SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File Number:
December 31, 1999 0 - 19957
Quantech Ltd.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1709417
- --------------------------------------- ----------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
1419 Energy Park Drive
St. Paul, MN 55108
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(651)-647-6370
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ____
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 4,946,945 shares of Common
Stock, no par value, as of February 8, 2000.
Transitional Small Business Disclosure Format: YES ___ NO X
<PAGE>
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements:
Balance Sheets as of December 31, 1999 and June 30, 1999 3
Statements of Operations for the Three Months and Six Months
Ended December 31, 1999 and 1998 and from inception to
December 31, 1999 4
Statement of Stockholders' Equity from inception
to December 31, 1999 6
Statements of Cash Flows for the Six Months ended
December 31, 1999 and 1998 and from inception to
December 31, 1999 8
Notes to Financial Statements 9
Item 2: Management's Discussion and Analysis or Plan of Operation 10
PART II. OTHER INFORMATION 14
<PAGE>
<TABLE>
<CAPTION>
QUANTECH LTD.
(A Development Stage Company)
BALANCE SHEET
(Unaudited)
December 31, June 30,
1999 1999
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 244,165 $ 436,223
Prepaid expenses:
Product development expenses 0 57,500
Other 36,167 36,037
---------------- ---------------
Total current assets 280,332 529,760
---------------- ---------------
EQUIPMENT
Equipment 465,421 427,508
Leasehold improve 15,000 15,000
---------------- ---------------
480,421 442,508
Less accumulated depreciation (318,067) (276,295)
---------------- ---------------
Total equipment 162,354 166,213
---------------- ---------------
OTHER ASSETS
License agreement, at cost, less
amortization 2,245,867 2,409,180
Patents, at cost 13,045 13,045
---------------- ---------------
Total other assets 2,258,912 2,422,225
---------------- ---------------
TOTAL ASSETS $ 2,701,598 $ 3,118,198
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Short term debt $ 750,000 $ 746,000
Accounts payable 634,261 111,858
Accrued expenses:
Interest 5,000 3,100
Minimum royalty commitment 150,000 75,000
Accrued payroll/vacation 139,677 120,300
---------------- ---------------
Total current liabilities 1,678,938 1,056,258
---------------- ---------------
REDEEMABLE PREFERRED STOCK 5,134,827 5,113,142
STOCKHOLDERS' EQUITY (DEFICIT)
Series B Preferred Stock, no par value;
authorized 3,000,000 shares;
outstanding 1,961,667 and 623,334
shares at December 31, 1999 and
June 30, 1999, respectively 1,845,318 891,500
Common stock, no par value; authorized
50,000,000 shares; outstanding
3,551,304 shares and 2,741,534 shares
at December 31, 1999 and June 30,
1999, respectively 17,290,256 16,498,837
Subscriptions receivable (35,000) (60,000)
Additional paid-in capital 2,868,895 2,342,745
Deficit accumulated during the
development stage (26,081,636) (22,724,284)
---------------- ---------------
Total stockholders' equity (deficit) (4,112,167) (3,051,202)
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,701,598 $ 3,118,198
================ ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUANTECH LTD.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Period From
Six Months Six Months September 30,
Ended Ended 1991 (Date of
December 31, December 31, Inception), to
1999 1998 December 31, 1999
------------------ ------------------- ------------------
<S> <C> <C> <C>
Interest Income $ 1,810 $ 1,068 $ 186,912
------------------ ------------------- ------------------
Expenses:
General and Administrative 1,324,216 931,641 12,079,451
Research and Development 1,231,217 974,645 9,301,010
Minimum Royalty expense 75,000 75,000 1,300,000
Loses resulting from transactions
with Spectrum Diagnostics Inc. - - 556,150
Net Exchange (gain) - - (67,172)
Interest 25,776 714,982 1,976,141
------------------ ------------------- ------------------
Total Expenses 2,656,209 2,696,268 25,145,580
------------------ ------------------- ------------------
Loss before income taxes (2,654,399) (2,695,200) (24,958,668)
Income Taxes - - 42,595
------------------ ------------------- ------------------
Net Loss $ (2,654,399) $ (2,695,200) $ (25,001,263)
================== =================== ==================
Net loss attributable to common
shareholders:
Net loss $ (2,654,399) $ (2,695,200)
Preferred stock accretion (263,103) (90,785)
Beneficial conversion feature
of preferred stock (439,850) -
------------------ -------------------
Net loss attributable to common
shareholders $ (3,357,352) $ (2,785,985)
================== ===================
Loss per basic and diluted common share $ (1.04) $ (1.06)
Weighted average common shares
outstanding 3,228,137 2,620,475
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUANTECH LTD.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Three Months Three Months
Ended Ended
December 31, December 31,
1999 1998
--------------- ----------------
<S> <C> <C>
Interest Income $ 427 $ 415
--------------- ----------------
Expenses:
General & Administrative 722,881 624,813
Research and development 639,763 446,534
Minimum royalty expense 37,500 37,500
Loses resulting from transactions
with Spectrum Diagnostics Inc. - -
Net exchange (gain) - -
Interest 16,168 43,450
--------------- ----------------
Total Expenses 1,416,312 1,152,297
--------------- ----------------
Loss before income taxes (1,415,885) (1,151,882)
Income taxes - -
=============== ================
Net loss $ (1,415,885) $ (1,151,882)
=============== ================
Net loss attributable to common shareholders:
Net loss $ (1,415,885) $ (1,151,882)
Preferred stock accretion (135,632) (90,785)
Beneficial conversion feature of
preferred stock (439,850) -
--------------- ----------------
Net loss attributable to common shareholders $ (1,991,367) $ (1,242,667)
=============== ================
Loss per basic and diluted common share $ (0.56) $ (0.47)
Weighted average common shares
outstanding 3,534,148 2,663,199
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period From September 30, 1991 (date of Inception), to December 31, 1999
Deficit
Accumulated
During
Series B Additional the
Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Capital Stage
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at Inception
Net Loss for 15 months ($3,475,608)
Common stock transactions:
Common stock issued, October 1991 160,000 $3,154,574
Common stock issued, November 1991 30,000 $611,746 $1,788,254
Common stock issuance costs ($889,849)
Cumulative translation adjustment
Common stock issued, September 1992 35,000 $699,033 $875,967
Common stock issuance costs ($312,755)
Common stock to be issued
Cumulative translation adjustment
Elimination of cumulative
translation adjustment
Officers advances, net
-----------------------------------------------------------------
Balance, December 31, 1992 0 $0 225,000 $4,465,353 $1,461,617 ($3,475,608)
Net loss ($996,089)
Common stock transactions:
Common stock issued, January 1993 8,000 $1,600 $118,400
Common stock issued, April 1993 1,500 $300 $11,700
Change in common stock par
value resulting from merger ($4,420,353) $4,420,353
Repayments
-----------------------------------------------------------------
Balance,June 30, 1993 0 $0 234,500 $46,900 $6,012,070 ($4,471,697)
Net loss ($1,543,888)
240,000 shares of common
stock to be issued
Repayments
-----------------------------------------------------------------
Balance, June 30, 1994 0 $0 234,500 $46,900 $6,012,070 ($6,015,585)
Net loss ($2,070,292)
Common stock issued, June 1995 107,500 $21,500 $276,068
Warrants issued for services $40,200
-----------------------------------------------------------------
Balance June 30, 1995 0 $0 342,000 $68,400 $6,328,338 ($8,085,877)
Net loss ($2,396,963)
Common stock issued, net of
issuance costs of $848,877:
July, 1995 308,000 $61,600 $1,304,450
August, 1995 35,880 $7,176 $161,460
September, 1995 690,364 $138,073 $2,370,389
November, 1995 94,892 $18,978 $425,482
December, 1995 560,857 $112,172 $1,292,473
May, 1996 313,750 $62,750 $3,300,422
June, 1996 252 $51 $3,650
Payments received on
subscription receivable (960) (192) ($14,808)
Compensation expense recorded
on stock options $125,000
-----------------------------------------------------------------
Balance, June 30, 1996 0 $0 2,345,035 $469,008 $15,296,856 ($10,482,840)
Net loss ($3,925,460)
Stock offering costs ($12,310)
Common stock issued upon exercise
of options and warrants
September 1996 500 $100 $2,400
October 1996 8,500 $1,700 $40,800
November 1996 750 $150 $3,600
December 1996 13,500 $2,700 $64,800
January 1997 1,000 $200 $4,800
February 1997 7,500 $1,500 $17,250
March 1997 7,000 $1,400 $33,600
Payments received on
subscription receivable
Compensation expense recorded
on stock options $48,000
Common stock issued, June 1997 18,250 $3,650 $105,850
Warrants issued with notes payable $371
------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period From September 30, 1991 (date of Inception), to December 31, 1999
(Continued)
Sub- Paid for Due Cumulative
scriptions Not From Translation
Receivable Issued Officers Adjustment
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at Inception
Net Loss for 15 months
Common stock transactions:
Common stock issued, October 1991
Common stock issued, November 1991
Common stock issuance costs
Cumulative translation adjustment $387,754
Common stock issued, September 1992 ($53,689)
Common stock issuance costs
Common stock to be issued $120,000
Cumulative translation adjustment ($209,099)
Elimination of cumulative
translation adjustment ($178,655)
Officers advances, net ($27,433)
----------------------------------------------------------------
Balance, December 31, 1992 ($53,689) $120,000 ($27,433) $0
Net loss
Common stock transactions:
Common stock issued, January 1993 ($120,000)
Common stock issued, April 1993
Change in common stock par
value resulting from merger
Repayments $5,137
---------------------------------------------------------------
Balance,June 30, 1993 ($53,689) $0 ($22,296) $0
Net loss
240,000 shares of common
stock to be issued $30,000
Repayments $53,689 $22,296
---------------------------------------------------------------
Balance, June 30, 1994 $0 $30,000 $0 $0
Net loss
Common stock issued, June 1995 ($20,000) ($30,000)
Warrants issued for services
---------------------------------------------------------------
Balance June 30, 1995 ($20,000) $0 $0 $0
Net loss
Common stock issued, net of
issuance costs of $848,877:
July, 1995
August, 1995
September, 1995
November, 1995
December, 1995
May, 1996
June, 1996
Payments received on
subscription receivable $20,000
Compensation expense recorded
on stock options
---------------------------------------------------------------
Balance, June 30, 1996 $0 $0 $0 $0
Net loss
Stock offering costs
Common stock issued upon exercise
of options and warrants
September 1996
October 1996
November 1996
December 1996 ($57,500)
January 1997
February 1997
March 1997
Payments received on
subscription receivable $57,500
Compensation expense recorded
on stock options
Common stock issued, June 1997
Warrants issued with notes payable
---------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period From September 30, 1991 (date of Inception), to December 31, 1999
Deficit
Accumulated
During
Series B Additional the
Preferred Stock Common Stock Paid-In Development
Shares Amount Shares Amount Capital Stage
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 2,402,035 $480,408 $15,606,017 ($14,408,300)
Net Loss ($3,648,748)
Conversion of common stock from par
value to no par value $15,392,446 ($15,392,446)
Common stock issued for license
agreement:
September 1997 150,000 $390,000
Common stock issued for equipment and
services received: March 1998 13,078 $45,584
Warrants issued for services received:
March 1998 $15,215
April 1998 $500
Warrants issued with notes payable $939
Amount attributable to value of debt
conversion feature $988,444
Warrants issued for license agreement
December 1997 $230,000
Compensation expense recorded
on stock options $28,000
Adjustment of fractional shares due
to 1-for 20 reverse stock split (73)
-----------------------------------------------------------------------------
Balance, June 30, 1998 0 $0 2,565,040 $16,308,438 $1,476,669 ($18,057,048)
Net Loss ($4,289,816)
Warrants issued with notes payable $76
Common stock issued upon conversion
of notes payable:
July 1998 2,000 $7,060
September 1998 3,400 $12,002
October 1998 25,000 $18,750
Common stock issued upon exercise of
warrant: August 1998 2,045 $5,114
Common stock issued for equipment and
services received:
July 1998 5,714 $20,000
August 1998 9,196 $27,589
September 1998 12,557 $11,318
December 1998 6,078 $5,688
Stock options issued for services:
October 1998 $42,000
Compensation expense recorded
on stock options $43,000
Common stock issued upon conversion
of preferred stock:
November 1998 74,052 $55,539
January 1999 15,952 $11,964
March 1999 500 $375
April 1999 20,000 $15,000
Warrants issued for services:
November 1998 $781,000
Series B Preferred Stock issued:
June 1999 623,334 $891,500
Accrete to redemption value on
Series A Preferred Stock ($377,420)
--------------------------------------------------------------------------------
Balance, June 30, 1999 623,334 $891,500 2,741,534 $16,498,837 $2,342,745 ($22,724,284)
Net Loss ($2,654,399)
Series B Preferred Stock issued:
July 1999 216,666 $291,829
August 1999 86,667 $116,989
September 1999 16,667 $22,500
October 1999 - adjust price
to $1.00 471,666
November 1999 100,000 $100,000
December 1999 480,000 $472,500
Beneficial conversion expense on
Series B Preferred Stock $439,850 ($439,850)
Common stock issued upon conversion
of preferred stock:
July 1999 32,000 $24,000
August 1999 (33,333) ($50,000) 179,121 $159,341
September 1999 80,852 $60,639
October 1999 50,000 $37,500
December 1999 13,252 $9,939
Common stock issued upon exercise
of warrant, September 1999 454,545 $500,000
Warrant issued, September 1999 $10,000
Warrants issued, November 1999 $15,000
Compensation expense recorded
on stock options $61,300
Payment received on
subscriptions receivable
Accrete to redemption value on
Series A Preferred Stock ($263,103)
----------------------------------------------------------------------------------
Balance December 31, 1999 1,961,667 $1,845,318 3,551,304 $17,290,256 $2,868,895 ($26,081,636)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period From September 30, 1991 (date of Inception), to December 31, 1999
(Continued)
Sub- Paid for Due Cumulative
scriptions Not From Translation
Receivable Issued Officers Adjustment
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1997 $0 $0 $0 $0
Net Loss
Conversion of common stock from par
value to no par value
Common stock issued for license
agreement:
September 1997
Common stock issued for equipment and
services received: March 1998
Warrants issued for services received:
March 1998
April 1998
Warrants issued with notes payable
Amount attributable to value of debt
conversion feature
Warrants issued for license agreement
December 1997
Compensation expense recorded
on stock options
Adjustment of fractional shares
due to 1-for 20 reverse stock split
---------------------------------------------------------------
Balance, June 30, 1998 $0 $0 $0 $0
Net Loss
Warrants issued with notes payable
Common stock issued upon conversion
of notes payable:
July 1998
September 1998
October 1998
Common stock issued upon exercise of
warrant: August 1998
Common stock issued for equipment and
services received:
July 1998
August 1998
September 1998
December 1998
Stock options issued for services:
October 1998
Compensation expense recorded
on stock options
Common stock issued upon conversion
of preferred stock:
November 1998
January 1999
March 1999
April 1999
Warrants issued for services:
November 1998
Series B Preferred Stock issued:
June 1999 ($60,000)
Accrete to redemption value on
Series A Preferred Stock
----------------------------------------------------------------
Balance, June 30, 1999 ($60,000) $0 $0 $0
Net Loss
Series B Preferred Stock issued:
July 1999
August 1999
September 1999
October 1999 - adjust price
to $1.00
November 1999
December 1999 ($20,000)
Beneficial conversion expense on
Series B Preferred Stock
Common stock issued upon conversion
of preferred stock:
July 1999
August 1999
September 1999
October 1999
December 1999
Common stock issued upon exercise
of warrant, September 1999
Warrant issued, September 1999 ($10,000)
Warrants issued, November 1999 ($15,000)
Compensation expense recorded
on stock options
Payment received on
subscriptions receivable $70,000
Accrete to redemption value on
Series A Preferred Stock
---------------------------------------------------------------
Balance December 31, 1999 ($35,000) $0 $0 $0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUANTECH LTD
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - UNAUDITED
Period From
September 30,
Six Months Six Months 1991 (Date of
Ended Ended Inception), to
December 31, December 31, December 31,
1999 1998 1999
--------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Loss $ (2,654,399) $ (2,695,200) $ (25,001,263)
Adjustments to reconcile net loss to net cash used in
operating activities:
Elimination of cumulative translation adjustment - - (178,655)
Depreciation 41,772 17,758 364,421
Amortization 220,814 81,655 2,398,785
Noncash compensation, services and interest 61,300 597,595 2,789,220
Losses resulting from transactions with
Spectrum Diagnostics Inc. - - 556,150
Write down of investment - - 67,500
Change in assets and liabilities, net of effects from
purchase of Spectrum Diagnostics Inc.:
(Increase) decrease in prepaid expenses (130) 7,239 47,925
Increase (decrease) in accounts payable 522,403 124,543 626,038
Increase (decrease) in accrued expenses 96,277 179,872 568,801
--------------- ------------- -------------
Net cash used in operating activities (1,711,963) (1,686,538) (17,761,078)
--------------- ------------- -------------
Cash Flows From Investing Activities
Purchase of property and equipment (37,913) (8,457) (537,179)
Proceeds on disposition of property - - 37,375
Patent expenses - (4,016) (13,045)
Organization expenses - - (97,547)
Officer advances, net - - (109,462)
Purchase of investment - - (225,000)
Purchase of license agreement - - (1,950,000)
Advances to Spectrum Diagnostics, Inc. - - (320,297)
Prepaid securities issuance costs - - (101,643)
Purchase of Spectrum Diagnostics, Inc., net of cash -
and cash equivalents acquired - - (1,204,500)
--------------- ------------- -------------
Net cash used in investing activities (37,913) (12,473) (4,521,298)
--------------- ------------- -------------
Cash Flows From Financing Activities
Net proceeds from the sale of Series A Preferred Stock - - 1,523,909
Net proceeds from the sale of Series B Preferred Stock 1,003,818 - 1,835,318
Net proceeds from the sale of Common Stock and warrants 525,000 - 13,405,797
Proceeds on debt obligations 4,000 502,230 6,051,085
Payments received on stock subscriptions receivable 25,000 - 30,000
Payments on debt obligations - - (522,810)
--------------- ------------- -------------
Net cash provided by financing activities 1,557,818 502,230 22,323,299
--------------- ------------- -------------
Effect of Exchange Rate Changes on Cash - - 203,242
Net increase (decrease) in cash (192,058) (1,196,781) 244,165
--------------- ------------- -------------
Cash
Beginning 436,223 46,135 -
--------------- ------------- -------------
Ending $ 244,165 $ (1,150,646) $ 244,165
=============== ============= =============
</TABLE>
<PAGE>
QUANTECH LTD.
( A Development Stage Company )
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
In the opinion of the management of Quantech, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal,
recurring adjustments) necessary to present fairly the financial position of
Quantech as of December 31, 1999 and the results of operations for the three and
six month periods and its cash flows for the six month periods ended December
31, 1999 and 1998. The results of operations for any interim period are not
necessarily indicative of the results for the year. These interim financial
statements should be read in conjunction with Quantech's annual financial
statements and related notes in Quantech's Annual Report on Form 10-KSB for the
year ended June 30, 1999.
Note 2. LICENSE AGREEMENT
Quantech has a license agreement with Ares-Serono for certain patents,
proprietary information and associated hardware related to SPR technology. The
license calls for an ongoing royalty of 6 percent on all products utilizing the
SPR technology which are sold by Quantech. In addition, if Quantech sublicenses
the technology, Quantech will pay a royalty of 15 percent of all revenues
received by Quantech under any sublicense. To date, Quantech has paid $1,300,000
of cumulative royalty payments. This amount satisfies the requirements of the
license agreement until royalty accruals based on revenues exceed such minimum
payment amount.
Note 3. SERIES A CONVERTIBLE PREFERRED STOCK
In November 1998, Quantech established an additional class of shares as
Series A convertible preferred stock (the "Series A Preferred Stock"). Quantech
has designated 2,500,000 of its authorized shares as Series A Preferred Stock.
As of February 8, 2000 there were 1,491,005 shares of Series A Preferred Stock
issued and outstanding. See also Part II, Item 2.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
History
Quantech Ltd. is a Minnesota company originally founded in 1991. Quantech
is completing development of its FasTraQ(TM) Hospital Emergency Department
Patient Treatment Information Platform. The FasTraQ is expected to run tests for
a number of different medical conditions and deliver that test information by
wireless ReaLinQ(TM) communication devices to the Emergency Department ("ED")
staff treating a patient.
The FasTraQ consists of an instrument that sits on the top of a counter and
reads disposable PrePaQTM test cartridges developed by Quantech. Each Quantech
PrePaQ test cartridge will contain from one to four different medical tests such
as those for a heart attack or pregnancy. The instrument produces test results
in a manner different than other testing systems because it uses Quantech's
proprietary technology based on the scientific phenomenon known as surface
plasmon resonance ("SPR"), which involves the interaction of light with
electrons. Quantech's technology creates SPR in a controlled environment which
enables its instrument to detect and transmit information concerning the
presence and quantity of certain native and foreign molecules in blood, urine or
other fluids which may be associated with specific diseases or medical
conditions. Transmission of this test information to the ED treatment staff will
be performed though the use of ReaLinQ(TM) wireless local area network
communications system and handheld receiving devices similar to a pager or PDA.
We are designing the FasTraQ for the emergency department. It is expected
to have the range of available tests and quality performance of hospitals'
central and STAT labs, but with test time turnaround of less than 15 minutes.
The system will analyze both whole blood and urine without preparation or
addition of other substances or removal of the sample from the collection
device. We believe this ease of use and the ability to locate the FasTraQ in the
emergency department will economically provide physicians with faster test
results than hospital central or STAT laboratories.
We expect the FasTraQ to include a number of tests grouped together in
panels that are related to the condition of the patient such as cardiac enzymes
(heart attack), pregnancy, red and white blood cell counts, blood coagulation,
kidney function, pancreas function and electrolytes. Tests for liver functions,
drugs of abuse, therapeutic drugs and additional tests will also be made
available on the system. We have received clearance from the U.S. Food and Drug
Administration ("FDA") to market for use in the clinical environment our tests
for the cardiac (heart attack) enzymes Myoglobin and CK-MB and the pregnancy
enzyme hCG. The final heart attack test for Troponin I meets clinical
requirements and the remaining launch menu of tests are in various stages of
development or discussion with strategic partners.
The ED is a significant and consolidated market. Current processes for
providing test information to the ED staff are complicated and require a
multitude of steps that greatly increase patient treatment turnaround time. The
challenge is to increase efficiency and decrease costs. Time delays and
interruption of batch testing in the central lab, and the cost of tests run in
STAT labs, have caused both to fall well short of meeting the burden of
providing fast and economic STAT test results. Although there are some
point-of-care STAT testing products available for the ED, they do not have the
required test menu, ease of use, communication capability or quality of results
necessary to streamline the entire ED testing process. The solution is seven day
a week, 24 hour a day disintermediation of the process for providing ED
treatment information. We believe the FasTraQ will provide this capability.
Quantech and PE Biosystems ("PE"), a leading supplier of life science
systems and analytical instruments, are parties to a technology and development
agreement. Such agreement provides PE with exclusive licenses, in exchange for
future royalties, to certain Quantech technology for use outside of Quantech's
core area of medical diagnostics. After Quantech and PE significantly advanced
the state-of-the-art in the SPR technology, they agreed that a company focused
on promoting the non-medical use of the SPR technology would be most effective
in bringing products to market without affecting mainstream activities of either
company. As a result, HTS BioSystems, Inc. ("HTS") was established with Quantech
owning 80% of the stock and PE owning 20%. The technology portfolio provided to
HTS by Quantech and PE is expected to support the accelerated development of
label-free, cost effective "high throughput screening" systems, initially for
the scientific research market.
<PAGE>
Quantech is a development stage company which has suffered significant
losses from operations, requires additional financing, and ultimately needs to
complete development of its product, generate revenues, and successfully attain
profitable operations to realize the value of its license agreement. These
factors raise substantial doubt about Quantech's ability to continue as a going
concern.
Results of Operations
Quantech has incurred a net loss of $25,001,263 from September 30, 1991
(date of inception) through December 31, 1999 due to expenses related to
formation and operation of Quantech's predecessor, Spectrum Diagnostics Inc.
("SDS") in Italy, continuing costs of raising capital, normal expenses of
operating over an extended period of time, funds applied to research and
development, royalty payments related to the SPR technology, losses due to
expenses of SDS and interest on borrowed funds. In addition, an investment of
$3,356,629 was made when Quantech purchased the exclusive rights to the SPR
technology, and $1,300,000 of minimum royalties have been paid on the license.
General and administration expenses increased to $722,881 and $1,324,216
for the three months and six months ended December 31, 1999 from $624,813 and
$931,641 for the same periods in 1998 primarily due to market research expenses
including fees paid to consultants and research firms and costs to attend
industry trade shows, partially offset by lower costs associated with financing
activities. We expect general and administrative expenses to increase in the
future as we complete development of our system, prepare for market launch and
begin to manufacture and distribute our products. Quantech will also begin to
incur increasing sales and marketing expenses.
Research and development costs increased to $639,763 and $1,231,217 for the
three months and six months ended December 31, 1999 from $446,534 and $974,645
for the same periods in 1998 primarily due to increased internal development
work. We expect R&D spending to significantly increase as we complete the
commercial development of our system, conduct additional FDA work, and begin to
establish higher volume manufacturing capabilities.
Minimum royalty expense of $37,500 and $75,000 were unchanged for the three
months and six months ended December 31, 1999 compared to the same periods in
1998. The final minimum royalty payment has been made, and in the future we
expect to incur additional royalty expense when royalties based on revenues
exceed minimum payments (see Notes to Financial Statements, Note 2 License
Agreement).
Interest expense decreased to $16,168 and $25,776 for the three months and
six months ended December 31, 1999 from $43,450 and $714,982 during the same
periods in 1998 as a result of reduced debt. Interest expense is expected to
remain flat for the remainder of the fiscal year as Quantech does not anticipate
any debt other than borrowing up to $750,000 from its bank credit facility.
For the three and six months ended December 31, 1999 Quantech had losses of
$1,415,885 and $2,654,399 as compared to $1,151,882 and $2,695,200 for the same
periods in 1998. The higher loss for the quarter was primarily due to higher
operating expenses partially offset by lower interest expense. On a year-to-date
basis, the loss was slightly smaller as lower interest expense was mostly offset
by higher operating expenses.
The timetable for submitting additional tests to the FDA and introduction
of Quantech's system to the market will be influenced by Quantech's ability to
obtain further funding, enter into strategic relationships, complete commercial
prototype development of its system and develop further tests, and delays it may
encounter with the FDA in its review of Quantech's tests and system. There can
be no assurance that Quantech will be able to obtain the required funding, enter
into any strategic agreements or ultimately complete its commercial system.
<PAGE>
Liquidity and Capital Resources
From inception to December 31, 1999, Quantech has raised approximately
$22,800,000 through a combination of public stock sales, private stock sales and
debt obligations. Quantech began offering for sale shares of Series B Preferred
Stock in May 1999, and amended the provisions of its offering in October 1999 to
provide for a price of $1.00 per share. Such offering has been completed and
Quantech raised an aggregate of $3,905,000. In February 2000, Quantech raised
$1,000,000 from the sale of Series C Preferred Stock. The shares were sold at
$1.00 per share, and each share is convertible into one share of Quantech common
stock. In November 1999, Quantech received $15,000 from the sale of a warrant to
purchase 75,000 shares of common stock.
Quantech anticipates that its cash on hand will allow it to maintain
operations through July 2000. Additional financing of approximately $10 million
will be needed to develop and submit to the FDA additional tests, complete
clinical evaluation of the system, establish manufacturing capabilities and
prepare for sales of the system. Quantech is currently reviewing multiple
avenues of future funding including private sale of equity or debt with equity
features or arrangements with strategic partners. Quantech does not have any
commitments for any such financing and there can be no assurance that Quantech
will obtain additional capital when needed or that additional capital will not
have a dilutive effect on current stockholders. See "Cautionary Statements -- We
need additional cash and will require at least $10 million in additional
financing to complete commercial development of our system and have no
commitment to receive any additional significant funding." Although Quantech has
a limited lending arrangement with its bank to a maximum of $750,000, all of
which credit line will be used by April 2000, it does not anticipate receiving
any additional significant funding from commercial lenders.
Quantech incurred capital expenditures of $37,913 in the six month period
ended December 31, 1999. Quantech anticipates significant capital expenditures
in the future for laboratory and production equipment and office expansion as
Quantech nears product introduction. The timing and amount of such expenditures
will be governed by Quantech's development and market introduction schedules
which are subject to change due to a number of factors including development
delays, FDA approval and availability of future financing.
As of February 8, 2000 Quantech had 4,946,945 shares of common stock
outstanding. It also had options and warrants outstanding to purchase an
additional 5,782,777 shares at exercise prices from $0.75 to $14.40, and Series
A, B and C Preferred Stock convertible into 9,963,687 shares of common stock.
Cautionary Statements
Quantech wishes to caution investors that the following important factors,
among others, in some cases have affected, and in the future could affect,
Quantech's actual results of operations and cause such results to differ
materially from those anticipated in forward-looking statements regarding
financing needs, expenditures and other matters made in this document and
elsewhere by or on behalf of Quantech.
We need additional cash and will require at least $10 million in additional
financing to complete commercial development of our system and have no
commitment to receive any additional significant funding.
Quantech does not have sufficient funds to complete commercial development
or commence production and sales of its system. Quantech anticipates that its
cash on hand and bank credit facility will allow it to maintain operations
through the end of July 2000. Additional financing of at least $10 million of
investment capital, funding by strategic partner(s) or licensing revenues will
be needed for the following: to develop and submit to the FDA additional tests,
complete clinical evaluation of the system, establish manufacturing capabilities
and prepare for sales of the system. Quantech does not have any commitments for
any such additional financing and does not anticipate receiving any additional
significant funding from commercial lenders. There can be no assurance that any
such additional financing can be obtained on favorable terms, if at all. Any
additional equity financing will result in dilution to Quantech stockholders.
<PAGE>
"Going concern" statement in auditor's report may make it difficult to
raise new capital.
Quantech has not had any significant revenues to date. As of June 30, 1999
and December 31, 1999, we had accumulated deficits of $22,727,284 and
$26,081,636, respectively. The report of the independent auditors on Quantech's
financial statements for the year ended June 30, 1999, includes an explanatory
paragraph relating to the uncertainty of Quantech's ability to continue as a
going concern, which may make it more difficult for Quantech to raise additional
capital.
Failure to complete development of the system on the current timetable and
budget would increase the amount of additional financing required and might make
it impossible for Quantech to continue operations.
Components of the system are under various stages of development. Until
system development is completed and cleared through the FDA, there can be no
assurance that the system will be finished according to our current development
timetable and budget. Failure to timely finish on budget will require Quantech
to seek funding greater than currently anticipated and make it more difficult to
raise the additional funding. Additionally, the final price that we will need to
charge to cover the costs of the instrument and the test cartridges cannot be
determined until development is complete and FDA clearances have been obtained.
If Quantech cannot receive FDA approval and offer the system with certain
required features at a cost acceptable to potential customers, it will be
impossible for Quantech to continue operations.
Other Factors
As described in Quantech's Form 10-KSB for the year ended June 30, 1999
under Cautionary Statements, there are additional factors concerning the Company
that should be considered including: uncertainty of market acceptance of
Quantech's product once introduced, inability or delay in obtaining FDA product
approval, competition, lack of marketing and manufacturing experience,
technological obsolescence, ability to maintain patent protection on the
Company's technology and not violate others' rights, effects of government
regulation on Quantech's product and its sale, ability to manufacture its
product, dependence on key personnel, exposure to the risk of product liability
and the limited market for the Company's shares.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
During November and December 1999, Quantech sold 580,000 shares of
Series B Preferred Stock to accredited investors at a price of $1.00
per share. Quantech also exchanged shares that had previously been
sold at a price of $1.50 per share for new shares priced at $1.00 per
share, resulting in the issuance of an additional 471,666 shares. Each
share of Series B Preferred Stock is convertible into one share of
Quantech common stock. The sale of such shares was deemed to be exempt
from registration under Section 4(2) of the Securities Act of 1933
(the "1933 Act") and Rule 506 promulgated thereunder. The Company paid
commissions and accountable expenses in the aggregate amount of $7,500
to a registered investment bank for acting as selling agent and issued
the investment bank a warrant to purchase up to 7,500 shares of common
stock at an exercise price of $1.00 per share as additional
compensation. The purchasers acquired these securities for their own
account and not with a view to any distribution thereof to the public.
During October and December 1999, Quantech issued 50,000 shares and
13,252 shares, respectively, of common stock pursuant to conversion of
preferred stock. The sale of such shares was deemed to be exempt from
registration under Section 3(a)(9) of the 1933 Act. The purchasers
acquired these securities for their own account and not with a view to
any distribution thereof to the public.
During November 1999, Quantech sold warrants to accredited investors
to purchase 75,000 shares of Quantech common stock at $1.06 per share.
The warrants were sold for $15,000 and may be exercised any time
before November 16, 2004. The sale of such securities was deemed to be
exempt from registration under Section 4(2) of the 1933 Act. The
purchasers acquired these securities for their own account and not
with a view to any distribution thereof to the public.
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on December 1, 1999 in
Minneapolis, Minnesota. The Company solicited proxies and filed a
definitive proxy statement with the Securities and Exchange Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended. The matters voted upon at the meeting and the votes cast were
as follows:
No. 1 Election of Mr. Robert Case as class 1 director Votes for -
6,131,066 Votes Against - 99 Votes Withheld - 19,515 Election of Dr.
Robert W. Gaines, Jr. as class 1 director Votes for - 6,129,066 Votes
Against - 99 Votes Withheld - 21,515 The terms of the following
directors continued after the meeting: Edward E. Strickland, Richard
W. Perkins and James F. Lyons.
No. 2 Increase in shares reserved for issuance under the 1998 Stock
Option Plan Votes for - 3,990,870 Votes Against - 899,455 Abstain -
20,742 Broker Non-Votes - 1,239,863
Item 5. Other Information
Not Applicable
<PAGE>
Item 6. Exhibits and Reports on 8-K
a. Exhibits -
10.1 Lease agreement for space at 815 Northwest Parkway,
Eagan, MN 55121.
27 Financial Data Schedule (filed in electronic format only)
b. Reports on Form 8-K - A report on Form 8-K was filed on
January 25, 2000 reporting under Item 5 the establishment of
subsidiary company HTS Biosystems, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUANTECH LTD
/s/ Robert Case
Robert Case
Chief Executive Officer
/s/ Gregory G. Freitag
Gregory G. Freitag
Chief Operating Officer and
Date: February 14, 2000 Chief Financial Officer
<PAGE>
EXHIBIT INDEX
QUANTECH LTD.
FORM 10-QSB for Quarter Ended
December 31, 1999
Exhibit Number Description
- -------------------- ----------------------------------------------
10.1 Lease agreement for space at 815 Northwest
Parkway, Eagan, MN 55121.
27 Financial Data Schedule (filed in electronic
format only)
Exhibit 10.1
LEASE AGREEMENT
This LEASE AGREEMENT ("Lease") is made and entered into this day of December,
1999 by and between CSM PROPERTIES, INC., a Minnesota corporation, ("Landlord")
and QUANTECH LTD., a Minnesota corporation, ("Tenant").
SECTION 1. FUNDAMENTAL LEASE TERMS. Subject to the covenants, terms and
conditions of this Lease as more particularly set forth herein, the fundamental
terms of this Lease are as follows:
A. Premises (Section 2): Approximately 8,328 square feet of warehouse
space, 7,340 square feet of manufacturing space, 5,114 square feet of
office space, and 90 square feet of Common Building Areas (defined
herein) (for a total of 20,872 rentable square feet of area) within the
Project (defined herein) containing approximately 73,465 total rentable
square feet of area and commonly known as the WATERS BUSINESS CENTER
PHASE II.
B. Initial Lease Term (Section 4): Eighty-four and one-half months (84
1/2) full calendar months, commencing on April 15, 2000, and expiring
on April 30, 2007.
C. Base Rent (Section 5):
Months Monthly Base Rent Per Sq. Ft.
1-48 $15,967.08 $ 9.18
49-84 $17,462.91 $10.04
Option Term:
85-144 $19,202.24 $11.04
Base Rent shall be subject to adjustment pursuant to the terms of this
Lease.
D. Proportionate Share (Section 7): Twenty-eight and 41/100 percent
(28.41%), subject to adjustment pursuant to the terms of this Lease.
E. Permitted Use (Section 10): General office, warehouse, and
manufacturing and production of medical products in accordance with
Food and Drug Administration standards.
F. Security Deposit (Section 24): Sixteen Thousand One Hundred
Fifty-eight and 41/100 Dollars ($16,158.41).
G. Address of Premises: 815 Northwest Parkway, Suite #100, Eagan, MN
55121
H. Addresses for Invoices and Payments:
If to Landlord: If to Tenant:
CSM PROPERTIES, INC. QUANTECH LTD.
c/o CSM CORPORATION 815 NORTHWEST PARKWAY, SUITE 100
2575 UNIVERSITY AVE. W., EAGAN, MN 55121
SUITE 150 Attn: Greg Freitag
ST. PAUL, MN 55114-1024
Phone: (651) 646-1717
<PAGE>
I. Addresses for Legal Notices (Section 19):
If to Landlord: If to Tenant:
CSM CORPORATION QUANTECH LTD.
2575 UNIVERSITY AVE. W., 815 NORTHWEST PARKWAY, SUITE 100
SUITE 150 EAGAN, MN 55121
ST. PAUL, MN 55114-1024 Attn: Greg Freitag
Attn: Director of Property Management
(with copy to:)
CSM CORPORATION
2575 UNIVERSITY AVE. W.,
SUITE 150
ST. PAUL, MN 55114-1024
Attn: General Counsel
SECTION 2. PREMISES.
A. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the premises ("Premises") comprised of approximately 8,328 square feet
of warehouse space, 7,340 square feet of manufacturing space, 5,114
square feet of office space, and 90 square feet of Common Building
Areas (20,872 total rentable square feet of area), which is depicted in
the site plan attached hereto as EXHIBIT A. The building in which the
Premises is located ("Building"), all other improvements within the
area outlined on EXHIBIT A, Common Areas (as defined herein), and the
real property underlying the same are collectively referred to herein
as the "Project". The Project is commonly known as the WATERS BUSINESS
CENTER PHASE II, is located at the street address of 815 Northwest
Parkway, Eagan, Minnesota, is comprised of approximately 73,465 total
rentable square feet of area. Landlord warrants that on the Lease
Commencement Date the Premises shall be in compliance with all
applicable laws, codes and ordinances, and all Building systems shall
be in good working order and condition.
B. For the purposes of this Lease, the determination of the number of
rentable square feet in the Premises, the Building, and the Project
shall be made by measuring from the exterior face of exterior walls,
and from the midline or centerpoint of interior or party walls.
"As-built" measurements will be taken of the Building and Premises as
soon as construction has progressed to the point where such measurement
is possible. Landlord will certify such "as built" measurements to
Tenant and thereafter, Landlord and Tenant shall execute an addendum to
this Lease in the form of attached EXHIBIT B, confirming said
measurements and adjusting (i) the area of the Building, Premises and
Project, (ii) the Base Rent, and (iii) Tenant's pro rata share, to
reflect the actual rentable square feet of area of the Building,
Premises and Project, and such addendum shall thereupon be deemed
attached hereto, incorporated herein, and by this reference made a part
of this Lease. Until such time as said as-built measurements are
available, Tenant agrees that the estimated square footage of the
Premises and Project as set forth in Section 1.A. above shall be
utilized to compute Base Rent, Tenant's pro-rata share of Operating
Expenses, and any other sums due hereunder based in whole or in part on
the square footage of the Premises, Building, or the Project.
SECTION 3. COMMON AREAS. Tenant and its employees, invitees and customers shall
have the non-exclusive right to use, in common with Landlord and all other
tenants and occupants of the Project, and their respective employees, invitees
and customers, without charge, all areas and facilities of the Project outside
the Premises and within the exterior boundaries of the Project that are provided
and designated by Landlord from time to time for the general use and convenience
of such parties (collectively, "Common Areas"). The term "Common Areas" shall
include, without limitation, (i) all common mechanical rooms, utility rooms,
restrooms, vestibules, stairways or corridors within the building(s) not
intended to selectively serve one or more tenants (herein, "Common Building
Areas"), and (ii) all exterior pedestrian walkways, patios, landscaped areas,
<PAGE>
sidewalks, service drives, plazas, malls, throughways, loading areas and parking
areas not exclusively reserved to particular tenants, entrances, exits,
driveways, and roads.
SECTION 4. LEASE TERM.
A. Tenant hereby takes the Premises from Landlord, upon and subject to the
covenants, terms and conditions hereinafter set forth, for the term
(herein, "term of this Lease" or "Lease Term") commencing on April 15,
2000 ("Commencement Date") and continuing through and including April
30, 2007 ("Expiration Date"). Except as set forth in this section, if
Landlord for any reason whatsoever (except Tenant's default) cannot
deliver possession of the Premises to the Tenant on the Commencement
Date, this Lease shall not be void or voidable, nor shall Landlord be
liable for any loss or damage resulting therefrom, however, (i) all
Rent shall be abated until Landlord delivers possession of the Premises
to Tenant, and (ii) the Commencement Date shall be the actual date
Landlord delivers possession of the Premises to Tenant and the
Expiration Date shall be the last day of the 84th full calendar month
thereafter. Landlord agrees to provide Tenant early occupancy of the
Premises on March 1, 2000, under the same terms and conditions set
forth herein, exclusive of payment of Base Rent and Operating Expenses.
Notwithstanding the above, in the event that Landlord has not provided
early occupancy of the Premises to Tenant in the condition required
herein on or before March 15, 2000, and said delay was not contributed
to by Tenant, then Landlord shall provide Tenant one-half (1/2) day of
free Base Rent for each day the Premises has not been delivered after
March 15, 2000, until April 1, 2000. In the event that Landlord has not
provided early occupancy of the Premises to Tenant in the condition
required herein on or before April 1, 2000, and said delay was not
contributed to by Tenant, then Landlord shall provide Tenant one (1)
day of free Base Rent for each day the Premises has not been delivered
after April 30, 2000, until such date that Landlord delivers the
Premises.
In the event that Landlord has not delivered the Premises to Tenant in
the condition required herein on or before May 1, 2000, and said delay
was not contributed to by Tenant, then Tenant shall have the option to
terminate this Lease with no further obligation upon delivery of
written notice delivered to Landlord no later than May 5, 2000 and
before Landlord delivers the Premises to Tenant.
B. Tenant shall have the option to extend the term of this Lease for one
(1) additional sixty (60) month term under the same terms and
conditions contained herein, provided however, that the Base Rent shall
be adjusted as set forth in Section 1.C. of this Lease. Tenant may
exercise its option term by delivering written notice to Landlord,
stating its irrevocable intent to exercise the option term, not less
than 270 days prior to the expiration of the Lease Term. In the event
that Tenant fails to deliver timely notice of its intent to exercise
the option term, Tenant's right to the option term shall be deemed null
and void. It shall be a condition of the exercise of the option term
that Tenant not be in Default pursuant to Section 18 of this Lease.
SECTION 5. RENT. Tenant agrees to pay Landlord monthly in advance, without
demand, offset, abatement or deduction, except as set forth herein, as base rent
during the term of this Lease ("Base Rent"), the sum of money set forth in
Section 1.C. of this Lease, which has been computed based upon the total
rentable area of the Premises.
The initial monthly installment of Base Rent shall be due and payable on or
before the Commencement Date and all succeeding installments of Base Rent shall
be due and payable on or before the first day of each succeeding calendar month
during the term of this Lease; provided, however, that if the Commencement Date
is other than the first day of a calendar month, then the monthly Rent for such
partial month shall be prorated based on the number of days in such partial
month and paid in advance. Tenant shall also pay to Landlord, as additional
rent, all other sums due under this Lease and the word "Rent", as used in this
Lease, shall mean the Base Rent and the additional rent payable hereunder. All
Rent shall be payable to Landlord at the address set forth in Section 1.H.
above, or at such other address as may from time to time be designated by
Landlord.
If any Rent or other sum due from Tenant is not received by Landlord on or
before the fifth (5th) day of the month for which the Rent or such sum is due, a
late payment charge of five percent (5%) of such past due amount shall become
due and payable in addition to such amounts owed under this Lease.
<PAGE>
SECTION 6. SURRENDER OF POSSESSION AND HOLDING OVER.
In the event that Tenant does not vacate the Premises upon the expiration or
termination of this Lease, Landlord shall have the option to treat Tenant's
occupancy for the holdover period as either an at will occupancy or a month to
month occupancy and all of the terms and provisions of this Lease shall be
applicable during that period, except that Tenant shall pay Landlord as Base
Rent for the holdover period an amount equal to one and one-half (1.5) times the
rate of Base Rent in effect on the date of expiration or termination of this
Lease, together with all additional rent and other sums and charges as provided
in this Lease. Notwithstanding Landlord's election to treat Tenant's occupancy
as either an at will or month to month occupancy, Tenant agrees to vacate and
deliver the Premises to Landlord at any time during the holdover period upon
Tenant's receipt of notice from Landlord to vacate. The Rent payable during the
holdover period shall be payable to Landlord either on demand or without demand,
at Landlord's option. No holding over by Tenant, whether with or without the
consent of Landlord, shall operate to extend the term of this Lease. Nothing
contained herein shall be construed to give Tenant any right to hold over or to
impair or limit any of Landlord's rights and remedies set forth in this Lease if
Tenant holds over, including without limitation, the right to terminate this
Lease at any time during such holdover period, to recover possession of the
Premises from Tenant, or to recover damages from Tenant from such holding over.
SECTION 7. OPERATING EXPENSES. Tenant shall also pay Landlord monthly in
advance, without demand, offset, abatement or deduction, except as set forth
herein, as additional rent during the Lease Term, Tenant's Proportionate Share
of all costs which Landlord may incur in owning, maintaining, operating,
repairing and replacing the building(s), Common Areas and all other improvements
within the Project. All such costs are referred to herein as "Operating
Expenses" and are hereby defined to include, without limitation, the following:
(a) maintenance, operational, repair and replacement costs; (b) electricity,
fuel, water, sewer, gas and other common utility charges for the Project; (c)
equipment used to perform maintenance, operation, repair or replacement work for
the Project; (d) exterior window washing and janitorial services; (e) debris,
snow and ice removal; (f) landscaping; (g) management fees (not to exceed 4% of
gross Rent); (h) wages and benefits payable to employees of Landlord employed to
perform maintenance, operation, repair or replacement work for the Project; (i)
all services, supplies, repairs, replacements or other expenses for maintaining,
operating, repairing or replacing the Project; (j) improvements made to the
Project which are required under any governmental law or regulation that was not
applicable to the Project at the time it was constructed; (k) installation of
any device or other equipment which improves the operating efficiency of any
system within the Premises or the Project and thereby reduces Operating
Expenses; (l) all real property taxes and installments of special assessments
due and payable during the term of the Lease, including dues and assessments by
means of covenants, conditions, easements or restrictions of record and/or
owners' associations which accrue against the Project during the term of this
Lease and legal fees incurred in connection with actions to reduce the same
(excluding any special assessments relating to the initial construction of the
Project); (m) all insurance premiums Landlord is required to pay, including
without limitation, fire and extended coverage, commercial general liability
insurance, rent loss insurance and other insurance reasonably required by
Landlord with respect to the Project (and all costs borne by Landlord in
repairing damage caused by risks which, though insured under such insurance
policies, are not covered due to "deductible" provisions therein); (n)
maintenance, repair and testing of fire sprinkler systems; (o) the yearly
amortization of major non-recurring capital expenditures, costs and repairs
which shall be amortized over the useful life of the expenditure, cost or repair
as determined by Landlord, and (p) all other expenses which would generally be
regarded as operating, repair, replacement and maintenance expenses or Common
Area expenses. Notwithstanding the above, Operating Expenses shall not include
the following expenses:
1. Original Construction. All costs incurred in connection with
or directly related to the original construction (as
distinguished from operation, repair, maintenance and
replacement) of the Project.
2. Initial Development. Legal and other fees, leasing
commissions, advertising expenses and other costs incurred in
connection with acquisition of the land, or the original
development or original leasing of the Project.
3. Equipment and Systems Leasing. The costs of renting or leasing
anything other than items, the purchase price of which could
be included in Operating Expenses hereunder, except that this
shall not preclude Landlord from renting tools, equipment or
machinery utilized to perform its maintenance, repair and
replacement obligations.
<PAGE>
4. Compliance with Laws. The cost of changes to the Building
(excluding the Premises), the parking structure, or the
appurtenances made in order to comply with any laws, statutes,
ordinances, rules or directives in existence on the date of
this Lease and not related to Tenant's specific use of the
Premises.
5. Employee Limitation. All costs for any employees of Landlord
above the rank of building manager and reasonable allocation
of the costs of all employees of Landlord at or below the rank
of building manager whose duties include work on other
buildings or projects of Landlord or on activities the costs
of which are otherwise excluded from operating costs.
6. Management and Accounting Services. Other than the agreed upon
management fee set forth in Section 7(g) above, all costs and
expenses associated with management and accounting services
for the Project including but not limited to all expenses of a
centralized office, the wages, salaries, bonuses and benefits
of all management personnel, costs of preparation and handling
of accounts receivable and accounts payable, and the payment
of any rent, operating expenses or taxes for an on-site
management office.
7. Depreciation. Any charge for depreciation or amortization of
the cost of any of the original improvements of the Project.
8. Ground Leases and Easements. Any charges for ground leases or
other underlying leases, easements or any other similar or
dissimilar use fees or other costs related to the use of the
land.
9. Financing Costs. Financing and refinancing costs, interest on
debt or amortization payments on any mortgage or mortgages.
10. Correcting Defects. Costs of correcting defects in the design
or construction of the Building, the major Building systems or
the material used in the construction of the Building
(including latent defects in the Building or the inadequacy of
design of the Building) or in the Building equipment or
appurtenances thereto.
11. Damage by Other Tenants. The costs of any repair to remedy
damage caused by or resulting from the negligence of any other
tenants in the Project, including their agents, servants,
employees or invitees, together with the costs and expenses
incurred by Landlord in attempting to recover such costs, but
only to the extent Landlord actually recovers all of the
foregoing costs from such other tenants.
12. Leasing Costs. All costs related to any leasing or releasing
of the Project.
13. Improvements to Rentable Areas. Costs incurred in renovating
or otherwise improving or decorating or redecorating space
(including painting, carpet shampooing, drapery cleaning and
wall washing) for tenants or other occupants in the Building
or vacant rentable space in the Building and costs incurred by
Landlord, whether or not reimbursed to Landlord by other
tenants, in connection with installation of above-shell
condition improvements.
14. Bad Debts or Rent Loss. A bad debt loss, rent loss or reserves
for bad debts or rent loss, provided, however, the cost of
purchasing rent loss insurance shall not be excluded.
15. Affiliates - Excessive Payments. Any item of cost which
represents an amount paid to an affiliate of Landlord or an
affiliate of any partner or shareholder of Landlord, or to the
Building management company or an affiliate of the Building
management company, to the extent the same is in excess of the
reasonable cost of said item or service in an arms length
transaction. For the purposes hereof "affiliate" shall include
subsidiaries of Landlord or any person or entity that directly
or indirectly through one or more intermediaries controls or
is controlled by or is under common control with Landlord or
the Building management company.
<PAGE>
16. Bad Faith Payments - Kickbacks. Costs or expenses incurred by
Landlord which represent amounts spent by Landlord or its
agents in bad faith and an amount equal to any costs which
represent any payments received by Landlord or the Building
manager, or the employees or officers of either, from
suppliers of goods or services as kick-backs, finders fees,
expediting fees or other similar fees.
17. Operation of Landlord's Business; Tax Protest; Preservation of
Asset. Any and all costs (including legal fees and costs of
lawsuits) associated with the operation of the business of the
entity which constitutes Landlord or preservation of the
Landlord's interest in the Building; excluded items shall
specifically include, but shall not be limited to, formation
of the entity, internal accounting and legal matters,
including but not limited to preparation of tax returns and
financial statements and gathering of data therefor, costs of
defending any lawsuits with any mortgagee, costs of selling,
syndication, financing, mortgaging or hypothecating any of the
Landlord's interest in the Project, costs of any disputes
between Landlord and tenants within the Project including,
without limitation, Tenant. Landlord may pass through legal
fees and other costs associated with property tax reduction
protest procedures as a component of Operating Expenses.
18. Tenant Specific Costs. All costs and expenses arising solely
out of the specific needs or character of a particular tenant
or such tenant's officers, employees, agents or customers,
whether or not Landlord recovers such costs from such tenant.
Any increased costs resulting from Landlord permitting third
parties to use the common elements of the Project for income
producing activities.
19. Disproportionate Costs; Excess Services. All costs and
expenses resulting from the delivery to other tenants of
services, utilities, or the use of building facilities or
other benefits which are either proportionately greater in
quantity or higher in quality than those delivered to Tenant
regardless of whether or not the cost of such services is
recovered by Landlord.
20. Excess HVAC. Landlord's costs of excess electricity,
incremental heating, ventilation, or air conditioning and
other services sold or provided to tenants which are
proportionately greater than those provided to Tenant whether
or not Landlord is entitled to be reimbursed by such tenants.
21. Landlord's Negligence. Any expense incurred as a result of the
adjudicated negligence of Landlord, its agents, servants or
employees.
22. Reimbursed Costs. Any items not otherwise excluded to the
extent Landlord is reimbursed therefore by insurance or
otherwise compensated, including direct reimbursement by any
tenant, less the out-of-pocket cost of collection (including,
without limitation, reasonable attorneys' fees).
23. Interest and Penalties. All interest or penalties incurred as
a result of Landlord's failure to pay any costs or taxes as
the same shall become due.
24. Duplicate Charges. Any costs which would duplicate other costs
theretofore including in Operating Expenses.
25. Rent Loss Insurance. The cost of rent loss insurance which
insures against rent loss for a period in excess of 24 months.
The following items shall be credited to and shall be used to reduce
Operating Expenses:
1. Income from Common Areas. Any income from use, seasonal or
otherwise, of common areas in the Project, to the extent that
the fees for such use exceed the costs of permitting such use.
<PAGE>
2. Cash Discounts. Any cash discounts received by early or prompt
payment.
Tenant's proportionate share of Operating Expenses ("Proportionate Share") shall
be equal to a fraction, the numerator of which is the total rentable square
footage of the Premises, and the denominator of which is the total rentable
square footage of the Project. Landlord may invoice Tenant monthly for one
twelfth (1/12th) of Tenant's estimated annual Proportionate Share of Operating
Expenses for each calendar year, which amount shall be adjusted from
time-to-time by Landlord based upon anticipated Operating Expenses. Tenant's
Proportionate Share of Operating Expenses for the years in which the Lease Term
commences and terminates shall be prorated as equitably determined by Landlord
based upon the Commencement Date and date of termination of the Lease Term.
Notwithstanding anything contained herein to the contrary, during the year in
which this Lease terminates, Landlord, prior to the termination date, shall have
the option to invoice Tenant for Tenant's Proportionate Share of the Operating
Expenses based upon the previous year's Operating Expenses.
Within six (6) months following the close of each calendar year, Landlord shall
provide Tenant an accounting showing in reasonable detail the computations of
Operating Expenses due pursuant to this Section, provided, however, that
Landlord's failure to timely provide any such accounting within the applicable
six (6) month period shall not relieve Tenant of its obligation to pay any sums
due to Landlord relative to any such reconciliation. If the accounting shows
that the total of the monthly payments made by Tenant exceeds the amount of
Operating Expenses due by Tenant under this Section, the accounting shall be
accompanied by evidence of a credit to Tenant's account, except that if the
Lease Term has expired, then the amount of the credit shall be paid to Tenant.
If the accounting shows that the total of the monthly payments made by Tenant is
less than the amount of Operating Expenses due by Tenant under this Section, the
accounting shall be accompanied by an invoice for the additional Operating
Expenses due from Tenant and Tenant shall pay Landlord the amount set forth in
the invoice within (10) days following receipt of same.
Within one hundred eighty (180) days after receipt of Landlord's annual
reconciliation statement for Operating Expenses, Tenant may audit Landlord's
books and records relative to computation of Operating Expenses referenced in
said reconciliation statement. If Tenant does not perform such audit within said
one hundred eighty (180) day period, Tenant shall be deemed to have waived its
right audit the applicable reconciliation statement and charges referenced
therein. Tenant may perform only one (1) such audit in each calendar year during
the Lease Term. Any such audit shall be performed at the offices of Landlord and
shall be performed at Tenant's sole cost and expense; provided, however, in the
event the audit reveals that Landlord has overcharged Tenant by more than five
percent (5%), then, in addition to refunding the overpayment, Landlord shall pay
the reasonable cost of the audit, excluding the cost of travel, lodging and
meals.
SECTION 8. UTILITIES. Commencing on the earlier of the Commencement Date or the
date Landlord delivers possession of the Premises to Tenant, Tenant shall also
pay when due, without demand, offset or deduction, as additional rent during the
Lease Term, all charges for utilities furnished to or for the use or benefit of
Tenant or the Premises. All utilities except water and sewer service for the
Premises will be separately metered and Tenant shall pay consumption charges for
the same directly to the utility provider when due. Consumption charges for any
utilities not separately metered shall be included within the definition of
Operating Expenses set forth in Section 7 above; provided, however, that if
Tenant and one or more (but less than all) other tenants of the Project share a
utility meter, then Tenant shall pay Landlord monthly one-twelfth (1/12) of
Tenant's annual estimated pro-rata share of consumption charges for such shared
utility service as equitably determined by Landlord. Landlord shall not be
liable for damages or otherwise, and Tenant shall have no right of demand,
offset, abatement or deduction, if any utility provider's service to the
Premises is interrupted or impaired by weather, fire, accident, riot, strike,
act of God, the making of necessary repairs or improvements, or any other causes
beyond the reasonable control of Landlord. If any public authorities require a
reduction in energy consumption in the use or operation of the Project, Tenant
agrees to conform to such requirements in accordance with reasonable, uniform
and non-discriminatory standards established by Landlord.
SECTION 9. ADDITIONAL TAXES. If applicable in the jurisdiction where the
Premises are located, Tenant shall pay and be liable for all rental, sales and
use taxes or other similar taxes arising from Tenant's operation of its business
within the Premises, if any, levied or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid to Landlord under the terms of this Lease.
Any such payment shall be paid concurrently with the payment of the Base Rent,
additional rent, Operating Expenses or other charge upon which the tax is based
as set forth above.
<PAGE>
SECTION 10. PERMITTED USE. The Premises are leased to Tenant solely for the use
and purpose set forth in Section 1.E. of this Lease ("Permitted Use"). Tenant
shall not use, occupy, or permit the use or occupancy of the Premises or any
portion thereof for any other use or purpose whatsoever, without obtaining the
prior written consent of Landlord given in its reasonable discretion.
SECTION 11. ADDITIONAL OBLIGATIONS OF TENANT.
A. Occupancy and Use. Tenant shall occupy the Premises, conduct its
business and control its agents, employees, invitees and visitors in
such a manner as is lawful, reputable and will not create a nuisance.
Tenant shall not permit any operation which emits any noise, odor, or
matter which intrudes into other portions of the Project or otherwise
interferes with, annoys or disturbs any other tenant or occupant of the
Project in its normal business operations or Landlord in its management
of the Project. Tenant shall not permit any waste on the Premises to be
used in any way which would, in the opinion of Landlord, be extra
hazardous on account of fire or which would, in any way, increase the
premiums for or render void the casualty insurance on the Project.
Tenant, its employees, vendors and suppliers shall not utilize any
portion of the loading dock area or the Common Areas for parking,
placement, or storage of trailers, storage containers, or their
equivalents used in whole or in part for storage of inventory,
supplies, goods or the like, except with Landlord's prior written
consent.
B. Signs. Tenant shall not install, place, erect, or paint any sign,
marquee or awning of any type or description in or about the Premises
or Project which are visible from the exterior of the Premises, except
those signs submitted to and approved by Landlord in writing, and which
signs are in conformance with Landlord's sign criteria attached hereto
as EXHIBIT C. Landlord shall have the right to approve the type and
size, location and color of all signs which Tenant desires to use or
place in or upon the exterior or windows of the Premises or the
building within which the Premises is located. Landlord may make any
use it desires of the exterior portions of the Building that do not
materially interfere with Tenant's signage as approved by Landlord
hereunder.
C. Compliance With Laws, Rules and Regulations. Tenant, at Tenant's sole
cost and expense, shall comply with all laws, ordinances, orders, rules
and regulations of state, federal, municipal or other agencies or
bodies having jurisdiction over the use, condition or occupancy of the
Premises; provided, however, that Landlord shall be responsible for
complying with all laws, codes and ordinances requiring alterations to
the Premises that are in existence on the date of Tenant's original
occupancy of the Premises and that are not related to Tenant's specific
use of the Premises. Tenant will comply with the reasonable rules and
regulations of the Project adopted by Landlord. Landlord shall have the
right at all times to change and amend the rules and regulations in any
reasonable manner as may be deemed advisable for the safety, care,
cleanliness, preservation of good order and operation or use of the
Project or the Premises. All rules and regulations of the Project, and
amendments or modifications thereof, will be sent by Landlord to Tenant
in writing and shall thereafter be carried out and observed by Tenant.
D. Tenant's Insurance Obligations. Tenant shall, during the term hereof,
keep in full force and effect at its expense the following insurance
coverages:
(1) Property insurance written on the Insurance Service Office's
Special Perils form, or equivalent, covering the full
replacement value of Tenant's property (including, but not
limited to, any furniture, machinery, goods, inventory or
supplies), trade fixtures and tenant installed or paid for
improvements to the Premises and including plate glass
insurance;
(2) Commercial General Liability insurance in an amount of not
less than $1,000,000 per "occurrence" and $2,000,000
"aggregate" per location, insuring Tenant, its employees,
agents, contractors and invitees against liability for bodily
injury, death, personal injury, and including contractual
liability coverage pertaining to Tenant's obligations under
this Lease. The amount of such liability insurance shall not
limit Tenant's liability under this Lease. Such policy or
policies shall name Landlord, CSM Corporation (or Landlord's
other designated management agent), Landlord's designated
mortgagee, and such other parties as Landlord may reasonably
request as additional insureds and shall provide that thirty
(30) days' prior written notice must be given to Landlord
prior to modification or cancellation of such policy of
insurance.
<PAGE>
Tenant shall furnish evidence satisfactory to Landlord at the time this
Lease is executed, and thereafter from time to time upon written
request of Landlord, that such coverages are in full force and effect.
Upon Landlord's request, Tenant shall also provide Landlord with a copy
of such policies of insurance. All such insurance carried by Tenant
shall be issued by companies reasonably acceptable to Landlord having
an A.M. Best Company rating B+ or better.
E. Tenant's Maintenance and Repair Obligations. Tenant shall at its sole
expense and all times throughout the term of this Lease, including
renewals and extensions thereof, keep and maintain the Premises in a
clean, safe, sanitary and first class condition and in compliance with
all applicable laws, codes, ordinances, rules and regulations, subject
to Section 11.C. and reasonable wear and tear, casualty damage, and
Landlord's repair obligations. Tenant's obligations hereunder shall
include, but not be limited to, the maintenance (including, without
limitation, regular and preventative maintenance), repair and
replacement, if necessary, of the heating, ventilation, air
conditioning, lighting and plumbing fixtures and equipment, fixtures
(including trade fixtures), motors and machinery, all interior walls,
partitions, doors and windows, including the regular painting thereof,
all exterior entrances, windows, doors, docks, lifts, dock levelers,
and dock shelters and the replacement of all broken glass, to the
extent such items exclusively serve the Premises. When used in this
provision, the term "repair" shall include replacements or renewals
when necessary, and all such repairs made by the Tenant shall be equal
in quality and class to the original work. Upon completion of the
Landlord Improvements (defined in Section 12.D. herein), Landlord
agrees to assign to Tenant all warranties made available to Landlord
that pertain to items to be maintained by Tenant during the Lease term.
Tenant shall keep and maintain all portions of the Premises and the
sidewalk and areas adjoining the same in a clean and orderly condition,
free of accumulation of dirt, rubbish, snow and ice. At the written
request of Landlord, Tenant shall provide to Landlord written proof
substantiating Tenant's performance of any maintenance, repair or
replacement required under the terms hereof. If Tenant fails, refuses
or neglects to maintain or repair the Premises as required in this
Lease after Landlord notifies Tenant to do so, and Tenant fails to
complete within thirty (30) days thereafter (or such reasonable amount
of time if the cure is of such nature that it cannot be completed
within thirty (30) days), Landlord may make such repairs, without
liability to Tenant for any loss or damage that may accrue to Tenant's
merchandise, trade fixtures or other property or to Tenant's business
by reason thereof, and upon completion thereof, Tenant shall pay to
Landlord all costs incurred by Landlord in making such repairs within
fifteen (15) days after Landlord delivers to Tenant an invoice for such
costs. If, during the last twenty-four (24) months of the option term
(if applicable), any heating, ventilation and air conditioning unit or
unit heater shall need replacement (for purposes of this provision, a
heating, air conditioning and ventilation unit or unit heater in need
of replacement shall be defined as a malfunctioning unit requiring
repairs in an amount in excess of the current value of the unit), then
Landlord shall pay the cost of the replacement, and Tenant shall pay
Landlord yearly as additional rent , one-tenth of the cost of the unit
for the earlier of the remaining term of the Lease and extensions
thereto, or ten (10) years from the date of replacement.,
F. Initial Improvements; Subsequent Alterations and Improvements. Tenant
shall have the right and obligation, at its sole cost and expense, to
construct and install, subject to the terms of this Lease, all tenant
improvements, furniture, trade fixtures, equipment, machinery and other
improvements necessary for Tenant to utilize the Premises for its
Permitted Use. Prior to installing any initial tenant improvements on
or within the Premises, Tenant shall obtain Landlord's written approval
of plans and specifications for such improvements. Tenant shall not
make or allow to be made any subsequent alterations, physical
additions, or other improvements in or to the Premises without first
obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld; provided, however, that Tenant shall have the
right to make interior, non-structural alterations that do not affect
the mechanical, electrical or utility systems of the Building or
Project costing less than $10,000.00 without obtaining Landlord's
consent. Landlord may require in its sole discretion, as a condition of
its consent to any initial or subsequent tenant improvements,
alterations, physical additions or other improvements (collectively,
"Improvements"), costing more than $100,000.00, that Tenant provide to
Landlord at Tenant's sole cost and expense, a lien and completion bond
in an amount equal to one and one-half (1.5) times the estimated cost
of labor and materials for the Improvements, to insure Landlord against
any liability for mechanic's and materialmens' lien and to insure
<PAGE>
completion of the work. Any Improvements in or to the Premises made by
Tenant shall at once become the property of Landlord and shall be
surrendered to Landlord upon the termination of this Lease; provided,
however, Landlord may, as a condition to Landlord's consent to any such
Improvements, require Tenant to remove all or part of such Improvements
upon expiration or earlier termination of the Lease Term, (provided
that this requirement is communicated in writing at the time Landlord
consents to the Improvement) and further provided, that, this clause
shall not apply to personal property, inventory, goods, moveable
equipment, machinery, trade fixtures, and/or furniture owned by Tenant
(collectively, "Tenant's Personal Property"), which shall be removed by
Tenant prior to the end of the term of this Lease. Tenant shall repair
any damage to the Premises arising from installation or removal of such
Improvements or Tenant's Personal Property in order to restore the
Premises to the condition existing at the time Tenant took possession.
All costs of installation and removal of such Improvements and Tenant's
Personal Property and repair to the Premises relating thereto, shall be
paid by Tenant and if not paid, shall be deemed additional rent
recoverable by Landlord under this Lease.
G. Hazardous Substances. Tenant and its agents, employees, contractors,
customers and invitees shall not bring or permit to remain on, under or
about the Premises or the Project (except for small quantities
reasonably required in the ordinary course of Tenant's business
operations in the Premises, to the extent used in compliance with
applicable laws), any asbestos, petroleum or petroleum products,
explosives, toxic materials, or substances defined as hazardous wastes,
hazardous materials, or hazardous substances under any federal, state,
or local law or regulation ("Hazardous Materials"). Tenant's violation
of the foregoing prohibition shall constitute a material breach and
default hereunder and Tenant shall indemnify, hold harmless and defend
(with counsel reasonably approved by Landlord) Landlord from and
against any claims, damages, penalties, liabilities, and costs
(including reasonable attorneys fees and expenses and court costs)
caused by or arising out of (i) a violation of the foregoing
prohibition by Tenant or (ii) the presence of any Hazardous Materials
on, under, or about the Premises or the Project during the term of the
Lease caused by or arising, in whole or in part, out of the actions or
omissions of Tenant or its agents, employees, contractors, customers or
invitees. Tenant shall clean up, remove, remediate and repair any soil
or ground water contamination and damage caused by the presence or
release of any Hazardous Materials in, on, under or about the Premises
or the Project during the term of the Lease caused by or arising, in
whole or in part, out of the actions or omissions of Tenant or its
agents, employees, contractors, customers or invitees, in conformance
with the requirements of Landlord and applicable law. Tenant shall
immediately give Landlord written notice of (i) any suspected breach of
this paragraph, (ii) upon learning of the presence or release of any
Hazardous Materials on or about the Premises or the Project, (iii) upon
receiving any notices from governmental agencies pertaining to
Hazardous Materials which may affect the Premises or the Project, or
(iv) upon receipt of notice of pending or threatened claims against
Tenant due to the presence or release of Hazardous Materials on or
about the Premises or the Project. The obligations of Tenant hereunder
shall survive the expiration or earlier termination of this Lease and
the monetary obligations of Tenant shall be deemed additional rent
payable to and recoverable by Landlord hereunder. At Landlord's option,
any penalties, damages or costs of compliance arising from the presence
or release of Hazardous Materials not caused by the acts or omissions
of Landlord or its employees, agents or contractors, may be included
within the definition of Operating Expenses pursuant to Section 7
above, except in no event shall Tenant be required to contribute more
<PAGE>
than $1,000.00 per calendar year. Landlord shall indemnify, hold
harmless and defend (with counsel reasonably approved by Tenant) Tenant
from and against any claims, damages, penalties, liabilities, and costs
(including reasonable attorneys fees and expenses and court costs)
caused by or arising out of the presence or release of Hazardous
Materials on or about the Premises or the Project at any time prior to
execution of this Lease, or at any time after execution, except to the
extent that Tenant has contributed to said presence or release. This
indemnity shall survive the termination of the Lease.
H. Mechanic's and Materialmen's Liens. Tenant shall keep the Premises and
the Project free from any liens arising out of any work performed,
materials furnished or obligations incurred by Tenant. If any
mechanic's lien is filed against the Premises or the Project relative
to such work, materials or obligations, Landlord may require, at
Landlord's sole option, that Tenant provide to Landlord, at Tenant's
sole cost and expense, a bond, letter of credit or cash escrow in an
amount equal to one and one-half (1.5) times the amount of the lien, to
insure Landlord against any liability for such mechanic's lien. Tenant
agrees that if any construction on, improvement to, or alteration of
the Premises is performed by or on behalf of Tenant (other than any
improvements to be constructed by Landlord), then Tenant will post in a
conspicuous place on the Premises a notice that Landlord is not liable
for the payment of the cost of any such construction, improvement or
alteration and that neither the Premises or the Project shall be
subject to lien therefore.
I. Financial Statements. Tenant shall, within fifteen (15) days following
request by Landlord or Landlord's present or prospective lender,
furnish to Landlord, Tenant's most current financial statements
available to the general public (including a balance sheet and an
income statement) certified by an officer or general partner of Tenant,
which statements shall be in reasonable detail and conform to generally
accepted accounting principles. Landlord covenants and agrees that said
financial statements shall be kept and maintained by Landlord in a
confidential manner, except to the extent used by Landlord in
connection with the sale and/or mortgaging of the Project or a part
thereof.
J. Miscellaneous. Tenant shall not overload, damage or deface the Premises
or do any act which may make void or voidable any insurance on the
Premises or the Project, or which may render an increased or extra
premium payable for such insurance.
K. Obligations Upon Termination. Upon the termination of this Lease in any
manner whatsoever, Tenant shall (i) remove Tenant's Personal Property
(and the personal property of any other person claiming under Tenant)
and those improvements constructed by Tenant either without Landlord's
prior written consent or with Landlord's prior written consent given
conditioned upon Tenant's covenant to remove such improvements upon
termination of this Lease, and (ii) quit and deliver up the Premises to
Landlord peaceably and quietly in as good order and condition as the
same are now in or hereafter may be put in by Landlord or Tenant,
reasonable use and wear thereof, damage by casualty, and repairs which
are Landlord's obligation excepted. Any improvements required to be
removed by Tenant upon the termination of this Lease or any of Tenant's
Personal Property that are not removed on before the date of
termination of this Lease, however terminated, shall be deemed
abandoned and Landlord may dispose of the same as it deems prudent and
any cost in regard thereto shall be payable by Tenant as additional
Rent.
J. Scope of Tenant's Obligations. Tenant's obligations under this Section
11 shall extend to and include the obligation of Tenant to require its
employees, agents, contractors, and invitees to do or not do such acts,
as the case may be.
SECTION 12. OBLIGATIONS OF LANDLORD.
A. Landlord's Maintenance and Repair Obligations. Landlord shall not be
required to make any improvements, replacements or repairs of any kind
or character to the Premises or the Project during the term of this
Lease except as are specifically set forth in this Section or elsewhere
in this Lease. Landlord shall maintain only the roof, foundation,
parking areas, and Common Areas, and the structural soundness of the
exterior walls and other structures within the Project, provided, that
Landlord's cost of maintaining, replacing and repairing the items set
forth in this Section shall be included within the definition of
Operating Expenses pursuant to Section 7 of this Lease. Landlord shall
not be liable to Tenant, except as expressly provided in this Lease,
for any damage or inconvenience, and Tenant shall not be entitled to
any abatement or reduction of Rent by reason of any repairs,
alterations or additions made by Landlord under this Lease; provided,
however, if Landlord fails to complete its obligations within thirty
(30) days after written notice from Tenant, or a reasonable amount of
time if the nature of the obligation is such that it cannot be
performed within thirty (30) days, Tenant shall have the right to
complete such repair or replacement and deduct the costs from the rent
payable hereunder, subject to the "Maximum Offset Amount" (defined
herein). Notwithstanding anything contained in this Lease to the
contrary, Tenant shall not deduct more than fifty percent (50%) of the
Base Rent from any monthly installment of Base Rent if there are
<PAGE>
sufficient months remaining in the term of this Lease within which to
fully recover the amount owed by Landlord (the "Maximum Offset
Amount").
B. Landlord's Insurance Obligations. During the term of this Lease,
Landlord shall carry Property insurance coverage on the Project in
commercially reasonable amounts. Landlord shall not be obligated in any
way or manner to insure any of Tenant's Personal Property (including,
but not limited to, any furniture, machinery, goods, inventory,
supplies or trade fixtures) upon or within the Premises or any
improvements which Tenant may construct on or within the Premises.
Landlord shall also carry Commercial General Liability insurance in an
amount of at least $1,000,000 per "occurrence" and $2,000,000
"aggregate" per location. Landlord may also carry such other insurance
coverage, including without limitation, rent loss insurance, of the
type and in amounts as Landlord deems prudent. In lieu of the
foregoing, all insurance carried or required to be carried by Landlord
relative to the Project and other properties owned by Landlord may be
maintained under a policy or policies of insurance both primary and
excess, and all premiums paid by Landlord for such insurance, and the
cost of repairs not covered under such insurance due to deductible
provisions, shall be included within the definition of Operating
Expenses subject to the terms of Section 7 of this Lease. Tenant shall
have no right in or claim to the proceeds of any policy of insurance
maintained by Landlord under this Lease even if the cost of such
insurance is borne by Tenant pursuant to Section 7 of this Lease. If an
increase in any insurance premiums paid by Landlord relative to the
Project is caused by Tenant's use of the Premises or Tenant's vacating
or abandoning the Premises, then Tenant shall pay the amount of such
increase as additional rent to Landlord.
C. Landlord's Warranty of Possession. Landlord warrants that it has the
right and authority to execute this Lease, and Tenant, upon payment of
the required Rent and subject to the terms, conditions, covenants and
agreements contained in this Lease, shall have possession of the
Premises during the full term of this Lease as well as any extension or
renewal thereof. Landlord shall not be responsible for the acts or
omissions of any other lessee or third party that may interfere with
Tenant's use and enjoyment of the Premises. Notwithstanding the above,
Landlord agrees to use reasonable efforts to ensure that Tenant's
direct use and enjoyment of the Premises is not disrupted by third
parties so long as Tenant is not in default under the terms of the
Lease.
D. Landlord's Improvements. Landlord will complete the construction of the
improvements to the Premises in accordance with plans and
specifications agreed to by Landlord and Tenant attached hereto as
EXHIBITS D and E (the "Landlord Improvements"). Within seven (7) days
of receipt of construction drawings to be prepared by Landlord, Tenant
shall execute a copy of the construction drawings and, if applicable,
change orders setting forth the amount of any costs to be borne by
Tenant. In the event Tenant fails to execute the construction drawings
and change orders within the seven (7) day period, Landlord may, at its
sole option, notify Tenant that the Base Rent shall commence on the
Commencement Date even though the Landlord Improvements to be
constructed may not be complete. Any changes or modifications to the
approved plans and specifications shall be made and accepted by written
change orders or agreement signed by Landlord and Tenant and shall
constitute an amendment to this Lease. Landlord agrees to warrant the
labor, materials and construction of the Landlord Improvements for a
period of one (1) year following the Lease Commencement Date.
<PAGE>
SECTION 13. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber
this Lease or any interest therein, and shall not sublet the Premises or any
part thereof, or any right or privilege appurtenant thereto, or suffer any other
person (the employees, agents, servants, and invitees of Tenant excepted) to
occupy or use the Premises or any portion thereof, without the prior written
consent of Landlord and any holder ("Lender") of a loan secured in whole or in
part by Landlord's interest in all or part of the Project (but only to the
extent Landlord is required to obtain such Lender's consent pursuant to the
applicable loan documents). Except as provided for herein, any assignment or
transfer of this Lease by transfer of a majority interest of stock pursuant to
an asset sale, merger, consolidation or liquidation, shall constitute an
assignment for purposes of this Section.
If Tenant desires to assign or sublet all or any part of the Premises, Tenant
shall notify Landlord at least thirty (30) days in advance of the date on which
Tenant desires to make such assignment or sublease. Tenant shall provide
Landlord with a copy of the proposed assignment or sublease and such information
as Landlord might request concerning the proposed sublessee or assignee to allow
Landlord to make informed judgments as to the type of use, financial condition,
gross sales, business experience, reputation, operations and general
desirability of the proposed sublessee or assignee. Within fifteen (15) days
after Landlord's receipt of Tenant's proposed assignment or sublease and all
required information concerning the proposed sublease or assignee, Landlord
shall have either of the following options: (i) consent to the proposed
assignment or sublease, and, if the rent due and payable by any assignee or
sublessee under any such permitted assignment or sublease (or a combination of
the rent payable under such assignment or sublease plus any bonus or any other
consideration or any payment incident thereto) less any cost associated with the
sublease or assignment, exceeds the Base Rent payable under this Lease for such
space, Tenant shall pay to Landlord one-half (1/2) of all such excess rent and
other excess consideration within ten (10) days following receipt thereof by
Tenant; or (ii) refuse, in Landlord's reasonable discretion and judgement, to
consent to the proposed assignment or sublease, which refusal shall be deemed to
have been exercised unless Landlord gives Tenant written notice providing
otherwise. Notwithstanding the foregoing, Tenant shall have the right, after
prior written notice to Landlord, to assign this Lease to any entity that
controls, is controlled by, or is under common control with Tenant, or to any
entity that acquires all or substantially all of Tenant's stock or assets,
without obtaining Landlord's consent, except that in no event shall such
assignment release Tenant from its obligations under the Lease.
In the event of any assignment or sublease, any option or right of first refusal
granted to Tenant shall not be assignable by Tenant to any assignee or sublessee
without Landlord's prior written consent. No assignee or sublessee of the
Premises or any portion thereof may assign or sublet the Premises or any portion
thereof. Upon the occurrence of a Default hereunder, if all or any part of the
Premises are then assigned or sublet, Landlord, in addition to any other
remedies provided by this Lease or provided by law, may, at its option, collect
directly from the assignee or sublessee all rents becoming due to Tenant by
reason of the assignment or sublease. Any acceptance of Rent or collection by
Landlord of other sums directly from the assignee, sublessee or any other person
shall not be construed as a novation or release of Tenant or any guarantor from
the further performance of their respective obligations under this Lease or any
guarantee hereof, and shall not be construed as a waiver by Landlord of any
provisions hereof or any right hereunder.
Except as set forth herein, any assignment or subletting without consent of
Landlord and, to the extent required, any Lender, shall be void, and shall at
the option of Landlord, constitute a default under this Lease. Consent to one
assignment, subletting, occupation or use by any other person or entity shall
not be deemed to be a consent to any subsequent assignment, subletting,
occupation or use by another person or entity. No subletting or assignment by
Tenant, made with or without Landlord's consent, shall ever release Tenant from
its obligation to pay the Rent and perform all other obligations to be performed
by Tenant hereunder for the term of this Lease, or release any guarantor from
any obligation or liability under any guarantee of this Lease.
SECTION 14. LANDLORD'S RIGHT OF ACCESS. Upon reasonable prior notice, at any and
all reasonable times hereunder, except in the event of an emergency, Tenant
shall give Landlord and its employees or its authorized agents or contractors
access to the Premises to inspect the same, to show the Premises to prospective
purchasers, lessees, mortgagees, insurers or other interested parties, and to
alter, improve or repair the Premises or any other portion of the Project. So
long as Tenant's business operations are not materially and adversely affected,
Tenant hereby waives any claim for damages for injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or use of the
Premises, and any other loss occasioned thereby. Tenant shall not change
Landlord's lock system or in any other manner prohibit Landlord or its employees
or its authorized agents or contractors from entering the Premises. Landlord
shall have the right to use any and all reasonable means which Landlord may deem
proper to open any door in an emergency without liability therefor. Tenant shall
permit Landlord to erect, use, maintain and repair pipes, cables, conduits,
plumbing, vents and wires in, to and through the Premises as often and to the
extent that Landlord may now or hereafter deem to be necessary or appropriate
for the proper use, operation and maintenance of the Project, so long as
Tenant's business operations are not materially and adversely disturbed.
<PAGE>
SECTION 15. INDEMNITY AND WAIVER OF SUBROGATION.
A. Release and Indemnity. Tenant agrees that Landlord, its management
agent and their respective officers, directors, shareholders, employees
and agents shall not be liable to Tenant, its employees, agents,
contractors and invitees for, and Tenant hereby releases such parties
from, any damage, compensation, liability, loss or claim from any
cause, other than Landlord's breach of its obligations under this Lease
or the willful misconduct of Landlord or its management agent, relative
to or arising from: (i) loss or damage to personal property, equipment,
machinery, furniture, trade fixtures or Tenant installed or paid for
improvements in or about the Premises; (ii) lost profits, business
interruption or other consequential damages arising out of the
interruption in the use of the Premises; (iii) any injury to person or
damage to property on or about the Premises caused by any act or
omission of Tenant, its agents, employees, contractors, customers, or
invitees; (iv) any criminal act by any person other than Landlord or
its management agent; or (v) or arising from the improvements located
on the Premises being out of repair or the failure or cessation of any
service provided by Landlord, including without limitation, utilities
(except to the extent due to the negligent acts of Landlord). Tenant
agrees to hold harmless, defend (with counsel reasonably approved by
Landlord) and indemnify Landlord against any damage, compensation,
liability, loss or claim arising out of any personal injury, death or
property loss or damage occurring in or about the Premises during the
Lease Term, regardless of when such claim is made, except to the extent
caused by the negligence or willful misconduct of Landlord. Landlord
agrees to hold harmless, defend and indemnify Tenant against any
damage, compensation, liability, loss or claim arising out of any
personal injury, death or property loss or damage occurring in, or
about the Common Areas of the Project during the Lease Term, regardless
of when such claim is made, except to the extent of the negligence or
willful misconduct of Tenant, its employees, agents, contractors and
invitees.
B. Waiver of Subrogation. Notwithstanding anything in this Lease to the
contrary, Landlord and Tenant hereby waive and release each other and
their respective officers, directors, shareholders, employees and
property manager of and from any and all right of liability, recovery,
claim, action or cause of action, against each other (or anyone
claiming through or under them by way of subrogation or otherwise), for
any damage, compensation, liability, loss or claim, regardless of cause
or origin, including without limitation, negligence of Landlord or
Tenant and their respective officers, directors, shareholders,
employees and agents, to the extent covered or required to be covered
by insurance pursuant to this Lease to the extent permitted by such
insurance policies. Notwithstanding the foregoing or anything contained
in this Lease to the contrary, any release or waiver of claims shall
<PAGE>
not be operative in any case where the affect of the release or waiver
is to invalidate insurance coverage or invalidate the right of the
insured to recover thereunder.
SECTION 16. CASUALTY LOSS.
A. Total Destruction. If all of the Premises or the Project are totally
destroyed by fire or any other event ("Casualty"), then this Lease
shall terminate at the option of either Landlord or Tenant by written
notice to the other party within sixty (60) days following the date of
Casualty, and the Rent shall be abated for the unexpired portion of the
Lease effective as of the date of Casualty.
B. Partial Destruction. If the Premises is partially damaged by Casualty,
and if the Premises are damaged to such extent that the damage cannot,
in Landlord's reasonable judgment, be rebuilt or repaired economically
(taking into account the time necessary to receive any insurance
proceeds and using normal construction methods without overtime or
other premium) within one hundred eighty (180) days after the date of
Casualty, then this Lease shall terminate at the option of Landlord or
Tenant by written notice to the other party within sixty (60) days
following the date of Casualty, and the Rent shall be abated for the
unexpired portion of the Lease effective as of the date of Casualty.
Notwithstanding anything contained herein to the contrary, if the
Premises or the Project is partially damaged by Casualty and either (i)
insurance proceeds are not made available to Landlord or are inadequate
for restoration, or (ii) repair or restoration of the same would not be
economically prudent in Landlord's reasonable determination, then
Landlord shall have the right to terminate this Lease by written notice
to Tenant within sixty (60) days following the date of Casualty, and
the Rent shall be abated for the unexpired portion of the Lease
effective as of the date of Casualty.
C. Restoration Obligations. If this Lease is not terminated pursuant to
Section 16.A. or Section 16.B above, then Landlord shall, at its sole
expense, proceed with reasonable diligence, subject to Force Majeure
Delays (as defined in Section 27.G. of this Lease) to rebuild or repair
the Premises (exclusive of improvements, alterations or changes thereto
made or paid for by Tenant), the building(s) or other improvements
within the Project to as near the condition in which they existed
immediately prior to the date of Casualty as reasonably possible. If
the Premises are to be rebuilt or repaired and are untenantable in
whole or in part following the Casualty, and the Casualty was not
caused or contributed to by the actions or omissions of Tenant, its
agents, employees, contractors, customers or invitees, then the Rent
payable under this Lease during the period for which the Premises are
untenantable shall be abated in proportion to the areas of the Premises
rendered untenantable (as reasonably and equitably determined by
Landlord) from the date of Casualty until restoration is completed by
Landlord.
D. Insurance Proceeds. Tenant hereby waives any right in or claim to the
proceeds of any policy of insurance maintained by Landlord under this
Lease. If any insurance proceeds are recoverable on account of any
Casualty affecting the Premises or the Project, then Tenant agrees that
as between this Lease and any recorded mortgage, deed of trust or other
instrument presently existing or hereafter created covering Landlord's
interest in all or part of the Premises or the Project, and all
increases, refinancings, extensions, renewals, amendments and
modifications thereof (collectively, "Mortgage"), the terms of such
Mortgage shall govern and be determinative relative to the payment and
disposition of such proceeds. Notwithstanding anything contained herein
to the contrary, if the holder of a Mortgage purchases or acquires
Landlord's interest in the Premises or the Project by foreclosure sale
or deed in lieu thereof, then such holder shall not be bound by the
restoration obligations set forth in this Section 16 and shall have the
right to apply or dispose of any insurance proceeds recoverable under
insurance maintained by Landlord under this Lease pursuant to the terms
of such Mortgage.
SECTION 17. EMINENT DOMAIN.
A. Total Taking. If the entire Premises or the Project are taken by
eminent domain, this Lease shall automatically terminate as of the date
of taking, and the Rent shall be abated for the unexpired portion of
the Lease effective as of the date of the taking.
B. Partial Taking. If part of the Premises or the Project is taken by
eminent domain, Landlord shall have the right to terminate this Lease
as of a date specified by Landlord by giving written notice thereof to
Tenant within sixty (60) days after the date of taking. If such a
significant portion of the Premises is taken so as to materially and
adversely affect Tenant's use and enjoyment of the Premises for the
purposes intended under this Lease, then Tenant shall have the right to
terminate this Lease as of a date specified by Tenant by giving written
notice to Landlord within sixty (60) days after the date of taking. If
neither party elects to terminate this Lease, then Landlord shall, at
its sole expense, proceed with reasonable diligence, subject to Force
Majeure Delays, rebuild or repair the Premises (exclusive of
improvements, alterations or changes thereto made or paid for by
Tenant), the building(s) or other improvements within the Project to as
near the condition in which they existed immediately prior to the date
of taking as reasonably possible. If part of the Premises is rendered
untenantable following any taking, then the Rent payable under this
Lease shall be abated in proportion to the areas of the Premises
rendered untenantable (as reasonably and equitably determined by
Landlord) effective as of the date of taking.
<PAGE>
C. Condemnation Proceeds. All damages awarded for a taking under the power
of eminent domain shall belong to and be the exclusive property of
Landlord whether such damages be awarded as compensation for diminution
in value of the leasehold estate hereby created or to the fee of the
Premises or the Project; provided, however, that Tenant shall be
entitled to maintain an action for a separate award to Tenant for the
value and cost of removal and relocation of its personal property and
trade fixtures. If any condemnation proceeds are recoverable by
Landlord on account of any taking affecting the Premises or the
Project, then Tenant agrees that as between this Lease and any
Mortgage, the terms of such Mortgage shall govern and be determinative
relative to the payment and disposition of such proceeds.
SECTION 18. DEFAULT AND REMEDIES.
A. Default by Tenant. Each of the following occurrences shall be deemed an
event of default ("Default") by Tenant under this Lease:
(1) Tenant has not paid when due any installment of Rent or any
other payment required pursuant to this Lease within five (5)
days after written notice by Landlord; or
(2) Tenant has not complied with any term, provision or covenant
of this Lease, other than the payment of Rent, and has not
cured such noncompliance within ten (10) days after written
notice to Tenant or such additional time as may be reasonably
necessary to cure if the noncompliance cannot be cured within
ten (10) days, so long as Tenant commences cure within said
ten (10) day period and thereafter diligently pursues cure to
completion; or
(3) Tenant files a petition, or an involuntary petition is filed
against Tenant, or Tenant becomes insolvent under any
applicable federal or state bankruptcy or insolvency law, or
Tenant admits that it cannot meet its financial obligations as
they become due, or a receiver or trustee shall be appointed
for all or substantially all of the assets of Tenant, or
Tenant shall make a transfer in fraud of creditors or shall
make an assignment for the benefit of creditors; or
(4) Tenant does or permits to be done any act which results in a
lien being filed against the Premises or the Project, and such
lien is not discharged or bonded over pursuant to Section
11.H. of this Lease.
If a Default under Section 18.A.(4) occurs, nothing contained herein
shall be construed to express or imply that Landlord consents to any
assumption and/or assignment of the Lease by Tenant or the inclusion of
this Lease within Tenant's bankruptcy estate, and Landlord expressly
reserves the right to object to any assumption and/or assignment of the
Lease and to any inclusion of this Lease within Tenant's bankruptcy
estate. Neither Tenant nor any trustee who may be appointed in such
case shall conduct or permit of any "fire", "bankruptcy", "going out of
business", auction sale or other public sale in or from the Premises.
If Tenant abandons the Premises, Tenant releases and discharges
Landlord from any duty of care or other obligation regarding any of
Tenant's property remaining in the Premises.
B. Landlord's Remedies for Tenant's Default. Upon the occurrence of a
Default as defined above, Landlord may, in its sole discretion, elect
any one or more of the following remedies:
(1) to cancel and terminate this Lease by written notice to
Tenant; or
(2) whether or not Landlord elects to terminate this Lease, to
enter upon and repossess the Premises without resort to
judicial process or notice of any kind if Tenant has abandoned
or voluntarily surrendered possession of the Premises,
otherwise with resort to judicial process by unlawful detainer
action, summary proceedings, ejectment, force or otherwise,
and Landlord may, at Landlord's option, enter the Premises and
take and hold possession thereof, and may remove all persons
and property from the Premises and such property may be
removed and stored in a public warehouse or elsewhere at the
cost and for the account of Tenant, without Landlord becoming
liable for any loss or damage which may be occasioned thereby;
or
<PAGE>
(3) to cure the Default at any time for the account and at the
expense of Tenant, in which event Tenant shall reimburse
Landlord upon demand for any amount expended by Landlord in
connection with the cure, including, without limitation,
reasonable attorneys' fees and interest; or
(4) to pursue any other remedy at law or in equity that may be
available to Landlord.
Upon and after repossession, whether or not Landlord has elected to
terminate this Lease, Landlord may, but shall not be obligated to,
relet the Premises, or any part thereof, to any one other than the
Tenant, for such time and upon such terms and uses as Landlord may
determine in its sole discretion. Landlord may also make alterations
and repairs to the Premises to the extent Landlord deems necessary or
desirable to relet the Premises. Any rent received shall be applied
against Tenant's monetary obligations hereunder, but Landlord shall not
be responsible or liable for any failure to collect any rent due upon
such reletting.
In the event of any such termination or repossession, Tenant shall be
liable to Landlord as follows:
(i) for all reasonable attorneys' fees and expenses incurred by
Landlord in connection with exercising any remedy hereunder;
(ii) for the unpaid installments of Base Rent, additional rent or
other unpaid sums that were due prior to such termination or
reentry, including without limitation, interest and late
payment fees, which sums shall be payable immediately;
(iii) for the installments of Base Rent, additional rent, and other
sums falling due pursuant to the provisions of this Lease for
the period after reentry, including without limitation, late
payment charges and interest, which sums shall be payable as
they become due hereunder;
(iv) for all expenses incurred in releasing the Premises, including
leasing commissions, reasonable attorneys' fees, and costs of
alteration or repairs, which shall be payable by Tenant as
they are incurred by Landlord; and
(v) while the Premises are subject to any new lease or leases made
pursuant to this Section, for the amount by which the monthly
installments of rent payable under such new lease or leases is
less than the monthly installment for all charges payable
pursuant to this Lease, which deficiencies shall be payable
monthly.
At any time after termination or repossession, whether or not Landlord
may have collected any damages pursuant to the foregoing provisions,
Landlord shall be entitled to recover from Tenant, as and for
liquidated and agreed upon final damages for loss of bargain due to
Tenant's Default, and not as a penalty, and in lieu of the amounts
which would thereafter be payable pursuant to the foregoing provisions
(but not in diminution of the amounts payable as provided above before
termination), the present value of a sum equal to the amount by which
the then fair rental value of the Premises is less than the Base Rent,
additional rent and other sums or charges which would have been payable
by Tenant for the unexpired portion of the term of this Lease. Tenant
shall promptly pay to Landlord on demand the amount of such deficiency
and all expenses incident thereto (including without limitation,
commissions, reasonable attorneys' fees and expenses, and costs of
repairs). If Landlord, after any such reentry, leases or relets the
Premises, then the rent payable under such new lease shall be
conclusive evidence of the fair rental value of the unexpired portion
of the term of this Lease. If this Lease shall be terminated by reason
of bankruptcy or insolvency of Tenant, Landlord shall be entitled to
recover from Tenant or Tenant's estate, as liquidated damages for loss
of bargain and not as a penalty, the amount determined by the
immediately preceding paragraph.
<PAGE>
C. Interest and Attorney's Fees. In the event of a Default by Tenant,
Tenant agrees to pay Landlord (i) if a monetary default, accrued
interest on any sum due and unpaid at the rate of the lesser of
eighteen percent (18%) per annum or the highest rate permitted by law,
(ii) Landlord's costs of collection, including without limitation court
costs and reasonable attorney's fees and expenses, whether suit is
actually filed or not, and (iii) any late charges set forth in Section
5 of this Lease.
D. Additional Remedies, Waivers, Miscellaneous.
(1) The rights and remedies of Landlord set forth herein shall be
in addition to any other right and remedy now and hereafter
provided by law. All rights and remedies shall be cumulative
and not exclusive of each other. Landlord may exercise its
rights and remedies at any times, in any order, to any extent,
and as often as Landlord deems advisable without regard to
whether the exercise of one right or remedy precedes, concurs
with or succeeds the exercise of another.
(2) A single or partial exercise of a right or remedy shall not
preclude a further exercise thereof, or the exercise of
another right or remedy from time to time, and shall not be
construed to relieve Tenant of any its liabilities and
obligations under this Lease, which shall survive any such
election.
(3) No delay or omission by Landlord in exercising a right or
remedy shall exhaust or impair the same or constitute a waiver
of, or acquiescence to, a Default.
(4) No waiver of Default shall extend to or affect any other
Default or impair any right or remedy with respect thereto.
(5) No action or inaction by Landlord shall constitute a waiver of
Default.
(6) No waiver of a Default shall be effective unless it is in
writing and signed by Landlord.
SECTION 19. NOTICES. All Rent and other payments required to be made by Tenant
shall be payable to Landlord at the address set forth in Section 1.H. of this
Lease, or such other address designated by Landlord by written notice to Tenant.
All payments required to be made by Landlord to Tenant shall be payable at the
address set forth in Section 1.H., or such other address within the United
States as designated by Tenant by written notice to Landlord. Any notice or
document required or permitted to be delivered by the terms of this Lease shall
be deemed to be delivered (whether or not actually received) when (i) deposited
in the United States Mail, postage prepaid, certified mail, return receipt
requested, or (ii) deposited with a reputable national commercial courier for
overnight delivery (eg. Federal Express or U.P.S.), addressed to the parties at
the respective addresses set forth in Section 1.I. of this Lease.
SECTION 20. LANDLORD ASSIGNMENT. Landlord shall have the right to sell, convey,
transfer, mortgage, or assign, in whole or in part, for collateral purposes or
otherwise, its rights and obligations under this Lease and in all or part of the
Premises and the Project. In the event of any sale, conveyance, transfer or
assignment made other than for collateral purposes, this Lease shall remain in
full force and effect, provided, however, that (i) Landlord shall be released
from any and all liabilities under this Lease first arising after the date of
such sale, conveyance, assignment or transfer so long as the transferee assumes
the obligations of Landlord under this Lease first arising after the effective
date of such sale, conveyance, transfer or assignment, and (ii) upon receipt of
written notice from Landlord, Tenant shall immediately and automatically attorn
to the transferee.
SECTION 21. SUBORDINATION AND ATTORNMENT. This Lease is subject and subordinate
to (i) the lien of any Mortgage which may now or hereafter encumber all or part
of the Project, and (ii) all existing recorded restrictions, covenants,
easements and agreements with respect to the Project, provided, however, that so
long as this Lease is in full force and effect and Tenant is not in default
beyond any applicable cure period hereunder, Tenant's possession of the Premises
pursuant to the terms of this Lease shall not be disturbed. In order to confirm
such subordination (and/or any other terms set forth in this Section), Tenant
shall, within ten (10) days after written request from Landlord, execute and
deliver to Landlord or any Mortgage holder, any certification, instrument or
other document required by Landlord or such Mortgage holder, in form and content
as reasonably required by Landlord or such Mortgage holder. Tenant acknowledges
and agrees that its failure to deliver any such statement in a timely manner, in
addition to being a Default under this Lease, could result in a loss of
<PAGE>
favorable financing for the Project and Tenant agrees to be liable to Landlord
for both actual and consequential damages resulting from breach hereunder.
Notwithstanding anything contained herein to the contrary, if the holder of any
Mortgage elects to have this Lease be prior to its lien, Tenant agrees that upon
receipt of notice of same from Landlord or such Mortgage holder, this Lease will
be prior to such lien.
If the interests of Landlord under this Lease shall be transferred by reason of
foreclosure, deed in lieu of foreclosure or other proceedings for enforcement of
any Mortgage to any third party transferee (including without limitation the
holder of any such Mortgage) (sometimes called the "New Owner"), then (i) Tenant
waives the provisions of any statute or rule of law, now or hereafter in effect,
which may give or purport to give Tenant any right to terminate or otherwise
adversely affect this Lease or the obligations of Tenant hereunder, (ii) at the
option of New Owner, Tenant shall be bound to the New Owner under the terms,
covenants and conditions of this Lease for the balance of the term remaining,
including any extensions or renewals, with the same force and effect as if the
New Owner were Landlord under this Lease, (iii) at the option of New Owner,
Tenant shall attorn to the New Owner as its Landlord, and (iv) so long as this
Lease is in full force and effect and Tenant is not in default beyond any
applicable cure period hereunder at the time of transfer to New Owner, this
Lease shall remain in full force and effect and the New Owner shall not disturb
Tenant's possession of the Premises. Notwithstanding anything in this Lease to
the contrary, neither the holder of any Mortgage (whether or not it acquires the
interest of Landlord under this Lease by foreclosure, deed in lieu of
foreclosure or other proceedings to enforce a Mortgage) or any New Owner shall
be liable for any act or omission of Landlord or any offsets or defenses which
Tenant might have against Landlord, or bound by any prepayment by Tenant of more
than one month's installment of Rent (unless the New Owner actually receives the
prepaid Rent), or by any amendment or modification of this Lease made subsequent
to the granting of the Mortgage by Landlord that pertains to term or rent.
SECTION 22. ESTOPPEL CERTIFICATES. Tenant agrees to furnish, from time to time,
within ten (10) days after receipt of request from Landlord, a written statement
certifying, to the extent applicable, the following: (i) Tenant is in possession
of the Premises; (ii) the Premises are acceptable; (iii) the Lease is in full
force and effect and there have been no amendments or modifications, or if there
have been amendments or modifications, stating the amendments or modifications;
(iv) the dates through which the Rent and other charges hereunder have been paid
by Tenant; (v) agreeing that Tenant and Landlord will not thereafter modify this
Lease without the prior consent of the Mortgage holder; (vi) Tenant claims no
present charge, lien, or claim or offset against Rent or describing such charge,
lien or claim; (vii) the Rent is not and will not be prepaid for more than one
month in advance; (viii) there is no existing default by reason of some act or
omission by Landlord; and (ix) such other matters as may be reasonably required
by Landlord or the Mortgage holder. Tenant agrees that any such statement may be
relied upon by any present owner or prospective purchaser of the Project and any
present or prospective Mortgage holder or assignee of such Mortgage holder.
Tenant acknowledges and agrees that its failure to deliver any such statement in
a timely manner, in addition to being a Default under this Lease, could result
in a loss of favorable sale or financing and Tenant agrees to be liable to
Landlord for both actual and consequential damages resulting from breach
hereunder.
SECTION 23. LANDLORD'S LIABILITY. If Landlord shall be in default under this
Lease and, if as a consequence of such default, Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out of the
right, title and interest of Landlord in the Project including all future rents
as the same may then be encumbered and neither Landlord nor any person or entity
comprising Landlord shall be liable for any deficiency. In no event shall Tenant
have the right to levy execution against any property of Landlord nor any person
or entity comprising Landlord other than its interest in the Project as herein
expressly provided.
SECTION 24. SECURITY DEPOSIT. The security deposit set forth in Section 1.F.
("Security Deposit") shall be paid to Landlord concurrently with Tenant's
execution and delivery of this Lease to Landlord and shall be held by Landlord
for the performance of Tenant's covenants and obligations under this Lease, it
being expressly understood that the Security Deposit shall not be considered an
advance payment of Rent or a measure of Landlord's damages in case of default by
Tenant. Upon the occurrence of any Default by Tenant under this Lease, Landlord
may, from time to time, in addition to any other remedy of Landlord, use the
Security Deposit to the extent necessary to make good any arrears of Rent, or to
repair any damage or injury, or pay any expense or liability incurred by
Landlord arising from the Default, and any remaining balance of the Security
Deposit shall be returned by Landlord to Tenant upon termination of this Lease.
If any portion of the Security Deposit is so used or applied, Tenant shall, upon
ten (10) days written notice from Landlord, deposit with Landlord by cash or
cashier's check an amount sufficient to restore the Security Deposit to its
original amount.
<PAGE>
INTENTIONALLY DELETED
SECTION 26. BROKERAGE. Landlord and Tenant each represents and warrants to the
other that there is no obligation to pay any brokerage fee, commission, finder's
fee or other similar charge in connection with this Lease, other than a fee due
to Bryan Van Hoof of Paramount Real Estate, which is the responsibility of
Landlord. Each party covenants that it will defend, indemnify and hold harmless
the other party from and against any loss or liability by reason of brokerage or
similar services alleged to have been rendered to, at the instance of, or agreed
upon by said indemnifying party. Notwithstanding anything herein to the
contrary, Landlord and Tenant agree that there shall be no brokerage fee or
commission due on expansions, options or renewals by Tenant.
SECTION 27. MISCELLANEOUS.
A. Limitation of Warranties. EXCEPT AS OTHERWISE PROVIDED HEREIN, LANDLORD
AND TENANT EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED
WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE, AND THERE ARE
NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS
LEASE.
B. Landlord's Management Agent. Landlord hereby notifies Tenant that CSM
Corporation, a Minnesota corporation, has been appointed to act as the
agent in the management and operation of the Project for Landlord and
is authorized to accept service of process and receive or give receipts
for notices and demands on behalf of Landlord. Landlord reserves the
right to change the identity and status of its duly authorized agent
upon written notice to Tenant.
C. Tenant's Authority. If Tenant executes this Lease as a corporation or
limited liability company ("LLC"), each of the persons executing this
Lease on behalf of Tenant does hereby personally represent and warrant
that Tenant is a duly authorized and existing corporation or LLC, as
the case may be, that Tenant is qualified to do business in the state
in which the Premises are located, that the corporation or LLC has full
right and authority to enter into this Lease, and that each person
signing on behalf of the corporation or LLC is authorized to do so.
D. Successors and Assigns. This Lease shall be binding upon and inure to
the benefit of Landlord and its heirs, personal representatives,
successors and assigns, and Tenant and its heirs, personal
representatives and permitted successors and assigns.
E. Severability. If any provision of this Lease or the application thereof
to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such
provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
F. Counterparts. This Lease may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an
original, but together shall constitute one and the same instrument.
G. Force Majeure. Neither party shall be required to perform any covenant
or obligation in this Lease, or be liable in damages to the other
party, so long as the performance or non-performance of the covenant or
obligation is delayed, caused or prevented by an act of force majeure
or by the other party. For purposes of this Lease, "force majeure"
shall mean any of the following occurrences: act of God; fire;
earthquake; flood; explosion; actions or the elements of war; invasion;
insurrection; riot; mob violence; sabotage; inability to procure
equipment, facilities, materials or supplies in the open market;
failure of power; failure of transportation; strikes; lockouts; actions
of labor unions; condemnation; requisition; laws; orders of governments
or civil or military authorities; or any other cause, whether similar
or dissimilar to the foregoing, not within the reasonable control of
Landlord or Tenant, as the case may be.
H. Submission of Lease. Submission of this Lease to Tenant for signature
does not constitute a reservation of space or an option to lease. This
Lease is not effective until execution by and delivery to both Landlord
and Tenant.
<PAGE>
I. Headings. The section headings appearing in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe
or describe the scope or intent of any Section.
J. Amendment. This Lease may not be altered, waived, amended, or extended
except by an instrument in writing signed by Landlord and Tenant.
K. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter set forth herein, and
supersedes and replaces all other agreements or understandings of the
parties, whether oral or written.
L. Construction. THE PARTIES ACKNOWLEDGE AND AGREE THAT THEY AND THEIR
RESPECTIVE COUNSEL HAVE REVIEWED AND REVISED, OR HAVE HAD THE
OPPORTUNITY TO REVIEW AND REVISE, THIS AGREEMENT AND THAT THE NORMAL
RULE OF CONSTRUCTION TO THE EFFECT THAT AMBIGUITIES ARE TO BE RESOLVED
AGAINST THE DRAFTING PARTY SHALL NOT BE EMPLOYED IN THE INTERPRETATION
OF THIS LEASE OR ANY EXHIBITS, ADDENDUMS OR AMENDMENTS HERETO.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease effective the
day and year first above written.
LANDLORD TENANT
CSM PROPERTIES, INC. QUANTECH LTD.
BY: _____________________________________ BY: _______________________________
ITS: _____________________________________ ITS: ______________________________
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