale, holding, voting, delivery or transfer (including any right of
conversion or exchange under any outstanding security, instrument or
other agreement) of any capital stock of Pangea. There are no
outstanding contractual obligations of Pangea to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock of Pangea.
Pangea Stock Purchase Agreement 7
<PAGE> 9
(c) No dividend has ever been declared and/or paid on Common
Stock or the Series A Preferred Stock.
3.04 NO SUBSIDIARIES; NO INVESTMENTS.
Pangea does not have any Subsidiaries or Investments.
3.05 CONSENTS AND APPROVALS; NO VIOLATION.
Pangea and Ronald Mahan ("Mahan") each represent and warrant, and
all other Sellers represent and warrant to their knowledge after due
inquiry, that the execution and delivery of this Agreement by each Seller
does not, and the performance by it of its obligations hereunder and the
consummation of the Transactions, will not, directly or indirectly:
(a) conflict with or violate any provision of the certificate of
incorporation or by-laws (or other similar governing documents) of Pangea
or Edgewater;
(b) require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority to be made or
obtained by Sellers or Pangea as a result of or in connection with this
Agreement or the Transactions;
(c) result in a material default, termination, cancellation or
acceleration (or give rise to any material right of termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, license,
lease, agreement or other material instrument or obligation to which any
Seller or Pangea is a party or by which any of them or any of their
respective material assets may be bound;
(d) materially violate any material Laws, writ or injunction
applicable to any Seller or Pangea or any of their respective material
assets; or
(e) result in the creation of any liens upon the Shares or result
in the creation of any lien, encumbrance, security interest, charge or
claim of any kind upon any of the properties or assets of Pangea other
than liens created by this Agreement.
3.06 FINANCIAL STATEMENTS.
(a) Sellers have provided or made available to Purchaser: (i)
the audited consolidated balance sheets as of December 31, 1996 and
December 31, 1995, and the related audited consolidated statements of
income, changes in stockholders' equity and cash flows for the periods
covered thereby and (ii) the audited consolidated balance sheet as of
March 31, 1997 and the related audited consolidated statements of income,
changes in stockholders' equity and cash flows for the three-month period
then ended (the "Financial Statements").
Pangea Stock Purchase Agreement 8
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(b) The Financial Statements present fairly in accordance with
GAAP consistently applied the financial condition of Pangea at such dates
and the results of its operations and its cash flows for the fiscal
periods then ended.
3.07 LIABILITIES.
Except as reflected in the Financial Statements, there is no
material liability, obligation or indebtedness, secured or unsecured
(whether absolute, accrued, contingent or otherwise, and whether due or
to become due) that is required by GAAP to be set forth on a balance
sheet.
3.08 CONDUCT OF BUSINESS.
Pangea and Mahan each represent and warrant, and all other Sellers
represent and warrant to their knowledge after due inquiry, that since
December 31, 1996 (the "Balance Sheet Date"), Pangea has conducted its
businesses and operations in a manner consistent with past practices.
Except as specified in this Agreement and except as set forth on Schedule
3.08, since the Balance Sheet Date, there has not been: (i) any
declaration or payment of dividends or any transfer of assets of any kind
whatsoever to any stockholder with respect to any shares of capital
stock; (ii) any material transaction not in the ordinary course of
business, consistent with past practices; (iii) any Material Adverse
Change; (iv) any damage, destruction or loss, whether or not covered by
insurance, which has had or may have a Material Adverse Effect; (v) any
sale or transfer of any assets or any cancellation of any debts or
claims, except sales in the ordinary course of business of inventory or
of other tangible personal property not required in its businesses or the
cancellation of any debts or claims in the ordinary course of business;
(vi) any material mortgage, pledge or subjection to lien, charge or
encumbrance of any kind, of any properties or assets; (vii) any increase
in, or commitment to increase, the compensation payable or to become
payable to any officer, director, employee or agent, or any bonus payment
or similar arrangement made to or with any of such officers, directors,
employees or agents; (viii) any adoption of a plan or agreement or
amendment to any existing plan or agreement (or commitment for the same)
providing any new or additional benefits to employees, officers or
directors; (ix) any material alteration in the manner of keeping its
books, accounts or records, or in the accounting practices therein
reflected; (x) any borrowing to or from any shareholder; or (xi) any
other event or condition of any character that has had a Material Adverse
Effect.
3.09 REAL AND LEASED PROPERTY.
(a) Pangea owns no Real Property. Set forth on Schedule 3.09A
hereto is a complete list and a description of the Leased Property. True
and complete copies of the Property Leases have been delivered or made
available to Purchaser.
(b) There are no continuing and unremedied or unwaived material
breaches of or material events of default with respect to any material
property lease, and no events have
Pangea Stock Purchase Agreement 9
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occurred that, with the giving of notice or lapse of time or both, would
constitute a material breach thereof or a material event of default with
respect thereto.
3.10 PERSONAL PROPERTY.
(a) Except for the security interests set forth on Schedule 3.14,
Pangea has good and marketable title to each material item of personal
property reflected in the Financial Statements as being owned by it, free
and clear of all material liens, leases, encumbrances, claims and/or
bailment and storage agreements, equities, conditional sales contracts,
security interests, charges and restrictions;
(b) Each item of material personal property leased by Pangea is
in such condition, normal wear and tear excepted, that upon the return of
such property to its owner in its present condition at the end of the
relevant lease term or as otherwise contemplated by the applicable
agreement between Pangea and the owner or lessor thereof, the obligations
of Pangea to such owner or lessor will be discharged without the
requirement for any material payment; and
(c) The personal property set forth on the Financial Statements
taken as a whole is, to the extent currently used in operations, in
reasonably good operating condition and repair, normal wear and tear
excepted, and is fit for its intended purposes.
3.11 PATENTS, TRADEMARKS, TRADE NAMES, ETC.
(a) Schedule 3.11A hereto lists all patents, trademarks, trade
names and registered copyrights owned and currently used by Pangea and
all material licenses and other material agreements relating thereto.
(b) There are no material agreements relating to third party
technology, know-how and processes that Pangea is licensed or authorized
to use, excluding any software or related items.
(c) Pangea is the record owner of and holds free from material
contractual restrictions and any other material restriction except those
imposed by Law, all such scheduled patents, trademarks, trade names and
registered copyrights. No material claim by any person exists or, is
threatened against any Pangea (A) with respect to the use by any of them
of any of such scheduled trademarks, trade names, copyrights or
technology, or (B) for patent infringement; and no material claim by
Pangea exists against any person (Y) with respect to the use by such
person of any of such scheduled trademarks, trade names, copyrights or
technology, or (Z) for patent infringement.
3.12 INVENTORY.
Pangea has good and marketable title to inventory reflected in the
Financial Statements and all inventory purchased or created since the
Balance Sheet Date (other than
Pangea Stock Purchase Agreement 10
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inventory disposed of in the ordinary course of business since such
date), free and clear of all liens, leases, encumbrances, claims under
bailment and storage agreements, equities, conditional sales contracts,
security interests, charges and restrictions, except for liens, if any,
for personal property taxes not yet due. None of Pangea's sources of
supply, which in Pangea's reasonable judgment cannot be replaced on
substantially the same terms and conditions (including price), have
terminated or threatened in writing to terminate their making available
such supply to Pangea.
3.13 RECEIVABLES.
Except for security interests disclosed on Schedule 3.14, Pangea
has good title to all of its material receivables including notes
receivable, accounts receivable and trade acceptances receivable, whether
billed or unbilled (collectively the "Receivables") and such Receivables
have arisen in the ordinary course of business.
3.14 CONTRACTS.
(a) Schedule 3.14 hereto lists each: (i) indenture, mortgage,
note, installment obligation, agreement or other instrument relating to
the borrowing of money by Pangea or the guaranty of any obligation for
the borrowing of money by Pangea; (ii) contract, agreement, purchase
order, license or written commitment for the purchase or sale of goods,
materials, supplies or services; and (iii) other contracts, agreements or
other instruments related to the business of Pangea (collectively, the
"Contracts"), to which Pangea is a party or by which any of its assets
are bound, except for (Y) any Contract for the purchase or sale by Pangea
of inventory, materials or supplies in the ordinary course of business
(Z) any Contract that is terminable by Pangea without penalty on ninety
days' or less notice.
(b) Pangea and Mahan each represent and warrant, and all other
Sellers represent and warrant to their knowledge after due inquiry, that
(i) each Contract is, in all material respects, a valid and binding
obligation of Pangea, entered into in the ordinary course of business on
an arms'-length basis and, of the other party or parties thereto, except
as the enforceability of such Contracts may be limited by bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforceability of creditors' rights generally and except that the remedy
of specific performance or similar equitable relief may be subject to
equitable defenses and to the discretion of the court before which
enforcement is sought and (ii) there exists no default by, or event that
with notice or lapse of time or both would constitute a default by,
Pangea under any such Contract.
(c) No person holds any powers of attorney from Pangea.
3.15 INSURANCE.
Schedule 3.15 hereto lists all policies of fire, liability, health,
life, accident, disability, workmen's compensation, fiduciary, stop-loss,
key-man, and other forms of insurance owned or held by or for the benefit
of and insuring either Pangea, or any employee, officer, or
Pangea Stock Purchase Agreement 11
<PAGE> 13
director thereof as of the date of this Agreement. As of the date of
this Agreement, all such policies are in full force and effect, all
premiums with respect thereto covering all periods up to and including
the date hereof have been paid or accrued in appropriate month-end
financial statements (other than retrospective premiums which may be
payable with respect to comprehensive general liability and workmen's
compensation insurance policies), and no notice of cancellation or
termination has been received with respect to any such policy which was
not replaced on substantially similar terms prior to the date of such
cancellation. The insurance policies set forth on Schedule 3.15 will not
terminate or lapse by reason of the execution of this Agreement or the
consummation of the Transactions. The insurance policies set forth on
Schedule 3.15 are sufficient, in all material respects, for compliance
with all requirements of law and of all agreements to which Pangea is a
party.
3.16 LABOR MATTERS; PERSONNEL.
Pangea and Mahan each represent and warrant, and all other Sellers
represent and warrant to their knowledge after due inquiry, that Pangea
is in compliance with all applicable Laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, and is not engaged in any unlawful discrimination or unfair labor
practices or other violations of Law and there is no audit or
investigation of, or complaint against, Pangea regarding labor or
employment matters.
3.17 ENVIRONMENTAL MATTERS.
(a) The Company is in compliance with all statutes, regulations,
rules, ordinances, codes, licenses, permits, orders, approvals, plans,
authorizations, concessions, franchises, and agreements that relate to
the protection of health or the environment and that were issued by any
governmental authority having jurisdiction over the Company, and all
applicable judicial and administrative and regulatory decrees, judgments
or orders and all covenants running with the land that relate to the
protection of health or the environment, in each case as such were in
effect on or before the Closing Date. The Company has obtained and
maintained in force all permits or licenses that relate to the protection
of health or the environment that are required for the business of the
Company.
(b) Neither the Company nor any previous owner, tenant, occupant
or user of any real property owned or leased by the Company, or any other
person, has engaged in or allowed any operation or activity upon, or any
use or occupancy of, any real property owned, leased or used by the
Company for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, release, discharge,
processing, recycling, refining, dumping or disposal of any Hazardous
Materials on, under, in or about such real property, or transported or
arranged for transport of any Hazardous Materials to, from or across such
real property, in each case, which constitutes or constituted a breach of
any applicable law. For the purposes of this Section 4.13, the term
"Hazardous Material" shall mean any substance: (i) that is defined as a
"hazardous waste," "hazardous substance," "hazardous material" or
"pollutant or contaminant" under any applicable environmental law
Pangea Stock Purchase Agreement 12
<PAGE> 14
or regulation; (ii) that is toxic, explosive, corrosive, flammable,
infectious, reactive, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any governmental authority; (iii) the
presence of which on any real property causes or threatens to cause a
nuisance upon such property or to adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons on or about
any real property; (iv) the presence of which on adjacent properties
could constitute a trespass by the Company; (v) that is or contains
petroleum, petroleum products, petroleum derivatives, natural gas or
liquefied natural gas; or (vi) that contains PCBs, asbestos (whether
friable or nonfriable) or urea formaldehyde foam insulation.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Attached hereto as Schedule 3.18 is a complete list of each
current employment contract and consulting agreement and each material
deferred compensation, retirement, bonus, insurance, annuity, incentive
compensation, restricted stock, stock option, stock purchase, savings,
change in control, plant closing, fringe benefit, severance or
termination pay agreement or plan, loan program, and any other material
employee benefit plan, agreement, arrangement or commitment, whether
formal or informal, maintained, entered into or contributed to by Pangea,
or with respect to which Pangea may have any liability for the benefit of
any current or former director, officer, consultant, or employee thereof
(the "Plans"). Each Plan can be amended or terminated at any time by
Pangea without the need for any notice or approval and without any
material liability thereunder other than for benefits accrued prior
thereto. Pangea is not in default in any material respect under any Plan.
(b) Pangea does not now maintain or contribute to, nor has it
ever in the past maintained or contributed to, any employee benefit plan
subject to ERISA.
3.19 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS.
Pangea and Mahan each represent and warrant, and all other Sellers
represent and warrant to their knowledge after due inquiry, that the
licenses, permits, franchises, certificates and other governmental
authorizations held by Pangea are valid and sufficient for all businesses
conducted by it and there exists no fact, error or omission relevant to
any such license, permit, franchise, certificate or other governmental
authorization that would permit the revocation or withdrawal, or the
threatened revocation or withdrawal thereof. Pangea will continue to
have the use and benefit thereof and the rights granted thereby after the
execution of this Agreement and the consummation of the Transactions have
occurred. The businesses of Pangea is being conducted in compliance in
all material respects with all applicable Laws of all Governmental
Authorities.
Pangea Stock Purchase Agreement 13
<PAGE> 15
3.20 TAXES.
(a) Except as set forth on Schedule 3.20, all Tax Returns that
are required to be filed by Pangea have been filed and all amounts shown
thereon to be due have been paid in full. Pangea has withheld and paid
all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other party.
(b) There is no material dispute or claim relating to any Tax
liability of Pangea that has been raised by any Governmental Authority in
writing.
(c) Sellers have delivered to Purchaser correct and complete
copies of any income Tax Returns, examination reports, and statements of
deficiency assessed against or agreed to by Pangea.
(d) Pangea is not, and has not been (i) a party to a tax sharing
agreement or similar arrangement or (ii) a member of any affiliated group
filing a consolidated federal income tax return or has any liability for
the Taxes of any person under Treasury Regulation Section 1.1502-6, under
any similar provisions of state, local or foreign law, by contract, or
otherwise.
3.21 TRANSACTIONS WITH SELLERS, OFFICERS, DIRECTORS AND
EMPLOYEES.
Except as set forth in Schedule 3.21, and other than as
contemplated by this Agreement, except for accrued but unpaid salary and
employee benefits, there are no amounts owing from Pangea to any Seller
or to any officer or director of Pangea or any relative of any such
officer or director, nor are there any amounts owing from any of such
persons to Pangea.
3.22 LITIGATION; COMPLIANCE WITH LAW.
Pangea and Mahan each represent and warrant, and all other Sellers
represent and warrant to their knowledge after due inquiry, that:
(a) (i) There is no pending, threatened or existing action, suit,
proceeding, claim or investigation, (including, without limitation, any
action, suit, proceeding, claim or investigation regarding any
Environmental Requirements) at law or in equity, before or by any court,
arbitrator or Governmental Authority, against Pangea, its assets,
properties or business, and (ii) Pangea and its assets, properties or
businesses are not subject to any notice, writ, injunction, order or
decree of any court, arbitrator or Governmental Authority. Pangea is not
in default with respect to any notice, writ, injunction, order or decree
known to or served upon it by any court, arbitrator or Governmental
Authority.
(b) There is no action, suit, claim, inquiry, proceeding or
investigation at law or in equity by or before any court, arbitrator or
Governmental Authority, nor is any of the
Pangea Stock Purchase Agreement 14
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foregoing threatened which involves any Seller which questions or
challenges the validity of this Agreement or any action to be taken by
any Seller or Pangea pursuant to this Agreement or in connection with the
Transactions.
3.23 DISTRIBUTORS AND SUPPLIERS.
Pangea and Mahan each represent and warrant, and all other Sellers
represent and warrant to their knowledge after due inquiry, that Pangea
is not involved in any controversy with any of its distributors,
customers or suppliers, and no customer of Pangea has terminated or
threatened in writing to terminate a agreement with Pangea relating to
its purchase of products from any of such entities.
3.24 PRODUCT WARRANTIES; PRODUCT RECALLS.
(a) Schedule 3.24A hereto contains the forms of express product
warranties and guaranties that have been used by Pangea in its businesses
at any time. Pangea has not offered any different forms of express
product warranties and guaranties at any time. No defects exist in the
products sold by Pangea that could result in any increase in such product
warranty expense claims that in the aggregate could have a Material
Adverse Effect.
(b) None of the products designed, manufactured, packaged,
labeled, shipped or sold in connection with the business has been subject
to, or is currently subject to, any recall mandated by any Governmental
Authority.
3.25 FINDERS; SUCCESS FEE.
No investment banker, broker, finder or other intermediary has been
retained by any Seller or Pangea in connection with the Transactions who
is or might be entitled to a fee or commission in connection with the
proposed sale of the Shares or any other term of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to each Seller as follows:
4.01 ORGANIZATION.
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted.
Pangea Stock Purchase Agreement 15
<PAGE> 17
4.02 AUTHORITY RELATIVE TO THIS AGREEMENT.
Purchaser has full corporate power and authority to execute and
deliver this Agreement and to consummate the Transactions. The execution
and delivery of this Agreement and the consummation of the Transactions
have been duly and validly authorized by the board of directors of
Purchaser and no other corporate proceedings on the part of Purchaser are
necessary to authorize this Agreement or to consummate the Transactions.
This Agreement has been duly and validly executed and delivered by
Purchaser and constitutes a valid and binding agreement of Purchaser,
enforceable against Purchaser in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency, reorganization, or other
laws relating to or affecting the enforceability of creditors' rights
generally, and except that the remedy of specific performance or similar
equitable relief may be subject to equitable defenses and to the
discretion of the court before which enforcement is sought.
4.03 CONSENTS AND APPROVALS; NO VIOLATION.
The execution and delivery of this Agreement by Purchaser does not,
and the performance by it of its obligations hereunder and the
consummation of the Transactions, will not, directly or indirectly: (i)
conflict with or violate any provision of its certificate of
incorporation or by-laws (or other similar governing documents); (ii)
require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority, except where the
requirement to obtain such consent, approval, authorization or permit, or
to make such filing or notification, results from the regulatory status
or business of Pangea, or results from any other facts that specifically
relate to the business or activities in which Pangea is or proposes to be
engaged; (iii) result in a material default, termination, cancellation or
acceleration (or give rise to any material right of termination,
cancellation or acceleration), under any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, license,
lease, agreement, or other material instrument or material obligation to
which Purchaser is a party or by which it or any of its assets may be
bound; or (iv) violate any material order, writ, injunction, decree,
statute, rule or regulation applicable to Purchaser or any of its assets.
4.04 ACQUISITION OF STOCK FOR INVESTMENT.
Purchaser is acquiring the Shares for investment and not with a
view toward, or for sale in connection with, any distribution thereof,
nor with any present intention of distributing or selling the Shares.
Purchaser agrees that the Shares may not be sold, transferred, offered
for sale, pledged, hypothecated or otherwise disposed of without
registration under the Securities Act of 1933 except pursuant to an
exemption from such registration available under such Act.
Pangea Stock Purchase Agreement 16
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4.05 LITIGATION.
There is no action, suit, claim, inquiry, proceeding or
investigation at law or in equity, by or before any court, arbitrator or
Governmental Authority, or to Purchaser's knowledge, is any one of the
foregoing threatened, against or involving Purchaser or any of its
Affiliates which questions or challenges the validity of this Agreement
or any action to be taken by Purchaser, any of its Affiliates, or Sellers
pursuant to this Agreement or in connection with the Transactions.
4.06 FINDERS; SUCCESS FEE.
Neither Purchaser nor any of its Affiliates has employed any
investment banker, broker, finder or other intermediary in connection
with the Transactions who is or might be entitled to a fee or commission
in connection with the proposed purchase of the Shares. Neither
Purchaser nor any of its Affiliates is a party to any agreement pursuant
to which any person is entitled to any success or other fee contingent
upon execution of this Agreement or consummation of the Transactions.
ARTICLE V
CLOSING CONDITIONS
5.01 CONDITIONS TO THE OBLIGATION OF SELLERS TO EFFECT THE
TRANSACTIONS.
The obligation of each Seller to effect the Transactions shall be
further subject to the fulfillment on or before the Closing Date of the
following conditions, any one or more of which may be waived by Sellers:
(a) Each of the obligations of Purchaser to be performed by it on
or before the Closing Date pursuant to the terms of this Agreement shall
have been duly performed on or before the Closing Date in all material
respects.
(b) All actions required to be taken by, or on the part of,
Purchaser to authorize the execution, delivery and performance of this
Agreement, and the consummation of the Transactions shall have been duly
and validly taken by its board of directors.
(c) Simultaneously with the Closing, Purchaser shall cause Pangea
to (i) repay, by wire transfer of immediately available funds to the
account designated by Edgewater, the principal amount of all outstanding
indebtedness set forth on Schedule 3.14 hereof owed by Pangea to John
Pappajohn and Edgewater and (ii) release all loan guarantees by John
Pappajohn and Edgewater in favor of Pangea set forth on Schedule 3.14
hereof.
Pangea Stock Purchase Agreement 17
<PAGE> 19
5.02 CONDITIONS TO THE OBLIGATION OF PURCHASER TO EFFECT
THE TRANSACTIONS.
The obligations of Purchaser to effect the Transactions shall be
further subject to the fulfillment at or prior to the Closing Date of the
following conditions, any one or more of which may be waived by Purchaser:
(a) Each of the obligations of each Seller to be performed by
them on or before the Closing Date pursuant to the terms of this
Agreement shall have been duly performed in all material respects on or
before the Closing Date.
(b) All actions required to be taken by, or on the part of
Edgewater to authorize the execution, delivery and performance of this
Agreement, and the consummation of the Transactions, shall have been duly
and validly taken.
(c) Purchaser shall have received an opinion from Mark McManigal,
counsel to Edgewater (which opinion may expressly rely as to matters of
fact upon certificates furnished by Edgewater and appropriate officers
and directors thereof and by public officials) dated as of the Closing
Date and substantially in the form of Exhibit A.
(d) There shall not have occurred between the Balance Sheet Date
and the Closing Date any Material Adverse Change.
(e) Sellers shall have delivered to Purchaser at the Closing the
following:
(i) stock certificates representing all of the Shares and
any other documents that Purchaser reasonably deems necessary or
desirable to transfer to it good and marketable title to all of the
Shares;
(ii) the stock books, stock ledgers, minute books and
corporate seals of Pangea and a certificate executed by the general
partner of Edgewater certifying that Edgewater has validly approved
this Agreement and the Transactions;
(iii) an incumbency certificate of Edgewater reasonably
acceptable to Purchaser; and
(iv) long-form good standing certificates as of a date no
more than five business days prior to the Closing for Pangea,
certified by the Secretary of State of the State of Delaware;
(v) duly executed consents to all Contracts requiring
consent.
(f) At the Closing, Pangea shall have delivered to the Purchaser
UCC-3 forms or other similar documentation reasonably satisfactory to
Purchaser to extinguish all security
Pangea Stock Purchase Agreement 18
<PAGE> 20
interests against the property of Pangea relating to indebtedness to be
repaid by Purchaser at the Closing.
(g) Purchaser shall have received the resignation, effective on
the Closing Date, of each director of Pangea.
ARTICLE VI
INDEMNIFICATION
6.01 INDEMNIFICATION BY SELLERS.
Each Stockholder, but not Optionholder, jointly and severally,
indemnifies and holds harmless Purchaser and its officers, Affiliates,
successors and assigns (the "Purchaser Indemnified Parties") in respect
of any and all claims, losses, damages, liabilities and expenses
(including, without limitation, settlement costs and any legal or other
expenses for investigating or defending any actions or threatened
actions), together with interest thereon at the rate of eight percent
(8%) per annum, compounded annually, from the date incurred until paid,
reasonably incurred by the Purchaser Indemnified Parties in connection
with, arising from or as a result of (i) any breach on the part of any
Seller of any representation or warranty of Sellers contained in this
Agreement or any document delivered in connection herewith or (ii) any
breach on the part of any Seller of any covenant of Sellers contained in
this Agreement or any document delivered in connection herewith. All
indemnification payments shall be paid by Stockholders in immediately
available funds upon presentation by the Purchaser Indemnified Party of
invoices representing indemnifiable claims, and which invoices may be
paid as accrued. Notwithstanding the foregoing, the obligation of each
of Douglas A. Patterson and Alfred R. Berkeley, III to indemnify
Purchaser under this Article VI shall be limited to the portion of the
Purchase Price received by such Stockholder, as shown on Attachment 2.02B
hereof.
6.02 INDEMNIFICATION BY PURCHASER.
Purchaser indemnifies and holds harmless Sellers and any officers,
Affiliates, successors and assigns of any Seller (the "Seller Indemnified
Parties") in respect of any and all claims, losses, damages, liabilities
and expenses (including, without limitation, settlement costs and any
legal or other expenses for investigating or defending any actions or
threatened actions), together with interest thereon at the rate of eight
percent (8%) per annum, compounded annually, from the date incurred until
paid, reasonably incurred by the Seller Indemnified Parties in connection
with, arising from or as a result of (i) any breach on the part of
Purchaser of any representation or warranty of Purchaser contained in
this Agreement or any document delivered in connection herewith or (ii)
any breach on the part of Purchaser of any covenant of Purchaser
contained in this Agreement or any document delivered in connection
herewith. All indemnification payments shall be paid by Purchaser in
Pangea Stock Purchase Agreement 19
<PAGE> 21
immediately available funds upon presentation by the Seller Indemnified
Party of invoices representing indemnifiable claims, and which invoices
may be paid as accrued.
6.03 CLAIMS FOR INDEMNIFICATION; DEFENSE OF CLAIMS.
(a) In order for an Indemnified Party to be entitled to any
indemnification provided for under this Agreement in respect of, arising
out of or involving a claim made by any person against the Indemnified
Party (a "Third Party Claim"), the Indemnified Party must notify Sellers'
Representative (in the event of indemnification under Section 6.01
hereof) or the Purchaser (in the event of indemnification arising under
Section 6.02 hereof) in writing of the Third Party Claim within a
reasonable time after receipt of such Third Party Claim; provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the indemnifying
parties shall have been actually prejudiced as a result of such failure.
Thereafter, the Indemnified Party shall give to Sellers' Representative
or Purchaser, as the case may be, within a reasonable time after the
Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party relating to
the Third Party Claim.
(b) In connection with any Third Party Claim which may give rise
to a claim for indemnification pursuant to Section 6.01 or Section 6.02,
the Indemnified Party shall consult with the indemnifying party with
respect to the defense or settlement of such claim; provided, however,
that such consultation shall not limit or otherwise affect the
Indemnified Party's conduct of the defense or settlement of any such
claim.
6.04 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations, warranties, covenants and agreements contained
in this Agreement and in any document delivered in connection herewith
shall survive the Closing and shall remain in full force and effect for a
period of three years from the Closing Date, regardless of any
investigation made by or on behalf of any party hereto.
6.05 RELEASE AND COVENANT NOT TO SUE.
(a) Sellers release and forever discharge Pangea and Purchaser
from any and all claims arising by reason of, from, or in connection with
any agreement, contract, arrangement or understanding, written or oral
(other than this Agreement), between or among Sellers, or any of them,
and Pangea and/or Purchaser, which any Seller ever had, now has or may
claim to have against Pangea and/or Purchaser, up through the date
hereof. Sellers covenant that they shall forever refrain from
initiating, filing, instituting, impleading, cross-claiming against,
maintaining or proceeding upon any such claim against Pangea and/or
Purchaser.
(b) Purchaser releases and forever discharges Sellers, and any of
them, from any and all claims arising by reason of, from, or in
connection with any agreement, contract, arrangement or understanding,
written or oral (other than this Agreement), between or among
Pangea Stock Purchase Agreement 20
<PAGE> 22
Purchaser and Sellers, or any of them, which Purchaser ever had, now has
or may claim to have against Sellers, or any of them, up through the date
hereof. Purchaser covenants that it shall forever refrain from
initiating, filing, instituting, impleading, cross-claiming against,
maintaining or proceeding upon any such claim against Sellers, or any of
them.
(c) The release and covenant not to sue contained in this Section
6.05 shall not in any way release, waive, affect the enforceability of,
or estop any right to initiate, file, institute, implead, cross-claim
against, maintain or proceed upon, any claim arising under or related to
this Agreement, including, without limitation, any claim for
indemnification under this Article VI.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.01 AMENDMENT AND MODIFICATION.
Subject to applicable law, this Agreement may be amended, modified
or supplemented only by written agreement of all of the parties hereto.
7.02 WAIVER OF COMPLIANCE; CONSENTS.
Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or
condition herein may be waived by the party entitled to the benefits
thereof only by a written instrument signed by the party granting such
waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
7.03 NOTICES.
(a) All notices and other communications hereunder (the
"Notices") shall be in writing and shall be deemed given if delivered
personally or by overnight delivery service or facsimile transmission,
or mailed by registered or certified mail (return receipt requested),
postage prepaid, to the parties at the addresses set forth at subsection
7.03(b) below (or at such other address for a party as shall be specified
by like Notice); provided, however, that notices of a change of address
shall be effective only upon receipt thereof. Unless a Notice delivered
by facsimile transmission is transmitted on other than a business day, in
which case it shall be conclusively deemed to be delivered on the next
business day thereafter, all Notices delivered by facsimile transmission
shall be conclusively deemed to be delivered and received on the date on
which such facsimile is transmitted. Notices delivered by overnight
delivery service shall be conclusively deemed to be delivered and
received on the next business day after such Notice is timely deposited
with such overnight delivery service.
Pangea Stock Purchase Agreement 21
<PAGE> 23
(b) Subject to the foregoing subsection 7.03(a), all Notices
shall be given to the parties at the following addresses:
(i) If to Purchaser, to:
Fuisz Technologies Ltd.
3810 Concorde Parkway, Suite 100
Chantilly, Virginia 20151
Attention: Mr. Patrick D. Scrivens
Executive Vice President and
Chief Financial Officer
with a copy to:
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue
Suite 900
Washington, D.C. 20036-5303
Attention: Ronald O. Mueller, Esq.
(ii) If to Sellers, to:
Edgewater Private Equity Fund, L.P.
666 Grand Avenue, Suite 200
Post Office Box 1491
Des Moines, Iowa 50306
Attention: Mark McManigal
7.04 ASSIGNMENT.
This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other party except
that Purchaser may assign all or any part of its rights herein to one or
more wholly-owned subsidiaries; nor is this Agreement intended to confer
upon any other person except the parties hereto any rights or remedies
hereunder.
7.05 GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New
York (regardless of the laws that might otherwise govern under applicable
New York principles of conflicts of law) as to all matters, including,
without limitation, matters of validity, construction, effect,
performance and remedies.
Pangea Stock Purchase Agreement 22
<PAGE> 24
7.06 SELLERS' REPRESENTATIVE.
Each Seller hereby appoints Sellers' Representative as its
representative for all purposes under this Agreement and Sellers'
Representative hereby agrees to so represent each and all of the Sellers.
7.07 CONSENT TO JURISDICTION.
(a) The parties irrevocably agree that any legal action, suit or
proceeding arising out of or relating to this Agreement or the
Transactions may be brought in the United States District Court for the
Southern District of New York located in the borough of Manhattan in the
City of New York.
(b) By the execution and delivery of this Agreement, Purchaser
and Sellers irrevocably submit to the non-exclusive jurisdiction of such
court in any such action, suit or proceeding. Sellers irrevocably agree
to designate, appoint and empower one authorized agent reasonably
acceptable to Purchaser to receive for and on their behalf service of any
summons, complaint or other legal process in any such action, suit or
proceeding in such district. Sellers shall maintain such agent as their
agent as described above for a period beginning on the Closing Date and
terminating on the fifth anniversary of the Closing Date.
7.08 SEVERABILITY.
If any term or provision specified herein is held by a court of
competent jurisdiction to be in violation of any applicable local, state
or federal ordinance, statute, law, administrative or judicial decision,
or public policy, and if such court should declare such term or provision
to be illegal, invalid, unlawful, void, voidable, or unenforceable as
written, then such provision shall be given full force and effect to the
fullest possible extent that it is legal, valid and enforceable, and the
remainder of the terms and provisions herein shall be construed as if
such illegal, invalid, unlawful, void, voidable or unenforceable term or
provision was not contained herein, but only to the extent that giving
effect to such provision and the remainder of the terms and provisions
hereof shall be in accordance with the intent of the parties.
7.09 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.10 INTERPRETATION.
The article and section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of
this Agreement. No rule of construction shall be applied to the
disadvantage of a party because that party was responsible for the
preparation
Pangea Stock Purchase Agreement 23
<PAGE> 25
of this Agreement or any part hereof. As used in this Agreement, (i) the
term "person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and
a governmental entity or any department or agency thereof and (ii) the
term "knowledge" when used with reference to any corporation or other
entity shall encompass the knowledge of each officer and each director of
such entity.
7.11 ENTIRE AGREEMENT.
This Agreement, including the annexes, documents, schedules,
certificates, exhibits and instruments referred to herein, embody the
entire agreement and understanding of the parties hereto in respect of
the Transactions. There are no restrictions, promises, representations,
warranties, covenants or undertakings, other than those expressly set
forth or referred to herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to
the Transactions.
7.12 EXPENSES.
Each party hereto will pay all costs and expenses incurred by it or
any of its Affiliates in connection with this Agreement and the
Transactions, including but not limited to costs and expenses of counsel,
accountants and other consultants; provided, however, that Purchaser
shall bear the cost of the May 31, 1997 audit of Pangea for the
three-month period then ended.
7.13 PUBLIC ANNOUNCEMENTS.
During the three months following the Closing Date, no information
regarding this Agreement shall be released by any of the Sellers to third
parties without the prior written consent of Purchaser.
Pangea Stock Purchase Agreement 24
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
FTL ACQUISITION INC.
By: /s/
---------------------------------
Title:
PANGEA, LTD.
By: /s/
---------------------------------
Title:
EDGEWATER PRIVATE EQUITY FUND, L.P.
By: /s/
---------------------------------
Title:
/s/
------------------------------------
John Pappajohn
/s/
------------------------------------
Richard C. Fuisz, M.D.
/s/
------------------------------------
Ronald A. Mahan
/s/
------------------------------------
Daniel P. Bell
/s/
------------------------------------
Douglas A. Patterson
Pangea Stock Purchase Agreement 25
<PAGE> 27
/s/
------------------------------------
Alfred R. Berkeley, III
/s/
------------------------------------
Vicki Babcock
/s/
------------------------------------
Charlene Williams
Pangea Stock Purchase Agreement 26
<PAGE> 1
Exhibit 10.16
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (this "Agreement") is made and
entered into this 29th day of July, 1997 by and among Fuisz Technologies Ltd.,
a Delaware corporation ("Purchaser"); and The Cross Group, a corporation
incorporated in the Republic of Ireland and domiciled in Gibraltar ("Seller").
RECITALS:
Seller owns 612,000 of the issued and outstanding ordinary shares
(the "Shares"), nominal value 25 pence per share, of Clonmel Healthcare
Limited, an Irish corporation (the "Company").
Purchaser desires to purchase from Seller, and Seller desire to
sell to Purchaser, the Shares on the terms and conditions hereinafter set
forth.
AGREEMENT:
NOW, THEREFORE, intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
Definitions
For purposes of this Agreement; the following terms have the
meanings specified below:
"Affiliate" means with respect to any person, any other person
controlling, controlled by or under common control with such first person.
"Clonmel-Hungary" means Clonmel Pharmaceuticals Kft, a company
incorporated in Hungary.
"Closing" and "Closing Date" are defined in Section 2.6 hereof.
"Crosspharma" means Crosspharma Limited, a company incorporated in
Northern Ireland.
"Cross Vetpharm" means Cross Vetpharm Group Limited, a company
incorporated in the Republic of Ireland.
"Disclosure Letter" means the letter attached hereto as Annex VII,
dated 23 May 1997, delivered by Seller to Ethical in conjunction with the
execution of the Ethical Share Purchase Agreement.
<PAGE> 2
"Encumbrance" means any charge, claim, condition, equitable
interest, lien, option, pledge, security interest, right of first refusal or
restriction of any kind, including, without limitation, any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"Ethical" means Ethical Holdings PLC, a company incorporated in
England and Wales.
"Ethical Share Purchase Agreement" means the Share Purchase
Agreement dated 23 May 1997 between Ethical and Seller.
"GAAP" means generally accepted accounting principles in the United
Kingdom.
"Group Companies" means the Company and the Subsidiaries.
"IPL" means International Pharmaceuticals Investment Limited, a
company incorporated in the British Virgin Islands.
"IPL Shares" means the 8,000 ordinary shares of the Company owned
by IPL.
"Order" means any award, decision, injunction, judgment, order,
ruling, subpoena or verdict entered, issued, made or rendered by any court,
administrative agency or other governmental authority or by any arbitrator.
"person" means any individual or legal entity.
"Subsidiaries" means Clonmel-Hungary and Crosspharma.
"Taxes" means all taxes, however denominated, including interest,
penalties and other additions to tax that may become payable, imposed by any
applicable statute, rule or regulation or any governmental authority, including
all taxes, withholdings and other charges in respect of income, profits, gains,
payroll, unemployment insurance, social security or other social benefits
taxes, sales, use, value added, ad valorem, excise, franchise, gross receipts,
business licenses, occupations, real or personal property, stamps, transfers,
environment and workers' compensation, which any Group Company is required to
pay, withhold or collect.
"Tax Return" means any return (including any information return),
report, statement, schedule, notice, form or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any applicable statute,
rule or regulation relating to any Tax.
All capitalized terms used in the portions of the Ethical Share
Purchase Agreement which are attached hereto as Annex II, Annex III, Annex IV,
Annex V, Annex
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2
<PAGE> 3
VI and Annex VII have the meanings ascribed thereto in the Ethical Share
Purchase Agreement.
ARTICLE II
Purchase and Sale of Shares
2.1 Purchase of Shares from Seller. On the terms and subject to
the conditions set forth herein, at the Closing, Seller shall sell, transfer,
convey, assign and deliver to Purchaser, and Purchaser shall purchase, acquire
and accept from Seller, the Shares. At the Closing, Seller shall deliver to
Purchaser certificates representing the Shares accompanied by appropriate
instruments of transfer transferring the Shares to Purchaser and either (a)
evidence of the Company's registration of such transfer, if practicable; or (b)
a power of attorney executed by Seller vesting in Purchaser full and exclusive
right to exercise Seller's voting rights in respect of the Shares pending the
completion of the registration of such transfer..
2.2 Purchase Price for Shares. The aggregate purchase price to be
paid by Purchaser for the Shares (the "Purchase Price") shall be comprised of
(a) a fixed component (the "Fixed Portion of the Purchase Price"); and (b)
contingent components (the "Contingent Portions of the Purchase Price").
2.3 Fixed Portion of the Purchase Price. The Fixed Portion of the
Purchase Price shall be paid by Purchaser on the Closing Date by Purchaser's
delivery to Seller of:
(a) 1,000,000 shares (the "Purchase Price Shares") of common
stock, par value US$.01 per share (the "Common Stock"), of Purchaser.
(b) (i) Purchaser's loan note in the form of Exhibit A hereto
(the "Purchaser A Note") in the principal amount of 3,784,000 Irish pound
sterling which shall mature on 30 April 1998; (ii) Purchaser's loan note (the
"Purchaser B Note") in the aggregate principal amount of 4,000,000 Irish pound
sterling, which shall mature on 1 January 1999 and be in the same form as
Exhibit A hereto; and (iii) Purchaser's loan note (the "Purchaser C Note" and,
together with the Purchaser A Note and the Purchaser B Note, the "Purchaser
Notes") in the aggregate principal amount of 551,000 Irish pound sterling,
which shall mature on 1 January 2000 and be in the same form as Exhibit A
hereto. The Purchaser Notes shall be guaranteed by one of the banks listed on
Annex I hereto.
2.4 Contingent Portions of the Purchase Price. The Contingent
Portions of the Purchase Price shall be payable under the following
circumstances:
(a) Purchaser shall pay to Seller an aggregate amount equal to
US$250,000 if the Company executes a contract with Schein Bayer Pharmaceutical
Services, Inc., the form and substance of which is acceptable to Purchaser, for
the
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3
<PAGE> 4
Company's manufacture and supply of certain products to be determined by
Purchaser. Such payment shall be due upon the Company's execution of such
contract.
(b) Purchaser shall pay to Seller an additional aggregate amount
equal to US$250,000 if the Company executes a contract with Warner Chilcott,
Inc., the form and substance of which is acceptable to Purchaser, for the
Company's manufacture of minocycline capsules. Such payment shall be due upon
the Company's execution of such contract.
2.5 Payment Into Escrow. Notwithstanding the foregoing, if any
person (a "claimant") claims prior to the Closing Date that all or any portion
of the Purchase Price should be paid to such claimant rather than to Seller and
such claim has not been finally resolved by the Closing Date, as evidenced by a
final nonappealable order of a court of competent jurisdiction over such claim
or the claimant's delivery to Purchaser of a release executed by such claimant,
Purchaser shall deliver the disputed portion of the Purchase Price to a bank on
the Closing Date to be held in escrow by such bank until such dispute has been
finally resolved, evidenced as stated above.
2.6 Closing. The Closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on such date as is three business
days after the satisfaction of the conditions precedent set forth in Articles
VIII and IX, or on such other date as is agreed by the parties hereto (the
"Closing Date"), at such place and time as is agreed by the parties hereto.
ARTICLE III
Representations and Warranties
of Purchaser
Purchaser hereby represents and warrants to each Seller that:
3.1 Organization and Corporation Authority. Purchaser is duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been, and the Purchaser Notes will be, duly authorized, executed
and delivered by Purchaser, and this Agreement constitutes, and the Notes will
constitute, the legal, valid and binding obligations of Purchasers, enforceable
against Purchaser in accordance with its and their terms.
3.2 Purchase Price Shares. The Purchase Price Shares have been
duly authorized and, when issued in accordance with this Agreement, will be
validly issued, fully paid and nonassessable.
3.3 No Conflict. Neither the execution and delivery of this
Agreement by Purchaser nor the consummation or performance of any of the
transactions contemplated hereby by Purchaser will violate or constitute a
default under, conflict with or permit any person to terminate or accelerate
the performance by Purchaser of any of its obligations under any agreement to
which Purchaser is a party or by which it is bound, Purchaser's
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4
<PAGE> 5
constituent documents, any Order by which Purchaser is bound, or any law, rule
or regulation applicable to Purchaser.
Except as set forth in Schedule 3.3 hereto, Purchaser is not
required to give any notice to or obtain the consent of any person in
connection with its execution and delivery of this Agreement or its performance
of any of its obligations hereunder.
3.4 Investment Representation. Purchaser is acquiring the Shares
from each Seller for investment and not with a view to the distribution
thereof.
3.5 Legal Proceedings. There is no pending legal proceeding that
has been commenced against Purchaser and that challenges, or may have the
effect of preventing, making illegal or otherwise interfering with, any of the
transactions contemplated hereby. To Purchaser's knowledge, no such legal
proceeding has been threatened.
3.6 Capitalization of Purchaser; Trading on Nasdaq. Purchaser's
authorized capitalization consists of (a) 1,000,000 shares of Preferred Stock,
par value US$.01 per share; and (b) 50,000,000 shares of Common Stock. Certain
of the shares of Common Stock have been registered with the United States
Securities and Exchange Commission and are authorized for trading on The Nasdaq
Stock Market, Inc.
ARTICLE IV
Representations and Warranties of Seller Relating to the Shares,
Corporate Proceedings and the Purchase Price Shares
Seller hereby represents and warrants to Purchaser that:
4.1 Representations and Warranties Regarding the Shares and
Corporate Authority.
(a) Seller has good and marketable title to the Shares, free and
clear of all Encumbrances.
(b) Seller has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, and this Agreement has been duly authorized, executed and
delivered by Seller.
(c) This Agreement constitutes the legal, valid and binding
obligations of Seller, enforceable against Seller in accordance with its
terms.
(d) Purchaser will acquire from Seller good and marketable title
to the Shares, free and clear of all Encumbrances.
(e) There is no pending legal proceeding that has been commenced
against Seller and that challenges, or may have the effect of preventing,
delaying,
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5
<PAGE> 6
making illegal or otherwise interfering with, any of the transactions
contemplated hereby. To Seller's knowledge, no such legal proceeding has
been threatened.
(f) Neither the execution and delivery of this Agreement by
Seller nor the consummation or performance of any of the transactions
contemplated hereby by Seller will violate or constitute a default under,
conflict with or permit any person to terminate or accelerate the
performance by Seller of any of its obligations under any agreement to
which Seller is a party or by which it is bound, Seller's constituent
documents, any Order by which Seller is bound, or any law, rule or
regulation applicable to Seller.
Except as set forth in Schedule 4.1(f) hereto, Seller is not
required to give notice to or obtain the consent of any person in
connection with Seller's execution and delivery of this Agreement or its
performance of any of its obligations hereunder.
(g) No broker or finder has acted for Seller in connection with
this Agreement or the transactions contemplated hereby, and no broker or
finder is entitled to any brokerage or finder's fees or other commissions
in respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of Seller.
4.2 Representations and Warranties By Seller Regarding the
Purchase Price Shares.
(a) Seller is acquiring the Purchase Price Shares for Seller's
own account for investment and not with a view to, or for resale in
connection with, any distribution of Purchase Price Shares within the
meaning of the United States Securities Act of 1933, as amended (the
"Securities Act").
(b) Seller acknowledges that the Purchase Price Shares have not
been registered under the Securities Act and the Purchase Price Shares,
when issued, cannot be sold, transferred or otherwise disposed of unless
they are subsequently registered under the Securities Act or an exemption
from registration is then available.
(c) Seller is knowledgeable, sophisticated and experienced in
business and financial matters of the type contemplated by this Agreement
and is able to bear the economic risks associated with its investment in
the Purchase Price Shares. Seller has been afforded with sufficient
information to enable it to evaluate the risks and merits of its
investment in the Purchase Price Shares.
(d) Seller acknowledges that legends substantially in the
following form will be placed on the certificates representing the
Purchase Price Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
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6
<PAGE> 7
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT UNDER THE SECURITIES
ACT WITH RESPECT TO THE SECURITIES REPRESENTED BY THIS CERTIFICATE
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO
APPLICABLE STATE SECURITIES LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH
RESTRICTIONS ON TRANSFER SET FORTH IN THE SHARE PURCHASE AGREEMENT
DATED JULY 29, 1997 BETWEEN THE COMPANY AND THE REGISTERED HOLDER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE (OR THE
REGISTERED HOLDER'S PREDECESSOR IN INTEREST). SUCH AGREEMENT IS
BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS AND
ASSIGNS OF THE REGISTERED HOLDER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION."
ARTICLE V
Representations and Warranties of Seller
Regarding the Company
Seller hereby represents and warrants to Purchaser that:
5.1 Organization, Good Standing and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the Republic of Ireland. It has full corporate power and authority to
carry on its business as it is now being conducted and to own or use the
properties and assets it now owns or uses. It is qualified to do business, is
in good standing and has all required licenses in each jurisdiction in which it
conducts business.
5.2 Capitalization. The authorized capitalization of the Company
consists solely of (a) 1,050,000 shares of Preference Stock, nominal value 1
Irish pound sterling per share, 750,000 shares of which are issued and
outstanding and registered in the name of Forbairt (formerly known as The
Industrial Development Authority of Ireland); and 1,200,000 ordinary shares,
nominal value 25 pence per share, 620,000 of which are issued and outstanding
on the date hereof. All of the Shares have been duly authorized and validly
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7
<PAGE> 8
issued and are fully paid and nonassessable. Except as set forth in Schedule
5.2 hereto, there are not outstanding (i) any options, warrants or other rights
to purchase from the Company any shares of capital stock of the Company; (ii)
any other securities convertible into or exchangeable or exercisable for shares
of such stock; or (iii) any other commitments of any kind for the issuance of
additional shares of capital stock of the Company or securities convertible
into or exchangeable or exercisable for shares of capital stock of the Company.
5.3 Subsidiaries. The Company does not own any interest in any
person except the Subsidiaries. Set forth in Schedule 5.3 hereto are: (a) the
percentage of the equity interest in each Subsidiary which is owned by the
Company; (b) the jurisdiction of incorporation and capitalization of each
Subsidiary; (c) the names of the officers and directors of each Subsidiary; and
(d) the jurisdictions in which each Subsidiary is qualified or holds licenses
to do business as a foreign corporation. Except as set forth in Schedule 5.3,
the Company owns of record and beneficially all of the outstanding capital
stock of each of the Subsidiaries and it owns such capital stock free and clear
of all Encumbrances. Each of the Subsidiaries is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has full corporate power and authority to carry on its business
as it is now being conducted and to own or use the properties and assets it now
owns or uses, and is qualified to do business, is in good standing and has all
required licenses in each jurisdiction in which it conducts business. The
shares of capital stock of each Subsidiary shown in Schedule 5.3 to be issued
and outstanding have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth in Schedule 5.3, there are not
outstanding any (i) options, warrants or other rights to purchase from any of
the Subsidiaries any shares of capital stock of such Subsidiary; (ii) any
securities convertible into or exchangeable or exercisable for shares of
capital stock of such subsidiary; or (iii) any other commitments of any kind
for the issuance of additional shares of capital stock of such subsidiary or
securities convertible into or exercisable or exchangeable for shares of
capital stock of such subsidiary.
5.4 Financial Statements. Seller has delivered to Purchaser the
audited consolidated balance sheets of the Group Companies as at 31 December
1995, 31 December 1996 and 28 February 1997, and the related consolidated
statements of income and retained earnings and changes in financial position
for such two fiscal years and such two month period and the unaudited
consolidated balance sheet of the Group Companies (the "Most Recent Balance
Sheet") as at 30 June, 1997 (the "Most Recent Balance Sheet Date") and the
related consolidated statements of income for the six month period ended 30
June 1997. Said financial statements (a) were prepared in accordance with the
books and records of the Group Companies; (b) were prepared in accordance with
GAAP consistently applied (except, in the case of the financial statements as
at, and for the six month period ended, 30 June 1997 (i) for differences in
formatting and the absence of notes; and (ii) that such financial statements
are subject to normal year end audit adjustments); and (c) fairly present the
financial condition of the Group Companies and the results of Group Companies'
operations as at the relevant dates thereof and for the periods covered
thereby.
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<PAGE> 9
5.5 Absence of Certain Changes. Since the Most Recent Balance
Sheet Date, the business of each Group Company has been conducted only in the
ordinary course and, except as disclosed in Schedule 5.5 hereto, there has not
been (a) any declaration or payment of dividends by any Group Company (other
than by a Subsidiary which is wholly owned by the Company) or any transfer of
assets of any kind whatsoever by any Group Company to any of their shareholders
with respect to any shares of its capital stock (other than by a Subsidiary
which is wholly owned by the Company); (b) any material adverse change in the
results of operations, business, financial condition, assets or prospects of
the Group Companies; (c) any damage, destruction or loss, whether or not
covered by insurance, which could reasonably be expected to have a material
adverse effect on the business, financial condition, assets or prospects of the
Group Companies; (d) any sale or other disposition of any of the assets of the
Group Companies except sales of inventory in the ordinary course of business;
(e) any mortgage, pledge or other subjection to Encumbrance of any kind, except
liens for taxes not due, of any of the properties or assets of the Group
Companies; (f) any incurrence by any of the Group Companies of, assumption of,
or taking any property subject to, any liability, except for liabilities
incurred or assumed or property taken subject thereto in the ordinary course of
business and consistent with past practice; or (g) any material alteration in
the manner of keeping the books, accounts or records of any of the Group
Companies, or in the accounting practices therein reflected.
5.6 Constituent Documents. Seller has delivered to Purchaser
copies of (a) the Memorandum of Association and Articles of Association of the
Company; (b) the Memorandum of Association and Articles of Association of
Crosspharma; and (c) the Charter of Clonmel-Hungary, in each case as currently
in effect.
5.7 No Conflict; Consents. Except as set forth in Schedule 5.7
hereto, neither the execution and delivery of this Agreement nor consummation
or performance of the transactions contemplated hereby will violate or
constitute a default under, conflict with or permit any person to terminate or
accelerate the performance by any Group Company of any of its obligations under
any agreement to which any Group Company is a party or by which it is bound,
any Group Company's constituent documents, any Order by which any Group Company
is bound, or any law, rule or regulation applicable to any Group Company.
Except as set forth in Schedule 5.7 hereto, no Group Company is
required to give any notice to or obtain any consent from any person in
connection with the execution of this Agreement or the consummation of any of
the transactions contemplated hereby.
5.8 Properties. Schedule 5.8 hereto contains a complete and
accurate list of all real property leased by any Group Company. Seller hereby
makes to Purchaser the representations and warranties made by Seller in Section
14 of Schedule 4 of the Ethical Share Purchase Agreement which are attached as
Annex II hereto, subject to the disclosures set forth in the Disclosure Letter.
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5.9 Inventory. All inventory of the Group Companies, whether or
not reflected in the Most Recent Balance Sheet, consists of a quality and
quantity usable and salable in the ordinary course of business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Most Recent Balance
Sheet or on the accounting records of the Group Companies as of the Closing
Date, as the case may be. All inventories not written off have been priced at
the lower of cost or net realizable value on a last in, first out basis. The
quantities of each item of inventory (whether raw materials, work-in-process or
finished goods) are not excessive, but are reasonable in the present
circumstances of the Group Companies.
5.10 Accounts Receivable. All accounts receivable of the Group
Companies that are reflected on the Most Recent Balance Sheet or on the
accounting records of the Group Companies as of the Closing Date (collectively,
the "Accounts Receivable") represent or will represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business. Unless paid prior to the Closing Date, the Accounts
Receivable are or will be as of the Closing Date current and collectible net of
the respective reserves shown on the Most Recent Balance Sheet or on the
accounting records of the Group Companies as of the Closing Date (which
reserves are adequate and calculated consistent with past practice and, in the
case of the reserve as of the Closing Date, will not represent a greater
percentage of the Accounts Receivable as of the Closing Date than the reserve
reflected in the Most Recent Balance Sheet represented of the Accounts
Receivable reflected therein and will not represent a material adverse change
in the composition of such Accounts Receivable in terms of aging). Subject to
such reserves, each of the Accounts Receivable either has been or will be
collected in full, without any set-off, within one hundred eighty days after
the day on which it first becomes due and payable.
5.11 Taxes. Seller hereby makes to Purchaser the representations
and warranties made by Seller in Section 15 of Schedule 4 of the Ethical Share
Purchase Agreement which are attached as Annex III hereto, subject to the
disclosures set forth in the Disclosure Letter.
There is no tax sharing agreement in existence that will require
any payment by any Group Company after the date of this Agreement and there is
no other basis for asserting against any Group Company any liability in respect
of Taxes relating to Seller or any Affiliate (other than such Group Company) of
Seller.
5.12 Employee Matters.
(a) Schedule 5.12(a) hereto contains a complete and accurate list
of the following information for each employee or director of the Group
Companies, including each employee on leave of absence or layoff status:
employer; name and job title.
(b) Seller hereby makes to Purchaser the representations and
warranties made by Seller in Section 5.13 and Section 6 of Schedule 4 of
the
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Ethical Share Purchase Agreement which are attached as Annex IV and Annex
V hereto, respectively, subject to the disclosures set forth in the
Disclosure Letter.
(c) There are no multi-employer or multiple employer plans (as
defined in the U.S. Internal Revenue Code and/or the U.S. Employee
Retirement Income Security Act ("ERISA") and related laws and
regulations). No Plan has been terminated and no reportable event (as
defined in ERISA and related laws and regulations) has occurred with
respect to any Plan.
(d) No employee or director of any Group Company is a party to,
or is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition or proprietary rights agreement, between
such employee or director and any other person ("Proprietary Rights
Agreement") that in any way adversely affects or will adversely affect
(i) the performance of his duties as an employee or director of the Group
Companies; or (ii) the ability of any Group Company to conduct its
business, including any Proprietary Rights Agreement with the Group
Companies by any such employee or director. To the knowledge of Seller,
no director, officer or other key employee of any Group Company intends
to terminate his employment with such Group Company.
(e) Except as disclosed in Schedule 5.12(e) hereto, since January
1, 1994, no Group Company has been a party to any collective bargaining
or other labor contract. Since January 1, 1994, there has not been, there
is not presently pending or existing, and to the knowledge of Seller,
there is not threatened, (i) any strike, slowdown, picketing, work
stoppage or employee grievance process; or (ii) any proceeding against or
affecting any Group Company relating to the alleged violation of any
applicable statute, rule or regulation pertaining to labor relations or
employment matters, including any charge or complaint filed by an
employee or union with any governmental authority, organizational
activity, or other labor or employment dispute against or affecting any
of the Group Companies or any of the facilities of the Group Companies,
and to the knowledge of Seller, no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor
dispute.
5.13 Legal Proceedings; Orders.
(a) Except as set forth in Schedule 5.13(a) hereto, no Group
Company is a party to any civil or criminal legal proceeding. None of
such proceedings individually or in the aggregate will have a material
adverse effect on the business, financial condition, assets or prospects
of any Group Company.
(b) Except as set forth in Schedule 5.13(b) hereto:
(i) there is no Order to which any Group Company, or any of
the assets owned or used by any Group Company, is subject;
(ii) Seller is not subject to any Order that relates to the
business of, or any of the assets owned or used by, any Group
Company; and
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(iii) to the knowledge of Seller, no officer, director, agent
or employee of any Group Company is subject to any Order that
prohibits such officer, director, agent or employee from engaging
in or continuing any conduct, activity or practice relating to the
business of any Group Company.
5.14 Contracts; No Defaults.
(a) Schedule 5.14(a) hereto contains a complete and accurate
list, and Seller has delivered to Purchaser true and complete copies, of:
(i) each contract that involves the payment or receipt by
one or more Group Companies of an amount or value in excess of
35,000 Irish pound sterling;
(ii) each lease and installment or conditional sale
agreement for personal property (except personal property leases
and installment and conditional sales agreements having a value per
item or aggregate payments of less than 35,000 Irish pound sterling
and with terms of less than one year);
(iii) each licensing agreement or other contract with respect
to the Intellectual Property Assets (as defined in Section 5.17
hereof);
(iv) each collective bargaining agreement and other contract
to or with any labor union or other representative of a group of
employees;
(v) each joint venture, partnership and other contract
(however named) involving a sharing of profits, losses, costs or
liabilities by any Group Company with any other person;
(vi) each contract containing covenants that in any way
purport to restrict the business activity of any Group Company or
limit the freedom of any Group Company to engage in any line of
business or to compete with any person;
(vii) each contract entered into other than in the ordinary
course of business that contains or provides for an express
undertaking by any Group Company to be responsible for
consequential damages; and
(viii) each written warranty, guaranty and other similar
undertaking with respect to contractual performance extended by any
Group Company other than in the ordinary course of business.
collectively, the "Material Contracts".
(b) Except as set forth in Schedule 5.14(b) hereto, to the
knowledge of Seller, no officer, director, agent, employee, consultant or
contractor of any Group Company is bound by any contract that purports to
limit the ability of such officer, director, agent, employee, consultant
or contractor to assign to any Group
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Company or to any other person any rights to any invention, improvement
or discovery.
(c) Except as set forth in Schedule 5.14(c) hereto (i) each
Material Contract identified or required to be identified in Schedule
5.14(a) hereto is in full force and effect and is valid and enforceable
in accordance with its terms; (ii) each Group Company, and, to the
knowledge of Seller, each other party to each Material Contract, is, and
at all times since January 1, 1994 has been, in full compliance with the
terms of each Material Contract; (iii) no event has occurred or
circumstance exists which constitutes, or with notice or lapse of time
(or both) would constitute, an event of default by any Group Company or,
to the knowledge of Seller, any other party under any Material Contract;
and (iv) no Material Contract is currently being renegotiated or is
expected to be renegotiated.
(d) The Material Contracts relating to the sale, design,
manufacture or provision of products or services by the Group Companies
have been entered into in the ordinary course of business and have been
entered into without the commission of any act alone or in concert with
any other person, or any consideration having been paid or promised, that
is or would be in violation of any applicable statute, rule, regulation,
permit issued by any governmental authority or any Order.
5.15 Insurance.
(a) Except as set forth in Schedule 5.15(a) hereto, each Group
Company is covered by adequate insurance for all risks normally insured
against by a person carrying on the same business and of the same size.
Each insurance policy to which any Group Company is a party or under
which any Group Company, or any officer or director of any Group Company,
is or has been covered at any time within the three years preceding the
date of this Agreement (collectively, the "Policies") is listed in
Schedule 5.15(a) hereto.
(b) The Group Companies are insured under the Policies together
with Seller on a group basis. Seller knows of no reason why the Group
Companies should not be able to obtain coverage on a basis equivalent to
that provided under the Policies to take effect after completion of the
Closing.
(c) Except as set forth in Schedule 5.15(c) hereto:
(i) none of the Group Companies is or has been in default
under any of the Policies;
(ii) each Group Company has timely given notice of all
claims that may be covered under its respective Policies;
(iii) all of the Policies (A) are valid, outstanding and
enforceable; and (B) to the knowledge of Seller are issued by
insurers that are financially sound and reputable;
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<PAGE> 14
(iv) none of the Policies provides for any retrospective
premiums or other experience-based liability on the part of any
Group Company; and
(v) none of the Group Companies has received any refusal of
coverage or any notice that a defense will be afforded with
reservation of rights.
5.16 Environmental and Occupational Health and Safety Matters.
Seller hereby makes to Purchaser the representations and warranties made by
Seller in Sections 7 and 8 of Schedule 4 of the Ethical Share Purchase
Agreement which are attached as Annex VI hereto, subject to the disclosures in
the Disclosure Letter.
5.17 Intellectual Property.
(a) Schedule 5.17(a) hereto contains a complete and accurate list
of all of the Intellectual Property Assets other than the Trade Secrets.
The term "Intellectual Property Assets" includes:
(i) all trading names, fictional business names, registered
and unregistered trademarks, service marks and applications
(collectively, "Marks");
(ii) all patents, patent applications and inventions and
discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished
works (collectively, "Copyrights"); and
(iv) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process
technology, plans, drawings and blue prints (collectively, "Trade
Secrets");
in each case, owned, used, or licensed by any Group Company as licensee
or licensor.
(b) Except as set forth in Schedule 5.17(b) hereto, there are no
outstanding or, to the knowledge of Seller, threatened disputes or
disagreements with respect to any contract relating to the Intellectual
Property Assets to which any Group Company is a party.
(c) The Intellectual Property Assets are all those necessary for
the operation of the Group Companies' businesses as they are currently
conducted. One or more of the Group Companies is the owner of all right,
title and interest in and to each of the Intellectual Property Assets,
free and clear of all Encumbrances and other adverse claims, and, except
as set forth in Schedule 5.17(c) hereto, has the right to use all of the
Intellectual Property Assets without payments to a third party.
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<PAGE> 15
Schedule 5.17(c) hereto sets forth a list of all former and
current employees of each Group Company who have executed written
contracts with one or more of the Group Companies that assign to one or
more of the Group Companies all rights to any inventions, improvements,
discoveries or information relating to the business of any Group Company.
(d) The Group Companies have taken all action necessary to
protect the Intellectual Property Assets in all relevant jurisdictions,
and all filings and registrations of the Intellectual Property Assets in
such jurisdictions are valid, subsisting and enforceable.
(e) With respect to each Trade Secret, the documentation relating
to such Trade Secret is current, accurate and sufficient in detail and
content to identify and explain it and to allow its full and proper use
without reliance on the knowledge or memory of any individual.
The Group Companies have taken all reasonable precautions to
protect the secrecy, confidentiality and value of the Trade Secrets.
The Trade Secrets are not to a material extent part of the public
knowledge or literature, and, to the knowledge of Seller, have not been
used, divulged or appropriated either for the benefit of any person
(other than one or more of the Group Companies) or to the detriment of
the Group Companies.
5.18 Indebtedness to and from Sellers, Affiliates of Sellers,
Officers or Directors. Except as listed in Schedule 5.18 hereto and except for
intercompany indebtedness payable among the Group Companies, no Group Company
is indebted, directly or indirectly, to any Seller, any Affiliate of any Seller
or any person who is an officer or director of any of the Group Companies in
any amount whatsoever, other than for salaries for services rendered or
reimbursable business expenses, nor is any Seller, any Affiliate of any Seller
or any such officer or director indebted to any Group Company except for
advances made to employees of a Group Company in the ordinary course of
business to meet reimbursable business expenses anticipated to be incurred by
such obligor.
5.19 Powers of Attorney and Suretyships. Except as disclosed in
Schedule 5.19 hereto, no Group Company has any general or special powers of
attorney outstanding (whether as grantor or grantee thereof) or has any
obligation or liability (whether actual, accrued, accruing, contingent or
otherwise) as guarantor, surety, co-signer, endorser, co-maker, indemnitor or
otherwise in respect of the obligations of any other person, except as endorser
or maker of checks or letters of credit, respectively, endorsed or made in the
ordinary course of business.
5.20 Customers.
(a) Except as disclosed in Schedule 5.20(a) hereto, during the
fiscal year of the Group Companies ending on 31 December 1996 and the six
months ended 30 June 1997, not more than five percent (5%) of the
consolidated revenues
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<PAGE> 16
of the Group Companies during either of such periods were attributable to
any single customer or to any group of affiliated customers.
(b) Schedule 5.20(b) hereto lists, in descending order, the
fifteen customers of the Group Companies generating the most revenue for
the Group Companies during each of the fiscal year of the Group Companies
ending on 31 December 1996 and the six months ended 30 June 1997
(collectively, the "Top Customers").
(c) Except as disclosed in Schedule 5.20(c) hereto, there is no
pending or threatened dispute between any of the Group Companies and any
of the Top Customers.
5.21 Compliance with Law. Each Group Company is, and at all times
since January 1, 1994 has been, in full compliance with all applicable laws,
statutes, ordinances, rules, regulations, Orders and permits, the failure to
comply with which could, individually or in the aggregate, have a material
adverse effect on the business, financial condition, assets or prospects of the
Group Companies, and no Group Company has received any written notice alleging
failure to be in such compliance. All licenses, permits, franchises,
certificates and other governmental authorizations held by the Group Companies
are valid and sufficient for all businesses conducted by the Group Companies
and there exists no fact, error or omission relevant to any such license,
permit, franchise, certificate or other governmental authorization that would
permit the revocation or withdrawal thereof. The Group Companies will continue
to have the use and benefit thereof and the rights granted thereby after the
execution of this Agreement and the consummation of the transactions
contemplated hereby.
5.22 No Undisclosed Liabilities. Except as and to the extent
specifically reflected or reserved against in the Most Recent Balance Sheet or
as disclosed in Schedule 5.22 hereto and except for current liabilities
incurred in the ordinary course of business since the Most Recent Balance Sheet
Date, the Group Companies have no liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to
become due.
5.23 Other Information. The information concerning the Group
Companies set forth in this Agreement, including, without limitation, the
Schedules and Annexes hereto, and any document, statement or certificate
furnished or to be furnished to Purchaser pursuant to this Agreement, does not
and will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary to make the
statements and facts contained herein or therein, in light of the circumstances
in which they are made, not false or misleading.
5.24 Conflicts of Interest. Except as set forth in Schedule 5.24
hereto, no Seller, no Affiliate of any Seller and no officer or director of any
Group Company now has or within the last three (3) years has had, either
directly or indirectly:
(a) an equity or debt interest in any person which furnishes or
sells or during such period furnished or sold services or products to any
Group Company,
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<PAGE> 17
or purchases or during such period purchased from any Group Company any
goods or services, or otherwise does or during such period did business
with any Group Company; or
(b) a beneficial interest in any contract, commitment or
agreement to which any Group Company is or was a party or under which any
Group Company is or was obligated or bound or to which any of Group
Company's properties may be or may have been subject, other than stock
options and other contracts, commitments or agreements between any Group
Company and such persons in their capacities as employees, officers or
directors of such Group Company.
5.25 Disclosure Letter. Seller's representations and warranties
in this Article V are subject to the information set forth in the Disclosure
Letter (including the information set forth in the documents which are referred
to in the Disclosure Letter as being attached thereto), which is attached as
Annex VII hereto.
5.26 No Brokerage Fees. No broker or finder has acted for the
Company in connection with this Agreement or the transactions contemplated
hereby, and no broker or finder is entitled to any brokerage or finder's fees
or other commissions in respect of such transactions based in any way on
agreements, arrangements or understandings made by or on behalf of the Company.
ARTICLE VI
Covenants of Seller Prior to Closing
6.1 Access and Investigation. Between the date of this Agreement
and the Closing Date, Seller shall, and shall cause each Group Company and its
representatives to, (a) afford Purchaser and its representatives full and free
access to each Group Company's personnel, properties, contracts, books and
records, and other documents and data; and (b) furnish Purchaser and its
representatives with copies of all such contracts, books and records, and other
existing documents and data as they may reasonably request, including, but not
limited to, copies of any reports, studies, analyses, tests or monitoring
possessed or initiated by Seller or any Group Company pertaining to the
environment in, under or on any of the facilities of any of the Group Companies
or any occupational health and safety matter or concerning compliance by any
Group Company with any applicable statute, rule, regulation, permit issued by a
governmental authority or Order relating to the environment or any occupational
health and safety matter.
Seller shall deliver to Purchaser, as promptly as practicable after
the date of execution of this Agreement, a schedule with respect to the
employees listed in Schedule 5.12(a) hereto listing (a) current compensation;
(b) any change in compensation since 1 January 1997; (c) vacation accrued; and
(d) service credited for purposes of vesting and eligibility to participate
under any Group Company pension or other employee benefit plans.
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6.2 Operation of the Businesses of the Group Companies. Between
the date of this Agreement and the Closing Date, Seller shall, and shall cause
each Group Company to:
(a) conduct the business of such Group Company only in the
ordinary course of business;
(b) use their best efforts to preserve intact the current
business organization of such Group Company, keep available the services
of the current officers, employees and agents of such Group Company, and
maintain the relations and good will with suppliers, customers,
landlords, creditors, employees, agents and others having business
relationships with such Group Company;
(c) confer with Purchaser concerning operational matters of a
material nature, including regarding any negotiations or other material
communications relating to any commitment or arrangement with
distributors, sales agents, licensees and licensors or the modification
or termination of any existing relationship with any distributor, sales
agent, licensee or licensor; and
(d) otherwise report periodically to Purchaser concerning the
status of the business, operations and finances of such Group Company.
6.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the Closing Date, Seller
shall not, and shall cause each Group Company not to, without the prior written
consent of Purchaser, take any affirmative action, or fail to take any
reasonable action within their or its control, as a result of which any of the
representations and warranties set forth in Article IV hereof would fail to be
correct if made as of the Closing Date.
6.4 Required Notices and Consents. As promptly as practicable
after the date of this Agreement, Seller shall, and shall cause each Group
Company to, make all filings to give all of the notices to governmental
authorities and to seek all of the consents of governmental authorities
identified in Schedules 4.1(f) and 5.7 hereto. Between the date of this
Agreement and the Closing Date, Seller shall, and shall cause each Group
Company to, cooperate with Purchaser with respect to making all filings to give
all of the notices to governmental authorities and obtain all of the consents
of governmental authorities identified in Schedule 3.3 hereto.
6.5 Notification. Between the date of this Agreement and the
Closing Date, Seller shall promptly notify Purchaser in writing if Seller or
any Group Company becomes aware of any fact or condition that causes or
constitutes a breach of any of the representations and warranties of Seller as
of the date of this Agreement, or if Seller or any Group Company becomes aware
of the occurrence after the date of this Agreement of any fact or condition
that would cause or constitute a breach of any such representation and warranty
had such representation and warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in any of the Schedules hereto if such Schedule were dated the date
of the occurrence or discovery of any such fact or condition, Seller shall
promptly deliver to
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<PAGE> 19
Purchaser a supplement to such Schedule specifying such change, which change
shall be included in such Schedule only upon Purchaser's written consent to
such inclusion. During the same period, Seller shall promptly notify Purchaser
of the occurrence of any breach of any covenant of Seller in this Article VI or
of the occurrence of any event that may make the satisfaction of the conditions
in Article VIII impossible or unlikely.
6.6 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Section 10.1 hereof, Seller shall not and Seller shall
ensure that its officers, employees, agents and representatives shall not,
directly or indirectly (a) enter into any agreement or arrangement involving
the possible acquisition of any shares or material assets of any Group Company
(other than sales of inventory in the ordinary course of business); (b) solicit
or encourage offers from, engage in any discussion with, or provide any
information to, any person relating to any such acquisition; or (c) respond to
any inquiries from any person relating to any such acquisition, except to
inform such person that discussions are under way with another party, without
naming Purchaser.
6.7 Forbairt Grants. Seller shall fund the repayment of any
grant(s) previously made by Forbairt to the Company if such repayment is
demanded by Forbairt prior to the Closing Date as a result of the failure of
the Company to satisfy any requirements of such grant(s).
6.8 Best Efforts. Between the date of this Agreement and the
Closing Date, Seller shall use its best efforts, and shall cause each Group
Company to use its best efforts, to cause the conditions in Articles VIII and
IX to be satisfied.
ARTICLE VII
Covenants of Purchaser Prior to Closing Date
7.1 Approvals of Governmental Authorities. As promptly as
practicable after the date of this Agreement, Purchaser shall make all filings
to give all of the notices to governmental authorities and to seek all of the
consents of governmental authorities identified in Schedule 3.3 hereto.
Between the date of this Agreement and the Closing Date, Purchaser shall
cooperate with Seller and the Group Companies with respect to all filings that
Seller and the Group Companies make pursuant to Section 6.4 hereof; provided
that this Agreement shall not require Purchaser or any Affiliate of Purchaser
to dispose of or make any change in any portion of its business or to incur any
other burden to obtain the approval of any governmental authority.
7.2 Best Efforts. Except as set forth in the proviso to Section
7.1 hereof, between the date of this Agreement and the Closing Date, Purchaser
shall use its best efforts to cause the conditions in Articles VIII and XI to
be satisfied.
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ARTICLE VIII
Conditions Precedent to Obligations of Purchaser by Seller
Purchaser's obligation to purchase the Shares and to take the other
actions required to be taken by Purchaser at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Purchaser, in whole or in part):
8.1 Accuracy of Representations and Warranties.
(a) All of the representations and warranties of Seller in this
Agreement, including, without limitation, the Schedules hereto or any
document or certificate furnished to Purchaser pursuant to this Agreement
(considered collectively), and each of these representations and
warranties (considered individually), shall be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without
giving effect to any (i) knowledge or materiality qualifications in such
representations and warranties; or (ii) supplements to the Schedules
hereto that are delivered by Seller to Purchaser prior to the Closing
Date with Purchaser's consent in accordance with the provisions of
Section 6.5 hereof. The foregoing condition shall not be deemed to be
satisfied if there are inaccuracies in Seller's representations and
warranties which, individually or in the aggregate, involve Damages (as
such term is defined in Section 11.1 hereof) in an amount in excess of
300,000 Irish pound sterling.
(b) Each of the representations and warranties of each Seller in
Article III and of all of the Seller in Sections 5.2, 5.4, 5.5 and 5.23
hereof shall be accurate in all respects as of the Closing Date as if
made on the Closing Date, without giving effect to any supplement to the
Schedule hereto.
(c) Seller shall deliver to Purchaser a certificate executed by a
senior officer of each Seller certifying to the foregoing matters.
8.2 Performance by Seller. All of the covenants and obligations
that Seller are required to perform or to comply with pursuant to this
Agreement at or prior to the Closing shall have been duly performed and
complied with by Seller in all material respects and Seller shall deliver to
Purchaser a certificate executed by a senior officer of each Seller certifying
to such effect.
8.3 Notices and Consents. Each of the notices to and consents of
governmental authorities identified in Schedules 3.2, 4.1(f) and 5.7 hereto
shall have been made or obtained and such consents shall be in full force and
effect.
8.4 No Proceedings. Since the date of this Agreement, there shall
not have been commenced or threatened against Purchaser, or against any
Affiliate of Purchaser, any proceeding (a) involving any challenge to, or
seeking damages of in excess of 750,000 Irish pound sterling or other relief in
connection with, any of the transactions
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contemplated hereby; or (b) that may have the effect of preventing, delaying,
making illegal or otherwise interfering with any of the transactions
contemplated hereby.
8.5 No Claim Regarding Share Ownership or Sale Proceeds. There
shall not have been made or threatened by any person any claim asserting that
such person is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any of the Shares, or any other
voting, equity or ownership interest in any of the Group Companies.
8.6 Opinion of Seller's Counsel. Purchaser shall have been
furnished at the Closing with an opinion of Vincent & Beatty, counsel to the
Seller, dated the Closing Date, addressed to and in form and substance
satisfactory to Purchaser, addressing the matters set forth in Exhibit B
hereto.
8.7 Delivery of Share Certificates. Seller shall have delivered
to Purchaser certificates representing the Shares accompanied by appropriate
instruments of transfer transferring the Shares to Purchaser and either (a)
evidence of the Company's registration of such transfer, if practicable; or (b)
a power of attorney executed by Seller vesting in Purchaser full and exclusive
right to exercise Seller's voting rights in respect of the Shares pending the
completion of the registration of such transfer.
.8.8 Consulting Services Agreement. The Company and Seller shall
have executed a Consulting Services Agreement in the form of Exhibit C hereto.
8.9 Employment Agreement. The Company and Donal Tierney shall
have executed an Employment Agreement, satisfactory in substance and form to
Purchaser, pursuant to which the Company shall employ Mr. Tierney as its Chief
Executive Officer for a term of one year which shall be renewable.
8.10 Noncompetition Agreements. Seller, Daniel Tierney and
Laurence Tuomey shall have executed a Noncompetition Agreement substantially in
the form of Exhibit D hereto.
8.11 Satisfaction of Intercompany Indebtedness. All indebtedness
owed by (a) the Company to any of the Seller or any of the Seller' Affiliates;
and (b) any of the Seller or any of the Seller' Affiliates to the Company shall
have been satisfied.
8.12 License for Office Space. The Company and Cross Vetpharm
shall have executed a License, providing for the Company's use of a portion of
Cross Vetpharm's office facilities, in the form of Exhibit E hereto.
8.13 Waiver of Preemption Rights. Forbairt shall have consented
to the sale of the Shares to Purchaser and Forbairt and IPL shall have waived
their rights of preemption with respect to the Shares.
8.14 IPL Shares. Seller shall have waived its rights of
preemption with respect to the IPL Shares and Purchaser shall have
simultaneously purchased the IPL Shares.
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8.15 Side letters. Seller shall have executed side letters in the
forms attached as Exhibit F hereto.
8.16 Directors' Resignations. Seller shall have delivered to
Purchaser resignation letters executed by each of the directors of the Company
other than Terry Sullivan, such resignations to be effective on the Closing
Date.
ARTICLE IX
Conditions to Obligations of the Seller
The obligations of Seller to sell the Shares and take the other
actions required to be taken by Seller at the Closing are subject to the
satisfaction at or prior to the Closing of the following conditions (any of
which may be waived by Seller in whole or in part):
9.1 Accuracy of Representations and Warranties. All of the
representations and warranties of Purchaser in this Agreement, including,
without limitation, the Schedules hereto or any document or certificate
furnished by Purchaser to Seller pursuant to this Agreement (considered
collectively), and each of these representations and warranties (considered
individually) shall be accurate in all material respects as of the Closing Date
as if made on the Closing Date, and Purchaser shall have delivered to Seller a
certificate executed by one of its senior officers certifying to such effect.
The foregoing condition shall not be deemed to be satisfied if there are
inaccuracies in Seller's representations and warranties which, individually or
in the aggregate, involve Damages in an amount in excess of 300,000 Irish pound
sterling.
9.2 Purchaser's Performance. All of the covenants and obligations
that Purchaser is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing shall have been performed and complied
with by Purchaser in all material respects, and Purchaser shall have delivered
to Seller a certificate executed by one of its senior officers certifying to
such effect.
9.3 Consents. Each of the notices to and consents of governmental
authorities identified in Schedules 3.2, 4.1(f) and 5.7 hereto shall have been
obtained and such consents shall be in full force and effect.
9.4 No Proceedings. Since the date of this Agreement, there shall
not have been commenced or threatened against any Seller or any Affiliate of
any Seller any proceeding (i) involving any challenge to, or seeking damages of
in excess of 500,000 Irish pound sterling or other relief in connection with,
any of the transactions contemplated hereby; or (ii) that may have the effect
of preventing, delaying, making illegal or otherwise interfering with any of
the transactions contemplated hereby.
9.5 Opinion of Purchaser's Counsel. Purchaser shall have been
furnished with opinions of Gibson, Dunn & Crutcher LLP and Arthur Cross,
counsel to Purchaser,
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dated the Closing Date, addressed to and in form satisfactory to Seller,
collectively addressing the matters set forth in Exhibit G hereto.
9.6 Purchase Price Shares and Purchaser Notes. Purchaser shall
have delivered to Seller the Purchase Price Shares and the Purchaser Notes in
the principal amounts specified in Section 2.3 hereof. The Purchaser Notes
shall have been guaranteed by one of the banks listed on Annex I hereto.
9.7 Employment Agreement. The Company shall have executed an
Employment Agreement, satisfactory in substance and form to Donal Tierney,
providing for the Company's employment of Mr. Tierney as its Chief Executive
Officer for a term of one year which shall be renewable.
9.8 Side Letters. Purchaser shall have executed side letters in
the form of Exhibit F hereto.
ARTICLE X
Termination
10.1 Termination Events. This Agreement may, by written notice
given prior to or at the Closing, be terminated:
(a) by either Purchaser or Seller if a material breach of any
provision of this Agreement has been committed by the other party and
such breach has not been waived;
(b) (i) by Purchaser if any of the conditions in Article VIII has
not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Purchaser to comply with its obligations under this Agreement) and
Purchaser has not waived such condition on or before the Closing Date; or
(ii) by Seller, if any of the conditions in Article IX has not been
satisfied of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Seller to comply
with their obligations under this Agreement) and Seller have not waived
such condition on or before the Closing Date;
(c) by mutual consent of Purchaser and Seller; or
(d) by either Purchaser or Seller if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on
or before September 30, 1997, or such later date as the parties may agree
upon.
10.2 Effect of Termination. Each party's right of termination
under Section 10.1 is in addition to any other rights it may have under this
Agreement or
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otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 10.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 13.5 and 13.7 hereof will survive; provided,
however, that if this Agreement is terminated by a party because of the breach
of this Agreement by the other party or because one or more of the conditions
to the terminating party's obligations under this Agreement is not satisfied as
a result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
ARTICLE XI
Indemnification; Remedies
11.1 Indemnification and Payment of Damages by Seller. Seller
shall indemnify and hold harmless Purchaser, the Group Companies, and their
respective directors, officers, employees, agents, consultants, advisors or
other representations, including legal counsel, accountants and financial
advisors, stockholders and controlling persons (collectively, the "Purchaser
Indemnified Persons") for, and will pay to the Purchaser Indemnified Persons
the amount of, any loss, liability, claim, damage (including incidental and
consequential damages) or expense (including costs of investigation and defense
and reasonable attorneys' fees), whether or not involving a third-party claim
(collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any breach of any representation and warranty made by Seller
in Article IV or Article V hereof or in any document or certificate
furnished to Purchaser by Seller pursuant to this Agreement, giving full
effect to any supplement to the Schedules hereto that are delivered by
Seller to Purchaser prior to the Closing Date with Purchaser's consent in
accordance with the provisions of Section 6.5 hereof;
(b) any breach by Seller of any covenant or obligation of Seller
in this Agreement;
(c) any claim by any person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such person with either any Seller or
any Group Company (or any person acting on Seller's or any Group
Company's behalf) in connection with any of the transactions contemplated
hereby; and
(d) any liability imposed upon any Group Company in respect of
the termination of employment of Terry Sullivan by a Group Company to the
extent that such liability exceeds 140,000 Irish pound sterling; provided
that Purchaser does not cause or permit the Company to settle any claim
by Mr. Sullivan without the prior written consent of Seller, which
consent shall not be unreasonably withheld.
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The right to indemnification, payment of Damages or other remedy based on
a breach of representations and warranties, covenants and obligations will not
be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to the accuracy or inaccuracy of or compliance with, any such representation
and warranty, covenant or obligation. The waiver of any condition based on the
accuracy of any representation and warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations and warranties, covenants and obligations except to the extent
that such waiver arose when Purchaser permitted Seller to supplement any of the
Schedules hereto in accordance with the provisions of Section 6.5 hereof.
11.2 Indemnification and Payment of Damages by Purchaser.
Purchaser shall indemnify and hold harmless Seller and their respective
directors, officers, employees, agents, consultants, advisors or other
representatives, including legal counsel, accountants and financial
representatives, stockholders and controlling persons (collectively, the
"Seller' Indemnified Persons") for, and will pay to the Seller' Indemnified
Persons the amount of, any Damages arising, directly or indirectly, from or in
connection with (a) any breach of any representation and warranty made by
Purchaser in Article III hereof or in any certificate furnished by Purchaser to
Seller pursuant to this Agreement; and (b) any breach by Purchaser of any
covenant or obligation of Purchaser in this Agreement.
11.3 Remedies Not Exclusive; Purchase Price Adjustment. The
remedies provided in this Article XI shall not be exclusive of or limit any
other remedies that may be available to the Purchaser Indemnified Persons or
the Seller' Indemnified Persons. Any amounts paid by Seller or Purchaser
pursuant to this Article XI shall be deemed to be adjustments to the Purchase
Price.
11.4 Time Limitations. If the Closing occurs, neither Seller nor
Purchaser shall have any liability (for indemnification or otherwise) with
respect to any breach of a covenant or obligation or a representation and
warranty, other than those in Sections 5.2, 5.3, 5.11, 5.12, 5.16 or 5.22
(limited to Taxes), unless on or before the second anniversary of the Closing
Date Purchaser or Seller, as the case maybe, notify Seller or Purchaser of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known. A claim by a Purchaser Indemnified Person with respect to
Sections 5.12 or 5.16 may be made at any time prior to the fourth anniversary
of the Closing Date. A claim by a Purchaser Indemnified Person with respect to
Sections 5.11 or 5.22 (limited to Taxes) may be made at any time prior to the
expiration of the applicable statute of limitations with respect to the matters
set forth in such Sections. A claim by a Purchaser Indemnified Person with
respect to Sections 5.2 or 5.3 may be made at any time.
11.5 Limitations on Payments by Seller. Seller shall have no
liability (for indemnification or otherwise) with respect to any Damages in
respect of a breach of any of the representations and warranties set forth in
Article V hereof if the Damages in respect of such breach are less than 2,000
Irish pound sterling, and Seller shall have no liability respect to
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any such Damages until the total of all Damages exceeds 50,000 Irish pound
sterling (counting for this purpose claims with respect to which Damages are
less than 2,000 Irish pound sterling), but Seller shall then be liable for the
total amount of such Damages; provided, however, that Seller shall not be
liable for any amount of such Damages in excess of 15,500,000 Irish pound
sterling, excluding for this purpose any amount of such Damages arising from
claims of third parties. However, the limitations set forth in this Section
11.5 shall not apply to any breach of such representations and warranties of
which any Seller had knowledge at any time prior to the date on which such
representation and warranty was made and Seller shall be jointly and severally
liable for all Damages with respect to such breaches.
11.6 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by a person entitled to
indemnification hereunder (an "Indemnified Person") of notice of the
commencement of any proceeding against it, such Indemnified Person shall,
if a claim is to be made against a person or persons obligated to
indemnify such Indemnified Person hereunder (the "Indemnifying
Person(s)"), give notice to the Indemnifying Person(s) of the
commencement of such proceeding, but the failure to notify the
Indemnifying Person(s) will not relieve the Indemnifying Person(s) of any
liability that it (they) may have to such Indemnified Person(s), except
to the extent that the Indemnifying Person demonstrates that the defense
of such proceeding is prejudiced by such Indemnifying Person's failure to
give such notice.
(b) If any proceeding referred to in Section 11.6(b) is brought
against an Indemnified Person and it gives notice to the Indemnifying
Person(s) of the commencement of such proceeding, the Indemnifying
Person(s) will, unless the claim involves Taxes, be entitled to
participate in (but not control) such proceeding at the expense of the
Indemnifying Person(s); provided, however, that such Indemnified Person
will have the right to control the defense and any settlement of such
proceeding unless the Indemnified Person requests in writing that the
Indemnifying Person(s) assume such defense. If the Indemnifying
Person(s) assumes such defense, it (or they) will do so with counsel
satisfactory to such Indemnified Person and it (or they) will not, from
and after receipt of the notice of such Indemnified Person's approval of
counsel selected by the Indemnifying Person(s), as long as they
diligently conduct such defense, be liable to such Indemnified Person for
any fees of other counsel or any other expenses with respect to the
defense of such proceeding, in each case subsequently incurred by such
Indemnified Person in connection with the defense of such proceeding,
other than reasonable costs of investigation. If the Indemnifying
Person(s) assume the defense of a proceeding, (i) it will be conclusively
established for purposes of this Agreement that the claims made in that
proceeding are within the scope of and subject to indemnification by the
Indemnifying Person(s); (ii) no compromise or settlement of such claims
may be effected by the Indemnifying Person(s) without such Indemnified
Person's consent unless (A) there is no finding or admission of any
violation of any applicable statute, rule, regulation, permit issued by
any governmental authority or Order or any violation of the rights of any
person and no effect on any other claims that may be made against the
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Indemnified Person, and (B) the sole relief provided is monetary damages
that are paid in full by the Indemnifying Person(s); and (iii) such
Indemnified Person will have no liability with respect to any compromise
or settlement of such claims effected without its consent. The
Indemnifying Person(s) shall in all events cooperate with such
Indemnified Person in the defense of such proceedings.
(c) Each Indemnifying Person hereby consents to the non-exclusive
jurisdiction of any court in which a proceeding is brought against any
Indemnified Person for purposes of any claim that such Indemnified Person
may have against such Indemnifying Person under this Agreement with
respect to such proceeding or the matters alleged therein, and agree that
process may be served on such Indemnifying Person with respect to such a
claim anywhere in the world.
11.7 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third party claim may be
asserted by written notice to the Indemnifying Person(s).
ARTICLE XII
Post Closing Covenants
12.1. Restrictions on Transfer of Purchase Price Shares. Seller
covenants that, in addition to any restrictions on the transfer of the Purchase
Price Shares imposed by applicable law, Seller shall not sell, transfer,
encumber or otherwise dispose of any Purchase Price Shares prior to the date
that is twelve months after the Closing Date. During the period beginning on
such date and ending on the second anniversary of the Closing Date, Seller
covenants that it shall not sell, transfer, encumber or otherwise dispose of an
aggregate number of Purchase Price Shares greater than one half of the Purchase
Price Shares delivered to it by Purchaser. The foregoing restrictions shall
terminate on the second anniversary of the Closing Date.
12.2 Manufacture of Veterinary Tablets; Price of Human Products
with Veterinary Applications. Purchaser covenants that it shall cause the
Company to continue to manufacture for Cross Vetpharm the veterinary tablets
which the Company currently is manufacturing for Cross Vetpharm for a period of
six months after the Closing Date to the extent that orders for such tablets
are placed by Cross Vetpharm with the Company; provided, however, that the
Company shall not be required to manufacture a greater volume of such tablets
than can reasonably be produced using existing machinery. Cross Vetpharm shall
pay the Company for the manufacture of such tablets, within 60 days after such
amounts are billed by the Company to Cross Vetpharm from time to time, an
amount equal to the higher of (a) the price currently paid by Cross Vetpharm;
or (b) the Company's direct and indirect manufacturing costs.
Purchaser shall cause the Company, for a period of at least
eighteen months after the Closing Date, to sell to Cross Vetpharm, such
veterinary versions of human antibiotic tablets (i.e. products that are labeled
for veterinary uses), as are ordered by Cross Vetpharm for a price no higher
than the lowest price at which the human
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products are sold to the Company's other customers provided that (a) the
foregoing agreement regarding price is subject to the condition that the cost
to the Company of producing veterinary versions of such human products does not
exceed the cost to the Company of producing the human products; and (b) the
aggregate amount of such tablets which the Company shall be required to sell to
Cross Vetpharm shall be 10 million. The Company shall have the right to cease
selling such tablets to Cross Vetpharm provided that (a) it gives not less than
twelve months prior written notice to Cross Vetpharm of such cessation; and (b)
it shall not have the right to provide such written notice to Corr Vetpharm
prior to then end of the first six months after the Closing Date.
12.3 Sharing of Personnel. Seller covenants that it shall
continue to provide to the Company after the Closing Date the services of a
secretary on a half time basis for such period as such services are requested
by the Company; provided, however, that Seller shall not be required to provide
such services for any period longer than three years after the Closing Date.
12.4 Board Representation. Purchaser covenants that it shall use
its best efforts to cause Mr. Daniel Tierney to be elected to the Board of
Directors of Purchaser as promptly as practicable after the Closing Date and to
continue to cause him to be elected to such Board for so long us Seller owns
not less than 400,000 Purchase Price Shares; provided, however, that (a) Seller
recognizes that Purchaser has no ability to cause such election to occur given
that the decision to vote for Mr. Tierney's election shall be made by the
shareholders of Purchaser; and (b) Mr. Tierney shall not be entitled to receive
compensation for serving on the Board of Directors of Purchaser.
12.5 Transfer of Pension Assets. Schedule 9 to the Ethical Share
Purchase Agreement, which is attached as Annex VIII hereto, shall be applied by
Seller and Purchaser in connection with the transfer of assets relating to the
pension benefits of the Company's employees who participate in the Cross
Vetpharm Group Limited Pension Fund to a new pension fund to be established by
the Company after the Closing Date. Notwithstanding the provisions of the
first sentence of paragraph 5.1 of Schedule 9, Seller shall procure that such
transfer of assets to such new pension fund is effected.
ARTICLE XIII
Miscellaneous
13.1 Notices. All notices, requests, demands and other
communications required or permitted by this Agreement shall be in writing and
(a) delivered by messenger; (b) transmitted by telecopier; or (c) delivered by
a reputable international courier service, with courier charges paid or payable
by the sender. All such notices and other communications shall be addressed as
follows to the respective parties set forth below or to such other address as
any such party may hereafter specify in writing:
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If to Purchaser, to Fuisz Technologies Ltd.
3810 Concorde Parkway-Suite 100
Chantilly, VA 22021
USA
Attention: Kenneth McVey
If to Seller, to The Cross Group
Suite C
Regal House
Queensway
Gibraltar
13.2 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with the State of New York, without regard
to the conflicts of laws principles thereof.
13.3 Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
13.4 Investigation of the Parties. All representations and
warranties contained herein which are made to the best knowledge of a party
shall require that such party make reasonable investigation and inquiry with
respect thereto to ascertain the correctness thereof.
13.5 Payment of Expenses. Purchaser, on the one hand, and the
Seller, on the other hand, shall pay all fees and expenses (including, without
limitation, legal fees and expenses) incurred by them in connection with the
transactions contemplated hereunder. In no event shall any of the fees or
expenses incurred by any of the Seller in connection with this transaction,
including, without limitation, the fees and expenses of counsel to Seller, be
billed to or paid by the Company. Purchaser shall be responsible for the
payment of the stamp duty arising from the sale of the Shares to Purchaser.
13.6 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the transactions contemplated
hereby shall be issued, if at all, at such time and in such manner as Purchaser
determines in consultation with Seller. Unless consented to by Purchaser in
advance or required by any applicable statute, rule or regulation, prior to the
Closing, Seller shall, and shall cause the Group Companies to, keep this
Agreement strictly confidential and may not make any disclosure of this
Agreement to any person. Seller and Purchaser will consult with each other
concerning the means by which the Group Companies' employees, customers and
suppliers and others having dealings with the Group Companies will be informed
of the transactions contemplated hereby, and Purchaser shall have the right to
be present for any such communication.
13.7 Confidentiality.
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(a) Between the date of this Agreement and the Closing Date,
Purchaser and Seller will maintain in confidence, and will cause the
directors, officers, employees, agents and advisors of Purchaser, Seller
and the Group Companies to maintain in confidence, any written, oral or
other information obtained in confidence from another party or any Group
Company in connection with this Agreement or the transactions
contemplated hereby, unless (i) such information is already known to such
party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party;
(ii) the use of such information is necessary or appropriate in making
any filing or obtaining any consent or approval required for the
consummation of the transactions contemplated hereby; or (iii) the
furnishing or use of such information is required by any applicable
statute, rule, regulation, Order or legal process.
(b) If the transactions contemplated hereby are not consummated,
each party will return or destroy as much of such written information as
the other party may reasonably request. Whether or not the Closing takes
place, Seller, on the one hand, waives, and upon Purchaser's request
shall cause the Group Companies to waive, and Purchaser, on the other
hand, waives any cause of action, right or claim arising out of the
access of Purchaser or its representatives or Seller or its
representatives, as the case may be, to any trade secrets or other
confidential information of the Group Companies or Purchaser or any of
its subsidiaries, as the case may be, except to the extent of any
intentional competitive misuse by Purchaser or Seller, as the case may
be, of such trade secrets or confidential information.
13.8 Further Assurances. The parties agree (a) to furnish upon request
to each other such further information; (b) to execute and deliver to each
other such other documents; and (c) to do such other acts and things, all as
the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
13.9 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of any such right, power
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out
of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; and (b) no
waiver that may be given by a party will be applicable except in the specific
instance for which it is given
13.10 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of
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the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
13.11 Assignments, Successors and No Third Party Rights. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties except that Purchaser may assign its rights and delegate its
obligations under this Agreement to any Affiliate of Purchaser. Subject to the
preceding sentence, this Agreement shall apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement shall be construed
to give any person other than the parties to this Agreement any legal or
equitable right, remedy or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns.
13.12 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions
of this Agreement shall remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part shall remain in full force
and effect to the extent not held invalid or unenforceable.
13.13 Section Headings. The headings of Articles and Sections in this
Agreement are provided for convenience only and shall not affect its
construction or interpretation.
13.14 Jurisdiction. Each of Purchaser and Seller irrevocably (a) agrees
that the courts of Bermuda shall have jurisdiction to hear and determine any
suit, action or proceeding, and to settle any disputes, which may arise out of
or in connection with this Agreement, and, for such purpose, irrevocably
submits to the jurisdiction of such courts; (b) irrevocably waives any
objection which it might now or hereafter have to the courts of Bermuda being
nominated as the forum to hear and determine any action or proceeding, and to
settle any disputes, which may arise out of or in connection with this
Agreement and agrees not to claim that any such court is not a convenient or
appropriate forum; and (c) agrees that the process by which any suit, action or
proceeding is begun may be served on it by being delivered to the address for
notices set forth in Section 13.1 hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the date first above written.
FUISZ TECHNOLOGIES LTD.
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By: /s/ KENNETH W. MCVEY
-------------------------------------
Name: Kenneth W. McVey
Title: President And CEO
THE CROSS GROUP
By: /s/ DANIEL TIERNEY
-------------------------------------
Name: Daniel Tierney
Title: Chairman
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<PAGE> 1
Exhibit 10.18
AMENDMENTS TO THE
1994 DIRECTOR STOCK OPTION PLAN
1994 EMPLOYEE STOCK PURCHASE PLAN
AND
1994 STOCK INCENTIVE PLAN
OF
FUISZ TECHNOLOGIES LTD.
The following resolutions were adopted by the Board of Directors of
Fuisz Technologies Ltd. (the "Company") and approved by the Company's
stockholders at the Annual Meeting of Stockholders held on August 4, 1997:
Resolution I:
RESOLVED, that each of the Company's 1994 Director Stock Option Plan,
1994 Employee Stock Purchase Plan and 1994 Stock Incentive Plan be, and hereby
is, amended to provide that up to 4,900,000 shares of Common Stock be available
for issuance in the aggregate under those plans together with the Company's
1991 Stock Option Plan and that the 1994 Director Stock Option Plan be and
hereby is further amended by multiplying the number of shares set forth in
clauses (i) and (ii) of paragraph 5(a) by 3 (to 30,000 and 3,000, respectively)
to reflect the three-for-two stock split adopted by the Board of Directors on
March 22, 1996 and effective as of April 16, 1996.
Resolution II:
NOW, THEREFORE, BE IT RESOLVED, that Section 6(a)(i) of the [1994
Stock Incentive] Plan is hereby amended by adding to the end of the first
sentence the following provision:
"provided, however, that in no event shall any person eligible to
receive options hereunder be granted options to purchase in excess of
an aggregate of 400,000 share of Common Stock during any calendar
year."
<PAGE> 1
Exhibit 10.19
DEED OF LEASE AGREEMENT
THIS DEED OF LEASE AGREEMENT (hereinafter referred to as "Lease"),
made this 30th day of January 1998, by and between Shaw Road Business Park,
L.L.C., a limited liability company organized and existing under the laws of
Virginia, (hereinafter referred to as the "Landlord") and, Fuisz Technologies
Properties, Inc., a Corporation organized and existing under the laws of
Delaware, (hereinafter referred to as the "Tenant").
WITNESSETH, THAT FOR AND IN CONSIDERATION of the mutual entry into
this Lease by the parties hereto, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged by
each party hereto, the Landlord hereby leases to the Tenant and the Tenant
hereby leases from the Landlord all of that real property, situated and lying
in Loudoun County, Virginia, which consists of the space (containing 16,909
square feet of floor area) outlined in Exhibit A attached hereto and made a
part hereof (hereinafter referred to as the "Premises") and located in a
building (hereinafter referred to as the "Building") at 22960 Shaw Road, Suite
B123, Sterling, Virginia, 20166, (the Premises, the remainder of the Building,
such tract of land, other buildings thereon, and any other buildings or
improvements to be constructed thereon being hereinafter referred to
collectively as the "Property").
SUBJECT TO THE OPERATION AND EFFECT of any and all instruments and
matters of record or in fact.
UPON THE TERMS AND SUBJECT TO THE CONDITIONS which are hereinafter set
forth:
SECTION 1. TERM.
1.1. LENGTH. This Lease shall be for a term (hereinafter referred to
as the "Term") (a) commencing on (1) (herein-after referred to as the
"Commencement Date", except that if the date of such commencement is hereafter
advanced or postponed by written agreement of the parties hereto, the date to
which it is advanced or postponed shall thereafter be the "Commencement Date"),
and (b) terminating at 12:01 A.M., local time, on (2) (hereinafter referred to
as the "Termination Date", except that if the date of such termination is
hereafter advanced or postponed pursuant to any provision of this Lease, or by
written agreement of the parties hereto, the date to which it is advanced or
postponed shall thereafter be the Termination Date).
1.2. NEW CONSTRUCTION.
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(1) JANUARY 01, 1999
(2) DECEMBER 31, 2002
- 1 -
<PAGE> 2
Taking of possession by Tenant shall be deemed conclusively to establish that
said buildings and other improvements have been completed in accordance with
the plans and specifications and that the Premises are in good and satisfactory
condition, as of when possession was so taken. Tenant acknowledges that no
representations as to the repair of the Premises have been made by Landlord,
unless such are expressly set forth in this Lease. After such "Commencement
Date" Tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises. In the event of any dispute as to
substantial completion or work performed or required to be performed by
Landlord, the certificate of Landlord's architect or general contractor shall
be conclusive.(3)
1.3. SURRENDER. The Tenant shall at its expense, at the expiration
of the Term or upon any earlier termination of this Lease, (a) promptly
surrender to the Landlord possession of the Premises (including any fixtures or
other improvements which, under the provisions of Section 5, are owned by the
Landlord) in good order and repair (ordinary wear and tear excepted) and broom
clean, (b) remove therefrom the Tenant's signs, goods and effects and any
machinery, trade fixtures and equipment used in conducting the Tenant's trade
or business and not owned by the Landlord, and (c) repair any damage to the
Premises or the Building caused by such removal.
1.4 HOLDING OVER.
1.4.1. If the Tenant continues to occupy the Premises after
the expiration of the Term or any earlier termination of this Lease after
obtaining the Landlord's express, written consent thereto,
(a) such occupancy shall (unless the parties hereto
otherwise agree in writing) be deemed to be under a month-to-month tenancy,
which shall continue until either party hereto notifies the other in writing,
by at least thirty (30) days before the end of any calendar month, that the
notifying party elects to terminate such tenancy at the end of such calendar
month, in which event such tenancy shall so terminate;
(b) anything contained in the foregoing provisions of
this Section to the contrary notwithstanding, the rental payable for each such
monthly period shall equal one-twelfth (1/12) of the Base Rent and the
Additional Rent payable under the provisions of subsection 2.2 (calculated in
accordance with such provisions of subsection 2.2 as if this Lease had been
renewed for a period of twelve (12) full calendar months after such expiration
or earlier termination of the Term or such renewal); and
(c) such month-to-month tenancy shall be upon the
same terms and subject to the same conditions as those set forth in the
provisions of this Lease; provided, that if the Landlord gives the Tenant, by
at least thirty (30) days before the end of any calendar month during such
month-to-month tenancy, written notice that such terms and conditions
(including any thereof relating to the amount or payment of Rent) shall, after
such month, be modified in any manner specified in such notice, then such
tenancy shall, after such month, be upon the said terms and subject to the said
conditions, as so modified.
1.4.2. If the Tenant continues to occupy the Premises after
the expiration of the Term or any earlier termination of this Lease without
obtaining the Landlord's express, written consent thereto, such occupancy shall
be on the same terms and subject to the same conditions as those set forth in
the provisions of paragraph 1.4.1., except that, anything contained in the
provisions of this Lease to the contrary notwithstanding, (a) the rental
payable during the period of such occupancy shall equal (4) of the (5) which
would be payable during such period
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(3) UPON THE COMMENCEMENT DATE, AS SPECIFIED IN SECTION 1.1
ABOVE, TENANT WILL SIGN A COMMENCEMENT LETTER SPECIFYING ITS
ACCEPTANCE OF THE PREMISES.
(4) ONE HUNDRED SEVENTY FIVE PERCENT (175%)
(5) BASE RENT, PLUS ALL ADDITIONAL RENT
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<PAGE> 3
under the provisions of subparagraph 1.4.1.(b), had the Tenant obtained the
Landlord's express, written consent to such occupancy, as aforesaid, and (b)
nothing in the provisions of paragraph 1.4.1. or any other provision of this
Lease shall be deemed in any way to alter or impair the Landlord's right
immediately to evict the Tenant or exercise its other rights and remedies under
the provisions of this Lease or applicable law on account of the Tenant's
occupancy of the Premises without having obtained such consent.
SECTION 2. RENT
2.1. AMOUNT. As rent for the Premises (all of which is hereinafter
referred to collectively as "Rent"), the Tenant shall pay to the Landlord in
advance, without demand, deduction or set off, for the entire Term hereof, all
of the following:
2.1.1. Base Rent. An annual rent in the amounts specified
in Exhibit D.
2.1.2. Additional Rent. Additional rent (hereinafter
referred to as "Additional Rent") in the amount of any payment referred to as
such in any provision of this Lease which accrues while this Lease is in
effect.
2.1.3. Lease Year. As used in the provisions of this Lease,
the term "Lease Year" means (a) the period commencing on the Commencement Date
and terminating on the first (1st) anniversary of (6) the Commencement Date,
and (b) each successive period of twelve (12) calendar months thereafter during
the Term.
2.2. ANNUAL OPERATING COSTS.
2.2.1. Taxes.
(a) Tenant agrees to pay before they become
delinquent all taxes, assessments and governmental charges of any kind and
nature whatsoever (hereinafter referred to as "Taxes") lawfully levied or
assessed against the Building and the grounds, parking areas, driveways and
alleys around the Building. Tenant shall furnish to Landlord, not later than
twenty (20) days before the date any such Taxes become delinquent, official
receipts of the appropriate taxing authority or other evidence satisfactory to
Landlord evidencing payment thereof. If Tenant should fail to pay any Taxes,
assessments or governmental charges required to be paid by Tenant hereunder, in
addition to any other remedies provided herein, Landlord may, if it so elects,
pay such Taxes, assessments and governmental charges. Any sums so paid by
Landlord shall be deemed to be Additional Rent owing by Tenant to Landlord and
due and payable on demand by Landlord, together with interest thereon at the
rate of twelve percent (12%) per annum from the date paid by Landlord to the
date of repayment by Tenant.
(b) In the event the Premises constitute a portion
of a multiple occupancy building, in lieu of Tenant paying the Taxes as
provided above, Landlord agrees to pay, before they become delinquent, all
Taxes lawfully levied or assessed against such Building and the grounds,
parking areas, driveways and alleys around the Building, and Tenant agrees to
pay to Landlord, as Additional Rent, upon demand, the amount of Tenant's
proportionate share of such Taxes paid by Landlord. Tenant's proportionate
share means the percentage assigned to the Premises for purposes of allocating
Taxes as set forth herein and other Annual Operating Costs as set forth in
Subsection 2.2.2 below and represents the approximate and (for purposes of this
Lease) hereby agreed upon proportion which the floor area of the Premises bears
to the aggregate net rentable space within the Building and the Property shall
be twenty nine and 45/100 percent (29.45%) of the Building and eleven and
10/100 percent (11.10%) of the Property.(7)
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(6) THE DAY PRECEDING THE
(7) TENANT SHALL PAY BOTH TAXES AND ANNUAL OPERATING COSTS IN
MONTHLY INSTALLMENTS WITH AN ANNUAL RECONCILIATION.
- 3 -
<PAGE> 4
2.2.2. Maintenance.
(a) Maintenance by Tenant. Tenant shall, at its own
cost and expense, keep and maintain all parts of the Premises in good
condition, promptly making all necessary repairs and replacements, interior
and exterior, and non-structural, ordinary and extraordinary, including but
not limited to, windows, glass and plate glass, doors and office entry(s),
walls and finish work, floors and floor covering, roof, foundation, down
spouts, gutters, heating and air conditioning systems, electrical systems, dock
boards, truck doors, dock bumpers, paving, plumbing work and fixtures, termite
and pest extermination, regular removal of trash and debris, snow removal,
regular mowing of any grass, trimming, weed removal and general landscape
maintenance, keeping the parking areas, driveways, alleys and the whole of the
Premises in a clean and sanitary condition. Tenant shall at its own cost and
expense repaint exterior overhead doors canopies, entries, handrails, gutters,
and other exposed parts of the Building which reasonably require periodic
repainting to prevent deterioration or to maintain aesthetic standards. The
cost of maintenance and repair of any common party wall (any wall, divider,
partition or any other structure separating the premises from any adjacent
premises occupied by other tenants) shall be shared equally by Tenant and the
tenant occupying adjacent premises. Tenant shall not damage any party wall or
disturb the integrity and support provided by any party wall and shall, at its
sole cost and expense, promptly repair any damage or injury to any party wall
caused by Tenant or its employees, agents or invitees.
(b) Maintenance by Landlord. In the event the
Premises constitute a portion of a multiple occupancy building, Tenant and its
employees, customers and licensees shall have the non-exclusive right to use
the parking areas, if any, as may be designated by Landlord in writing, subject
to such reasonable rules and regulations as Landlord may from time to time
prescribe. Further, in multiple occupancy buildings, Landlord shall perform
the roof, paving, and landscape maintenance, exterior painting, (8) and common
sewage line plumbing which are otherwise Tenant's obligations under Subsection
2.2.2(a) above, and Tenant shall, in lieu of the obligations set forth under
Subsection 2.2.2(a) above with respect to such items, be liable for its
proportionate share (as defined in Subsection 2.2.1(b) above) of the cost and
expense of Building maintenance and the care for the grounds around the
Building, including but not limited to, the mowing of grass, care of shrubs,
general landscaping, maintenance of parking areas, driveways and alleys, roof
maintenance, exterior repainting and common sewage line plumbing; (9) and
further provided that if Tenant or any other particular tenant of the Building
can be clearly identified as being responsible for obstruction or stoppage of
the common sanitary sewage line then Tenant, if Tenant is responsible, or such
other responsible tenant, shall pay the entire cost thereof, upon demand, as
Additional Rent. Tenant shall pay when due its share, determined as aforesaid,
of such costs and expenses along with the other tenants of the Building to
Landlord upon demand, as Additional Rent, for the amount of its share of such
costs and expenses in the event Landlord elects to perform or cause to be
performed such work. Such share shall include a management fee equal to (10)
of the Rent for each Lease Year, administrative and accounting costs,.
(c) Maintenance Contract. Tenant shall, at its own
cost and expense, enter into a regularly scheduled preventative
maintenance/service contract with a maintenance contractor for servicing all
heating and air conditioning systems and equipment within the Premises and
shall provide Landlord with copies of all service reports. The maintenance
contractor and contract must be approved by Landlord. The service contract
must include all services suggested by the equipment manufacturer within the
operation/maintenance manual and must become effective (and a copy thereof
delivered to Landlord) within thirty (30) days of the date Tenant takes
possession of the Premises. Each Lease year Landlord will inspect the HVAC
system to determine that the
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(8) FOUNDATION, DOWN SPOUTS, GUTTERS
(9) SNOW REMOVAL
(10) FOUR PERCENT (4%)
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<PAGE> 5
aforementioned maintenance is being performed. If the HVAC system is not being
maintained pursuant to this Section Landlord will send notice of such lack of
maintenance to Tenant and Tenant shall thereafter have thirty (30) days to
perform the necessary maintenance. Failure by Tenant to complete the necessary
maintenance in such thirty (30) day period shall be a material Event of Default
and Landlord shall have the right to cure such Event of Default pursuant to
Section 13. Should the inspection demonstrate a lack of maintenance of the
HVAC system, Tenant shall pay for the cost of such inspection. Thirty days
before Tenant vacates the Premises, Landlord will have the HVAC equipment
inspected by a qualified HVAC mechanic at Landlord's expense. If in the
opinion of the HVAC mechanic, the equipment has not been properly maintained,
then Landlord may authorize necessary repairs to be made to the system. Such
repairs will be deducted from the Tenant's security deposit. Tenant shall
reimburse Landlord for any and all costs associated with such repairs which
exceed the amount of any security deposit. The remainder of the security
deposit, if any, shall be refunded to Tenant in accordance with the terms of
the Lease.
2.2.3. Computation. After the end of each calendar year
during the Term, the Landlord shall compute the total of the Annual Operating
Costs incurred for all of the Property during such calendar year, and shall
allocate them to the net rentable space within the Property in proportion to
the respective operating costs percentages assigned to such spaces; provided,
that anything contained in the foregoing provisions of this subsection 2.2 to
the contrary notwithstanding, wherever the Tenant and/or any other tenant of
space within the Property has agreed in its lease or otherwise to provide any
item of such services partially or entirely at its own expense, or wherever in
the Landlord's (11) judgment any such significant item of expense is not
incurred with respect to or for the benefit of all of the net rentable space
within the Property, in allocating the Annual Operating Costs pursuant to the
foregoing provisions of this subsection the Landlord shall make an appropriate
adjustment, using generally accepted accounting principles, as aforesaid, so as
to avoid allocating to the Tenant or to such other tenant (as the case may be)
those Annual Operating Costs covering such services already being provided by
the Tenant or by such other tenant at its own expense, or to avoid allocating
to all of the net rentable space within the Property those Annual Operating
Costs incurred only with respect to a portion thereof, as aforesaid.
2.2.4. Payment as Additional Rent. The Tenant shall, within
fifteen (15) days after demand therefor by the Landlord (with respect to each
calendar year during the Term), accompanied by a statement setting forth in
reasonable detail the Annual Operating Costs for such calendar year, pay to the
Landlord as Additional Rent the amount of the Tenant's operating costs
percentage of the Annual Operating Costs for such calendar year (as derived and
allocated under the provisions of paragraph 2.2.3).
2.2.5. Proration. If only part of any calendar year falls
within the Term, the amount computed as Additional Rent for such calendar year
under the foregoing provisions of this subsection shall be prorated in
proportion to the portion of such calendar year falling within the Term (but
the expiration of the Term before the end of a calendar year shall not impair
the Tenant's obligation hereunder to pay such prorated portion of such
Additional Rent for that portion of such calendar year falling within the Term,
which shall be paid on demand, as aforesaid).
2.2.6. Landlord's right to estimate. Anything contained
in the foregoing provisions of this subsection to the contrary notwithstanding,
the Landlord may, at its discretion, (a) make from time to time during the Term
a reasonable estimate of the Additional Rent which may become due under such
provisions for any calendar year, (b) require the Tenant to pay to the Landlord
for each calendar month during such year one twelfth (1/12) of such Additional
Rent, at the time and in the manner that the Tenant is required hereunder to
pay the monthly installment of the Base Rent for such month, and (c) at the
Landlord's reasonable discretion, increase or decrease from time to time during
such calendar year the amount initially so estimated for such calendar year,
all by giving the Tenant written notice thereof, accompanied by a schedule
setting forth in reasonable detail the expenses comprising the (12) Annual
Operating Costs, as so estimated. In such event, the Landlord
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(11) REASONABLE
(12) TAXES AND
- 5 -
<PAGE> 6
shall cause the actual amount of such Additional Rent to be computed and
certified to the Tenant within 120 days after the end of such calendar year,
and the Tenant or the Landlord, as the case may be, shall promptly thereafter
pay to the other the amount of any deficiency or overpayment therein, as the
case may be.(13)
2.3. WHEN DUE AND PAYABLE.
2.3.1. The Base Rent for any Lease Year shall be due and
payable in twelve (12) consecutive, equal monthly installments, in advance, on
the first (1st) day of each calendar month during such Lease Year; provided,
that the first monthly installment of the Base Rent will be due and payable
upon lease execution.
2.3.2. Any Additional Rent accruing to the Landlord under
any provision of this Lease shall, except as is otherwise set forth herein, be
due and payable when the installment of the Base Rent next falling due after
such Additional Rent accrues and becomes due and payable, unless the Landlord
makes written demand upon the Tenant for payment thereof at any earlier time,
in which event such Additional Rent shall be due and payable at such time.
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(13) AUDIT. IF TENANT DISPUTES THE AMOUNT OF ANNUAL OPERATING
COSTS BILLED TO TENANT, LANDLORD AND TENANT SHALL ATTEMPT, IN GOOD FAITH, TO
RESOLVE THE AMOUNT IN QUESTION. IF NO RESOLUTION IS OBTAINED WITHIN A
REASONABLE PERIOD OF TIME, TENANT SHALL, WITHIN NINETY (90) DAYS OF THE
RECEIPT OF THE STATEMENT, HAVE THE RIGHT TO ENGAGE ITS OWN ACCOUNTANTS
("TENANT'S ACCOUNTANTS") TO AUDIT THE LEASE YEAR TO WHICH THE STATEMENT
PERTAINS FOR THE PURPOSE OF VERIFYING THE ACCURACY OF THE STATEMENT IN DISPUTE,
OR THE REASONABLENESS OF THE ADJUSTMENT OR ESTIMATED INCREASE OR DECREASE.
SUCH AUDIT MUST BE COMPLETED WITHIN THE FOREGOING NINETY (90) DAY PERIOD.
IF TENANT'S ACCOUNTANTS DETERMINE THAT AN ERROR HAS BEEN MADE, LANDLORD AND
TENANT'S ACCOUNTANTS SHALL ENDEAVOR TO AGREE UPON THE MATTER. IF THEY CANNOT
AGREE WITHIN TWENTY (20) DAYS FROM THE DATE TENANT'S ACCOUNTANTS COMMENCE
REVIEWING LANDLORD'S RECORDS, LANDLORD AND TENANT'S ACCOUNTANTS SHALL JOINTLY
SELECT AN INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM (THE "INDEPENDENT
ACCOUNTANT") WHICH FIRM SHALL CONCLUSIVELY DETERMINE WHETHER THE ADJUSTMENT
OR ESTIMATED INCREASE OR DECREASE IS REASONABLE, AND IF NOT, WHAT AMOUNT IS
REASONABLE. BOTH PARTIES SHALL BE BOUND BY SUCH DETERMINATION. IF TENANT'S
ACCOUNTANTS DO NOT PARTICIPATE IN CHOOSING THE INDEPENDENT ACCOUNTANT
WITHIN 20 DAYS OF DELIVERY OF NOTICE BY LANDLORD, THEN LANDLORD'S
DETERMINATION OF THE ADJUSTMENT OR ESTIMATED INCREASE OR DECREASE SHALL BE
CONCLUSIVELY DETERMINED TO BE REASONABLE AND TENANT SHALL BE BOUND THEREBY.
PAYMENT OF COSTS. ALL COSTS INCURRED BY TENANT IN OBTAINING TENANT'S
ACCOUNTANTS AND THE COST OF THE INDEPENDENT ACCOUNTANT SHALL BE PAID BY TENANT
UNLESS TENANT'S ACCOUNTANTS DISCLOSE AN ERROR, ACKNOWLEDGED BY LANDLORD (OR
FOUND TO HAVE CONCLUSIVELY OCCURRED BY THE INDEPENDENT ACCOUNTANT), OF MORE
THAN FIVE PERCENT (5%) IN THE COMPUTATION OF THE TOTAL AMOUNT OF ANNUAL
OPERATING COSTS AS SET FORTH IN THE STATEMENT SUBMITTED BY LANDLORD WITH
RESPECT TO THE MATTER IN DISPUTE; IN WHICH EVENT LANDLORD SHALL PAY THE
REASONABLE COSTS INCURRED BY TENANT IN OBTAINING SUCH AUDIT. IF SUCH ERROR IS
FIVE PERCENT (5%) OR LESS, THEN TENANT SHALL ALSO PAY THE COSTS INCURRED BY
LANDLORD IN CONNECTION WITH SUCH DISPUTE. NO SUBTENANT SHALL HAVE THE RIGHT
TO CONDUCT AN AUDIT AND NO ASSIGNEE SHALL CONDUCT AN AUDIT FOR ANY PERIOD
DURING WHICH SUCH ASSIGNEE WAS NOT IN POSSESSION OF THE PREMISES.
CONTINUATION OF PAYMENT PENDING DETERMINATION. TENANT SHALL CONTINUE TO
TIMELY PAY LANDLORD THE AMOUNT OF THE PRIOR YEAR'S ADJUSTMENT AND ADJUSTED
ANNUAL OPERATING COSTS DETERMINED TO BE INCORRECT AS AFORESAID UNTIL THE
PARTIES HAVE OCCURRED AS TO THE APPROPRIATE ADJUSTMENT OR HAVE DEEMED TO
BE BOUND BY THE DETERMINATION OF THE INDEPENDENT ACCOUNTANT IN ACCORDANCE
WITH THE PRECEDING TERMS. LANDLORD'S DELAY IN SUBMITTING ANY STATEMENT
CONTEMPLATED HEREIN FOR ANY LEASE YEAR SHALL NOT AFFECT THE PROVISIONS OF
THIS PARAGRAPH, NOR CONSTITUTE A WAIVER OF LANDLORD'S RIGHTS AS SET FORTH
HEREIN FOR SAID LEASE YEAR OR ANY SUBSEQUENT LEASE YEARS DURING THE LEASE TERM
OR ANY EXTENSIONS THEREOF.
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<PAGE> 7
2.3.3. Each such payment shall be made promptly when due,
without any deduction or set off whatsoever, and without demand, failing which
the Tenant shall pay to the Landlord as Additional Rent, a late charge equaling
(14)
2.4. WHERE PAYABLE. The Tenant shall pay the Rent, in lawful
currency of the United States of America, to the Landlord by delivering or
mailing it (postage prepaid) to the Landlord's address which is set forth in
Section 16, or to such other address or in such other manner as the Landlord
from time to time specifies by written notice to the Tenant. Any payment made
by the Tenant to the Landlord on account of Rent may be credited by the
Landlord to the payment of any Rent then past due, including late fees,
interest and penalties, before being credited to Rent currently falling due.
Any such payment which is less than the amount of Rent then due shall
constitute a payment made on account thereof, the parties hereto hereby
agreeing that the Landlord's acceptance of such payment (whether or not with or
accompanied by an endorsement or statement that such lesser amount or the
Landlord's acceptance thereof constitutes payment in full of the amount of Rent
then due) shall not alter or impair the Landlord's rights hereunder to be paid
all of such amount then due, or in any other respect.
2.5. TAX ON LEASE. If federal, state or local law now or hereafter
imposes any tax, assessment, levy or other charge (other than any income,
inheritance or estate tax) directly or indirectly upon (a) the Landlord with
respect to this Lease or the value thereof, (b) the Tenant's use or occupancy
of the Premises, (c) the Base Rent, Additional Rent or any other sum payable
under this Lease, or (d) this transaction, then (except if and to the extent
that such tax, assessment, levy or other charge is included in the Annual
Operating Costs) the Tenant shall pay the amount thereof as Additional Rent to
the Landlord upon demand, unless the Tenant is prohibited by law from doing so,
in which event the Landlord may, at its election, terminate this Lease by
giving written notice thereof to the Tenant.
2.6. SECURITY DEPOSIT.
2.6.1. Simultaneously with the entry into this Lease by the
parties hereto, the Tenant shall deposit with the Landlord the sum of Twelve
Thousand Six Hundred Eighty One and 75/100 Dollars ($12,681.75), which shall be
retained by the Landlord as security for the Tenant's payment of the Rent and
performance of all of its other obligations under the provisions of this Lease.
2.6.2. On the occurrence of an Event of Default, the
Landlord shall be entitled, at its sole discretion,
(a) to apply any or all of such sum in payment of (i)
any Rent then due and unpaid, (ii) any expense incurred by the Landlord in
curing any such Event of Default, and/or (iii) any damages incurred by the
Landlord by reason of such Event of Default (including, by way of example
rather than of limitation, that of reasonable attorneys' fees); and/or
(b) to retain any or all of such sum to reimburse
for any or all damages suffered by the Landlord by reason of SUCH EVENT OF
DEFAULT. If at any time Landlord draws upon the security deposit in accordance
with this section Tenant upon demand agrees to immediately pay to Landlord an
amount sufficient to return the security deposit to the amount stated above.
2.6.3. On the termination of this Lease, any of such sum
which is not so applied or retained shall be returned to the Tenant within
forty-five (45) days of the Lease termination date.
2.6.4. Such sum shall not bear interest while being held by
the Landlord hereunder.
2.6.5. No Mortgagee (as that term is defined by the
provisions of Section 12) or purchaser of any or all of the Property at any
foreclosure proceeding brought under the provisions
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(14) FIVE PERCENT (5%) FOR THE FIRST TWO (2) OCCURRENCES IN
A YEAR, AND TEN PERCENT (10%) FOR ANY OCCURRENCES
THEREAFTER.
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<PAGE> 8
of any Mortgage (as that term is defined by the provisions of Section 12) shall
(regardless of whether the Lease is at the time in question subordinate to the
lien of any Mortgage under the provisions of Section 12 or otherwise) be liable
to the Tenant or any other person for any or all of such sum (or any other or
additional security deposit or other payment made by the Tenant under the
provisions of this Lease), unless both (a) the Landlord has actually delivered
it in cash to such Mortgagee or purchaser, as the case may be, and (b) it has
been specifically identified, and accepted by the Lender or such purchaser, as
the case may be, as such and for such purpose, then Landlord will have no
further liability for return of the security deposit.
SECTION 3. USE OF PREMISES.
3.1. The Tenant shall, continuously throughout the Term occupy and
use the Premises for and only for (a) general office(15)
3.2. In its use of the Premises and the remainder of the Property,
the Tenant shall not violate any applicable law, ordinance or regulation.
3.3. LICENSE.
3.3.1 The Landlord hereby grants to the Tenant a
non-exclusive license to use (and to permit its officers, directors, agents,
employees and invitees to use in the course of conducting business at the
Premises),
(a) any and all portions of the said tract of land
on which the Building is located (excluding that portion thereof which is
improved by any other building) which, by their nature, are manifestly designed
and intended for common use by the occupants of the Building and of any other
improvements on such tract, for pedestrian ingress and egress to and from the
Premises and for any other such manifest purposes; and
(b) any and all portions of such tract of land as
from time to time are designated (by striping or otherwise) by the Landlord for
such purpose, for the parking of automobiles.
3.3.2. Such license shall be exercised in common with the
exercise thereof by the Landlord, any tenant or owner of the building or any
other building located on such tract, and their respective officers, directors,
agents, employees and invitees, and in accordance with the Rules and
Regulations promulgated from time to time pursuant to the provisions of Section
11.
3.4 SIGNS. The Tenant shall have the right to erect from time to
time within the Premises such signs as it desires, in accordance with
applicable law, except that the Tenant shall not erect any sign within the
Premises in any place where such sign is visible from the exterior of the
Premises, unless the Landlord has given its express, written consent thereto.
3.5 RELOCATION OF TENANT.
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(15) AND DISTRIBUTION, (b) DELIVERY AND STORAGE OF FOOD
PRODUCTION EQUIPMENT AND MATERIALS, WHICH MAY INCLUDE THE STORAGE OF FLAVOR
OILS, WHICH MAY BE CONSIDERED TO BE FLAMMABLE MATERIALS, BUT WHICH WILL BE
STORED IN SUCH A MANNER AS TO MINIMIZE THE POTENTIAL OF ANY FIRE HAZARD FROM
SUCH MATERIALS AND WILL BE STORED IN COMPLIANCE WITH ALL LAWS, ORDINANCES
AND REGULATIONS PERTAINING TO THE STORAGE AND USE OF POTENTIALLY FLAMMABLE
MATERIALS, (c) FOOD PRODUCT DEVELOPMENT LABORATORY, AND (d) PRODUCTION OF
INTERMEDIATE INGREDIENTS TO BE USED BY CLIENTS IN THEIR FOOD PRODUCTS.
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<PAGE> 9
SECTION 4. INSURANCE AND INDEMNIFICATION.
4.1 INCREASE IN RISK. The Tenant
4.1.1. shall not do or permit to be done any act or thing as
a result of which either (a) any policy of insurance of any kind covering (i)
any or all of the Property or (ii) any liability of the Landlord in connection
therewith may become void or suspended, or (b) the insurance risk under any
such policy would (in the opinion of the insurer thereunder) be made greater;
and
4.1.2. shall pay as Additional Rent the amount of any
increase in any premium for such insurance resulting from any breach of such
covenant.
4.2 INSURANCE TO BE MAINTAINED BY TENANT.
4.2.1. The Tenant shall maintain at its expense, throughout
the Term, insurance against loss or liability in connection with bodily injury,
death, property damage or destruction, occurring within the Premises or arising
out of the use thereof by the Tenant or its agents, employees, officers or
invitees, visitors and guests, under one or more policies of general public
liability insurance having such limits as to each as are reasonably required by
the Landlord from time to time, but in any event of not less than a total of
Two Million Dollars ($2,000,000.00) for bodily injury to or death of all
persons or property damage or destruction in any one occurrence, and (b) Fifty
Thousand Dollars ($50,000.00) Fire Legal Liability. Each such policy shall (a)
name as the insured thereunder the Tenant and the Landlord (and, at the
Landlord's request, any Mortgagee) as additional insureds, (b) by its terms,
not be cancelable without at least thirty (30) days' prior written notice to
the Landlord (and, at the Landlord's request, any such Mortgagee), and (c) be
issued by any insurer of recognized responsibility licensed to issue such
policy in the Commonwealth of Virginia.
4.2.2. (a) At least five (5) days before the Commencement
Date, the Tenant shall deliver to the Landlord a certificate of each such
policy, and (b) at least thirty (30) days before any such policy expires, the
Tenant shall deliver to the Landlord an original or a signed duplicate copy of,
(16) a replacement policy therefor; provided, that so long as such insurance is
otherwise in accordance with the provisions of this Section, the Tenant may
carry any such insurance under a blanket policy covering the Premises for the
risks and in the minimum amounts specified in paragraph 4.2.1, in which event
the Tenant shall deliver to the Landlord two (2) insurer's certificates
therefor in lieu of an original or a copy thereof, as aforesaid.
4.3 INSURANCE TO BE MAINTAINED BY LANDLORD. The Landlord shall
maintain throughout the Term all-risk insurance upon the Building, including as
needed but not limited to Personal Property, Loss of Rents, Glass, Boiler and
Machinery, General Liability and Umbrella Liability in at least such amounts
and having at least such forms of coverage as are required from time to time
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(16) OR A CERTIFICATE EVIDENCING
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<PAGE> 10
by the Landlord's lender, (17). The cost of the premiums for such insurance
and of each endorsement thereto and of any applicable deductibles therefor
shall be deemed, for purposes of the provisions of Section 2, to be a cost of
operating and maintaining the Property.
4.4 WAIVER OF SUBROGATION. If either party hereto is paid any
proceeds under any policy of insurance naming such party as an insured, on
account of any loss, damage or liability (18), then such party hereby releases
the other party hereto, to and only to the extent of the amount of such
proceeds, from any and all liability for such loss, damage or liability,
notwithstanding that such loss, damage or liability may arise out of the
negligent or intentionally tortious act or omission of the other party, its
agents or employees; provided, that such release shall be effective only as to
a loss, damage or liability occurring while the appropriate policy of insurance
of the releasing party provides that such release shall not impair the
effectiveness of such policy or the insured's ability to recover thereunder.
Each party hereto shall use reasonable efforts to have a clause to such effect
included in its said policies, and shall promptly notify the other in writing
if such clause cannot be included in any such policy.
4.5 LIABILITY OF PARTIES. Except if and to the extent that such party
is released from liability to the other party hereto pursuant to the provision
of subsection 4.4
4.5.1. the Landlord (a) shall be responsible for, and shall
indemnify and hold harmless the Tenant against and from any and all liability
arising out of, any injury to or death of any person or damage to any property,
occurring anywhere upon the Property, if, only if and to the extent that such
injury, death or damage is proximately caused by the grossly negligent or
intentionally tortious act or omission of the Landlord or its agents, officers
or employees, but (b) shall not be responsible for or be obligated to indemnify
or hold harmless the Tenant against or from any liability for any such injury,
death or damage occurring anywhere upon the Property (including the Premises),
(i) by reason of the Tenant's occupancy or use of the Premises or any other
portion of the Property, or (ii) because of fire, windstorm, act of God or
other cause unless solely caused by such gross negligence or intentionally
tortious act or omission of the Landlord, as aforesaid; and
4.5.2. subject to the operation and effect of the foregoing
provisions of this subsection, the Tenant shall be responsible for, and shall
defend, indemnify and hold harmless the Landlord against and from, any and all
liability or claim of liability (including without limitation reasonable
attorney's fees) arising out of any injury to or death of any person or damage
to any property, occurring within the Premises, or, if caused by Tenant, its
employees, agents or invitees, on the Property.
SECTION 5. IMPROVEMENTS TO PREMISES.
5.1. BY LANDLORD.
5.1.1. The Landlord shall make the improvements to the
Premises which are set forth in the plans and specifications attached hereto as
Exhibit B.(19)
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(17) OR, IF LANDLORD HAS NO LENDER, IN SUCH AMOUNTS AS A BONA
FIDE INSTITUTIONAL LENDER CUSTOMARILY WOULD REQUIRE (WHICH,
FOR PROPERTY INSURANCE SHALL BE DEEMED TO BE THE FULL
REPLACEMENT COST OF SUCH PROPERTY).
(18) OR, IF SUCH PARTY WOULD HAVE BEEN PAID SUCH PROCEEDS HAD IT
MAINTAINED A POLICY OF INSURANCE REQUIRED HEREUNDER
(19) TENANT ACCEPTS THE PREMISES IN ITS ABSOLUTE "AS-IS" CONDITION
WITH NO FURTHER IMPROVEMENTS TO BE MADE BY THE LANDLORD. ANY
IMPROVEMENTS TO THE PREMISES SHALL BE AT THE EXPENSE OF THE
TENANT, AND MUST FIRST BE APPROVED IN WRITING BY THE LANDLORD
AND LANDLORD'S GENERAL CONTRACTOR, SUCH CONSENT SHALL NOT BE
UNREASONABLY WITHHELD OR DELAYED. FAILURE TO DENY CONSENT
WITHIN THIRTY (30) DAYS SHALL CONSTITUTE CONSENT.
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<PAGE> 11
5.2. BY TENANT. The Tenant shall not make any alteration, addition
or improvement to the Premises without first obtaining the Landlord's written
consent thereto, (20). If the Landlord consents to any such proposed
alteration, addition or improvement, it shall be made at the Tenant's sole
expense (and the Tenant shall hold the Landlord harmless from any cost incurred
on account thereof), and at such time and in such manner as not unreasonably to
interfere with the use and enjoyment of the remainder of the Property by any
tenant thereof or other person.
5.3. MECHANICS' LIEN. The Tenant shall (a) immediately after it is
filed or claimed, bond or have released any mechanics', materialman's or other
lien filed or claimed against any or all of the Premises, the Property, or any
other property owned or leased by the Landlord, by reason of labor or materials
provided for the Tenant or any of its contractors or subcontractors (other than
labor or materials provided by the Landlord pursuant to the provisions of
subsection 5.1), or otherwise arising out of the Tenant's use or occupancy of
the Premises or any other portion of the Property, and (b) defend, indemnify
and hold harmless the Landlord against and from any and all liability, claim of
liability or expense (including, by way of example rather than of limitation,
that of reasonable attorneys' fees) incurred by the Landlord on account of any
such lien or claim.
5.4. FIXTURES. Any and all improvements, repairs, alterations and
all other property attached to, used in connection with or otherwise installed
within the Premises by the Landlord or the Tenant shall, immediately on the
completion of their installation, become the Landlord's property without
payment therefor by the Landlord, except that any machinery, equipment or
fixtures installed by the Tenant and used in the conduct of the Tenant's trade
or business (rather than to service the Premises or any of the remainder of the
Building or the Property generally) shall remain the Tenant's property.
SECTION 6. UTILITIES AND SERVICES.
6.1. UTILITIES. Landlord agrees to provide at its cost water and
electricity service connections into the Premises and telephone service
connections to the Building, but Tenant shall pay for all water, gas, heat,
light, power, telephone, sewer, sprinkler charges, meter installation charges,
and other utilities and services used on or from the Premises, together with
any taxes, penalties, surcharges or the like pertaining thereto and any
maintenance charges for utilities and shall furnish all electric light bulbs
and tubes. If any such services are not separately metered to Tenant, Tenant
shall pay its proportionate share as determined by Landlord of all charges
jointly metered within the Building.
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(20) WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED.
FAILURE TO DENY CONSENT WITHIN THIRTY (30) DAYS SHALL
CONSTITUTE CONSENT.
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<PAGE> 12
6.2. INTERRUPTION. The Landlord shall have no liability to the
Tenant for any compensation or reduction of rent on account of any failure,
modification or interruption of any such service which either (a) arises out of
(21), or (b) is required by applicable law (including, by way of example rather
than of limitation, any federal law or regulation relating to the furnishing or
consumption of energy or the temperature of buildings).
SECTION 7. LANDLORD'S RIGHT OF ENTRY.
The Landlord and its agents shall be entitled to enter the Premises at
any reasonable time (a) to inspect the Premises, (b) to exhibit the Premises to
any existing or prospective purchaser, tenant or Mortgagee thereof, (c) to make
any alteration, improvement or repair to the Building or the Premises, or (d)
for any other purpose relating to the operation or maintenance of the Property;
provided that the Landlord shall (a) (unless doing so is impractical or
unreasonable because of emergency) give the Tenant at least twenty-four (24)
hours' prior notice of its intention to enter the Premises, and (b) use
reasonable efforts to avoid thereby interfering more than is reasonably
necessary with the Tenant's use and enjoyment thereof.
SECTION 8. FIRE AND OTHER CASUALTIES.
8.1. GENERAL. If the Premises are damaged by fire or other casualty
during the term,
8.1.1. the Landlord shall, with reasonable promptness
(taking into account the time required by the Landlord to effect a settlement
with, and to procure any insurance proceeds from, any insurer against such
casualty, but in any event within two hundred twenty (220) days after the date
of such casualty), substantially restore the premises to their condition
immediately before such casualty, and may temporarily enter and possess any or
all of the Premises for such purpose (provided, that the Landlord shall not be
obligated to repair, restore or replace any fixture, improvement, alteration,
furniture, or other property owned, installed or made by the Tenant), but
8.1.2. the times for commencement and completion of any such
restoration shall be extended for the period of any delay occasioned by the
Landlord in doing so arising out of .(22) If the Landlord undertakes to restore
the Premises and such restoration is not accomplished within the said period of
two hundred twenty (220) days plus the period of any extension thereof, as
aforesaid, the Tenant may terminate this Lease by giving written notice thereof
to the Landlord within thirty (30) days after the expiration of such period, as
so extended; and
8.1.3. so long as the Tenant is deprived of the use of any or
all of the Premises on account of such casualty, the Base Rent and any
Additional Rent payable under the provisions of subsection 2.2 shall be abated
in proportion to the number of square feet of the Premises rendered
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(21) (a) STRIKE, LOCK-OUT OR OTHER LABOR TROUBLES, (b)
GOVERNMENTAL RESTRICTIONS OR LIMITATIONS, (c) FAILURE OR
SHORTAGE OF ELECTRICAL POWER, GAS, WATER, FUEL OIL, OR
OTHER UTILITY OR SERVICE, (d) RIOT, WAR, INSURRECTION OR
OTHER NATIONAL OR LOCAL EMERGENCY (e) ACCIDENT, FLOOD, FIRE
OR OTHER CASUALTY, (f) ADVERSE WEATHER CONDITION, (g) OTHER
ACT OF GOD, (h) INABILITY TO OBTAIN A BUILDING PERMIT OR A
CERTIFICATE OF OCCUPANCY, OR (i) SHORTAGE OF MATERIALS OR
LABOR, OR (j) OTHER CAUSE SIMILAR OR DISSIMILAR TO ANY OF
THE FOREGOING AND BEYOND THE LANDLORD'S REASONABLE CONTROL
22 (a) STRIKE, LOCK-OUT OR OTHER LABOR TROUBLES, (b)
GOVERNMENTAL RESTRICTIONS OR LIMITATIONS, (c) FAILURE OR
SHORTAGE OF ELECTRICAL POWER, GAS, WATER, FUEL OIL, OR
OTHER UTILITY OR SERVICE, (d) RIOT, WAR, INSURRECTION OR
OTHER NATIONAL OR LOCAL EMERGENCY (e) ACCIDENT, FLOOD, FIRE
OR OTHER CASUALTY, (f) ADVERSE WEATHER CONDITION, (g) OTHER
ACT OF GOD, (h) INABILITY TO OBTAIN A BUILDING PERMIT OR A
CERTIFICATE OF OCCUPANCY, OR (i) SHORTAGE OF MATERIALS OR
LABOR, OR (j) OTHER CAUSE SIMILAR OR DISSIMILAR TO ANY OF THE
FOREGOING AND BEYOND THE LANDLORD'S REASONABLE CONTROL
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<PAGE> 13
substantially unfit for occupancy by such casualty, unless, because of any such
damage, the undamaged portion of the Premises is made materially unsuitable for
use by the Tenant for the purposes set forth in the provisions of Section 3, in
which event the Base Rent and any such Additional Rent shall be abated entirely
during such period of deprivation.
8.2. SUBSTANTIAL DESTRUCTION. Anything contained in the foregoing
provisions of this Section to the contrary notwithstanding,
8.2.1. if during the Term the Building is so damaged by fire
or other casualty that (a) either the Premises or (whether or not the Premises
are damaged) the Building is rendered substantially unfit for occupancy, as
reasonably determined by the Landlord, or (b) the Building is damaged to the
extent that the Landlord reasonably elects to demolish the Building, or if any
Mortgagee requires (23) that any or all of such insurance proceeds be used to
retire any or all of the debt secured by its Mortgage, then in any such case
the Landlord may elect to terminate this Lease, as of the date of such casualty
by giving written notice thereof to the Tenant within thirty (30) days as of
the date of such casualty; and
8.2.2. in such event, (a) the Tenant shall pay to the
Landlord the Base Rent and any Additional Rent payable by the Tenant hereunder
and accrued through the date of such termination, (b) the Landlord shall repay
to the Tenant any and all prepaid Rent for periods beyond such termination, and
(c) the Landlord may enter upon and repossess the Premises without further
notice.
8.3. TENANT'S NEGLIGENCE. Anything contained in any provision of
this Lease to the contrary notwithstanding, if any such damage to the Premises,
the Building or both are caused by or result from the negligent or
intentionally tortious act or omission of the Tenant, those claiming under the
Tenant or any of their respective officers, employees, agents or invitees,
8.3.1. the Rent shall not be suspended or apportioned as
aforesaid, and
8.3.2. except if and to the extent that the Tenant is
released from liability therefor pursuant to the provisions of subsection 4.4,
the Tenant shall pay to the Landlord upon demand, as Additional Rent, the cost
of (a) any repairs and restoration made or to be made as a result of such
damage, or (b) (if the Landlord elects not to restore the Building) any damage
or loss which the Landlord incurs as a result of such damage.
SECTION 9. CONDEMNATION.
9.1 RIGHT TO AWARD.
9.1.1. If any or all of the Premises are taken by the
exercise of any power of eminent domain or are conveyed to or at the direction
of any governmental entity under a threat of any such taking (each of which is
hereinafter referred to as a "Condemnation"), the Landlord shall be entitled to
collect from the condemning authority thereunder the entire amount of any award
made in any such proceeding or as consideration for such conveyance, without
deduction therefrom for any leasehold or other estate held by the Tenant under
this Lease.
9.1.2. The Tenant hereby (a) assigns to the Landlord all of
the Tenant's right, title and interest, if any, in and to any such award; (b)
waives any right which it may otherwise have in connection with such
Condemnation, against the Landlord or such condemning authority, to any payment
for (i) the value of the then-unexpired portion of the Term, (ii) leasehold
damages, and (iii) any damage to or diminution of the value of the Tenant's
leasehold interest hereunder or any portion of the Premises not covered by such
Condemnation; and (c) agrees to execute any and all further documents which may
be required to facilitate the Landlord's collection of any and all such awards.
9.1.3. Subject to the operation and effect of the foregoing
provisions of this Section, the Tenant may seek, in a separate proceeding, a
separate award on account of any damages or costs
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(23) IN ACCORDANCE WITH THE TERMS OF ITS LOAN DOCUMENTS
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<PAGE> 14
incurred by the Tenant as a result of such Condemnation, so long as such
separate award in no way diminishes any award or payment which the Landlord
would otherwise receive as a result of such Condemnation and Tenants right of
recovery is limited to moving expenses and the cost of trade fixtures.
9.2. EFFECT OF CONDEMNATION.
9.2.1. If (a) all of the Premises are covered by a
Condemnation, or (b) any part of the Premises is covered by a Condemnation and
the remainder thereof is insufficient for the reasonable operation therein of
the Tenant's business, (24) or (c) any of the Building is covered by a
Condemnation and, in the Landlord's reasonable opinion, it would be impractical
to restore the remainder thereof, or (d) any of the rest of the Property is
covered by a Condemnation and, in the Landlord's reasonable opinion, it would
be impractical to continue to operate the remainder of the Property thereafter,
then, in any such event, the Term shall terminate on the date on which
possession of so much of the Premises, the Building or the rest of the
Property, as the case may be, as is covered by such Condemnation is taken by
the condemning authority thereunder, and all Rent (including, by way of example
rather than of limitation, any Additional Rent payable under the provision of
subsection 2.2), taxes and other charges payable hereunder shall be apportioned
and paid to such date.
9.2.2. If there is a Condemnation and the Term does not
terminate pursuant to the foregoing provision of this subsection, the operation
and effect of this Lease shall be unaffected by such Condemnation, except that
the Base Rent shall be reduced in proportion to the square footage of floor
area, if any, of the Premises covered by such Condemnation.
9.3. If there is a Condemnation, the Landlord shall have no liability
to the Tenant on account of any (a) interruption of the Tenant's business upon
the Premises, (b) diminution in the Tenant's ability to use the Premises, or
(c) other injury or damage sustained by the Tenant as a result of such
Condemnation.
9.4. Except for any separate proceeding brought by the Tenant under
the provisions of paragraph 9.1.3., the Landlord shall be entitled to conduct
any such condemnation proceeding and any settlement thereof free of
interference from the Tenant, and the Tenant hereby waives any right which it
otherwise has to participate therein.
SECTION 10. ASSIGNMENT AND SUBLETTING.
10.1. The Tenant hereby acknowledges that the Landlord has entered
into this Lease because of the Tenant's financial strength, goodwill, ability
and expertise and that, accordingly, this Lease is one which is personal to the
Tenant, and agrees for itself and its successors and assigns in interest
hereunder that it will not (a) assign any of its rights under this Lease, or
(b) make or permit any total or partial sale, lease, sublease, assignment,
conveyance, license, mortgage, pledge, encumbrance, or a transfer of a
controlling interest in Tenant (25), or other transfer of any or all of the
Premises or the occupancy or use thereof (each of which is hereinafter referred
to as a "Transfer"), without first obtaining the Landlord's written consent
thereto (which consent (26) and, if given, shall not constitute a consent to
any subsequent such Transfer, whether by the person hereinabove named as the
"Tenant" or by any such transferee). (27) The Landlord shall be entitled, at
its sole discretion, to condition any such consent upon the entry by such
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(24) AS DETERMINED BY TENANT
(25) OTHER THAN THE DAILY SALE OF ITS COMMON STOCK
(26) SHALL NOT UNREASONABLY BE WITHHELD OR DELAYED
(27) FAILURE TO DENY CONSENT WITHIN FORTY-FIVE (45) DAYS OF A
REQUEST THEREFOR SHALL BE DEEMED TO CONSTITUTE CONSENT.
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<PAGE> 15
person into an agreement with (and in form and substance (28) satisfactory to)
the Landlord, by which it assumes all of the Tenant's obligations hereunder.
Any person to whom any Transfer is attempted without such consent shall have no
claim, right or remedy whatsoever hereunder against the Landlord, and the
Landlord shall have no duty to recognize any person claiming under or through
the same. No such action taken with or without the Landlord's consent shall in
any way relieve or release the Tenant from liability for the timely performance
of all of the Tenant's obligations hereunder. The Tenant hereby acknowledges
that any merger, consolidation or other restructuring of ownership interests in
Tenant constitutes a Transfer hereunder. As additional rent, Tenant shall
reimburse Landlord promptly for reasonable legal and other expenses incurred by
Landlord in connection with any request by Tenant for consent to assignment or
subletting; no assignment or subletting shall affect the continuing primary
liability of Tenant (which, following assignment, shall be joint and several
with the assignee); no consent to any of the foregoing in a specific instance
shall operate as a waiver in any subsequent instance. In the event that any
assignee or subtenant pays to Tenant any amounts in excess of the Annual Rent
and Additional Rent then payable hereunder, or pro rata portion thereof on a
square footage basis for any portion of the Premises, Tenant shall promptly pay
(29) said excess to Landlord as and when received by Tenant.
10.2. Anything contained in the foregoing provisions of this Section
to the contrary notwithstanding, neither the Tenant nor any other person having
an interest in the possession, use or occupancy of the Premises or any other
portion of the Property shall enter into any lease, sublease, license,
concession or other agreement for the possession, use or occupancy of space in
the Premises or any other portion of the Property which provides for any rental
or other payment for such use, occupancy or utilization based in whole or in
part upon the net income or profits derived by any person from the space in the
Premises or other portion of the Property so leased, used or occupied (other
than any amount based on a fixed percentages of receipts or sales).
10.3. In the event of any Transfer with or without Landlord's
consent, Landlord may, at its sole option, have the right at (30) such Transfer
to terminate this Lease as to all or any portion of the Premises and enter into
a direct lease agreement with the proposed sublessee. Neither Tenant nor any
party claiming an interest under or through Tenant shall interfere with
Landlord's exercise of its rights hereunder. Tenant hereby indemnifies and
holds Landlord harmless from and against any and all liabilities, costs, losses
or damages, including reasonable attorneys fees and court costs, arising from
any breach of the provisions of this section by Tenant.
SECTION 11. RULES AND REGULATIONS.
The Landlord shall have the right to prescribe, at its sole
discretion, reasonable rules and regulations (hereinafter referred to as the
"Rules and Regulations") having uniform applicability to all tenants of the
Building (subject to the provisions of their respective leases) and governing
their use and enjoyment of the Building and the remainder of the Property;
provided, that the Rules and Regulations shall not materially interfere with
the Tenant's use and enjoyment of the Premises, in accordance with the
provisions of this Lease, for the purposes enumerated in the provisions of
Section 3. The Tenant shall adhere to the Rules and Regulations and shall
cause its agents, employees, invitees, visitors and guests to do so. A copy of
the Rules and Regulations in effect on the date hereof is attached hereto as
Exhibit C.
SECTION 12. SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE.
12.1. SUBORDINATION. This Lease shall be subject and subordinate to
the lien, operation and effect of each mortgage, deed of trust, ground lease
and/or other, similar instrument of encumbrance heretofore or hereafter
covering any or all of the Premises or the remainder of the Property (and each
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(28) REASONABLY
(29) ONE-HALF (1/2) OF
(30) THE TIME OF
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<PAGE> 16
renewal, modification, consolidation, replacement or extension thereof), (each
of which is herein referred to as a "Mortgage"), all automatically and without
the necessity of any action by either party hereto.
12.2. ATTORNMENT AND NON-DISTURBANCE. The Tenant shall, promptly at
the request of the Landlord or the holder of any Mortgage (herein referred to
as a "Mortgagee"), execute, enseal, acknowledge and deliver such further
instrument or instruments
12.2.1. evidencing such subordination as the Landlord or such
Mortgagee deems necessary or desirable, and
12.2.2. (at such Mortgagee's request) attorning to such
Mortgagee. (31)Landlord will use to obtain an agreement from the Mortgagee
(in such Mortgagee's usual form) that such Mortgagee will, in the event of a
foreclosure of any such mortgage or deed of trust (or termination of any such
ground lease) take no action to interfere with the Tenant's rights hereunder,
except on the occurrence of an Event of Default.
12.3. Anything contained in the provisions of this Section to the
contrary notwithstanding, any Mortgagee may at any time subordinate the lien of
its Mortgage to the operation and effect of this Lease without obtaining the
Tenant's consent thereto, by giving the Tenant written notice thereof, in which
event this Lease shall be deemed to be senior to such Mortgage without regard
to their respective dates of execution, delivery and/or recordation among the
Land Records of the said County, and thereafter such Mortgagee shall have the
same rights as to this Lease as it would have had, were this Lease executed and
delivered before the execution of such Mortgage.
SECTION 13. DEFAULT.
13.1. DEFINITION: As used in the provisions of this Lease, each of
the following events shall constitute, and is hereinafter referred to as, an
"Event of Default":
13.1.1. If the Tenant fails to (a) pay any Rent or any other
sum which it is obligated to pay by any provision of this Lease, when and as
due and payable hereunder and without demand therefor, or (b) perform any of
its other obligations under the provisions of this Lease; or
13.1.2. if the Tenant (a) applies for or consents to the
appointment of a receiver, trustee or liquidator of the Tenant or of all or a
substantial part of its assets, (b) files a voluntary petition in bankruptcy or
admits in writing its inability to pay its debts as they come due, (c) makes an
assignment for the benefit of its creditors, (d) files a petition or an answer
seeking a reorganization or an arrangement with creditors, or seeks to take
advantage of any insolvency law, (e) performs any other act of bankruptcy, or
(f) files an answer admitting the material allegations of a petition filed
against the Tenant in any bankruptcy, reorganization or insolvency proceeding;
or
13.1.3. if (a) an order, judgment or decree is entered by any
court of competent jurisdiction adjudicating the Tenant a bankrupt or
insolvent, approving a petition seeking such a reorganization, or appointing a
receiver, trustee or liquidator of the Tenant or of all or a substantial part
of its assets, or (b) there otherwise commences as to the Tenant or any of its
assets any proceeding under any bankruptcy, reorganization, arrangement,
insolvency, readjustment, receivership or similar law, and if such order,
judgment, decree or proceeding continues unstayed for more than sixty (60)
consecutive days;
13.1.4. if the Tenant fails to occupy and assume possession
of the Premises within fifteen (15) days after the Commencement Date;
13.1.5. if the Tenant generally fails to pay its debts as
they become due; or
- ------------------------------
(31) AS A CONDITION TO THE EFFECTIVENESS OF THIS LEASE,
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<PAGE> 17
13.1.6. if the Tenant vacates or abandons the Premises,
whether or not Rent or other sums are due and unpaid hereunder.
13.2. NOTICE TO TENANT; GRACE PERIOD. Anything contained in the
provisions of this Section to the contrary notwithstanding, on the occurrence
of an Event of Default the Landlord shall not exercise any right or remedy
which it holds under any provision of this Lease or applicable law unless and
until
13.2.1. the Landlord has given written notice thereof to the
Tenant, (32) and
13.2.2. the Tenant has failed, (a) if such Event of Default
consists of a failure to pay money, within five (5) days of the due date, or
(b) if such Event of Default consists of something other than a failure to pay
money, within thirty (30) days thereafter actively, diligently and in good
faith to begin to cure such Event of Default and to continue thereafter to do
so until it is fully cured; provided, that
13.2.3. no such notice shall be required, and the Tenant
shall be entitled to no such grace period, (a) in an emergency situation in
which the Landlord acts to cure such Event of Default pursuant to the
provisions of paragraph 13.3.5; or (b) more than twice during any twelve (12)
month period, or (c) if the Tenant has substantially terminated or is in the
process of substantially terminating its continuous occupancy and use of the
Premises for the purpose set forth in the provisions of Section 3, or (d) in
the case of any Event of Default enumerated in the provisions of paragraphs
13.1.2, 13.1.3, 13.1.4 and 13.1.6.
13.3. LANDLORD'S RIGHTS ON EVENT OF DEFAULT. On the occurrence of
any Event of Default, the Landlord may (subject to the operation and effect of
the provisions of subsection 13.2) take any or all of the following actions:
13.3.1. re-enter and repossess the Premises and any and all
improvements thereon and additions thereto;
13.3.2. declare the entire balance of the Rent for the
remainder of the Term to be due and payable, and collect such balance in any
manner not inconsistent with applicable law;
13.3.3. terminate this Lease;
13.3.4. relet any or all of the Premises for the Tenant's
account for any or all of the remainder of the Term as hereinabove defined, or
for a period exceeding such remainder, in which event the Tenant shall pay to
the Landlord, at the times and in the manner specified by the provisions of
Section 2, the Base Rent and any Additional Rent accruing during such
remainder, less any monies received by the Landlord, with respect to such
remainder, from such reletting, as well as the cost to the Landlord of any
attorneys' fees or of any repairs or other action (including those taken in
exercising the Landlord's rights under any provision of this Lease) taken by
the Landlord on account of such Event of Default;
13.3.5. cure such Event of Default in any other manner
(after giving the Tenant written notice of the Landlord's intention to do so
except as provided in paragraph 13.2.3), in which event the Tenant shall
reimburse the Landlord for all expenses incurred by the Landlord in doing so,
plus interest thereon at the lesser of the rate of (33) per annum or the
highest rate then permitted on account thereof by applicable law, which
expenses and interest shall be Additional Rent and shall be payable by the
Tenant immediately on demand therefor by the Landlord; and/or
- ------------------------------
(32) UNLESS WRITTEN NOTICE IS NOT REQUIRED PURSUANT TO SECTION 13.2.3
(33) THE PRIME RATE PLUS TWO PERCENT (2%)
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<PAGE> 18
13.3.6. pursue any combination of such remedies and/or any
other remedy available to the Landlord on account of such Event of Default
under applicable law.
13.4. NO WAIVER. No action taken by the Landlord under the
provisions of this Section shall operate as a waiver of any right which the
Landlord would otherwise have against the Tenant for the Rent hereby reserved
or otherwise, and the Tenant shall remain responsible to the Landlord for any
loss and/or damage suffered by the Landlord by reason of any Event of Default.
13.5. DEFAULT BY LANDLORD. In the event of any default by Landlord,
Tenant's exclusive remedy shall be an action 34 for actual direct damages
(Tenant hereby waiving the benefit of any laws granting it a lien upon the
property of Landlord and/or upon rent due Landlord), but prior to any such
action Tenant will give Landlord written notice specifying such default with
particularity, and Landlord shall thereupon have thirty (30) days in which to
cure any such default. Unless and until Landlord fails to so cure any default
after such notice, Tenant shall not have any remedy or cause of action by
reason thereof. All obligations of Landlord hereunder will be construed as
covenants, not conditions, and all such obligations will be binding upon
Landlord only during the period of its possession of the Premises and not
thereafter. The term "Landlord" shall mean only the owner, for the time being
of the Premises, and in the event of the transfer by such owner of its interest
in the Premises, such owner shall thereupon be released and discharged from all
covenants and obligations of the Landlord thereafter accruing, but such
covenants and obligations shall be binding during the lease term upon each new
owner for the duration of such owner's ownership. Notwithstanding any other
provision hereof, Landlord shall not have any personal liability hereunder. In
the event of any breach or default by Landlord in any term or provision of this
Lease, Tenant agrees to look solely to the equity or interest then owned by
Landlord in the Property, however, in no event, shall any deficiency judgment
or any money judgment of any kind be sought or obtained against any Landlord.
SECTION 14. ESTOPPEL CERTIFICATE.
The Tenant shall from time to time, within (35) days after being
requested to do so by the Landlord or any Mortgagee, execute, enseal,
acknowledge and deliver to the Landlord (or, at the Landlord's request, to any
existing or prospective purchaser, transferee, assignee or Mortgagee of any or
all of the Premises, the Property, any interest therein or any of the
Landlord's rights under this Lease) an instrument in recordable form,
14.1. certifying (a) that this Lease is unmodified and in full force
and effect (or, if there has been any modification thereof, that it is in full
force and effect as so modified, stating therein the nature of such
modification); (b) as to the dates to which the Base Rent and any Additional
Rent and other charges arising hereunder have been paid; (c) as to the amount
of any prepaid Rent or any credit due to the Tenant hereunder; (d) that the
Tenant has accepted possession of the Premises, and the date on which the Term
commenced; (e) as to whether, to the best knowledge, information and belief of
the signer of such certificate, the Landlord or the Tenant is then in default
in performing any of its obligations hereunder (and, if so, specifying the
nature of each such default); and (f) as to any other fact or condition
reasonably requested by the Landlord or such other addressee; and
14.2. acknowledging and agreeing that any statement contained in
such certificate may be relied upon by the Landlord and any such other
addressee.
14.3. In the event that Tenant fails to deliver in a timely manner
the estoppel certificate described in Section 14, Landlord may complete such a
certificate on behalf of Tenant, which certificate shall be binding against
Tenant as if Tenant itself signed such certificate. For such purpose, Tenant
hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact (which appointment shall be deemed coupled with an interest)
for and in its name to prepare and sign on Tenant's behalf such an estoppel
certificate, Tenant hereby ratifying and confirming all the said attorney shall
lawfully do or choose to do or be done by virtue hereof, it being understood
and agreed
- ------------------------------
(34) TO COMPEL PERFORMANCE BY LANDLORD OF ANY UNPERFORMED
OBLIGATION AND
(35) TEN (10)
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<PAGE> 19
that the aforesaid provisions impose no burden or obligation on the Landlord to
do or perform any act whatsoever. After said estoppel certificate has been
prepared by Landlord, Landlord shall provide Tenant a copy thereof. Unless
Tenant modifies such certificate as may be appropriate to make the certificate
fully accurate, and signs and returns to Landlord the certificate within (36)
days after receipt from Landlord, Landlord shall be entitled and authorized to
sign such estoppel certificate and deliver to any Mortgagee or other person
such estoppel certificate in the name and on behalf of Tenant.
SECTION 15. QUIET ENJOYMENT.
The Landlord hereby covenants that the Tenant, on paying the Rent and
performing the covenants set forth herein, shall peaceably and quietly hold and
enjoy, throughout the Term, (a) the Premises, and (b) such rights as the Tenant
may hold hereunder with respect to the remainder of the Property.
SECTION 16. NOTICES.
Any notice, demand, consent, approval, request or other communication
or document to be provided hereunder to a party hereto shall be (a) given in
writing, and (b) deemed to have been given (i) (37)after being sent as
certified or registered mail in the United States mails, postage prepaid,
return receipt requested, (38) upon its hand delivery to such party, addressed
as follows:
IF TO LANDLORD: Shaw Road Business Park, L.L.C.
c/o Cambridge Asset Advisors Limited
Partnership
560 Herndon Parkway
Suite 210
Herndon, VA 20170
IF TO TENANT: Fuisz Technologies, Ltd.
14555 AVION-LAKESIDE
CHANTILLY, VA 20151
ATTENTION: DIRECTOR OF FACILITIES
Each party may change its notice address by giving written notice of
such change to the other party in accordance with the terms of this Section 16.
SECTION 17. LANDLORD'S LIEN.
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(36) FIVE (5)
(37) UPON RECEIPT OR REFUSAL OF DELIVERY
(38) OR (II)
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<PAGE> 20
SECTION 18. GENERAL.
18.1. EFFECTIVENESS. This Lease shall become effective upon and only
upon its execution by each party hereto.
18.2. COMPLETE UNDERSTANDING. This Lease represents the complete
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior written or oral negotiations, representations, warranties,
statements or agreements between the parties hereto as to the same.
18.3. AMENDMENT. This Lease may be amended by and only by an
instrument executed and delivered by each party hereto.
18.4. APPLICABLE LAW. This Lease shall be given effect and construed
by application of the laws of the Commonwealth of Virginia, and any action or
proceeding arising hereunder shall be brought in the Circuit Court for the
County of Loudoun of the Commonwealth of Virginia provided, that if such action
or proceeding arises under the Constitution, laws or treaties of the United
States of America, or if there is a diversity of citizenship between the
parties thereto so that it is to be brought in a United States District Court,
it shall be brought in the United States District Court for the Eastern
District of the Commonwealth of Virginia.
18.5. WAIVER. The Landlord shall not be deemed to have waived the
exercise of any right which it holds hereunder unless such waiver is made
expressly and in writing (and no delay or omission by the Landlord in
exercising any such right shall be deemed to be a waiver of its future
exercise). No such waiver as to any instance involving the exercise of any
such right shall be deemed a waiver as to any other such instance, or any other
such right.
18.6. TIME OF ESSENCE. Time shall be of the essence of this Lease.
18.7. HEADINGS. The headings of the Sections, subsections,
paragraphs and subparagraphs hereof are provided herein for and only for
convenience of reference, and shall not be considered in construing their
contents.
18.8. CONSTRUCTION. As used herein,
18.8.1. the term "person" means a natural person, a trustee,
a corporation, a partnership and any other form of legal entity; and
18.8.2. all references made (a) in the neuter, masculine or
feminine gender shall be deemed to have been made in all such genders, (b) in
the singular or plural number shall be deemed to have been made, respectively,
in the plural or singular number as well, and (c) to any Section, subsection,
paragraph or subparagraph shall, unless therein expressly indicated to the
contrary, be deemed to have been made to such Section, subsection, paragraph or
subparagraph of this Lease.
18.9. EXHIBITS. Each writing referred to herein as being attached
hereto as an exhibit or otherwise designated herein as an exhibit hereto is
hereby made a part hereof.
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(39) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY,
LANDLORD AGREES TO DELETE SECTION 17, BUT EXPRESSLY
RESERVES ANY STATUTORY LIENS FOR THE RENT IN LANDLORD'S FAVOR
AS WELL AS ALL RIGHTS AND REMEDIES UNDER THE UNIFORM
COMMERCIAL CODE.
- 20 -
<PAGE> 21
18.10. SEVERABILITY. No determination by any court, governmental
body or otherwise that any provision of this Lease or any amendment hereof is
invalid or unenforceable in any instance shall affect the validity or
enforceability of (a) any other such provision, or (b) such provision in any
circumstance not controlled by such determination. Each such provision shall
be valid and enforceable to the fullest extent allowed by, and shall be
construed wherever possible as being consistent with, applicable law.
18.11. DEFINITION OF THE "LANDLORD".
18.11.1. As used herein, the term the "Landlord" means the
person hereinabove named as such, and its heirs, personal representatives,
successors and assigns (each of whom shall have the same rights, remedies,
powers, authorities and privileges as it would have had, had it originally
signed this lease as the Landlord).
18.11.2. No person holding the Landlord's interest hereunder
(whether or not such person is named as the "Landlord" herein) shall have any
liability hereunder after such person ceases to hold such interest, except for
any such liability accruing while such person holds such interest.
18.11.3. Neither the Landlord nor any principal of the
Landlord, whether disclosed or undisclosed, shall have any personal liability
under any provision of this Lease.
18.12. DEFINITION OF THE "TENANT". As used herein, the term the
"Tenant" means each person hereinabove named as such and such person's heirs,
personal representatives, successors and assigns, each of whom shall have the
same obligations, liabilities, rights and privileges as it would have possessed
had it originally executed this Lease as the Tenant; provided, that no such
right or privilege shall inure to the benefit of any assignee of the Tenant,
immediate or remote, unless the assignment to such assignee is made in
accordance with the provisions of Section 10. Whenever two or more persons
constitute the Tenant, all such persons shall be jointly and severally liable
for performing the Tenant's obligations hereunder.
18.13. COMMISSIONS. Each party hereto hereby represents and warrants
to the other that, in connection with the leasing of the Premises hereunder,
the party so representing and warranting has not dealt with any real estate
broker, agent or finder, other than Cambridge Property Group Limited
Partnership (40) and there is no other commission, charge or other compensation
due on account thereof. Each party hereto shall indemnify and hold harmless
the other against and from any inaccuracy in such party's representation.
18.14. RECORDATION. This Lease may not be recorded among the Land
Records of the said County or among any other public records, without the
Landlord's prior express, written consent thereto, and any attempt by the
Tenant to do so without having obtained the Landlord's consent thereto shall
constitute an Event of Default hereunder. If this Lease is recorded by either
party hereto, such party shall bear the full expense of any transfer,
documentary stamp or other tax, and any recording fee, assessed in connection
with such recordation; provided, that if under applicable law the recordation
of this Lease hereafter becomes necessary in order for this Lease to be or
remain effective, the Tenant shall bear the full expense of any and all such
taxes and fees incurred in connection therewith.
18.15. APPROVAL BY MORTGAGEES. Anything contained in the provisions
of this Lease to the contrary notwithstanding, the Landlord shall be entitled
at any time hereafter but before the Landlord delivers possession of the
Premises to the Tenant hereunder, to terminate this Lease by giving written
notice thereof to the Tenant, if any Mortgagee fails to approve this Lease for
purposes of the provisions of its Mortgage, and in the manner set forth
therein.
18.16 WAIVER OF TRIAL BY JURY. The Tenant hereby waives trial by
jury in any action or proceeding to which the Tenant and the Landlord may be
parties, arising out of or in any way pertaining to (a) this Lease, or (b) the
Property. It is agreed and understood that this waiver
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(40) WHOSE FEES AND COMMISSIONS SHALL BE PAID BY THE LANDLORD
- 21 -
<PAGE> 22
constitutes a waiver of trial by jury of all claims against all parties to such
actions or proceedings, including claims against parties who are not parties to
this Lease.
This waiver is knowingly, willingly and voluntarily made by the
Tenant, and the Tenant hereby represents that no representations of fact or
opinion have been made by any individual to induce this waiver of trial by jury
or to in any way modify or nullify its effect. The Tenant further represents
that it has been represented in the signing of this Lease and in the making of
this waiver by independent legal counsel, selected of its own free will, and
that it has had the opportunity to discuss this waiver with counsel.
18.17. FINANCIAL INFORMATION. At Landlord's request, Tenant shall
deliver certified copies of Tenant's most recent and historical financial
statements. Such statements shall include Balance Sheets, Income and Expense
Statements as well as any other supporting documents required by Landlord or
any person or institution providing financing to the Property or relating to
the Property.
18.18. AUTHORITY. The person executing and delivering this Lease on
behalf of Landlord represents and warrants that he has full power, authority
and right to do so pursuant to the ownership and of Landlord. The person
executing and delivering this Lease on behalf of Tenant represents and warrants
that he has full power, authority and right to do so on behalf of Tenant.
By signing below, the undersigned individuals represent and warrant
that they have all requisite authority to sign this Lease Agreement and to bind
the entity on behalf of which they sign this Lease.
IN WITNESS WHEREOF, each party hereto has executed and ensealed this
Lease or caused it to be executed and ensealed on its behalf by its duly
authorized representatives, the day and year first above written.
WITNESS: LANDLORD: Shaw Road Business Park, L.L.C.
[SIG] By: [SIG] Agent
- -------------------------- ------------------------------------
Date: 2-6-98
----------------------------------
WITNESS: TENANT: Fuisz Technologies Properties, Inc.
[SIG] By: [SIG]
- -------------------------- ------------------------------------
Title: VP of Manufacturing Operations
---------------------------------
Date: 12/23/97
----------------------------------
Fuisz Technologies Ltd. Fuisz Technologies Ltd
---------------------- ----------------------
[INITIAL] 12/23/97 [INITIALS] 12/23/97
---------------------- ----------------------
Finance Dept. Approval Legal Dept. Approval
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<PAGE> 23
AGREEMENT OF LEASE
by and between
SHAW ROAD BUSINESS PARK, L.L.C.
and
FUISZ TECHNOLOGIES PROPERTIES, INC.
EXHIBIT A
PREMISES
The Premises consists of approximately 16,909 rentable square feet in
Shaw Road Business Park, a 152,363 square foot, office/warehouse project
located at 22960 Shaw Road, Suite B123, Sterling, Loudoun County, Virginia
20166; to be located in the approximate location shown on the plan attached
hereto as Exhibit A-1.
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<PAGE> 24
AGREEMENT OF LEASE
by and between
SHAW ROAD BUSINESS PARK, L.L.C.
AND
FUISZ TECHNOLOGIES PROPERTIES, INC.
EXHIBIT A-1
SITE PLAN
[MAP]
- 24 -
<PAGE> 25
AGREEMENT OF LEASE
by and between
SHAW ROAD BUSINESS PARK, L.L.C.
and
FUISZ TECHNOLOGIES PROPERTIES, INC.
EXHIBIT B
TENANT IMPROVEMENTS (41)
A. DEMISING PARTITIONS
1. Sound insulated separation between tenants as required.
2. Walls to be drywall (to conform with local code) painted with
latex flat paint and 2 1/2" vinyl cove base (office areas
only).
3. Walls to be built to underside of roof deck or ceiling as
required by code.
B. INTERIOR OFFICE PARTITIONS
1. Walls to be 1/2" drywall painted with latex flat paint and 2
1/2" vinyl cove base.
2. Walls to be built to underside of finished ceiling.
C. DOORS, HARDWARE AND FRAMES
1. Doors will be 3'0" x 7'0" hollow core finished with latex
semi-gloss paint.
2. Finished hardware will include 1 1/2 pair of butts per door,
passage set on all doors.
3. Door frames to be punched for silencers, furnished with finish
hardware and painted with latex semi-gloss paint.
D. PERIMETER WALLS
1. Walls to be 1/2" drywall painted with latex flat paint and 2
1/2" vinyl cove base insulated as per construction drawings.
E. VINYL TILE FLOORS
1. Vinyl tile floors to be 12" x 12" x 1/8" Armstrong Excellon or
equal.
F. CARPET
1. Carpet will be 26 oz. level loop carpet.
G. ACOUSTICAL CEILINGS
- ------------------------------
(41) TENANT ACCEPTS THE PREMISES IN ITS ABSOLUTE "AS-IS"
CONDITION. EXHIBIT B IS INCLUDED ONLY TO SPECIFY THE QUALITY
OF ITEMS TO BE USED IN ANY FUTURE IMPROVEMENTS OF THE
PREMISES.
- 25 -
<PAGE> 26
1. Ceilings to be 2' x 4' white lay in 5/8" mineral fiberboard
tiles with exposed suspended white grid system.
- 26 -
<PAGE> 27
EXHIBIT B - TENANT IMPROVEMENTS
PAGE TWO (2)
H. BLINDS
1. Blinds to be 1" Levelor Series or equal (by tenant).
I. PLUMBING
1. Each tenant area shall be serviced by a toilet room(s)
equipped to conform to all local handicapped requirements and
all miscellaneous accessories.
2. Plumbing fixtures shall be as follows:
a. Water Closet - Porcelain elongated bowl/tank
type/white in color.
b. Lavatory.
c. Hot Water Heater - "Rheem" or equal, glass lined unit
6-20 gallon capacity as required.
J. MECHANICAL
1. Office Areas - Electric/Gas roof top unit HVAC system.
a. Cooling - Outside temperature 95 degrees dry bulb.
Interior temperature 78 degrees dry bulb with
approximately 50% R.H.
b. Heating - Outside temperature 0 degree/interior
temperature 65 degrees.
2. Warehouse Areas - Unit heaters.
a. Heating - Outside temperature 0 degree/interior
temperature 50 degrees.
3. All sheet metal to conform to S.M.A.C.N.A. standards.
4. Supply Air Ducts to be insulated with 1/2" foil-faced
fiberglass blankets if required.
K. ELECTRICAL
1. Electrical service shall be 100 AMP - standard.
2. Office light fixtures to be 2' x 4' four tube fluorescent
lay-in, in sufficient quantity to maintain 70 foot candles at
desk height (one per 85 square feet typical).
3. Warehouse light fixtures to be 8' two tube fluorescent surface
mount in sufficient quantity to maintain 25 foot candles.
4. One duplex electrical outlet per 150 square feet (office
area).
5. One electrical switch per 250 square feet (office area).
6. All areas will receive emergency lighting systems as required
by local codes.
7. Each toilet room to receive one (1) exhaust fan.
L. SPRINKLER
1. Sprinkler heads will be dropped into each office area as
required by local codes.
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<PAGE> 28
AGREEMENT OF LEASE
by and between
SHAW ROAD BUSINESS PARK, L.L.C.
and
FUISZ TECHNOLOGIES PROPERTIES, INC.
EXHIBIT B-1
SPACE PLAN
Intentionally Omitted.
- 28 -
<PAGE> 29
AGREEMENT OF LEASE
by and between
SHAW ROAD BUSINESS PARK, L.L.C.
and
FUISZ TECHNOLOGIES PROPERTIES, INC.
EXHIBIT C
CURRENT RULES AND REGULATIONS
1. The sidewalks, lobbies, passages, elevators and stairways shall not be
obstructed by the Tenant and used by the Tenant for any purposes other
than ingress and egress from and to the Tenant's offices. The
Landlord shall in all cases retain the right to control or prevent
access thereto by any person whose presence, in the Landlord's
judgment, would be prejudicial to the safety, peace, character or
reputation of the Building or of any tenant of the Property.
2. The toilet rooms, water closets, sinks, faucets, plumbing and other
service apparatus of any kind shall not be used by the Tenant for any
purpose other than those for which they were installed, and no
sweepings, rubbish, rags, ashes, chemicals or other refuse or
injurious substances shall be placed therein or used in connection
therewith by the Tenant, or left by the Tenant in the lobbies,
passages, elevators or stairways of the Building.
3. No skylight, window, door or transom of the Building shall be covered
or obstructed by the Tenant, and no window shade, blind, curtain,
screen, storm window, awning or other material shall be installed or
placed on any window or in any window space, except as approved in
writing by the Landlord. If the Landlord has installed or hereafter
installs any shade, blind or curtain in the Premises, the Tenant shall
not remove it without first obtaining the Landlord's written consent
thereto.
4. No sign, lettering, insignia, advertisement, notice or other thing
shall be inscribed, painted, installed, erected or placed in any
portion of the Premises which may be seen from outside the Building,
or on any window, window space or other part of the exterior or
interior of the Building, unless first approved in writing by the
Landlord. Names on suite entrances shall be provided by and only by
the Landlord and at the Tenant's expense, using in each instance
lettering of a design and in a form consistent with the other
lettering in the Building, and first approved in writing by the
Landlord. The Tenant shall/will not erect any stand, booth or
showcase or other article or matter in or upon the Premises and/or the
Building without first obtaining the Landlord's written consent
thereto.
5. The Tenant shall not place any additional lock or security devices
upon any door within the Premises or elsewhere upon the Property
without Landlord's consent, and shall surrender all keys for all such
locks at the end of the Term. The Landlord shall provide the Tenant
with one set of keys to the Premises when the Tenant assumes
possession thereof. (42)
6. The delivery of towels, ice, water, food, beverages, newspaper and
other supplies, equipment and furniture will be permitted only under
the Landlord's direction and control.
7. The Tenant shall not do or permit to be done anything which obstructs
or interferes with the rights of any other tenant of the Property.
The Tenant shall not keep anywhere within
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(42) TENANT SHALL CONTINUE TO USE THE EXISTING SECURITY SYSTEM IN THE
PREMISES.
- 29 -
<PAGE> 30
EXHIBIT C - CURRENT RULES AND REGULATIONS
PAGE TWO (2)
the Property any matter having an offensive odor, or any kerosene,
gasoline, benzine, camphene, fuel or other explosive or highly
flammable material. No bird, fish or other animal shall be brought
into or kept in or about the Premises.
8. The Tenant shall keep the Premises in a good state of preservation and
cleanliness while in possession of the Premises.
9. If the Tenant desires to install signaling, telegraphic, telephonic,
protective alarm or other wires, apparatus or devices within the
Premises, the Landlord shall direct where and how they are to be
installed and, except as so directed, no installation, boring or
cutting shall be permitted. The Landlord shall have the right (a) to
prevent or interrupt the transmission of excessive, dangerous or
annoying current of electricity or otherwise into or through the
Building or the Premises, (b) to require the changing of wiring
connections or layout at the Tenant's expense, (43) (c) to require
compliance with such reasonable rules as the Landlord may establish
relating thereto, and (d) in the event of noncompliance with such
requirements or rules, immediately to cut wiring or do whatever else
it considers necessary to remove the danger, annoyance or electrical
interference with apparatus in any part of the Building. Each wire
installed by the Tenant must be clearly tagged at each distributing
board and junction box and elsewhere where required by Landlord, with
the number of the office to which such wire leads and the purpose for
which it is used, together with the name of the tenant or other
concern, if any, operating or using it.
10. No furniture, package, equipment, supplies or merchandise may be
received in the Building, or carried up or down in the elevators or
stairways, except during such hours as are designated for such purpose
by the Landlord, and only after Tenant gives notice thereof to the
Landlord. The Landlord shall have the exclusive right to prescribe
the method and manner in which any of the same is brought into or
taken out of the Building, and the right to exclude from the Building
any heavy furniture, safe or other article which may create a hazard
and to require it to be located at a designated place in the Premises.
The Tenant shall not place any weight anywhere beyond the safe
carrying capacity of the Building. The cost of repairing any damage
to the Building or any other part of the Property caused by taking any
of the same in or out of the Premises, or any damage caused while it
is in the Premises or the rest of the Building, shall be borne by the
Tenant.
11. Without the Landlord's prior written consent, (a) nothing shall be
fastened to (and no hole shall be drilled, or nail or screw driven
into) any wall or partition, (b) no wall, or partition shall be
painted, papered or otherwise covered or moved in any way or marked or
broken, (c) no connection shall be made to any electrical wire for
running any fan, motor or other apparatus, device or equipment, (d) no
machinery of any kind other than customary small business machinery
shall be allowed in the Premises, (e) no switchboard or telephone
wiring or equipment shall be placed anywhere other than where
designated by the Landlord, and (f) no mechanic shall be allowed to
work in or about the Building other than one employed by the Landlord,
unless approved in writing by Landlord.
12. The Tenant shall have access to the Premises at all reasonable times.
The Landlord shall in no event be responsible for admitting or
excluding any person from the Premises. In case of invasion, hostile
attack, insurrection, mob violence, riot, public excitement or other
commotion, explosion, fire or any casualty, the Landlord shall have
the right to bar or limit access to the Building to protect the safety
of occupants of the Property, or any property within the Property.
- ------------------------------
(43) REQUIRED TO COMPLY WITH APPLICABLE BUILDING CODES
- 30 -
<PAGE> 31
EXHIBIT C - CURRENT RULES AND REGULATIONS
PAGE THREE (3)
13. The Landlord shall have the right to rescind, suspend or modify the
Rules and Regulations and to promulgate such other Rules or
Regulations as, in the Landlord's reasonable judgment, are from time
to time needed for the safety, care, maintenance, operation and
cleanliness of the Building, or for the preservation of good order
therein. Upon the Tenant's having been given notice of the taking of
any such action, the Rules and Regulations as so rescinded, suspended,
modified or promulgated shall have the same force and effect as if in
effect at the time at which the Tenant's lease was entered into
(except that nothing in the Rules and Regulations shall be deemed in
any way to alter or impair any provision of such lease).
14. The use of any room within the Building as sleeping quarters is
strictly prohibited at all times.
15. The Tenant shall keep the windows and doors of the Premises (including
those opening on corridors and all doors between rooms entitled to
receive heating or air conditioning service and rooms not entitled to
receive such service), closed while the heating or air conditioning
system is operating, in order to minimize the energy used by, and to
conserve the effectiveness of, such systems. The Tenant shall comply
with all reasonable Rules and Regulations from time to time
promulgated by the Landlord with respect to such systems or their use.
16. Nothing in these Rules and Regulations shall give any Tenant any right
or claim against the Landlord or any other person if the Landlord does
not enforce any of them against any other tenant or person (whether or
not the Landlord has the right to enforce them against such tenant or
person), and no such nonenforcement with respect to any tenant shall
constitute a waiver of the right to enforce them as to the Tenant or
any other tenant or person.
- 31 -
<PAGE> 32
AGREEMENT OF LEASE
by and between
SHAW ROAD BUSINESS PARK, L.L.C.
and
FUISZ TECHNOLOGIES PROPERTIES, INC.
EXHIBIT D
BASE RENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
LEASE SQUARE RENTAL ANNUAL MONTHLY
YEAR FOOTAGE RATE BASE RENT BASE RENT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/01/99-12/31/99 16,909 $ 9.00 $152,181.00 $12,681.75
- -------------------------------------------------------------------------------------------------
01/01/00-12/31/00 16,909 $ 9.36 $158,168.24 $13,189.02
- -------------------------------------------------------------------------------------------------
01/01/01-12/31/01 16,909 $ 9.73 $164,598.97 $13.716.58
- -------------------------------------------------------------------------------------------------
01/01/02-12/31/02 16,909 $10.12 $171,182.93 $14,265.24
- -------------------------------------------------------------------------------------------------
</TABLE>
- 32 -
<PAGE> 33
AGREEMENT OF LEASE
BY AND BETWEEN
SHAW ROAD BUSINESS PARK, L.L.C.
AND
FUISZ TECHNOLOGIES PROPERTIES, INC.
EXHIBIT E
1. Notwithstanding anything contained herein to the contrary, in the event
the lease between Global Mail, Ltd., (the Sublessor to the Tenant) and
Landlord is terminated, this Lease will commence this Lease the day
after such termination (hereinafter called the "Adjusted Commencement
Date"). In such event, all terms and conditions of this Lease shall
begin as of the Adjusted Commencement Date, except that the Base
Rental Rate shall escalate accordingly on each anniversary of the
Adjusted Commencement Date.
- 33 -
<PAGE> 1
Exhibit 10.20
[FUISZ TECHNOLOGIES LTD LETTERHEAD]
RESIGNATION AGREEMENT
THE PARTIES to this Resignation Agreement, Fuisz Technologies Ltd.
("FTL"), and Mr. Adrian Gerber ("Mr. Gerber") agree that the following sets
forth their complete agreement and understanding regarding the resignation of
Mr. Gerber on or about December 31, 1997.
WHEREAS, the employment relationship between Mr. Gerber and FTL has been
terminated by this resignation of Mr. Gerber; and,
WHEREAS, Mr. Gerber and FTL desire to settle fully and finally any and all
differences and issues between them which could arise out of this resignation or
otherwise;
NOW THEREFORE, Mr. Gerber and FTL agree as follows:
For and in consideration of execution of the Consulting Agreement attached
hereto (the "Consulting Agreement"), Mr. Gerber on his own behalf and on behalf
of his executors, agents, heirs, personal representatives, and assigns, and each
of them, hereby agrees to release and forever discharge FTL, its
representatives, agents, employees, subsidiaries, heirs, assigns, and
successors, and each of them, from any and all claims, actions, demands and
causes of action, known or unknown, in law or in equity, which have arisen or
may arise, which are based upon, or are in any way related to the hiring, the
employment or the resignation of employment of Mr. Gerber by FTL. Mr. Gerber
further covenants and agrees that he will not participate in, aid, institute or
maintain, or cause to be instituted or maintained, any suit in law or equity or
any other similar proceeding against FTL whether or not based directly or
indirectly upon any such claims, action, demands or causes of action. Such
causes of action include, but are not limited to, actions arising under Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act,
the Americans With Disabilities Act, the Fair Labor Standards Act, the Employee
Retirement Income Security Act, the Consolidated Omnibus Budget Reconciliation
Act, the Fairfax County Human Relations Act, the Virginia Human Rights Act and
any causes of action based upon the public policy it sets forth, and any and all
actions in tort or contract. It is agreed and understood that the above
mentioned payments are not to be construed as an admission of any liability.
Mr. Gerber, further in consideration of the payments to be made under the
Consulting Agreement, the agreement by FTL that the stock options granted to Mr.
Gerber through non-statutory option agreements shall be unaffected by this
resignation and for other good and valuable consideration, agrees to make no
statement, oral or written, either directly or indirectly, to any person or
other entity regarding Mr. Gerber's employment at FTL, the terms and conditions
of this Resignation Agreement, or the circumstances surrounding the termination
of the employment relationship between FTL and Mr. Gerber, nor to make any
statement or express any opinion to any person or other entity concerning or
relating to FTL or any of its employees, agents, officers or directors, or its
products, research and development, contracts, or any other business of FTL,
either directly or indirectly, or make any statement or opinion, directly or
<PAGE> 2
Resignation Agreement of Mr. Adrian Gerber
December 31, 1997
Page2
indirectly, to or concerning any customers or licensees of FTL, except that Mr.
Gerber may state that Mr. Gerber was employed by FTL, the dates of such
employment, his title and that he has resigned from his position at FTL as of
the date first set forth above, unless further disclosure is mandated by federal
or state law or by order of a court of competent jurisdiction. Additionally, Mr.
Gerber hereby reaffirms that he will remain subject to the provisions of the
Employee Confidentiality Agreement signed by Mr. Gerber and FTL including
without limitation the promises in paragraph 5 not to disclose Confidential
Information obtained during the course of Mr. Gerber's employment with FTL, and
in paragraph 6 not to engage in any activity or employment in which such
Confidential Information reasonably would be considered to be useful.
For and in consideration of Mr. Gerber's agreement to the terms and
conditions hereof, FTL agrees to release and forever discharge Mr. Gerber from
any and all claims, actions, demands, and causes of action, in law or in equity,
which have arisen or may arise, which are based upon acts or omission by the Mr.
Gerber during the employment of Mr. Gerber by FTL. FTL further agrees to make no
statement, oral or written, either directly or indirectly, to any person or
other entity regarding Mr. Gerber's employment at FTL, the terms and conditions
of this Resignation Agreement, or the circumstances surrounding the termination
of the employment relationship between FTL and Mr. Gerber, except to state that
Mr. Gerber was employed by FTL, the dates of such employment, his title and that
he has resigned from his position at FTL as of the date first set forth above,
unless further disclosure is mandated by federal or state law or by order of a
court of competent jurisdiction. FTL hereby consents, pursuant to paragraph 6 of
the Employee Confidentiality Agreement dated February 5, 1996, to Mr. Gerber's
engagement in activities or employment in which Confidential Information would
reasonably be considered useful, provided that Mr. Gerber shall continue to be
fully bound by paragraph 5 thereof regarding preservation of the confidentiality
of all confidential information.
The parties agree and understand that no promises, covenants,
representations, understandings or warranties have been made by either of them
other than those expressly contained herein, and that this Resignation Agreement
constitutes the entire agreement between the parties and supersedes all prior
agreements and undertakings with respect thereto, whether written or oral, other
than the Employee Confidentiality Agreement, which shall remain in full force
and effect. The parties further agree to keep this Resignation Agreement and
each of its terms confidential.
Mr. Gerber understands that he may take as many as twenty-one (21) days,
beginning December 23, 1997, to consider this Resignation Agreement prior to
executing it, that within seven (7) days after the execution of this Resignation
Agreement he may revoke the provisions of this Resignation Agreement that waive
and release any claims he may have under the Federal Age Discrimination in
Employment Act, and that he has consulted with legal counsel before entering
into this Resignation Agreement.
<PAGE> 3
Resignation Agreement of Mr. Adrian Gerber
December 31, 1997
Page3
The parties hereby acknowledge that this Resignation Agreement and the
releases contained in this Resignation Agreement are entered into voluntarily
and that both parties understand the consequences of signing this Resignation
Agreement. The parties agree that either party will be entitled to seek
injunctive relief to prevent harm due to any breach or threatened breach by the
other of this Resignation Agreement, in addition to and without waiving any
other rights or remedies each may have in law or in equity.
Should any of the provisions herein be determined to be invalid by a court
of competent jurisdiction, it is agreed that this shall not effect the
enforceability of the other provisions herein and the parties shall negotiate
the provision or provisions in good faith to effectuate its or their purpose and
to conform it or them to the law.
It is further understood and agreed that if any fact with respect to any
matter covered by this Resignation Agreement is found to be other than the facts
now believed to be true by the parties, each expressly accepts and assumes the
risks of such possible differences and agrees that this Resignation Agreement
shall remain effective notwithstanding.
This Resignation Agreement shall be governed by and construed in
accordance with the laws of the State of Virginia. The parties hereby agree to
the exclusive jurisdiction of Virginia with respect to any dispute, suit, action
or proceeding.
IN WITNESS WHEREOF, the parties have executed this Agreement on
JANUARY 12, 1998
BY: /s/ ADRIAN GERBER Witness:/s/ STEPHEN H. WILLARD
------------------- ----------------------
FUISZ TECHNOLOGIES LTD.
BY:/s/ KENNETH W. MCVEY Witness: /s/ STEPHEN H. WILLARD
------------------- -----------------------
Kenneth W. McVey
Title:President & Chief Executive Officer
<PAGE> 4
[FUISZ TECHNOLOGIES LTD. LETTERHEAD]
FUISZ TECHNOLOGIES LTD.
CONSULTING AGREEMENT
Fuisz Technologies Ltd. ("Fuisz") wishes to retain the undersigned party ("Mr.
Gerber") to render consulting services ("Services") in a certain field
("Field"). Therefore, Fuisz and Mr. Gerber, intending to be legally bound, agree
that:
1. Consultant is entering into this Agreement as an Individual.
2. The Fuisz representative for receiving Services is Kenneth W. McVey or
whomever Fuisz may designate.
3. Services hereunder shall be provided directly by Mr. Gerber: General
advice and consultation on business and technical issues as requested by
Fuisz.
4. Fuisz shall pay Mr. Gerber the sum of: (a) $150,000, payable to Mr. Gerber
in 12 equal semi-monthly installments, the first installment of $12,500
being payable on January 15, 1998, and each installment thereafter being
payable on each subsequent 15th and final day of each month and ending
June 30, 1998; (b) the continuation of Mr. Gerber's medical health care
benefits under the applicable Plan of Fuisz up to and including June 30,
1998; and (c) a car allowance of $450.00 per month payable at the end of
each month up to and including June 30, 1998, as full consideration for
Mr. Gerber's services hereunder and Mr. Gerber's agreement to the terms
and conditions hereof. In addition, Fuisz shall reimburse Mr. Gerber upon
presentation of appropriate receipts for reasonable out-of-pocket expenses
incurred by Mr. Gerber at the prior request and approval of Fuisz in the
performance of Mr. Gerber's services hereunder.
5. This Agreement shall be effective beginning as of the date hereof and
ending on June 30, 1998, provided, however, that Mr. Gerber's obligations
under paragraphs 6, 7 and 9 shall terminate five (5) years following the
latter date.
6. Mr. Gerber shall exercise due care to prevent the unauthorized disclosure
of Confidential Information. Confidential Information shall include all
information concerning Fuisz and the Field disclosed to Mr. Gerber or
developed as a result of Mr. Gerber's services under this Agreement,
except any portion thereof which: (a) is known to Mr. Gerber before
receipt thereof under this Agreement, as evidenced by Mr. Gerber's written
record and not subject to any other Confidentiality Agreement with Fuisz;
or (b) is disclosed or provided to Mr. Gerber after receipt
<PAGE> 5
thereof under this agreement by a third party who has a right to make such
disclosure; or (c) is or becomes part of the public domain through no
fault of Mr. Gerber. Further, Mr. Gerber shall not use Confidential
Information for any purpose other than that indicated in this Agreement
without the prior written approval of Fuisz.
7. Mr. Gerber shall not disclose the existence of this Agreement or use the
name of Fuisz in any publicity or advertising without the prior written
approval of Fuisz.
8. At the request of Fuisz, Mr. Gerber shall make written reports and consult
with Fuisz personnel at the facilities of Fuisz or at other mutually
agreed locations, at mutually agreed times.
9. Any information (whether copyrightable, patentable or not), reports, data,
designs, software, screen displays, computer-readable media, manuals and
other work of any kind, made or developed by Mr. Gerber in the course or
as a result of services performed by Mr. Gerber under this Agreement or
which are derived, directly or indirectly, from information provided to
Mr. Gerber by Fuisz hereunder, are affirmatively acknowledged by Mr.
Gerber as Work Made for Hire, and such Work Made for Hire shall be
promptly disclosed to Fuisz, shall be the sole property of Fuisz, and
shall be free from any claim or retention of rights thereto by Mr. Gerber.
Mr. Gerber shall derive no interest in or to such Work Made for Hire, and
shall upon the request and expense of Fuisz, execute such documents and
take such other actions as Fuisz deems necessary or appropriate to obtain
patents or copyrights and to register same with appropriate governmental
authorities, in the name of Fuisz, covering any of the foregoing. In the
event that a judicial body determines that any of the foregoing are not
Work Made for Hire, Mr. Gerber shall assign any and all copyright thereto
to Fuisz.
10. Mr. Gerber warrants and represents that the terms of this Agreement are
not inconsistent with other contractual obligations Mr. Gerber may have,
or with the policies of any institution with which Mr. Gerber is
associated, including, but not limited to, policies regarding the
administration of grants and funded research.
11. Mr. Gerber shall not disclose to Fuisz any information which is
proprietary to a third party.
12. Mr. Gerber's status under this Agreement is that of an independent
contractor. Mr. Gerber shall not be deemed an employee or agent of Fuisz
for any purpose whatsoever, and Mr. Gerber shall have no authority to bind
or act on behalf of Fuisz except as otherwise expressly stated herein. Mr.
Gerber shall be responsible for, and agrees to comply with, all
obligations under federal, state and local laws for the payment of income
and self-employment taxes, penalties, fines and/or assessments resulting
from any payments to Mr. Gerber by Fuisz under this Agreement.
<PAGE> 6
13. This Agreement constitutes the entire understanding of the parties hereto
with respect to the matters herein contained.
14. All additions or modifications to this agreement must be made in writing
and executed by both parties.
15. This Agreement shall be deemed to have been made and performed in the
Commonwealth of Virginia, and shall be governed by, construed and enforced
in accordance with the laws of the Commonwealth of Virginia, without
reference to its choice of law or conflict of laws provisions.
FUISZ TECHNOLOGIES LTD. ADRIAN GERBER
By: /S/ KENNETH W. MCVEY 11335 SENECA VIEW WAY
------------------------------ -----------------------------------
Kenneth W. McVey
Title: President & CEO GREAT FALLS VA 22066
-----------------------------------
Address
Date JANUARY 12, 1998 /s/ ADRIAN M. GERBER
------------------------------- -----------------------------------
Signature
/s/ ADRIAN M. GERBER
--------------------------------
Printed Name
--------------------------------
Title
JAN. 12, 1998
--------------------------------
Date
###-##-####
--------------------------------
Social Security Number
(Provide only if Consultant is
contracting as an individual)
<PAGE> 1
Exhibit 10.21
FUISZ TECHNOLOGIES LTD.
EXECUTIVE MANAGEMENT BONUS INCENTIVE PLAN
1. PURPOSE.
The purpose of the Fuisz Technologies Ltd. Executive Management Bonus
Incentive Plan (the "Plan") is (i) to motivate special achievement by Plan
Participants, upon whose judgment, initiative and efforts the Company is
largely dependent for the successful conduct of its business, through a
compensation program emphasizing corporate performance objectives and (ii) to
enhance the ability of the Company to attract, motivate, reward and retain
executive officers.
2. DEFINITIONS.
(a) "Award" shall mean an incentive award earned by a Participant
under the Plan for a Performance Period.
(b) "Base Salary" for a Performance Period shall mean the
Participant's base salary during such Performance Period. Base salary shall
not include Awards under the Plan, long-term incentive awards, imputed income
from such programs as executive life insurance, or nonrecurring items such as
moving expenses, and is based on salary earnings before reductions for such
items as contributions under Section 401(k) of the Internal Revenue Code of
1986, as amended.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Committee" shall mean the Compensation Committee of the
Board.
(e) "Company" shall mean Fuisz Technologies Ltd., its successors
and assigns.
(f) "Earnings Per Share" for any Performance Period shall mean the
consolidated net income of the Company for such period, before extraordinary or
unusual items (e.g. charges for divestiture and restructuring activities) and
the cumulative effect of any change in accounting principles, divided by the
weighted average number of shares of the Company's common stock.
(g) "Net Operating Profit" for any Performance Period shall mean
the consolidated net operating profit of the Company for such period.
(h) "Participant," for any Performance Period, shall mean an
executive officer selected by the Committee to participate in the Plan for such
Performance Period.
<PAGE> 2
(i) "Performance Criteria" shall mean (i) Net Operating Profit,
(ii) Earnings Per Share, (iii) Return on Equity, (iv) Revenues, (v) any
combination of the foregoing or any other financial performance factor selected
by the Committee.
(j) "Performance Period" shall mean the fiscal year of the Company
or any other period designated by the Committee with respect to which an Award
is earned.
(k) "Performance Target" shall mean a financial target for a
Performance Period which is expressed in one or more Performance Criteria and
upon the attainment of which a Participant earns an Award. Performance Targets
may be in respect of the performance of the Company and its Subsidiaries (which
may be on a consolidated basis), a division, a region or any combination of the
foregoing. Performance Targets may be absolute or relative and may be expressed
in terms of a progression within a specified range.
(l) "Plan" shall mean this Executive Management Bonus Incentive
Plan, as from time to time amended and in effect.
(m) "Return on Equity" for any Performance Period shall mean
consolidated net income of the Company for such period, before extraordinary or
unusual items (e.g. charges for divestiture and restructuring activities) and
the cumulative effect of any change in accounting principles, divided by
average shareholder equity.
(n) "Revenues" for any Performance Period shall mean the
consolidated net sales of the Company for such period.
(o) "Target Award Percentage" for a Participant with respect to
any Performance Period shall mean the percentage of the Participant's Base
Salary that the Participant would earn as an Award for that Performance Period
determined based upon the attainment of a Performance Target applicable to such
Participant.
3. ELIGIBILITY.
(a) Participation in the Plan for a Performance Period shall be
limited to those executive officers who, because of their significant impact on
the current and future success of the Company, the Committee selects, in
accordance with Section 5 of this Plan, to participate in the Plan for that
Performance Period.
(b) To be eligible to receive an Award for any Performance Period
a Participant must be actively employed by the Company on each day of the
Performance Period, provided, however, that any employee who is hired or
promoted into an incentive-eligible position after the commencement of a
Performance Period may, at the discretion of the Committee, participate in the
Plan for such Performance Period, based upon the appropriate pro rata portion
of such employee's Base Salary.
2
<PAGE> 3
4. ADMINISTRATION.
Administration of the Plan shall be consistent with the purpose and
the terms of the Plan. The Plan shall be administered by the Committee. Each
member of the Committee shall be an "outside director" within the meaning of
Section 162(m) of the Internal Revenue Code and the regulations promulgated
thereunder. The Committee shall have full authority to establish the rules and
regulations relating to the Plan, to interpret the Plan and those rules and
regulations, to select Participants in the Plan, to determine the Performance
Periods, Performance Targets and Target Award Percentages applicable to each
Participant and the amount of compensation payable to each Participant upon the
achievement of such targets, to approve all Awards under the Plan, to decide
the facts in any case arising under the Plan and to make all other
determinations and to take all other actions necessary or appropriate for the
proper administration of the Plan, including the delegation of such
authority or power, where appropriate; provided, however, that the Committee
shall not be authorized to increase the amount of the Award that would
otherwise be payable pursuant to the terms of the Plan. The Committee's
administration of the Plan, including all such rules and regulations,
interpretations, selections, determinations, approvals, decisions, delegations,
amendments, terminations and other actions, shall be final and binding on the
Company, its subsidiaries, Participants and their respective beneficiaries.
5. PERFORMANCE MEASURES AND TARGETS.
(a) For each Performance Period, the Committee shall designate and
establish, before the expiration of 25% of such Performance Period, but in no
event later than 90 days after the commencement of such Performance Period:
(i) incentive categories based upon organizational level
and potential impact on Company results;
(ii) Target Award Percentages applicable to Participants
in each incentive category, which shall be stated as
a percentage of Base Salary that will be available to
each Participant upon the achievement of the
Performance Targets for the applicable Plan Year; and
(iii) Performance Targets, which shall be based upon one or
more Performance Criteria. In the event that the
Performance Target is based on a combination of more
than one Performance Criterion, the Committee shall
designate the relative weighting of each Performance
Criterion.
(b) The Committee shall prepare schedules with respect to each
Performance Period, which will be treated as part of the Plan for that
Performance Period, setting forth (a) the Participants, (b) Target Award
Percentages and (c) Performance Targets, in each case, for that Performance
Period. The Committee shall notify each Participant of his or
3
<PAGE> 4
her Target Award Percentages applicable to Performance Targets for the
Performance Period.
(c) Except as provided herein, the amount of an Award shall be
equal to the product of a Participant's Target Award Percentage and his or her
Base Salary. Notwithstanding anything contained in this Plan to the contrary,
the Committee may, in its sole discretion, reduce or eliminate any Award
actually paid to any Participant, based upon individual performance or
otherwise, prior to the written certification of the Committee of the amount of
such Award.
(d) The Committee may change the Performance Targets to reflect a
change in corporate capitalization, a corporate transaction, such as a merger,
consolidation, separation, reorganization or partial or complete liquidation,
or the occurrence of unexpected events, such as an acquisition or disposition,
product liability judgment or such other factors as the Committee may
determine, prior to the expiration of 25% of the relevant Performance Period,
but no later than 90 days after the commencement of such Performance Period.
(e) The Committee may, in its sole discretion, adjust on a pro
rata basis any Award to a Participant who has served in two or more
incentive-eligible categories during any Performance Period.
(f) The maximum amount of Awards that any Participant may receive
with respect to any fiscal year of the Company during which the Plan is in
effect is $1 million.
6. PAYMENT OF AWARDS.
(a) Promptly following the end of each Performance Period the
Committee will meet to certify achievement by the Company of the Performance
Targets for the applicable Performance Period and, if such goals have been
achieved, to review and approve actual Awards under the Plan. The achievement
of the Performance Targets for any applicable Performance Period shall be
certified in writing by the Committee. The Committee shall also certify in
writing that all Awards payable under the Plan for a given Performance Period
were determined in accordance with the Plan. Approved minutes of the Committee
meeting in which such certifications are made shall be treated as written
certification for this purpose. No Award shall be paid prior to such
certifications.
(b) Each Award shall be paid in a single lump sum cash payment as
soon as practicable after certification by the Committee.
7. DESIGNATION OF BENEFICIARY.
A Participant may designate a beneficiary or beneficiaries who, in the
event of the Participant's death prior to full payment of any Award hereunder,
shall receive payment of any Award due under the Plan. Such designation shall
be made by the Participant on a form prescribed by the Committee. The
Participant may, at any time, change or revoke
4
<PAGE> 5
such designation. A beneficiary designation, or revocation of a prior
beneficiary will be effective only if it is made in writing on a form provided
by the Company, signed by the Participant and received by the Secretary of the
Company. If the Participant does not designate a beneficiary or the beneficiary
dies prior to receiving any payment of an Award, Awards payable under the Plan
shall be paid to the Participant's estate.
8. AMENDMENTS.
The Committee may at any time amend (in whole or in part) this Plan.
No such amendment which adversely affects any Participant's rights to or
interest in an Award earned prior to the date of the amendment shall be
effective unless the Participant shall have agreed thereto.
9. TERMINATION.
The Committee may, in its sole discretion, terminate this Plan at any
time.
10. MISCELLANEOUS PROVISIONS.
(a) This Plan is not a contract between the Company and the
executive officers or the Participants. Neither the establishment of this Plan,
nor any action taken hereunder, shall be construed as giving any individual any
right to be a Participant, receive an Award or be retained in the employ of the
Company. The Company is under no obligation to continue the Plan.
(b) No Award under this Plan shall be deemed earned for any
purpose whatsoever until is certified in writing by the Committee.
(c) Nothing contained in the Plan shall limit or affect in any
manner or degree the normal and usual powers of management exercised by the
officers and the Board or committees thereof to change the duties or the
character of employment of any employee (including any executive officer) of
the Company or to remove the individual from the employment of the Company at
any time, all of which rights and powers are expressly reserved.
(d) A Participant's right and interest under the Plan may not be
assigned or transferred, except as provided in Section 7 of the Plan, and any
attempted assignment or transfer shall be null and void and shall extinguish,
in the Company's sole discretion, the Company's obligation under the Plan to
pay Awards with respect to the Participant.
(e) The Plan shall be unfunded. The Plan shall not be required to
establish any special or separate fund, or to make any other segregation of
assets, to assure payment of Awards.
(f) The Company shall have the right to deduct from Awards paid
any taxes or other amounts required by law to be withheld.
5
<PAGE> 6
(g) The Plan and all rights hereunder shall be construed in
accordance with and governed by the laws of the State of Delaware.
11. EFFECTIVE DATE.
This Plan shall be effective as of the date that it is approved by the
Board.
6
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction D/B/A
---- ------------ -----
<S> <C> <C>
Fuisz International Holdings Limited Ireland Fuisz International Holdings
Limited
Fuisz International Limited Ireland Fuisz International Limited
Fuisz International Bermuda Limited Bermuda Fuisz International Bermuda
Limited
Fuisz Ireland Limited Ireland Fuisz Ireland Limited
Fuisz Technologies (Ireland) Limited Ireland Fuisz Technologies (Ireland)
Limited
Laboratoires Murat France Laboratoires Murat
Pangea Ltd. United States Pangea Ltd.
Clonmel Healthcare Limited Ireland Clonmel Healthcare Limited
Istoria Farmaceutici Italy Istoria Farmaceutici
Dr. Rentschler GmbH & Co. Medizin KG Germany Dr. Rentschler GmbH & Co.
Medizin KG
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND L.L.P.
We consent to the incorporation by reference in the registration statements of
Fuisz Technologies Ltd. on Form S-8 (File No. 333-03347), and Form S-3 (File
No. 333-41037), of our report, dated February 25, 1998, on our audits of the
consolidated financial statements of Fuisz Technologies Ltd. as of December 31,
1996 and 1997, and for each of the three years in the period ended December 31,
1997, which report is included in this Annual Report on Form 10K. We also
consent to the reference to our firm under the caption "Selected Financial
Data".
Coopers & Lybrand L.L.P.
McLean, Virginia
March 31, 1998
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