UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
----------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number: 0-21214
ORTHOLOGIC CORP.
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(Exact name of registrant as specified in its charter)
Delaware 86-0585310
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2850 S. 36th Street, #16, Phoenix, Arizona 85034
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(Address of principal executive offices) (Zip Code)
(602) 437-5520
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,192,846 shares of common stock outstanding as of October 31, 1997
<PAGE>
ORTHOLOGIC CORP.
INDEX
Page No.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996-------------- 1
Consolidated Statements of Operations
Three Months and Nine Months ended September 30, 1997
and 1996---------------------------------------------- 2
Consolidated Statements of Cash Flows
Nine Months ended September 30, 1997 and 1996--------- 3
Notes to Consolidated Financial Statements --------------- 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk---------------------------- 10
Part II Other Information
Item 1. Legal Proceedings-------------------------------- 11
Item 6. Exhibits and Reports on Form 8-K ---------------- 11
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
OrthoLogic Corp.
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
1997 1996
--------- ---------
ASSETS (Unaudited)
Cash and cash equivalents $ 11,345 $ 13,494
Short-term investments 4,355 35,307
Accounts receivable 29,866 26,856
Inventory 9,659 6,551
Prepaids and other current assets 2,451 1,195
Deferred income taxes 2,678 2,401
--------- ---------
Total current assets 60,354 85,804
Furniture, rental fleet and equipment 14,522 11,364
Accumulated depreciation (3,737) (2,282)
--------- ---------
Furniture and equipment, net 10,785 9,082
Intangibles, net 30,339 17,847
Deposits and other assets 91 93
Note receivable - Officer -- 200
--------- ---------
Total Assets $ 101,569 $ 113,026
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 1,781 $ 2,042
Loan payable - current portion 500 --
Accrued liabilities 13,270 8,777
--------- ---------
Total current liabilities 15,551 10,819
Deferred rent and capital lease obligation 143 280
Loan payable - long term portion 524 --
Obligations under co-promotion agreement 1,000 --
--------- ---------
Total liabilities 17,218 11,099
--------- ---------
Commitments -- --
Stockholders' Equity
Common stock 13 13
Additional paid-in capital 119,061 118,832
Deficit (34,723) (16,918)
--------- ---------
Total stockholders' equity 84,351 101,927
Total Liabilities and Stockholders' Equity $ 101,569 $ 113,026
========= =========
See notes to consolidated financial statements.
Page 1
<PAGE>
OrthoLogic Corp.
Consolidated Statements of Operations
Unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 8,220 $ 7,754 $ 27,169 $ 22,425
Net rentals 9,186 2,654 25,856 2,654
Fee Revenue 793 - 793 -
--------------------------------- ---------------------------------
Total Revenues 18,199 10,408 53,818 25,079
--------------------------------- ---------------------------------
COST OF REVENUES
Cost of goods sold 2,719 1,315 7,737 3,689
Cost of rentals 1,730 676 6,035 676
--------------------------------- ---------------------------------
Total Cost of Revenue 4,449 1,991 13,772 4,365
--------------------------------- ---------------------------------
GROSS PROFIT 13,750 8,417 40,046 20,714
OPERATING EXPENSES
Selling, general and administrative 14,259 8,507 43,460 18,488
Research and development 632 530 1,821 1,627
Restructuring Charge 13,844 - 13,844 -
--------------------------------- ---------------------------------
Total Operating Expenses 28,735 9,037 59,125 20,115
--------------------------------- ---------------------------------
OPERATING INCOME (LOSS) (14,985) (620) (19,079) 599
OTHER INCOME
Grant revenue 9 37 108 131
Interest income 231 1,039 1,182 2,141
--------------------------------- ---------------------------------
Total Other Income 240 1,076 1,290 2,272
--------------------------------- ---------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (14,745) 456 (17,789) 2,871
Provision for income taxes - - - -
--------------------------------- ---------------------------------
NET INCOME (LOSS) $ (14,745) $ 456 $ (17,789) $ 2,871
================================= =================================
NET INCOME (LOSS) PER COMMON
AND EQUIVALENT SHARE $ (0.59) $ 0.02 $ (0.71) $ 0.12
================================= =================================
WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT SHARES OUTSTANDING
25,113 25,801 25,082 23,759
================================= =================================
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE>
OrthoLogic Corp.
Consolidated Statements of Cash Flows
Unaudited
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $(17,789) $ 2,871
Noncash items:
Depreciation and amortization 4,551 825
Restructuring charge and other 13,844 --
Other (433) --
Net change in Other Operating items:
Accounts receivable 1,905 (6,718)
Inventory (604) (2,218)
Prepaids and other current assets (1,430) (812)
Deposits and other assets 2 5
Accounts payable (1,808) 376
Accrued liabilities (807) 1,082
-------- --------
Cash Flows (used in) Operating Activities (2,569) (4,589)
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets (3,434) (829)
Cash paid for acquisitions, net of cash acquired (25,327) (24,907)
Sales (Purchases) of short term investments 30,952 (27,921)
Collection of note receivable 200 125
Intangible from dealer transactions (705) (9,279)
-------- --------
Cash Flows provided by (used in)
Investing Activities 1,686 (62,811)
-------- --------
FINANCING ACTIVITIES
Payments on Capital Leases (75) --
Payments on Loan Payable (420) --
Payments under co-promotion agreement (1,000) --
Proceeds from issuance of common stock -- 74,952
Net proceeds from stock option exercises 229 --
-------- --------
Cash Flows (used in) provided by (1,266) 74,952
-------- --------
Financing Activities
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,149) 7,552
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 13,494 8,831
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,345 $ 16,383
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 81 $ 0
======== ========
Income Taxes $ 317 $ 81
======== ========
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statement Presentation
--------------------------------
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of
OrthoLogic Corp. and its subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of September 30, 1997, the
consolidated statements of operations for the three months and nine months
ended September 30, 1997 and 1996 and the consolidated statement of cash
flows for the nine months ended September 30, 1997 and 1996 are unaudited;
however, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of
financial position, results of operations and cash flows have been
included. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the complete
fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 1996 Annual Report
on Form 10-K.
2. New Accounting Pronouncements
-----------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share", effective for both interim and annual periods ending after
December 15, 1997. This statement specifies the computation, presentation
and disclosure of earnings per share for entities with publicly held
common stock or potential common stock. The Company will provide the
required disclosures in its year-end report. The effect on the Company's
earnings per share disclosure is not material for the periods presented.
The Financial Accounting Standards Board recently issued SFAS No. 130 on
"Reporting Comprehensive Income" and SFAS No. 131 on "Disclosures about
Segments of an Enterprise and Related Information." The "Reporting
Comprehensive Income" standard is effective for fiscal years beginning
after December 15, 1997. The standard changes the reporting of certain
items currently reported in the stockholders' equity section of the
balance sheet. The Company is currently evaluating what impact this
standard will have on the Company's financial statements. The "Disclosures
about Segments of an Enterprise and Related Information" standard is
effective for fiscal years beginning after December 15, 1997. This
standard requires that public companies report certain information about
operating segments in their financial statements. It also establishes
related disclosures about products and services, geographic areas, and
major customers. The Company is currently evaluating what impact this
standard will have on its disclosures.
3. Preferred Stock Purchase Rights
-------------------------------
On February 25, 1997 the Company declared a dividend distribution of one
Preferred Stock Purchase Right (the "Rights") for each outstanding share
of the Company's common stock, payable March 12, 1997 to holders of record
on that date. The Rights will expire on March 11, 2007.
Page 4
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Each Right will entitle shareholders to buy 1/100 of a share of Series A
Preferred Stock at an exercise price of $25.00.
Initially, no separate Rights certificates will be distributed; the Rights
will trade with the Company's common stock and will not be exercisable
until the earlier of 10 business days following the acquisition of 15% or
more of the Company's common stock by a person or group or 15 business
days following the commencement of a tender offer for 20% or more of the
Company's common stock.
At the discretion of the Board of Directors of the Company, the Rights can
be redeemed at any time prior to the 10th day following the date the
Rights become exercisable. If the Rights are not redeemed by the Board,
and the Company is acquired, holders of the Rights (other than an
"acquiring person") will be entitled to purchase additional shares of
common stock of either the Company or the acquiring corporation (whichever
survives) at one-half the market price.
4. Acquisitions
------------
On March 3, 1997 and March 12, 1997, the Company acquired certain assets
and assumed certain liabilities of Toronto Medical Corp. (Toronto) and
Danninger Medical Technology, Inc. (DMTI). After paying certain of the
assumed liabilities, the net cash outlay was approximately $7.5 million
for Toronto and $10.7 million for DMTI. Both acquisitions were accounted
for as a purchase which resulted in goodwill of $4 million for Toronto and
$7.7 million for DMTI. The goodwill is being amortized over 20 years. The
Company has substantially completed its restructuring of operations
related to these acquisitions and the acquisition of Sutter Corporation
(acquired in August 1996). The additional costs incurred related to the
restructuring for all acquisitions, totaling $7.1 million, is reflected as
additional acquisition costs in the allocation of purchase price. The
goodwill is being amortized over the remaining goodwill period of 20
years.
Had the Toronto and DMTI acquisitions occurred on January 1, 1996,
combined unaudited pro forma results for the nine months ended September
30, 1997 and 1996, would have been: net revenues - $57.1 million and $37.8
million; net (loss) - $(17.8) million and $(114,000); net (loss) per
common share - $(0.71) and $(0.00).
The pro forma amounts disclosed above include revenue and net income
derived from product sales to competing independent dealers of orthopaedic
rehabilitation products. Subsequent to the acquisition, the Company
discontinued selling products to these dealers. Excluding the dealer
product sales, combined unaudited pro forma results for the nine months
ended September 30, 1997 and 1996, would have been: net revenues - $55.7
million and $32.7 million; net (loss) - $(18.2) million and $(779,000);
net (loss) per common share - $(0.72) and $(0.03).
5. Co-promotion Agreement
----------------------
The Company entered into an exclusive co-promotion agreement (the
"agreement") with Sanofi Pharmaceuticals, Inc. ("Sanofi") on June 23, 1997
for the purpose of marketing Hyalgan, a hyaluronic acid sodium salt, to
orthopaedic surgeons in the United States for the treatment of pain in
patients with
Page 5
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
osteoarthritis of the knee. The initial term of the agreement ends on
December 31, 2002. Upon the expiration of the initial term, Sanofi may
terminate the agreement, extend the agreement for an additional one year
period, or enter into a revised agreement with the Company. Upon
termination of the agreement, Sanofi shall pay the Company an amount equal
to 50% of the gross compensation paid to the Company, pursuant to the
agreement, for the immediately preceding year.
Under the terms of the agreement, the Company is obligated to: use its
best efforts to market and promote Hyalgan; to pay Sanofi a royalty of 10%
of the net selling price, as defined; and to pay the manufacturer of
Hyalgan certain pre-determined amounts and a pro-rata portion of a 10%
royalty on combined annual net sales of Hyalgan by Sanofi and the Company
in excess of $30.0 million. In addition, the Company is obligated to pay a
total of $4.0 million in payments during the first eighteen months of the
agreement. During the second quarter, the Company incurred a $1.0 million
payment of this amount. The Company has recorded the remaining $3.0
million in its financial statements.
The Company's sales force began efforts to promote Hyalgan in the third
quarter of 1997. Fee revenue of $793,000 recorded during the quarter
represents the Company's estimate of its share of revenue in the quarter
under the agreement.
The final determination of the Company's fees recognized under this
agreement is dependent upon Medicare's ultimate assignment of a billing
code and a reimbursement amount.
6. Restructure Charge
------------------
During the third quarter of 1997, the Company restructured its sales,
marketing and managed care groups. As a result of this restructuring and a
second consecutive quarter of declining sales of the OrthoLogic 1000 bone
growth stimulator, the Company determined that certain dealer intangibles
acquired in the transition to a direct sales force have been impaired. The
Company recorded a restructuring charge of $13.8 million in the third
quarter, composed of a $10.0 million write-off of its dealer intangibles
and $3.8 million in severance, facility closing and related costs.
Page 6
<PAGE>
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion of significant factors that affected
the Company's interim financial condition and results of operations. This should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
Results of Operations
OrthoLogic has completed three recent acquisitions which affect
the year-to-year comparability of its consolidated financial
position and results of operations: the acquisition of Sutter
Corporation (Sutter) on August 30, 1996 and the acquisition of
certain assets and the assumption of certain liabilities of two
other orthopaedic rehabilitation related companies in March 1997.
Nine Months Ended September 30, 1997 and September 30, 1996
Revenues
OrthoLogic's revenues increased 115% from $25.1 million for the
nine months ended September 30, 1996 to $53.8 million for the nine
months ended September 30, 1997. The increase in revenue was due
primarily to revenues from its orthopaedic rehabilitation products
($34.6 million in 1997 compared to $3.3 million in 1996). The
orthopaedic rehabilitation area is engaged primarily in the direct
rental of continuous passive motion devices to patients. The
Company entered this area upon the acquisition of Sutter
Corporation (Sutter) on August 30, 1996 and the assets of Toronto
Medical Corp. (Toronto) and Danninger Medical Technology, Inc.
(Danninger) in March of 1997. The Company believes that revenues
for its orthopaedic rehabilitation products may be seasonal, with
the strongest sales occurring in the fourth quarter.
Excluding the effects of the Company's acquisitions, revenues from
the OrthoLogic 1000 were down 16.5% to $17.5 million for the nine
months ended September 30, 1997 from $21.0 million for the
comparable period in 1996. The Company does not believe that there
is a single factor causing the decline in OrthoLogic 1000 sales.
The Company attributes the decline to multiple factors, including
the shift from a distribution network to a direct sales force,
fewer total salespeople selling the OrthoLogic 1000 in 1997
compared to 1996, and the quality and effectiveness of sales
management. During the second quarter of 1997, the Company changed
its estimate for allowance for bad debt expense, increasing its
allowance by $2.0 million related to Medicare receivables for the
OrthoLogic 1000 which are outside Medicare's coverage definition.
Prior to the second quarter, Medicare reimbursed for the
OrthoLogic 1000 even when physicians prescribed use of the device
outside Medicare's own definition of a non-union fracture.
Prescriptions of that kind covered by Medicare typically accounted
for 7 percent to 9 percent of OrthoLogic 1000 revenue. The Company
no longer recognizes Medicare revenue from prescriptions outside
the coverage definition.
During the third quarter of 1997, the Company began marketing
Hyalgan to orthopaedic surgeons in the United States. For the
quarter ended September 30, 1997, the Company recognized fee
revenue of $793,000 related to these efforts, with an associated
approximate $700,000 in SG&A expenses.
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Gross Profit
Gross profit increased from $20.7 million for the nine months
ended September 30, 1996 to $40.0 million for the nine months
ended September 30, 1997. The increase in gross profit was due
primarily to the increase in gross profit of Sutter ($19.1
million) and the recently acquired operations ($2.8 million) of
Toronto and Danninger. Gross profit as a percentage of revenue was
74.4% for the nine months ended September 30, 1997 compared to
82.6% for the comparable period during 1996. The overall gross
profit percentage declined as a result of the recently acquired
orthopaedic rehabilitation operations which have a lower gross
profit percentage than the Company's fracture healing products.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the nine
months ended September 30, 1997 were $43.5 million, up $25.0
million from the comparable 1996 period. The 1997 period included
the SG&A from the acquisitions, which comprise a significant
portion of the Company's SG&A. Additionally, SG&A for the nine
months ended September 30, 1997 includes $2.0 million in bad debt
expense incurred in the second quarter of 1997 related to Medicare
receivables for the OrthoLogic 1000 which are outside Medicare's
coverage definition. During late 1996, the fixed component of SG&A
increased due to the addition of employees, including salespeople
added to support the Company's transition to a direct sales force,
and other infrastructure required to support the growing and
projected revenue volume.
In the third quarter of 1997, the Company substantially completed
its consolidation of duplicate facilities and eliminated expenses
from redundant operations from within the three businesses that
were recently acquired.
Research and Development
Research and Development (R&D) expenses were $1.8 million for the
nine months ended September 30, 1997 compared to $1.6 million for
the comparable 1996 period. The increase in R&D expenses was due
to the acquisitions, while R&D for the remainder of the Company
remained stable.
Restructuring Charge
The Company restructured and reduced the size of its sales,
marketing and managed care groups in the third quarter of 1997 in
an effort to gain efficiencies in the management and function of
its salespeople. The Company also incurred costs relating to the
restructuring of its operations, including consolidation of
facilities and reorganization of management. Associated with this
restructuring, the Company incurred a charge of $13.8 million,
comprised primarily of a $10.0 million write-off of its dealer
intangibles which have been impaired and a $3.8 million write-off
related to management and sales force severance, facility closing
and related costs.
Page 8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Other Income
Other income of $1.3 million for the nine months ended September
30, 1997 consisted of interest income of $1.2 million and grant
revenue of $108,000. Other income for the comparable 1996 period
consisted of interest income of $2.1 million and grant revenue of
$131,000. The decrease in interest income was due to cash used for
acquisitions of $25.3 million and to cash used to fund operations.
Three Months Ended September 30, 1997 and September 30, 1996
Revenues increased 75% to $18.2 million for the third quarter of
fiscal 1997, as compared to $10.4 million for the same period in
1996. Gross profit rose 63% to $13.7 million for the third quarter
of fiscal 1997 from $8.4 million for the third quarter of fiscal
1996. During the third quarter, SG&A expenses rose 68% to $14.3
million as compared to $8.5 million for the same period last year.
The Company incurred a restructuring charge of $13.8 million in
the third quarter of 1997. Other income fell 78% to $240,000 for
the third quarter of fiscal 1997 compared to $1.1 million for the
third quarter of fiscal 1996. The business factors resulting in
these changes and relevant trends affecting the Company's business
during the third quarters of 1997 and 1996 are comparable to those
described in the preceding discussion for the nine-month period.
Liquidity and Capital Resources
At September 30, 1997, the Company had cash and investments of
$15.7 million compared to $48.8 million at December 31, 1996.
Working capital decreased from $75.0 million at December 31, 1996
to $44.8 million at September 30, 1997. The decrease in cash and
investments is primarily the result of cash used for acquisitions
and related costs of $25.3 million. Other uses of cash included
$3.3 million for operating activities, $1.0 million in payments
under the Hyalgan co-promotion agreement, and $3.4 million for the
purchase of fixed assets, primarily rental assets for the
Company's orthopedic rehabilitation division.
The change in intangibles from $17.8 million at December 31, 1996
to $30.3 million at September 30, 1997 is primarily due to costs
associated with the acquisitions of Toronto and DMTI, cost of the
co-promotion agreement with Sanofi and offset by the write-off of
dealer intangibles described under Restructuring Change. Accrued
liabilities increased from $8.8 million at December 31, 1996 to
$13.3 million at September 30, 1997 primarily from the accrual of
a $2 million obligation to Sanofi payable in the next 12 months,
and the accrual of management and sales force severance, facility
closing and related costs from the restructuring charge.
Under the terms of the co-promotion agreement with Sanofi, the
Company is obligated to pay a total of $4 million in payments
during the first eighteen months of the agreement. During the
second quarter, the Company paid $1.0 million of the required
payment under the co-promotion agreement for the right to market
and promote Hyalgan. Because such required payments are paid every
six months, no payment was made during the third quarter.
Page 9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The Company currently believes that cash generated from product
sales and rentals and its available cash resources will be
sufficient to meet its current operating requirements and internal
development and integration initiatives for the foreseeable
future. There can be no assurance, however, that the Company will
not require additional financing in the future. If the Company
were required to obtain additional financing in the future, there
can be no assurance that such sources of capital will be available
on terms favorable to the Company, if at all.
The Company has signed a lease and will relocate its corporate
offices in the fourth quarter of 1997 to a 100,000 square foot
office/manufacturing facility in Tempe, Arizona. The terms of the
lease are for a ten year period commencing December 1, 1997 with
equal monthly rental payments. The Company is accounting for the
lease as an operating lease.
There are currently no other material definitive commitments for
future use of the Company's available cash resources; however,
management continually evaluates opportunities to expand its
operations, which includes internal development of new products
and may include additional acquisitions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this document that are not
historical facts, including, without limitation, statements of
future expectations of revenue from Hyalgan sales, availability of
cash, and projections of results of operations and financial
condition, are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, which are
subject to known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or
achievements of the Company to differ materially from those
contemplated in such forward-looking statements. In addition to
the specific matters referred to herein, important factors which
may cause actual results to differ from those contemplated in such
forward-looking statements include, but are not limited to: (i)
the results of the Company's efforts to implement its business
strategy; (ii) actions of the Company's competitors and the
Company's ability to respond to such actions; (iii) changes in
governmental regulation, tax rates and similar matters; (iv)
dependence on reimbursement from third parties; (v) other risks
detailed in the Company's other filings with the Securities and
Exchange Commission; and (vi) the costs and results of pending
litigation. Additional factors which might affect such
forward-looking statements are discussed in Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item not applicable.
Page 10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See the information under the caption "Item 3 Legal Proceedings"
of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index following the Signatures page which
is incorporated herein by reference.
(b) Reports on Form 8-K
1. On March 18, 1997, the Company filed a Current
Report on Form 8-K dated March 3, 1997, to report in
Item 2, the consummation of its acquisition of all
the assets and business and the assumption of
substantially all of the liabilities of Toronto
Medical Corp., an Ontario corporation, pursuant to a
Purchase and Sale Agreement dated as of December 30,
1996. The Form 8-K was amended on May 19, 1997 to
include in Item 7 the following financial
statements:
Unaudited Pro-Forma Consolidated Statements of
Income/(Loss) for the three month period ended
March 31, 1997 and for the year ended December
31, 1996.
Audited Consolidated Balance Sheet at May 31, 1996
and 1995; Consolidated Statements of
Income/(Loss) and Consolidated Statements of Cash
Flows for the years ended May 31, 1996 and 1995;
and independent auditor's report.
The Form 8-K was amended again on August 13, 1997 to
include in Item 7 the following financial
statements:
Audited Consolidated Balance Sheet at February 28,
1997; Consolidated Statement of Income,
Consolidated Statement of Shareholders' Equity,
and Consolidated Statement of Cash Flows for the
period June 1, 1996 to February 28, 1997; and
independent auditor's report.
2. On August 22, 1997, the Company filed a Current
Report on Form 8-K dated August 21, 1997 reporting
in Item 5 the press release attached as an exhibit
in Item 7 announcing changes in the Company's senior
management.
3. On October 10, 1997, the Company filed a Current
Report on Form 8-K dated October 10, 1997 reporting
in Item 5 the appointment of Thomas R. Trotter as
the Company's president and chief executive officer
effective October 20, 1997.
Page 11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORTHOLOGIC CORP.
- ----------------
(Registrant)
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Thomas R. Trotter President and Chief Executive Officer November 14, 1997
- --------------------- (Principal Executive Officer)
Thomas R. Trotter
/s/ Allen R. Dunaway Vice-President and Chief Financial Officer November 14, 1997
- -------------------- (Principal Financial and Accounting Officer)
Allen R. Dunaway
</TABLE>
Page 12
<PAGE>
ORTHOLOGIC CORP.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed
No. Description Reference to: Herewith
- ---------------- --------------------------------------- ---------------------------------------- --------------
<S> <C> <C> <C>
2.1 Stock Purchase Agreement dated August Exhibit 2.1 to the Company's Current
30, 1996 by and among the Company, Report on Form 8-K filed on September
Sutter Corporation and Smith 13, 1996
Laboratories, Inc.
2.2 Purchase and Sale Agreement dated as of Exhibit 2.1 to the Company's Current
December 30, 1996 by and among the Report on Form 8-K filed on March 18,
Company and Toronto Medical Corp., an 1997 ("March 18, 1997 8-K")
Ontario corporation
2.3 Amendment to Purchase and Sale Exhibit 2.2 to March 18, 1997 8-K
Agreement dated as of January 13,
1997 by and among the Company and
Toronto Medical Corp., an Ontario
corporation
2.4 Second Amendment to Purchase and Sale Exhibit 2.3 to March 18, 1997 8-K
Agreement dated as of March 1,
1997 by and among the Company and
Toronto Medical Corp., an Ontario
corporation
2.5 Assignment of Purchase and Sale Exhibit 2.4 to March 18, 1997 8-K
Agreement dated as of March 1, 1997 by
and among the Company, Toronto Medical
Orthopaedics Ltd., a Canada corporation
and Toronto Medical Corp., an Ontario
corporation
2.6 Asset Purchase Agreement dated March Exhibit 2.1 to the Company's Current
12, 1997 by and among the Report on Form 8-K filed on March 27,
Company, Danninger Medical 1997
Technology, Inc., a Delaware
corporation, and Danninger
Healthcare, Inc., an Ohio corporation
3.1 Composite Certificate of Incorporation Exhibit 3.1 to the Company's Quarterly
of the Company, as amended, including Report on Form 10-Q filed on May 15,
Certificate of Designation in respect 1997
of Series A Preferred Stock
3.2 Bylaws of the Company Exhibit 3.4 to Company's Amendment No.
2 to Registration Statement on Form S-1
(No. 33-47569) filed with the SEC on
January 25, 1993 ("January 1993 S-1")
</TABLE>
<PAGE>
ORTHOLOGIC CORP.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 (continued)
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed
No. Description Reference to: Herewith
- ---------------- --------------------------------------- ---------------------------------------- --------------
<S> <C> <C> <C>
4.1 Articles 5, 9 and 11 of Certificate of Exhibit 3.1 above
Incorporation of the Company
4.2 Articles II and III.2(c)(ii) of Bylaws Exhibit 3.4 to January 1993 S-1
of the Company
4.3 Specimen Common Stock Certificate Exhibit 4.1 to January 1993 S-1
4.4 1987 Stock Option Plan of the Company, Exhibit 4.4 to the Company's Current
as amended and approved by stockholders Report on Form 10-Q filed on August 14,
1997 ("Second Quarter 1997 10-Q")
4.5 1997 Stock Option Plan of the Company Exhibit 4.5 to Second Quarter 1997 10-Q
4.6 Stock Purchase Warrant, dated August Exhibit 4.6 to the Company's Form 10-K
18, 1993, issued to CyberLogic, Inc. for the fiscal year ended December 31,
1994
4.7 Stock Purchase Warrant, dated September Exhibit 4.6 to Company's Registration
20, 1995, issued to Registered Statement on Form S-1 (No. 33-97438)
Consulting Group, Inc. filed with the SEC on September 27, 1995
4.8 Stock Purchase Warrant, dated October Exhibit 4.7 to the Company's Form 10-K
15, 1996, issued to Registered for the fiscal year ended December 31,
Consulting Group, Inc. 1996 ("1996 10-K")
4.9 Rights Agreement dated as of March 4, Exhibit 4.1 to the Company's
1997 between the Company and Bank of Registration Statement on Form 8-A
New York, and Exhibits A, B and C filed with the SEC on March 6, 1997
thereto
10.1 Co-promotion Agreement dated June 23, Exhibit 10.1 to Second Quarter 1997 10-Q
1997 by and between the Company and Sanofi
Pharmaceuticals, Inc.
10.2 Single-tenant Lease-net dated June 12, X
1997 by and between the Company and
Chamberlain Development, L.L.C.
10.3 Employment Agreement dated October 20, X
1997 by and between the Company and
Thomas R. Trotter, including Letter of
Incentive Option Grant, OrthoLogic
Corp. 1987 Stock Option Plan
</TABLE>
<PAGE>
ORTHOLOGIC CORP.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 (continued)
<TABLE>
<CAPTION>
<S> <C> <C>
10.4 Employment Agreement dated October 17, X
1997 by and between the Company and
Frank P. Magee
10.5 Employment Agreement dated October 17, X
1997 by and between the Company and
Allan M. Weinstein
10.6 Severance Agreement dated May 21, 1997 X
between the Company and David E.
Derminio
10.7 Severance Agreement dated September 19, X
1997 between the Company and Nicholas
A. Skaff
11 Statement of Computation of Net Income X
(Loss) per Weighted Average Number of
Common Shares Outstanding
27 Financial Data Schedule X
</TABLE>
SINGLE-TENANT LEASE-NET
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, June
12, 1997, is made by and between Chamberlain Development, L.L.C., ("Lessor") and
Orthologic Corp. ("Lessee"), (collectively the "Parties," or individually a
"Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and described
on the attached Exhibit "A" located in the County of Maricopa, State of Arizona,
and generally described as 100,000 square foot office/manufacturing facility
("Premises"). (See Paragraph 2 for further provisions.)
1.3 Term: Ten (10) years and zero (0) months ("Original Term") commencing
December 1, 1997 ("Commencement Date") and ending November 30, 2007 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: N/A ("Early Possession Date"). (See Paragraphs 3.2
and 3.3 for further provisions.)
1.5 Base Rent: $78,145.00 per month ("Base Rent"), plus applicable
transaction privilege taxes, payable on the first day of each month commencing
December 1, 1997 (See Paragraph 4 for further provisions.) : If this box is
checked, there are provisions in this Lease for the Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $78,145.00 as Base Rent for the Period
December 1, 1997 to December 31, 1997.
1.7 Security Deposit: $50,000.00 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: General office and light manufacturing (See Paragraph 6
for further provisions.)
1.9 Insuring Party: Lessee is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
N/A
- --------------------------------------------------------------------------------
represents [_] Lessor exclusively ("Lessor's Broker")[_] both Lessor and Lessee,
and
Kit Tiedemann, CB Commercial
- --------------------------------------------------------------------------------
represents [X] Lessee exclusively ("Lessee's Broker")[_] both Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 Guarantor. Deleted.
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 63 and Exhibits "A" and "B" all of which constitute a part
of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less. The parties
acknowledge that the improvements to be included in the Premises are to be
conveyed by Lessor to the City of Tempe pursuant to the City Agreement described
in Paragraph 62 below and leased back by Lessor pursuant to the City Lease
described therein, such that for so long as the City Lease is in effect, the
Premises include Lessor's leasehold interest in such improvements rather than
fee title thereto. Upon request, Lessee will confirm in writing the
1
<PAGE>
foregoing for the benefit of Lessor, the City or any other party as reasonably
requested by Lessor. After the City Lease has expired or terminated, the
Premises will include Lessor's fee interest in the improvements (subject to the
Sublease described in Paragraph 62 below).
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the Premises
(including without limitation) existing plumbing, fire sprinkler system,
lighting, air conditioning, heating, and loading doors, if any, in the Premises,
other than improvements or alterations constructed by Lessee, shall be in good
operating condition on the Commencement Date. If a non-compliance with said
warranty exists as of the Commencement Date, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
rectify same at Lessor's expense. If Lessee does not give Lessor written notice
of a non-compliance with this warranty within one (1) year after the
Commencement Date, (except for customary Apunch list@ items for which the period
shall be thirty (30) days), correction of that non-compliance shall be the
obligation of the Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the Premises comply with all Applicable Law (including
without limitation all covenants or restrictions of record and applicable
building codes, regulations and ordinances) in effect on the Commencement Date.
Said warranty does not apply to the use to which Lessee will put the Premises or
to any Alterations or Utility Installations (as defined in Paragraph 7.3 (a))
made or to be made by Lessee. If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify the same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within one (1) year following the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigations it deems
necessary with reference to such matters and assumes all responsibility therefor
as the same relate to Lessee's occupancy of the Premises and/or the term of this
Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any
oral or written representations or warranties with respect to the said matters
other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3
3.2 Early possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be
prorated for the period of such early possession. All other terms of this Lease,
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 Delay In Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession Date
2
<PAGE>
is specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor; provided, however, that the Security Deposit shall apply to rent due
after the Commencement Date, shall be applied to the first installment(s) of
rent due on or following the Commencement Date prior to any out-of-pocket
payment of rent by Lessee and the parties will execute a confirmation of such
application, and Lessee will have no further right or claim for refund or return
of the Security Deposit so applied. Unless otherwise expressly agreed in writing
by Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment for
any moneys to be paid by Lessee under this Lease.
6. Use
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes
3
<PAGE>
damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom to therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor or for which Lessor's consent is not required
hereunder, Lessee shall immediately give written notice of such fact to Lessor.
Lessee shall also immediately give Lessor a copy of any statement, report,
notice, registration, application, permit, business plan, license, claim, action
or proceeding given to, or received from, any governmental authority or private
party, or persons entering or occupying the Premises, concerning the presence,
spill, release, discharge of, or exposure to, any Hazardous Substance or
contamination in, on, or about the Premises, including but not limited to all
such documents as may be involved in any Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
reasonable attorneys' and consultants' fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Lessee
or under Lessee's control except as the same is caused by Lessor's gross
negligence or willful misconduct. Lessee's obligations under this Paragraph 6
shall include, but not be limited to, the effects of any contamination or injury
to person, property or the environment created or suffered by Lessee, and the
cost of
4
<PAGE>
investigation (including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants', relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law. Notwithstanding the foregoing,
Lessor shall, at its sole cost and expense, fully, diligently and in a timely
manner, comply with all Applicable Law as it relates to the specific obligations
of Lessor found in Paragraph 7.2 below only.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants' in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
(See Paragraph 57 for additional requirements)
7.1 Lessee's Obligations.
(a) Subject to the Provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
6.3 (Compliance with Law), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every part thereof in good
order, condition and repair, structural and non-structural (whether or not such
portion of the Premises requiring repair, or the means of repairing the same,
are reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of such portion of the Premises), including, without limiting the
generality
5
<PAGE>
of the foregoing, all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roofs, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under, or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of, the
Premises, the elements surrounding same, or neighboring properties, that was
caused or materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance and/or storage tank brought onto the Premises by or for
Lessee or under its control. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If Lessee occupies the Premises for
seven (7) years or more, Lessor may require Lessee to repaint the exterior of
the buildings on the Premises as reasonably required, but not more frequently
than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, all of which obligations
are intended to be that of the Lessee under Paragraph 7.1 hereof, except that
Lessor shall, at its cost, maintain and repair the structural elements of the
foundations, structural walls (excluding any interior or exterior decorative
surfaces and utility equipment therein or thereon), structural pillars
(excluding any interior or exterior decorative services and utility equipment
therein or thereon) and the structural elements of the roof (expressly excluding
the roof surface or coating and roof membrane), and expressly excluding any
damage done or caused by Lessee or its agents, employees, contractors, licensees
or invitees, whether or not the same involves negligence or misconduct. Lessor's
obligations under the preceding sentence shall be to perform required
maintenance, repair and/or replacements within a reasonable period after Lessor
has actual notice of the need therefor. It is the intention of the Parties that
the terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with the respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and
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fencing in, on or about the Premises. The term "Trade Fixtures" shall mean
Lessee's machinery and equipment that can be removed without doing material
damage to the Premises. The term "Alterations" shall mean any modification of
the improvements on the Premises from that which are provided by Lessor under
the terms of this Lease, other than Utility Installations or Trade Fixtures,
whether by addition or deletion. "Lessee Owned Alterations and/or Utility
Installations" are defined as Alterations and/or Utility Installations made by
Lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee
shall not make any Alterations or Utility Installations in, on, under or about
the Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof), as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon; (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not Less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys' fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become
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the property of Lessor and remain upon and be surrendered by Lessee with the
Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance and Indemnity. (See Paragraph 61 for additional requirements)
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $5,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $5,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not lieu of, the insurance required to be maintained
by Lessee. Lessee shall not be named as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the
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Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by Lenders, but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature of age of
the improvements involved, such latter amount is less than full replacement
cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and
Utility Installations shall be insured by Lessee under Paragraph 8.4 rather than
by Lessor. If the coverage is available and commercially appropriate, such
policy or policies shall insure against all risks of direct physical loss or
damage (except the perils of flood and/or earthquake unless required by a
Lender), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for enforcement of any ordinance or
law regulating the reconstruction or replacement of any undamaged sections of
the Premises required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
cause of loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall
be liable for such deductible amount in the event of an Insured Loss, as defined
in Paragraph 9.1(c).
(b) Rental Value. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for (1)
year (including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an repairs or replacement of the Premises, to provide
for one full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, property taxes, insurance premium costs and other
expenses, if any, otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the event of such
loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by the insurance required by this Paragraph 8.4 and shall
provide Lessor with written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business
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in the state where the Premises are located, and maintaining during the policy
term a "General Policyholders Rating" of at least B+, V, or such other rating as
may be required by a Lender having a lien on the Premises, as set forth in the
most current issue of "Best's Insurance Guide." Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be
delivered to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with the
insureds and loss payable clauses as required by this Lease. No such policy
shall be cancelable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and
maintain the insurance required to be carried by the Insuring Party under this
Paragraph 8, the other Party may, but shall not be required to, procure and
maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence, willful misconduct and/or
breach of express warranties, Lessee shall indemnify, protect, defend and hold
harmless the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving , or in
dealing with, the occupancy of the Premises by Lessee, the conduct of Lessees
business, any act, omission or neglect of Lessee, its agents, contractors,
employees or invitees, and out of any Default of Breach by Lessee in the
performance in a timely manner of any obligation of Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Except as caused by Lessor's gross
negligence, willful misconduct and/or breach of express warranties (which is not
corrected within a reasonable time) and subject to Paragraph 8.6, Lessor shall
not be liable for injury or damage to the person or goods, wares, merchandise or
other property of Lessee, Lessee's employees, contractors, invitees, customers,
or any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results for conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or neglect
of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
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9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage-Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either party.
9.3 Partial Damage-Uninsured Loss. If a Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's
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expense and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i)
repair such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such damage of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage totally at Lessee's expense and without reimbursement from
Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment. In
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate (60) days following the
date of such Premises Total Destruction, whether or not the damage or
destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is a damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9
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and shall not commence, in a substantial and meaningful way, the repair or
restoration of the Premises within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee gives
such notice to Lessor and such Lenders and such repair or restoration is not
commenced within sixty (60) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Lessor or Lender commences
the repair or restoration of the Premises within thirty (30) days after receipt
of such notice, this Lease shall continue in full force and effect. "Commence"
as used in this Paragraph shall mean either the unconditional authorization of
the preparation of the required plans, or the beginning of the actual work on
the Premises, whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve months.
9.8 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this
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Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after
such proration. If Lessee shall fail to pay any Real Property Taxes required by
this Lease to be paid by Lessee, Lessor shall have the right to pay the same,
and Lessee shall reimburse Lessor therefor upon demand. See Paragraph 58 for
additional requirements.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes". As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, any lease excise tax (including but
not limited to any government property lease excise tax due under A.R.S.
'42-1901 et seq. because of the City Lease described in Paragraph 62 below and
the City's ownership of improvements), and any commercial rental tax, (other
than inheritance, personal, income or estate taxes) imposed upon the Premises by
any authority having the direct or indirect power to tax, including any city,
state or federal government, or any school, agricultural, sanitary, fire,
street, drainage or other improvement district thereof, levied against any legal
or equitable interest of Lessor or Lessee in the Premises or against Lessee's
Alterations, Utility Improvements or Trade Fixtures, and any charge or
assessment of any kind whatsoever resulting from the Premises inclusion in any
property owners association.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with the Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other
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utilities and services supplied to the Premises, together with any taxes
thereon. If any such services are not separately metered to Lessee, Lessee shall
pay a reasonable proportion, to be determined by Lessor, of all charges jointly
metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively "assignment")
or sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more or the voting control of Lessee shall constitute a change
in control for this purpose, except to the extent it results from the trading of
securities on any national or regional stock exchange.
(c) The involvement of Lessee or its assets in any transactions, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the new fair market
value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's
Notice, with any overpayment credited against the next installment(s) of Base
Rent coming due, and any underpayment for the period retroactively to the
effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction or
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by
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Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval of disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent subletting and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating
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that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. A "Default" is defined as a failure by the Lessee to
observe, comply with or perform any of the terms, covenants, conditions or rules
applicable to Lessee under this Lease. A "Breach" is defined as the occurrence
of any one or more of the following Defaults, and, where a grace period for cure
after notice is specified herein, the failure by Lessee to cure such Default
prior to the expiration of the applicable grace period, and shall entitle Lessor
to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where any such failure in this subparagraph
continues for a period of three (3) business days following written notice
thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
to provide Lessor with reasonable written evidence (in duly executed original
form, if applicable) of (i) compliance with applicable law per Paragraph 6.3,
(ii) the inspection, maintenance and service contracts required under Paragraph
7.1(b), (iii) the recision of an unauthorized assignment or subletting per
Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the
subordination or non-subordination of this Lease per Paragraph 30, (vi) the
guaranty of the performance of Lessee's obligations under this Lease if required
under Paragraphs 1.11 and 37, (vii) the execution of any document requested
under Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this Lease,
where any such failure continues for a period of ten (10) days following written
notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
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those described in subparagraphs (a), (b) or (c) above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. '101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in the Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefore. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of term after the time of award exceeds
the amount of such rental loss that the Lessee proves could be reasonably
avoided; and (iv) any other amount necessary to compensate Lessor for all the
detriment proximately caused by the Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, including but not limited to the cost of recovering possession
of the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that portion of the
leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover in such proceeding the unpaid rent and
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damages as are recoverable therein, or Lessor may reserve therein the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under subparagraphs 13.1(b), (c) or (d)
was not previously given, a notice to pay rent or quit, or perform or quit, as
the case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1 (b), (c) or (d) and
under the unlawful detainer statue shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
after Lessee's Breach and abandonment and recover the rent as it becomes due,
provided Lessee has the right to sublet or assign, subject only to reasonable
limitations. See Paragraphs 12 and 36 for the limitations on assignment and
subletting which limitations Lessee and Lessor agree are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under the Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions", shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed and observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no future force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a wavier by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee on the first day of each month
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to six percent (6%) of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's Default
or Breach with respect to such overdue amount, not prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Rent, then notwithstanding
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Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent
shall, at Lessor's option, become due and payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion, and further provided that such period shall be
shortened to the extent reasonably required in the event of a bona fide
emergency which, if not addressed more quickly, may result in material injury or
damage to persons or property.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "Condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Deleted
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16. Tenancy Statement.
16.1. Each Party (as "Responding Party") shall within ten (10) days from
the other Party (the "Requesting Party") execute, acknowledge and deliver to the
Requesting Party a statement in writing in form similar to the then most current
"Tenancy Statement" form published by the American Industrial Real Estate
Association , plus such additional information, confirmation and/or statements
as may be reasonably requested by the Requesting Party.
16.2 If Lessor desire to finance, refinance, or sell the Premise, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as
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may be reasonably required by such lender or purchaser and are reasonably
available by Lessee, including but not limited to Lessee's financial statements
for the past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinafter defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of
another provision hereof.
19. Interest On Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date of which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that is has made,
and is relying solely upon, its owner investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addressees noted adjacent to Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United State Express Mail or overnight courier
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that guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier. If
any notice is transmitted by facsimile transmission or similar means, the same
shall be deemed served or delivered upon telephone confirmation of receipt of
the transmission thereof, provided a copy is also delivered via delivery or mail
in the manner expressly provided in this paragraph. If notice is received on a
Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereto by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statement and/or conditions shall be of no force or effect whatsoever
unless specifically agreed to in writing by Lessor at or before the time of
deposit such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to one hundred fifty
percent (150%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein shall
be construed as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successor and assigns and be governed by the
Laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. Subject to the non-disturbance provision of Paragraph
30.3, this Lease and any Option granted hereby shall be subject and subordinate
to any ground lease, mortgage, deed of trust, or other hypothecation or security
device (collectively, "Security Device"), now or hereafter placed by Lessor upon
the real property of which the Premises are a part, to any and all advances made
on the security thereof, and to all renewals, modifications, consolidations,
replacements and extensions thereof, and the Ground Lease, Sublease,
Declaration, Title Exceptions, Miscellaneous Exceptions, REA, City Agreement and
City Lease described in Paragraph 62 below, including any amendments, additions
or supplements thereto that are permitted under Paragraph 62 below. Lessee
agrees that the lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of
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Lessor's default with respect to any such obligation, Lessee will give any
lender whose name and address have been furnished Lessee in writing for such
purpose notice of Lessor's default and allow such lender thirty (30) days
following receipt of such notice the cure of said default before invoking any
remedies Lessee may have by reason thereof. If any lender shall elect to have
this Lease and/or any Option granted hereby superior to the lien of its Security
Device and shall give written notice thereof to Lessee, this Lease and such
Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.
30.2. Attornment. Subject to the non-disturbance provision of Paragraph
30.3, Lessee agrees to attorn to a lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance; Recognition of Lease by SRP and PPC. With respect to
Security Devices other than the Ground Lease and the Sublease (both as defined
in Paragraph 62 below), Lessee's subordination of this Lease shall be subject to
receiving assurance (a "Non-Disturbance Agreement") from the Lender that
Lessee's possession and this Lease, including any options to extend the term
hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises. Lessor has obtained and provided to
Lessee a Nondisturbance and Recognition Agreement from SRP (as defined in
Paragraph 62) dated June 27, 1997 confirming that the Sublease is a "Permitted
Sublease" pursuant to the terms of the Ground Lease. Lessor represents and
warrants that if the Ground Lease is terminated for any reason, Lessor will
promptly take all steps set forth in Section 6.04 of the Ground Lease to protect
the Sublease as a Permitted Sublease with SRP, including obtaining the
attornment and recognition of SRP with respect to the Sublease, subject to said
Section 6.04. Lessor has obtained a Nondisturbance and Recognition Agreement
from PPC (as defined in Paragraph 62 below) dated June 27, 1997 confirming that
this Lease is a "Permitted Sublease" pursuant to Section 17.2 of the Sublease
and containing PPC's agreement not to disturb Lessee's possession subject to
Article 16 of the Sublease.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a lender, Lessee and Lessor shall
execute such further writings as may be reasonably required to separately
document any such subordination or non-subordination, attornment and/or
non-disturbance agreement as provided herein.
30.5 Provisions Relating to Sublease. With respect to the Sublease, as
defined in Paragraph 62 below, and without limiting the generality of the
foregoing, the parties expressly agree and acknowledge that (a) this Lease and
the rights of Lessee hereunder are subject and subordinate to the Sublease and
the rights of the Landlord thereunder; (b) if the Sublease is terminated prior
to the expiration of the term thereof, Lessee will attorn to such Landlord and
recognize such Landlord as the new Lessor hereunder; (c) in the event the
Sublease is terminated and the Landlord under the Sublease is not then receiving
rents under this Lease which result in such Landlord realizing the net amount of
the annual Minimum Rent then due under the Sublease after considering all
expenses of holding, operating and managing the building(s) within the Premises,
then notwithstanding any agreement on the part of such Landlord to recognize
this Lease, such Landlord shall have the right to terminate this Lease at any
time by the giving of 365 days prior notice to Lessee and such Landlord's making
a termination payment to Lessee in the amount equal to one year's Base Rent
payable under this Lease calculated at the rental rate in effect at the time
Landlord's written notice of termination is given. Such termination payment
shall be paid by Landlord to Lessee within fifteen (15) days after the date that
this Lease is terminated and Lessee and any other occupants of the Premises have
vacated the Premises and left it in the condition required under Article 6 of
the
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Sublease.
31. Attorneys' Fees. If any Party brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys' fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party of its claim or defense. The attorneys fee award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall
be entitled to attorneys' fees, costs and expenses incurred in the preparation
and service of notice of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with such
Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of emergency, and
otherwise at reasonable times for the purpose of showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements or additions to the Premises or to the building of they are a part,
as Lessor may reasonably deem necessary. Lessor may at any time place on or
about the Premises or building any ordinary "For Sale" signs and Lessor may at
any time during the last one hundred twenty (120) days of the term hereof place
on or about the Premises any ordinary "For Lease" signs. All such activities of
Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily, any auction upon the Premises without first having obtained
Lessor's prior written consent. Notwithstanding anything to the contrary in this
Lease, Lessor shall not be obligated to exercise any standard of reasonableness
in determining whether to grant such consent.
34. Signs. Lessee shall not place any signs upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises, provided; however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be
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paid by Lessee to Lessor upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Deleted
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions, and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary; (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for
a period of thirty (30)
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days after such obligation becomes due (without any necessity of Lessor to give
notice thereof to Lessee), or (ii) Lessor gives to Lessee three or more notices
of Default under Paragraph 13.1 during any twelve month period, whether or not
the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights, and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
survive the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustment that are made to the Base
Rent or other rent payable under this Lease. As long as they do not materially
change Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional, insurance company, or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
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AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE
OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY
IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE
WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Tempe, Arizona Executed at
------------------------- -----------------------------
on July 1, 1997 on
---------------------------------- --------------------------------------
By LESSOR: By LESSEE:
CHAMBERLAIN DEVELOPMENT, L.L.C. ORTHOLOGIC CORP., a Delaware corporation
By /s/ Jim Chamberlain By: /s/ Allen Dunaway
---------------------------------- -------------------------------------
Name Printed: JIM CHAMBERLAIN Name: ALLEN DUNAWAY
----------------------- -----------------------------------
Title: Member Title: CFO
------------------------------ ----------------------------------
By /s/ Patsy L. Chamberlain By:
---------------------------------- -------------------------------------
Name Printed: PATSY L. CHAMBERLAIN Name Printed:
----------------------- ---------------------------
Title: Member Title:
------------------------------ ----------------------------------
Telephone: Telephone:
-------------------------- ------------------------------
Facsimile: Facsimile:
-------------------------- ------------------------------
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ADDENDUM TO STANDARD INDUSTRIAL LEASE/COMMERCIAL
SINGLE-TENANT LEASE - NET
49. PREMISES.
The Premises shall include the real property described in Exhibit "A"
attached hereto, containing approximately 293,056 square feet, together
with an industrial building (the "Building) to be erected thereon by
Lessor. The Building shall be erected substantially in accordance with
the plans and specifications prepared in conformity with the site plan,
floor plan and elevations described in Exhibit "B" attached hereto (the
"Approved Plans and Specifications") (subject to possible minor
deviations therefrom), as they may be modified as hereinafter provided.
50. TERM; OPTION TO EXTEND.
The term of this Lease (the "Term") shall be for ten (10) years (plus the
partial month at the beginning of the Term if the Term Commencement Date
is a day other than the first day of a calendar month), unless this Lease
is sooner terminated as hereinafter provided. The Term shall commence on
the date the Improvements are deemed completed in accordance with
Paragraph 52 (the "Term Commencement Date"). Notwithstanding the
foregoing, if Lessee takes possession of or begins to use the Premises or
any part thereof prior to the Term Commencement Date (as defined herein),
the Term of this Lease shall commence on the date such possession or use
begins. Upon the commencement of the Term, Lessor and Lessee shall
execute an amendment to this Lease specifying the commencement date and
expiration date of the Term.
Subject to compliance with the following provisions, if this Lease is in
full force and effect as of the end of the scheduled original ten (10)
year Term, Lessee shall have one (1) option to extend the Term (the
"Option") for a period of five (5) years ("Option Term") upon the terms
and provisions set forth in this Lease, except for the adjustment to Base
Rent set forth below. The Option may only be exercised by a written,
binding notice of exercise ("Notice") given by Lessee to Lessor at least
six (6) months prior to the end of the original Term in accordance with
Paragraph 23. The Notice shall not be effective or valid if a Breach
exists when the notice is given or when the Option Term would otherwise
commence, and if this Lease or Lessee's right to possession is terminated
after a Notice is given, the Notice and the Option shall be null and
void. The Base Rent for the Option Term shall be one hundred fifteen per
cent (115%) of the Base Rent in effect as of the end of the original
Term.
51. CONSTRUCTION OF THE IMPROVEMENTS.
As soon as practicably possible, Lessor shall apply for all building
permits and other governmental permits and approvals necessary for the
improvements described in the Approved Plans and Specifications (the
"Improvements"). Thereafter, Lessor at its sole expense shall proceed
diligently with the construction and completion of the Improvements in
accordance with the Approved Plans and Specifications and all applicable
governmental permits and approvals and all applicable laws, ordinances,
regulations and court
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orders. Lessor shall complete the Improvements and they shall be ready
for occupancy by Lessee not later than December 1, 1997, as such date may
be extended by Force Majeure. As used in this Lease, the term "Force
Majeure" shall mean war, fire, earthquake, flood, unavailability of
materials and court orders (provided the court orders do not result from
the conduct of the party claiming the delay). Lessor shall notify Lessee
in writing of any Force Majeure event within fifteen (15) days after it
occurs.
Lessor hereby agrees to hold Lessee harmless from and against any liens
filed in connection with the Improvements (other than liens caused by
Lessee), including without limitation liens filed in connection with any
repair or reconstruction of the Premises by Lessor. Lessor shall
reimburse Lessee upon demand for any costs and expenses incurred in
connection with any such lien, including without limitation attorneys'
fees.
Lessor shall provide the following allowances to Lessee:
(a) $1,875,000 for Tenant Improvements.
(b) $110,000 for architectural expenses for Tenant Improvements, for
design work of Lessee's Tenant Improvements architect reasonably
approved by Lessor.
(c) $140,000 for covered parking.
(d) $30,000 for an elevator.
(e) $10,000 for signage.
(f) $75,000 for moving.
The work described in Items (a), (c), (d) and (e) will be constructed by
Sun State Builders per its contract with Lessor, at cost plus ten per
cent (10%), in accordance with plans and specifications approved by
Lessor. Lessee will deliver such plans and specifications in sufficient
time to not delay construction and if Lessee fails to do so, or makes
changes thereto, the provisions of Paragraph 54 below relating to delay
will apply thereto. Any cost in excess of the allowance for an item will
be paid by Lessee per Paragraph 54 below. If an allowance is not fully
utilized, the Base Rent will be reduced using the formula for adjustment
set forth in Paragraph 54 below. There is no allowance for art work, as
that budgeted amount is being used for improvement of the wash area.
Further, provided there is then no Breach or Default in existence under
this Lease by Lessee, Lessor agrees to provide an allowance of the lesser
of (a) $15.00 per square foot of the Building that is not built out with
the initial Tenant Improvements or (b) $375,000 (the "Future Allowance")
for future Tenant Improvements of the area of the Building that will not
be initially built out (the "Future Tenant Improvements") subject to the
following provisions:
(i) The Future Allowance must be utilized within three (3) years of
the Commencement Date. To accommodate that requirement, Lessee
must submit proposed plans and specifications for the Future
Tenant Improvements for Landlord's review and approval at least
____ months prior to the third anniversary of the Commencement
Date. The Future Tenant Improvements must be generic as reasonably
determined by Lessor.
(ii) As provided above, Sun State Builders will construct the Future
Tenant Improvements at cost plus ten per cent (10%).
(iii) The portion of the Future Allowance utilized for the Future Tenant
Improvements will be amortized over the New Term of this Lease
described in (iv) below with an interest factor of eleven per cent
29
<PAGE>
(11%), with such amortizing amount to be included in Base Rent
upon the Commencement Date of the New Term. If the Future Tenant
Improvements cost more than the Future Allowance, the excess will
be paid by Tenant in cash per Paragraph 54.
(iv) Upon completion of the Future Tenant Improvements, as defined in
Paragraph 52, the parties will execute an amendment to this Lease
confirming the date of completion, and the Original Term will be
extended to end ten (10) years from such completion date ("New
Term"), with Base Rent after such completion date increased under
(iii) above. If Lessee interferes with or delays completion, the
date for completion shall be advanced by the period of delay, for
purposes of the New Term and Base Rent adjustment.
(v) No commissions will be paid with respect to the New Term or the
increased Base Rent.
52. COMPLETION AND DELIVERY.
The Improvements shall be deemed completed when:
(a) All work of construction has been substantially completed in
accordance with the Approved Plans and Specifications, subject to normal
minor so-called "Punch-list Items" (defined below) agreed to after an
inspection by Lessor and Lessee;
(b) The architect or engineer in charge of construction of the
Improvements has prepared, certified by his signature and delivered to
Lessor and Lessee a written statement certifying that the Improvements
have been completed in accordance with the Approved Plans and
Specifications, the working drawings and any properly authorized
construction changes, and certifying the date of such completion; and
(c) A temporary or permanent certificate of occupancy for the Building
has been delivered to Lessee.
Notwithstanding the foregoing, if issuance of a certificate of occupancy
is delayed by reason of Lessee's work, the Term of this Lease shall
commence upon substantial completion of Lessor's work, as provided in
subparagraphs (a) and (b) above, and the certificate of occupancy shall
be obtained thereafter upon completion of Lessee's work.
Lessor shall diligently complete any Punch-List Items as soon as
reasonably possible, and within sixty (60) days after the inspection by
Lessor and Lessee. "Punch-List Items," as used herein, shall refer to
minor, non-structural repairs and/or minor, non-structural replacement of
work not installed (i) in a workmanlike manner and/or (ii) in accordance
with the Approved Plans and Specifications. "Minor, non-structural
repairs and replacements" shall mean repairs and replacements that do not
interfere with the occupancy of the Building and Premises or use of the
Building and Premises for their intended purposes. If Lessor's work shall
not be completed by the scheduled completion date stated above, Lessor
shall not be subject to liability for failure to give possession by such
date. Failure to complete the work as aforesaid shall not affect the
validity of this Lease nor Lessee's obligations hereunder, but the Term
of this Lease shall not commence until Lessor has completed such work.
53. LESSEE'S WORK.
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Lessee, at its own cost and subject to all of the terms of this Lease
(other than the obligation to pay the Net Rent and other charges
hereunder prior to the commencement of the Term), may perform work in the
Building concurrently with Lessor's work, to fit the Building for
Lessee's occupancy, provided Lessee's work does not interfere with
Lessor's work; Lessee's work may be performed through Lessor's contractor
or, if no labor discord would be caused thereby, through Lessee's own
contractor. Lessee shall not allow any liens or encumbrances of any kind
to be attached to or placed upon the Premises as a result of Lessee's
work and in the event such liens or encumbrances are discovered, Lessee
agrees to promptly satisfy and remove same. Lessee hereby agrees to hold
Lessor harmless from and against any liens caused by Lessee, and Lessee
shall reimburse Lessor upon demand for any costs and expenses incurred in
connection with any such lien, including without limitation attorneys'
fees.
54. LESSEE REQUESTED CONSTRUCTION CHANGES.
Lessee may, at any time, by a written request signed by one of Lessee's
Change Representatives and delivered or mailed in accordance with this
Lease to one of Lessor's Change Representatives at Lessor's address for
notices, make any change in the work within the general scope of
construction contemplated by the Approved Plans and Specifications,
including, but not limited to changes:
(a) in the plans, specifications or working drawings, including without
limitation the Approved Plans and Specifications; provided, however, that
no such request shall result in any major structural change to the
Building or change the "footprint" of the Building as depicted in the
Approved Plans and Specifications; or
(b) in the method or manner of performance of the work.
Lessee requested construction changes will be transmitted to Lessor only
by means of written requests ("Construction Change Requests") given in
accordance with this section. "Lessee's Change Representatives" will be
those two (2) persons designated by Lessee to Lessor in writing who will
be the only representatives of Lessee authorized to request construction
changes. Until such designation is received by Lessor, Lessor may send
requests for construction changes to Lessee's address for notices without
reference to any Lessee Change Representative, and Lessee may not make
any Construction Change Requests.
Upon receipt of any Construction Change Request issued pursuant to this
section, Lessor shall immediately proceed in accordance with the
directions contained in the Requested Construction Change Request. Lessor
shall have the right to (i) require Lessee to pay, in addition to any
other payments due under this lease, all of the increase in costs caused
by the change as such changes are completed or (ii) increase the annual
rent payable under this Lease by One Hundred Ten and No/100 Dollars
($110.00) for every One Thousand and No/100 Dollars ($1,000.00) of
increases in costs caused by the change; provided, however, that such
costs payable by Lessee for the Construction Change Request or as
increased rent shall be limited to Lessor's reasonable costs for labor
and materials, brokerage commissions, interest and other carrying costs,
and sales and excise taxes (excluding any and all overhead and
administration costs and any profit margin in excess of ten percent (10%)
of such costs) resulting from such Construction Change Request.
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If Lessee shall have requested a construction change and Lessor elects to
increase the annual rent, then within thirty (30) days after the Term
Commencement Date, Lessor and Lessee shall execute an amendment to this
lease setting forth the rent payable under this Lease, as adjusted
pursuant to this Section. Lessee shall not be required to pay Lessor any
increases in rent pursuant to this Section until such an amendment has
been executed or any arbitration of the increase in rent has been
concluded, but Lessee shall thereupon promptly pay any past due rent to
Lessor.
Except as provided in this Section, no order, statement, or conduct of
Lessee's Change Representatives, or of any manager, inspector, engineer,
architect, employee representative, or consultant of Lessee, shall be
treated as a change order under this Section.
The time period specified above for the completion of the Improvements
shall be extended by delays caused by Construction Change Requests.
Further, at Lessor's option, the Base Rent will commence to be payable at
the later of December 1, 1997 or when construction would have been
completed under Paragraph 52 above but for the Construction Change
Request.
55. LESSOR REQUESTED CONSTRUCTION CHANGES.
Lessor may, at any time, by a written request ("Lessor Change Request")
signed by one of Lessor's Change Representatives which expressly refers
to this paragraph and which is delivered or mailed in accordance with
this Lease to Lessee's Change Representatives at Lessee's address for
notices, request any reasonable change in the work within the general
scope of the construction necessary to comply with law, to obtain
required governmental permits or approvals, or to complete the
Improvements in accordance with the Approved Plans and Specifications,
including changes:
a) in the plans, specifications or working drawings, including, without
limitation the Approved Plans and Specifications; provided, however, that
no such request shall result in any major structural change to the
Building or change the "footprint" of the Building as depicted in the
Approved Plans and Specifications; and
b) in the method or manner of performance of the work or type of
materials provided, however that no such change will degrade the quality
of the Building and provided, further that no change in materials may be
requested unless the change is necessary because of any inability to
obtain the material or the new materials is necessary to comply with law
or to obtain required governmental permits or approvals.
"Lessor's Change Representatives" will be those two (2) persons
designated by Lessor to Lessee in writing who will be the only
representatives of Lessor authorized to make Lessor Change Requests.
Until such designation is received by Lessee, Lessee may send
Construction Change Requests to Lessor's address for notices without
reference to any Lessor Change Representative, and Lessor may not make
any Lessor Change Requests. Lessor Change Requests will be transmitted to
Lessee by means of a written request describing in full the requested
change, plus the reasons, effects and results of the change as compared
to the original and/or existing working drawings or plans pertaining to
the requested change. The Lessor Change Request will include drawings,
documents, specifications, and all pertinent data relating to the
requested change.
32
<PAGE>
Upon receipt of any Lessor Change Request, Lessee shall immediately begin
analysis of the Lessor Change Request. Lessee will unilaterally have the
option to:
(a) Accept the Lessor Change Request by issuing a Construction Change
Request referencing the specific Lessor Change Request.
(b) Enter into fact-finding or negotiations with Lessor pertaining to
Lessor Change Request.
(c) Reject the Lessor Change Request in writing and require the Lessor to
perform the work in accordance with the Approved Plans and Specifications
at no delay to Lessee in Building occupancy.
Should Lessee not act within ten (10) business days after submittal of
any Lessor Change Request, the requested change will be considered to be
rejected by Lessee. Under no condition will the Lessor begin work on any
Lessor Change Request until after receipt of a fully executed
Construction Change Request from Lessee.
Except as provided in this Section, no order, statement or conduct of
Lessor's Change Representatives or of any manager, inspector, engineer,
architect or other employee representative, or consultant of Lessor shall
be treated as a change request under this Section.
56. RENTAL ADJUSTMENTS.
Notwithstanding anything to the contrary contained in the Lease, the Base
Rent commencing with the sixty-first (61st) month of the term of the
Lease shall be increased to 115% of the Base Rent in the immediately
preceding month. For example, if there are no changes in the Base Rent
pursuant to Paragraph 54 or otherwise such that the Base Rent in the 60th
month is $78,145.00, the Base Rent for the 61st month shall be increased
to: $89,866.00. Applicable transaction privilege taxes will be added to
all rental amounts.
57. ADDITIONAL MAINTENANCE REQUIREMENTS.
Lessee shall maintain a contract with a fire sprinkler maintenance
company that provides quarterly inspections of the fire sprinklers on the
Premises. Lessee shall provide a copy of the contract and copies of the
quarterly inspection reports to Lessor.
Lessee shall maintain a contract with a roof maintenance company that
provides for two (2) yearly inspections, the sealing of all roof
protrusions, and any necessary repairs, including without limitation
caulking or adhesive work. Lessee shall provide copies of the contract
and copies of all inspection reports to Lessor.
Lessee shall keep all roof drains and scuppers free of debris and shall
promptly notify the roof warranty company and/or roof maintenance company
of all additional protrusions made by Lessee.
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<PAGE>
58. PROPERTY TAXES.
Lessee will receive a bill in October of each year for the year's
property taxes to be paid to Lessor in two installments. This bill will
include transaction privilege taxes on the property taxes as required by
the State and City.
Lessor shall have the option to appeal tax valuations each year. In the
event the tax appeal service obtains a reduction in the assessor's value
as originally published for that year, Lessee shall reimburse Lessor the
fee paid to the tax service. If Lessor does not file an appeal for any
year Lessee may appeal such taxes thru a tax appeal service reasonably
approved by Lessor who shall follow reasonable instructions of Lessor to
avoid impairing the long term tax position of the Premises. All costs
shall be paid by Lessee and Lessee shall receive all benefits of such
appeals applicable to the Term.
EXAMPLE:
Property tax before appeal: $10,000.00
Property tax after appeal: $9,000.00
---------
Tax savings: $1,000.00
Tax service fee: $350.00
-------
Total tax savings for Lessee: $650.00
59. BROKERS' COMMISSIONS.
Section 15 of the Lease is hereby stricken in its entirety. Lessor agrees
to pay a brokers' commission to Kit Tiedemann, CB Commercial (the
"Broker") for brokerage services in connection with this Lease pursuant
to the terms of a separate agreement between Lessor and said Broker and
Lessor's indemnity below shall apply thereto. Lessor and Lessee hereby
represent and warrant to one another that, except for the Broker named
above, neither has dealt with any person in such a manner to give rise to
a valid claim for a brokerage commission in connection with this Lease or
in connection with the foregoing option to purchase. If any person other
than the Broker named above shall assert a claim to a fee, commission or
other compensation on account of alleged employment as a broker, finder,
or intermediary in connection with this transaction, the party hereto
under whom the broker, finder, or intermediary is claiming shall
indemnify and hold harmless the other party against and from any such
claim and all costs, expenses and liabilities incurred in connection with
such claim or any action or proceeding brought thereon (including, but
without limitation, counsel and witness fees and court costs in defending
against such claim).
60. TAX ABATEMENT.
Lessee intends to apply for tax abatement from the City of Tempe under
A.R.S. ss.42-1901 et seq. Lessor
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<PAGE>
will reasonably cooperate with Lessee in Lessee applying for and seeking
such tax abatement as Lessor's sole obligation with respect thereto.
Lessor makes no representations or warranties concerning the availability
or effect of tax abatement.
61. LESSOR INDEMNITY.
Lessor shall indemnify, protect, defend and hold Lessee, its agent,
employees and lenders, if any, harmless from and against any and all
damages, liabilities, judgments, costs, liens, expenses, penalties,
permits and attorneys' and consultants' fees arising out of or involving
any Hazardous Substance or storage tank brought onto the Premises by or
for Lessor or under Lessor's control or existing on the Premises as of
the earlier of the date Lessor tenders possession of the Premises to
Lessee or the date Lessee begins work under Paragraph 53. Lessor's
obligation under this paragraph shall include, but not be limited to, the
effects of any contamination or injury to person, property or the
environment created or suffered by Lessor and the cost of investigation,
(including consultants' and attorneys' fees in testing), removal,
remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or
release agreement entered into by Lessee and Lessor shall release Lessor
from its obligations under this Lease with respect to Hazardous Substance
or storage tanks, unless specifically so agreed by Lessee in writing at
the time of such agreement. Lessor's indemnity shall not include
consequential damages, including but not limited to damages for injury to
reputation, reduction of leasehold value except to the extent of actual
loss of use thereof, or future business or similar matters, or punitive
damages. Further, Lessor shall have no obligation to take remedial or
corrective action unless and to the extent such action is required of
Lessor or Lessee under Applicable Laws.
62. PROPERTY DOCUMENTS.
The parties agree and acknowledge that Lessor does not own the fee of the
Premises. Rather, the fee to the Premises is owned by Salt River Project
Agricultural Improvement and Power District, an agricultural improvement
district organized under the laws of the State of Arizona (ASRP@) who
ground leases the Premises and other property to Papago Park Center,
Inc., an Arizona corporation (APapago@), an affiliate of SRP, under and
pursuant to that Ground Lease dated March 6, 1989, as periodically
amended (the AGround Lease@). In turn, Papago has subleased the Premises
to Lessor pursuant to that Ground Sublease dated June 27, 1997 as
periodically amended (the ASublease@), which is subordinate to the Ground
Lease. Further, the Premises and other property are subject to that
Declaration of Covenants, Conditions and Restrictions dated July 18, 1990
and recorded July 27, 1990 as Document No. 90-336258, as periodically
amended thereafter and the Design Guidelines as periodically amended
(collectively, the ADeclaration@).
Lessor has provided a copy of a Commitment for Title Insurance dated
March 24, 1997 and prepared by Security Title Agency (the ATitle Report@)
to Lessee, disclosing various other title exceptions (collectively the
ATitle Exceptions@). During the development of the Premises and/or
construction of the Building and/or otherwise during the term of the
Lease, Lessor may need to grant or execute other easements, declarations
or other restrictions that will encumber the Premises as periodically
amended (the AMiscellaneous Exceptions@), including but not limited to
that Declaration of Reciprocal Easements and Maintenance Agreement dated
June 12, 1997 and recorded August 22, 1997 as Document No.
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97-0579636 as periodically amended (the AREA@). Lessee approves of the
REA and approves of all such other Miscellaneous Exceptions to be created
in the future expressly provided the same do not materially and adversely
affect Lessee's use of the Premises. The foregoing shall be automatic but
within ten (10) days of request, Lessee will acknowledge that it consents
to and is bound by any such Miscellaneous Exceptions as provided above.
In addition, Lessor has entered or will enter into that Agreement for the
Conveyance of Improvements dated July 9, 1997 with the City of Tempe as
periodically amended ("City Agreement") pursuant to which Lessor will
convey the improvements included in the Premises to the City and receive
back a leasehold interest therein pursuant to the Improvements Lease
attached to the City Agreement as periodically amended ("City Lease").
Without limiting any other provision of this Lease, Lessee expressly
agrees and acknowledges that during the term of the Lease, Lessee shall
fully and timely comply with all terms and provisions of Sections 2.05
(Governmental Approvals), 2.09.01 (Compliance with Environmental Laws), 5
(Permitted Uses), 7.01 (Construction Permitted), 7.02 (Payment Bonds),
7.03 (Performance Bonds), 7.04 (Standard of Construction), 7.05
(Mechanics' Liens), 8.01 (Maintenance), 8.02 (Right to Make Alterations),
9.03, second sentence (Removal), 9.04 (Removal of Trade Fixtures and
Personal Property), 12 (Insurance), 22.03 (Estoppel Certificates), and
22.05 (Lessor's Right to Enter, Inspect and Test) of the Ground Lease
(and any amendments thereto which do not materially and adversely affect
Lessee or which are consented to by Lessee under Paragraph 36 above), and
Section 4.1 ("Additional Rent" and "Impositions" Defined), Article 5
(Insurance), Section 6.1 (Surrender - Removable Property), Section 6.2
(Waste) Article 8 (Use and Maintenance of Premises), Article 9
(Compliance), Article 10 (Construction of Buildings and Landscaping;
Other Improvements), Article 11 (Impairment of Landlord's Title), Article
12 (Inspection), Article 22 (Estoppel Certificates), Article 24
(Adjoining Excavation) and Article 26 (Trade Fixtures, Machinery and
Equipment) of the Ground Sublease (and any amendments thereto that do not
materially and adversely affect Lessee, as well as any others consented
to by Lessee under Paragraph 36)) to the extent they relate to the
Premises and the Term (and any other period of Lessee's possession) and
expressly subject to and excluding Lessor's construction and other
obligations set forth in this Lease. Lessee shall also fully and timely
comply with all terms and provisions of the following documents to the
extent they apply to Lessee as the party in possession of the Premises
(but not to the extent they apply to any property other than the
Premises): Declaration (and any amendments thereto as permitted under
Section 10.1 of the Sublease, as well as any others consented to by
Lessee under Paragraph 36 above), Title Exceptions (and any amendments
thereto that do not materially and adversely affect Lessee, as well as
any others consented to by Lessee under Paragraph 36), REA (and any
amendments thereto that do not materially and adversely affect Lessee, as
well as any others consented to by Lessee under Paragraph 36),
Miscellaneous Exceptions (and any amendments thereto that do not
materially and adversely affect Lessee, as well as any others consented
to by Lessee under Paragraph 36), City Agreement (and any amendments
thereto approved by Lessee under Paragraph 36) and City Lease (and any
amendments thereto approved by Lessee under Paragraph 36) (collectively
the obligations of Lessee under the prior sentence and under this
sentence are the AObligations@, as if they were set forth in this Lease).
The Obligations shall not include any obligations regarding the payment
of Base Rent under the Ground Lease or Sublease. Lessee shall indemnify
and hold Lessor harmless from and against any and all liability,
responsibility, obligations, costs, damages, expenses or attorneys' fees
incurred or sustained by Lessor as a result of the failure of Lessee to
timely and fully perform the Obligations under this Paragraph 62.
36
<PAGE>
Without limiting the generality of the foregoing, Lessee shall pay and be
solely responsible for (and the Obligations shall include) all
assessments, charges, deposits, dues or other amounts payable with
respect to the Premises, and relating to periods occurring within the
Term, under the Declaration and the REA, as amended as permitted above.
Lessor represents and warrants that it has constructed and covenants that
it will construct all improvements which are Lessor's responsibility
under this Lease in full compliance with the Obligations, and that the
Premises (including such improvements) will be in full compliance with
the Obligations upon tender of possession of the Premises to Lessee.
Lessor will not agree to or consent to any amendment of the Obligations
if and to the extent the same would materially and adversely affect
Lessee's use of the Premises or its right under this Lease. Lessor will
indemnify and hold Lessee harmless from any and all liability, claims,
expenses and attorneys' fees incurred by Lessee if and to the extent the
representations and warranties in the prior two sentences are materially
incorrect or if Lessor materially fails to perform the covenants set
forth therein.
63. SUBORDINATION OF LESSOR'S LIEN ON PERSONAL PROPERTY.
At the request of Lessee, Lessor will subordinate its statutory
Landlord's lien in Lessee's personal property in the Premises to purchase
money financing (including equipment leases) for such specific personal
property in an amount not exceeding the actual purchase price (or lease
amount) thereof and/or to security for bank or other financial
institution lines of credit obtained in the ordinary course of Lessee's
business. Such subordination shall utilize a reasonable form of agreement
reasonably approved by Lessor.
37
EMPLOYMENT AGREEMENT
This Agreement is to be effective, as of October 20, 1997, by
and between OrthoLogic Corp., a Delaware corporation (the "Company"), and Thomas
R. Trotter ("Employee").
RECITALS:
- ---------
A. The Company wishes to employ Employee, and Employee wishes to be
employed by the Company.
B. The parties wish to set forth in this Agreement the terms and
conditions of such employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs Employee to serve in a managerial capacity and as
a member of its Board of Directors (the "Board") and Employee accepts such
employment and agrees to perform such reasonable responsibilities and duties as
may be assigned to him from time to time by the Board. Employee's title shall be
President/CEO of the Company, with general responsibility for Company
operations. Employee will report to the Board. During the term of Employee's
employment pursuant to this Agreement, the Company shall use its best efforts to
maintain Employee as a member of the Board.
2. Term. The term of this employment pursuant to this Agreement shall
begin on the effective date, and shall terminate as provided herein.
3. Compensation.
(a) Salary. The Company shall pay Employee a minimum base
annual salary, before deducting all applicable withholdings, of $260,000 per
year, payable at the times and in the manner dictated by the Company's standard
payroll policies. The minimum base annual salary shall be reviewed annually, at
the end of the Company's fiscal year, by the Compensation Committee of the
Board.
(b) Bonus. Employee shall be eligible to participate in an
incentive bonus program as developed and adopted, and as revised from time to
time, by the Board. Such program shall be based upon the achievement of
individual goals by Employee and upon Company
<PAGE>
performance. Initially, the program shall provide for a target bonus of 50% of
Employee's base salary for achievement of a Board-approved plan. Any 1997 bonus
will be based on the Company's audited financial statements for all of 1997, but
will be prorated as to amount of payment to reflect the actual number of months
Employee is employed during the year. Within 90 days of the effective date of
this Agreement, the Board and Employee will begin meeting for the purpose of
negotiating in good faith the targets and objectives, and a formula, to be used
in the bonus program.
(c) Stock Options. The Company shall grant to Employee
incentive options (the parties understand that only a portion of such options
will qualify as incentive options for tax purposes), from the Company's 1987
Stock Option Plan, to purchase 350,000 shares of the Company's common stock,
with an exercise price equal to the fair market value of the stock on the
effective date of the grant, with such value determined as specified in the
Company's 1987 Stock Option Plan. So long as Employee is still employed by the
Company at each such time of vesting, options to purchase 87,500 shares shall
vest on the first anniversary of Employee's employment by the Company, and
additional options to purchase 7,292 shares shall vest on November 30, 1998 and
on the last day of each calendar month thereafter, until such shares are fully
vested; provided that the 87,500 shares which would ordinarily vest at the end
of the first year shall vest immediately upon a termination of Employee without
cause, or upon the death of Employee, if such termination or death occurs during
the second six months of Employee's employment by the Company.
On the first anniversary of Employee's employment by
the Company, if Employee is still employed by the Company at such time, the
Company shall grant to Employee additional incentive options, from the Company's
1997 Stock Option Plan, to purchase 100,000 shares of the Company's common
stock, with an exercise price equal to the fair market value of the stock on
such anniversary, with such value determined as specified in the Company's 1997
Stock Option Plan. So long as Employee is still employed by the Company at each
such time of vesting, options to purchase 2,084 shares shall vest on November
30, 1998 and on the last day of each calendar month thereafter, until such
shares are fully vested.
4. Fringe Benefits. In addition to the options for shares of the
Company's common stock granted to Employee as part of this Agreement and any
other employee benefit plans (including without limitation pension, savings,
medical, dental and disability plans) generally available to employees, Employee
shall be eligible for the grant of additional options as determined from time to
time by the Board of Directors based upon Employee's performance hereunder. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity. The Company agrees to maintain
term life insurance during the term of this Agreement in an amount equal to two
times Employee's base salary, as it may be adjusted from time to time, with the
beneficiary to be designated by Employee. During
2
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Employee's employment, the Company will also provide Employee with an automobile
expense allowance of $450 per month.
5. Expenses.
(a) Reimbursement. In addition to the compensation and
benefits provided above, the Company shall, upon receipt of appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses
consistent with Company policies.
(b) Moving. Employee shall be reimbursed for (i) the direct
relocation costs of moving his household effects, cars and family from Missouri
to the Phoenix Metropolitan Area; (ii) the brokerage commission and closing
costs related to the sale of his existing home in Missouri; (iii) closing costs
related to his new home in the Phoenix Metropolitan Area; and (iv) $2,500 per
month for a period of not to exceed three months to cover temporary living
expenses in the Phoenix Metropolitan Area.
6. Termination.
(a) For Cause. The Company may terminate Employee's employment
for cause upon written notice to Employee stating the facts constituting such
cause, provided that Employee shall have 30 days following such notice to cure
any conduct or act, if curable, alleged to provide grounds for termination for
cause hereunder. In the event of termination for cause, the Company shall be
obligated to pay Employee only the minimum base salary due him through the date
of termination. The written notice shall state the cause for termination. Cause
shall include gross or willful neglect of duty, willful failure to abide by
instructions or policies from or set by the Board of Directors, or conviction of
a felony or misdemeanor punishable by at least one year in prison, or pleading
guilty or nolo contendere to same.
(b) Without Cause. The Company may terminate Employee's
employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause, it shall pay to
Employee, in a lump sum, one year's minimum base salary, as in effect at the
time of termination, less applicable withholdings. Additionally, if the
termination occurs during the first year of Employee's employment by the
Company, the Company shall pay, in a lump sum, a displacement fee equal to
Employee's base salary for the number of months remaining between the date of
termination and the first anniversary of Employee's employment by the Company.
At the election of Employee, which must be expressed by written notice to the
Board within 30 days after the occurrence of an event as described in this
sentence, a termination without cause shall also be deemed to occur if
Employee's duties or job title are changed materially, if Employee's salary is
reduced below $260,000 per year or if Employee's service as a director of the
Company is terminated as a result of actions by the Board or the stockholders of
the Company.
3
<PAGE>
(c) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 60 consecutive days, or for 90 days during any six-month period,
the Company shall have the right to terminate this Agreement without further
obligation hereunder except as otherwise provided in disability plans generally
applicable to executive employees.
(d) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee through the last day
of the calendar month in which his death shall have occurred and any other death
benefits generally applicable to executive employees.
(e) Resignation. Employee may resign his employment by giving
the Company written notice, which shall also include his resignations as an
officer and as a director of the Company. In the event of such a resignation,
the Company shall be obligated to pay Employee only the minimum base salary due
him through the effective date of the resignation (any vested options will
remain vested, and will expire as provided in the Company's Stock Option Plan
and Employee's Letter of Grant).
7. Confidential Information. Employee acknowledges that Employee may
receive, or contribute to the production of, Confidential Information. For
purposes of this Agreement, Employee agrees that "Confidential Information"
shall mean any and all information or material proprietary to the Company or
designated as Confidential Information by the Company and not generally known by
non-the Company personnel, which Employee develops or of or to which Employee
may obtain knowledge or access through or as a result of Employee's relationship
with the Company (including information conceived, originated, discovered or
developed in whole or in part by Employee). Confidential Information includes,
but is not limited to, the following types of information and other information
of a similar nature (whether or not reduced to writing) related to the Company's
business: discoveries, inventions, ideas, concepts, research, development,
processes, procedures, "know-how", formulae, marketing or manufacturing
techniques and materials, marketing and development plans, business plans,
customer names and other information related to customers, price lists, pricing
policies, methods of operation, financial information, employee compensation,
and computer programs and systems. Confidential Information also includes any
information described above which the Company obtains from another party and
which the Company treats as proprietary or designates as Confidential
Information, whether or not owned by or developed by the Company, including
Confidential Information acquired by the Company from any of its affiliates.
Employee acknowledges that the Confidential Information derives independent
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use. Information publicly known without
breach of this Agreement that is generally employed by the trade at or after the
time Employee first learns of such information, or generic information or
knowledge which Employee would have learned
4
<PAGE>
in the course of similar employment or work elsewhere in the trade, shall not be
deemed part of the Confidential Information. Employee further agrees:
a. To furnish the Company on demand, at any time during or
after employment, a complete list of the names and addresses of all present,
former and potential suppliers, financing sources, clients, customers and other
contacts gained while an employee of the Company in Employee's possession,
whether or not in the possession or within the knowledge of the Company.
b. That all notes, memoranda, electronic storage,
documentation and records in any way incorporating or reflecting any
Confidential Information shall belong exclusively to the Company, and Employee
agrees to turn over all copies of such materials in Employee's control to the
Company upon request or upon termination of Employee's employment with the
Company.
c. That while employed by the Company and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report, publish,
disclose or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Employee's work for the Company.
d. That any idea in whole or in part conceived of or made by
Employee during the term of his employment, consulting, or similar relationship
with the Company which relates directly or indirectly to the Company's current
or planned lines of business and is made through the use of any of the
Confidential Information of the Company or any of the Company's equipment,
facilities, trade secrets or time, or which results from any work performed by
Employee for the Company, shall belong exclusively to the Company and shall be
deemed a part of the Confidential Information for purposes of this Agreement.
Employee hereby assigns and agrees to assign to the Company all rights in and to
such Confidential Information whether for purposes of obtaining patent or
copyright protection or otherwise. Employee shall acknowledge and deliver to the
Company, without charge to the Company (but at its expense) such written
instruments and do such other acts, including giving testimony in support of
Employee's authorship or inventorship, as the case may be, necessary in the
opinion of the Company to obtain patents or copyrights or to otherwise protect
or vest in the Company the entire right and title in and to the Confidential
Information.
8. Loyalty During Employment Term. Employee agrees that during the term
of Employee's employment by the Company, Employee will devote substantially all
of Employee's business time and effort to and give undivided loyalty to the
Company, and will not engage in any way whatsoever, directly or indirectly, in
any business that is competitive with the Company or its affiliates, nor
solicit, or in any other manner work for or assist any business which is
competitive with the Company or its affiliates. During the term of Employee's
employment by the Company, Employee will undertake no planning for or
organization of any business activity
5
<PAGE>
competitive with the Company or its affiliates, and Employee will not combine or
conspire with any other employee of the Company or any other person for the
purpose of organizing any such competitive business activity. However, Employee
shall be entitled to make a passive investment in a publicly traded stock of a
competitor of the Company so long as he does not at any time own more than 5% of
the total outstanding stock of such competitor.
9. Non-competition; Non-solicitation. The parties acknowledge that
Employee will acquire much knowledge and information concerning the business of
the Company and its affiliates as the result of Employee's employment. The
parties further acknowledge that the scope of business in which the Company is
engaged as of the date of execution of this Agreement is world-wide and very
competitive and one in which few companies can successfully compete. Certain
activities by Employee after this Agreement is terminated would severely injure
the Company. Accordingly, until one year after Employee resigns pursuant to
Section 6(e) or Employee's employment is terminated with cause as contemplated
by Section 6(a), Employee will not:
a. Engage in any work activity for or in conjunction with any
business or entity that is in competition with or is preparing to compete with
the Company;
b. Persuade or attempt to persuade any potential customer or
client to which the Company or any of its affiliates has made a proposal or
sale, or with which the Company or any of its affiliates has been having
discussions, not to transact business with the Company or such affiliate, or
instead to transact business with another person or organization;
c. Solicit the business of any customers, financing sources,
clients, suppliers, or business patrons of the Company or any of its
predecessors or affiliates which were customers, financing sources, clients,
suppliers, or business patrons of the Company at any time during Employee's
employment by the Company, or within three years prior to the Effective Date of
Employee's employment, provided, however, that if Employee becomes employed by
or represents a business that exclusively sells products that do not compete
with products then marketed or intended to be marketed by the Company, such
contact shall be permissible; or
d. Solicit, endeavor to entice away from the Company or any of
its affiliates, or otherwise interfere with the relationship of the Company or
any of its affiliates with, any person who is employed by or otherwise engaged
to perform services for the Company or any of its affiliates, whether for
Employee's account or for the account of any other person or organization.
10. Injunctive Relief. It is agreed that the restrictions contained in
Sections 7, 8, and 9 of this Agreement are reasonable, but it is recognized that
damages in the event of the breach of any of those restrictions will be
difficult or impossible to ascertain; and, therefore, Employee agrees that, in
addition to and without limiting any other right or remedy the Company may have,
6
<PAGE>
the Company shall have the right to an injunction against Employee issued by a
court of competent jurisdiction enjoining any such breach without showing or
proving any actual damage to the Company. This paragraph shall survive the
termination of Employee's employment.
11. Part of Consideration. Employee also agrees, acknowledges,
covenants, represents and warrants that he is fully and completely aware that,
and further understands that, the restrictive covenants contained in Sections 7,
8, and 9 of this Agreement are an essential part of the consideration for the
Company entering into this Agreement and that the Company is entering into this
Agreement in full reliance on these acknowledgments, covenants, representations
and warranties.
12. Time and Territory Reduction. If any of the periods of time and/or
territories described in Sections 7, 8, and 9 of this Agreement are held to be
in any respect an unreasonable restriction, it is agreed that the court so
holding may reduce the territory to which the restriction pertains or the period
of time in which it operates or may reduce both such territory and such period,
to the minimum extent necessary to render such provision enforceable.
13. Survival. The obligations described in Sections 7 and 9 of this
Agreement shall survive any termination of this Agreement or any termination of
the employment relationship created hereunder.
14. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
16. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.
17. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given
7
<PAGE>
for all purposes (i) upon personal delivery, (ii) one day after being sent, when
sent by professional overnight courier service from and to locations within the
Continental United States, (iii) five days after posting when sent by United
States registered or certified mail, with return receipt requested and postage
paid, or (iv) on the date of transmission when sent by facsimile with a
hard-copy confirmation; if directed to the person or entity to which notice is
to be given at his or its address set forth in this Agreement or at any other
address such person or entity has designated by notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chairman of the Board
To Employee: Thomas R. Trotter
2300 North Ballas Road
St. Louis, MO 63131
18. Entire Agreement. This Agreement and the Invention, Confidential
information and Non-Competition Agreement bearing the same date as this
Agreement constitute the final written expression of all of the agreements
between the parties (except those relating to Employee's service as a director
of the Company), and are a complete and exclusive statement of those terms. They
supersede all understandings and negotiations concerning the matters specified
herein. Any representations, promises, warranties or statements made by either
party that differ in any way from the terms of these two written Agreements
shall be given no force or effect. The parties specifically represent, each to
the other, that there are no additional or supplemental agreements between them
related in any way to the matters herein contained unless specifically included
or referred to herein. No addition to or modification of any provision of either
of such Agreements shall be binding upon any party unless made in writing and
signed by all parties. To the extent that there is any conflict between this
Agreement and the Invention, Confidential information and Non-Competition
Agreement, the provisions of this Agreement shall govern.
19. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
20. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
8
<PAGE>
21. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
22. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
This Agreement has been executed by the parties as of October 20, 1997.
ORTHOLOGIC CORP.
(the "Company")
By: /s/ Allan M. Weinstein
Allan M. Weinstein
Chief Executive Officer
THOMAS R. TROTTER
By: /s/ Thomas R. Trotter
"EMPLOYEE"
9
<PAGE>
LETTER OF INCENTIVE OPTION GRANT
ORTHOLOGIC CORP. 1987 STOCK OPTION PLAN
---------------------------------------
October 20, 1997
Thomas R. Trotter
2300 North Ballas Road
St. Louis, MO 63131
RE: OrthoLogic Corp. 1987 Stock Option Plan
Dear Mr. Trotter:
In order to provide additional incentive to certain selected employees,
OrthoLogic Corp. (the "Company") adopted the OrthoLogic 1987 Stock Option Plan
(the "Stock Option Plan"). By means of this letter, the Company is offering you
incentive stock options pursuant to the Stock Option Plan. The Company's sale of
its common shares underlying the option granted to you hereby has been
registered with the U.S. Securities and Exchange Commission. A copy of the
prospectus, including a copy of the Stock Option Plan (the "Prospectus"),
relating to that registration is also enclosed.
The option granted to you hereunder shall be subject to all of the
terms and conditions of the Stock Option Plan and you should review it
carefully. In addition, such option is subject to the following terms and
conditions:
1. Grant of Option. The Company hereby grants to you, pursuant to the
Stock Option Plan, the option to purchase from the Company upon the terms and
conditions and at the times hereinafter set forth, an aggregate of 350,000
shares of the common stock, $.0005 par value, of the Company (the "Shares") at a
purchase price of $5.625 per share. The date of grant of this option is October
20, 1997 (hereinafter referred to as the "Option Date").
This Option is an incentive stock option within the meaning of
the Internal Revenue Code of 1986, as amended, except if required by applicable
tax rules, to the extent that the aggregate fair market value (determined as of
the date these options are granted) of Shares exercisable for the first time by
you during any calendar year (when aggregated, if appropriate, with shares
subject to other incentive stock option grants made under the Stock Option Plan
and another plan maintained by the Company or any ISO Group member as defined in
the Stock Option Plan) exceeds $100,000 (or such other limit as is prescribed by
the Internal Revenue Code, as amended), the option granted hereby as to such
excess Shares shall be treated as a nonqualified stock option pursuant to Code
Section 422(d).
<PAGE>
2. Exercise Term of Option. Unless earlier terminated, Shares may be
purchased between the time such shares are vested, as described below, and the
date 10 years after the Option Date.
Number of Shares Vesting Schedule
---------------- ----------------
87,500 Shall vest on the first anniversary of your
employment with the Company, pursuant to
your Employment Agreement which is effective
October 20, 1997.
7,292 Shall vest on November 30, 1998 and on the
last day of each calendar month thereafter,
until such shares are fully vested;
Notwithstanding the vesting schedule set forth above, the
87,500 shares which would ordinarily vest at the end of the first year of
employment shall vest immediately upon a termination of your employment without
cause, as defined in your Employment Agreement, or upon your death, if such
termination or death occurs during the second six months of your employment by
the Company.
100% of the unvested options then held by you shall
automatically become exercisable and vested upon the occurrence, before the
expiration or termination of such option, of the acquisition by a third party of
100% of the Company's outstanding equity securities, a merger in which the
Company is not the surviving corporation, a sale of all or substantially all of
the Company's assets, or a similar reorganization of the Company.
3. Nontransferability. This option shall not be transferable otherwise
than by will or by the laws of descent and distribution, and the options shall
be exercisable only by (a) you, during your lifetime (except as contemplated by
the next clause); or (b) your legal representative or a person who acquired the
right to exercise these options by bequest or inheritance, during the one-year
period referred to in Section 7(iv) hereof. Any attempted transfer in violation
of this restriction shall be void.
4. Other Conditions and Limitations.
(a) Any Shares issued upon exercise of the Option shall
not be issued unless the issuance and delivery of
Shares pursuant thereto shall comply with all
relevant provisions of law including, without
limitation, the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, the
rules and regulations promulgated thereunder, any
applicable state securities or "Blue Sky" law or laws
(or an exemption from such provision is available),
and the requirements of any stock exchange upon which
the
2
<PAGE>
Shares may then be listed and shall be further
subject to the approval of counsel for the Company
with respect to such compliance.
(b) No transfer of any Shares issued upon the exercise of
these option will be permitted by the Company, unless
any request for transfer is accompanied by evidence
satisfactory to the Company that the proposed
transfer will not result in a violation of any
applicable law, rule or regulation, whether federal
or state, including in the discretion of the Company
an opinion of counsel reasonably acceptable to the
Company.
(c) Inability of the Company to obtain approval from any
regulatory body having jurisdictional authority
deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any Shares hereunder
shall relieve the Company of any liability with
respect to the nonissuance or sale of such Shares as
to which such requisite authority shall not have been
obtained.
(d) Unless the Shares are subject to a then effective
registration statement under the Securities Act of
1933, upon exercise of this option (in whole or in
part) and the issuance of the Shares, the Company
shall instruct its transfer agent to enter stop
transfer orders with respect to Shares, and all
certificates representing the Shares shall bear on
the face thereof substantially the following legend:
"The shares of common stock represented by
this certificate have not been registered
under the Securities Act of 1933, as
amended, and may not be sold, offered for
sale, assigned, transferred or otherwise
disposed of unless registered pursuant to
the provisions of that Act or an opinion of
counsel to the Company is obtained stating
that such disposition is in compliance with
an available exemption from such
registration."
5. Exercise of Option. You may exercise the option only by giving to
the Chairman of the Board of the Company written notice by personal hand
delivery, or by registered or certified mail, postage prepaid, with return
receipt requested, at the following address, of your exercise of the option
including the number of Shares that you intend to acquire, accompanied by the
full exercise price therefor:
Chairman of the Board
OrthoLogic Corp.
2850 South 36th Street
Phoenix, Arizona 85034
3
<PAGE>
Payment of the option price shall be made either in (i) cash or by check, or
(ii) at your request and with the approval of the Company, by delivering shares
of the Company's common stock which have been beneficially owned by you for a
period of at least six months prior to the time of exercise ("Delivered Stock")
or a combination of cash and Delivered Stock. Payment in the form of Delivered
Stock shall be in the amount of the fair market value of the stock at the date
of exercise, determined pursuant to the Stock Option Plan. In no event will
Shares be transferred to you on exercise of the option until the full
consideration therefor has been received by the Company.
6. Valuation and Withholding. If required by applicable regulations,
the Company shall, at the time of issuance of any Shares purchased pursuant to
the Stock Option Plan, provide you with a statement of valuation of the Shares
issued. The Company shall be entitled to withhold amounts from your compensation
or otherwise to receive an amount adequate to provide for any applicable
federal, state and local income taxes (or require you to remit such amount as a
condition of issuance). The Company may, in its discretion, satisfy any such
withholding requirement, in whole or in part, by withholding form the shares to
be issued the number of shares that would satisfy the withholding amount due.
7. Termination of Option. Notwithstanding anything to the contrary,
this option can become exercisable only while you are an employee of the
Company, and shall not be exercisable after the earliest of (i) the tenth
anniversary of the Option Date; (ii) three months after the date your employment
with the Company terminates, if such termination is for any reason other than
permanent disability, death, or cause; (iii) the date your employment
terminates, if such termination is for cause, as defined in your Employment
Agreement with the Company dated as of October 20, 1997; or (iv) one year after
the date your employment with the Company terminates, if such termination is the
result of death or permanent disability.
8. Notice of Disposition of Shares. If you dispose of any Shares
acquired on the exercise of this option within either (a) two years after the
Option Date or (b) one year after the date of exercise of this option, you must
notify the Company within seven days of such disposition.
9. Miscellaneous. You will have no rights as a stockholder with respect
to the Shares until the exercise of option and payment of the full purchase
price therefor in accordance with the terms of the Stock Option Plan and this
Letter of Grant. Nothing herein contained shall impose any obligation on the
Company or any parent or subsidiary of the Company. Nothing herein contained
shall impose any obligation upon you to exercise this option. While the option
granted hereunder is intended to qualify as an incentive stock option under Code
Section 422A, the Company cannot assure you that such option will, in fact,
qualify as an incentive stock option, and makes no representation as to the tax
treatment to you upon receipt or exercise of the option or sale or other
disposition of the shares covered by the option.
4
<PAGE>
10. Governing Law. This Letter of Grant shall be subject to and
construed in accordance with the law of the State of Arizona, except as may be
required by the Delaware General Corporation Law or the federal securities laws.
Venue for any action arising from or relating to this Agreement shall lie
exclusively in Superior Court, Maricopa County, Arizona or the United States
District Court for the District of Arizona, Phoenix, Division.
11. Relationship to the Stock Option Plan. The option contained in this
Letter of Grant is subject to the terms, conditions and definitions of the Stock
Option Plan. To the extent that the terms, conditions and definitions of this
Letter of Grant are inconsistent with the terms, conditions and definitions of
the Stock Option Plan, the terms, conditions and definitions of the Stock Option
Plan shall govern. You acknowledge receipt of a copy of the Stock Option Plan
and represent that you are familiar with the terms and provisions thereof. You
hereby accept this option subject to all such terms and provisions. You agree to
accept as binding, conclusive and final all decisions or interpretations of the
Board or any committee appointed by the Board upon any questions arising under
the Stock Option Plan. You agree to consult your independent tax advisors with
respect to the income tax consequences to you, if any, of participating in the
Stock Option Plan and authorize the Company to withhold in accordance with
applicable law from any compensation otherwise payable to you any taxes required
to be withheld by federal, state or local law as a result of your participation
in this Plan.
12. Communication. No notice or other communication under this Letter
of Grant shall be effective unless the same is in writing and is personally
hand-delivered, or is sent by professional overnight delivery service or mailed
by registered or certified mail, postage prepaid and with return receipt
requested, addressed to:
a) the Company at the address set forth in Section 5
above, or such other address as the Company has
designated in writing to you, in accordance with the
provisions hereof, or
b) you at the address set forth at the beginning of this
letter, or such other address as you have designated
in writing to the Company, in accordance with the
provisions hereof.
You should execute the enclosed copy of this Letter of Grant and return
it to the Company as soon as possible. The additional copy is for your records.
Sincerely yours,
/s/ Allan M. Weinstein
Allan M. Weinstein
Chief Executive Officer
ACCEPTED AND AGREED TO:
/s/ Thomas R. Trotter
Thomas R. Trotter
Optionee
5
<PAGE>
Date: October 20, 1997
---------------------------
6
<PAGE>
ORTHOLOGIC CORP.
NOTICE OF EXERCISE OF STOCK OPTION ISSUED
UNDER THE 1987 STOCK OPTION PLAN
To: OrthoLogic Corp.
2850 S. 36th St., Suite 16
Phoenix, AZ 85034
Attn: Chairman of the Board
I hereby exercise my Option dated October 20, 1987 to purchase _____
shares of $.0005 par value per share common stock of OrthoLogic Corp. (the
"Company") at the option exercise price of $______ per share. Enclosed is a
certified or cashier's check in the total amount of $_______, or payment in such
other form as the Company has specified or as permitted by the option grant
letter.
If such shares are not registered under the Securities Act of 1933, I
represent to you that I am acquiring said shares for investment purposes and not
with a view to any distribution thereof and understand that my stock certificate
may bear an appropriate legend restricting the transfer of my shares and that a
stop-transfer order may be placed with the Company's transfer agent with respect
to such shares.
I request that my shares be issued in my name as follows:
-----------------------------------------------------------------------
(Print your name in the form in which you wish to have the shares
registered)
-----------------------------------------------------------------------
(Social Security Number)
-----------------------------------------------------------------------
(Street and Number)
-----------------------------------------------------------------------
(City, State and Zip)
Dated:
Signature: _______________________
7
EMPLOYMENT AGREEMENT
This Agreement, which shall be effective as of October 17, 1997, is by
and between OrthoLogic Corp., a Delaware corporation (the "Company"), and Frank
P. Magee ("Employee").
RECITALS:
- ---------
A. Employee is presently employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.
B. The parties wish to set forth in this Agreement the terms and
conditions of such continuing employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment.
(a) Duties and Title. Subject to the terms and conditions of
this Agreement, the Company employs Employee to serve in a managerial capacity
and Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties as may be assigned to him from time to time by the
Company's Board of Directors (the "Board") or Chief Executive Officer (the
"CEO"). Initially, Employee's title shall be Executive Vice President. Such
title and duties may be changed from time to time by the Board of Directors.
Employee will report to the Company's CEO. Unless and until an Election occurs,
as defined in the next paragraph, Employee agrees to devote substantially all of
this business time and efforts to the business of the Company.
(b) At the election of either Employee or the CEO (an
"Election"), Employee's title shall be changed to a title mutually acceptable to
CEO and Employee and, thereafter, he will be involved in specific projects
relating to the Company's technology, clinical or regulatory affairs and/or
sales and marketing as may be assigned to him from time to time, by the CEO.
After an Election, Employee shall not have set work hours.
2. Term. Unless an Election is made, the term of Employee's employment
pursuant to this Agreement shall be for 24 months beginning on October 20, 1997.
However, upon an Election as described in Section 1, the term of employment
shall be extended to the date 24 months after such Election is made. After the
expiration of the term of this Agreement, it may be extended only by mutual
written agreement of the parties.
<PAGE>
3. Compensation.
(a) Salary. During Employee's employment term, the Company
shall pay Employee a minimum base annual salary, before deducting all applicable
withholdings, of $187,000 per year, payable at the times and in the manner
dictated by the Company's standard payroll policies.
(b) Bonus. Employee shall be eligible to receive discretionary
bonuses based on his accomplishments and success, as determined from time to
time by the Board. Any such bonuses shall be based upon the achievement of
individual goals and Company performance and shall be granted solely in the
discretion of the Board.
(c) Stock Options. Employee currently has options to purchase
shares of the Company's Common Stock. On October 17, 1997, the Company shall
grant to Employee, from the Company's 1987 Stock Option Plan, options to
purchase 50,000 shares of the Company's common stock with an exercise price
equal to the fair market value of the stock on the effective date of the grant,
with such value as determined as specified in the 1987 Stock Option Plan. So
long as Employee is still employed by the Company at the time of vesting, 25,000
options from such 50,000-share grant shall vest on December 31, 1997 and 25,000
options from such grant shall vest on January 1, 1998. All unvested options
including options from such 50,000-share grant shall vest immediately upon a
termination of Employee's employment for any reason.
4. Fringe Benefits. In addition to the compensation, bonus and options
described in Section 3, and any other employee benefit plans (including without
limitation pension, savings and disability plans) generally available to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible, any group retirement plan instituted by the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity. The Company agrees to maintain
term life insurance during the term of this Agreement in an amount equal to two
times Employee's base salary, as it may be adjusted from time to time, with the
beneficiary to be designated by Employee. Employee shall be entitled to vacation
with pay in accordance with the Company's vacation policy as in effect from time
to time. In addition, Employee shall be entitled to such holidays as the Company
may approve from time to time.
5. Expenses. The Company shall, upon receipt of appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses
consistent with Company policies.
6. Termination.
(a) Without Cause. The Company may terminate Employee's
employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company
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terminates Employee without cause, so long as Employee continues to comply with
the requirements of this Agreement, including Sections 7 and 9, it shall
continue to pay to Employee his minimum base salary in effect at the time of
termination through the end of the term of the Agreement, as provided in Section
2, at the time and in the manner dictated by the Company's standard payroll
policies.
(b) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate Employee's employment by giving
notice to Employee. If the Company terminates Employee for disability, so long
as Employee continues to comply with the requirements of this Agreement,
including Sections 7 and 9, it shall continue to pay to Employee his minimum
base salary in effect at the time of termination through the end of the term of
the Agreement, as provided in Section 2, at the time and in the manner dictated
by the Company's standard payroll policies.
(c) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee, at a time and in a
manner similar to when it would have been paid to Employee if he had survived,
through the end of the term of the Agreement, as provided in Section 2, at the
time and in the manner dictated by the Company's standard payroll policies,
except for any change in withholding justified by the change in circumstances.
7. Confidential Information. Employee acknowledges that Employee may
receive, or contribute to the production of, Confidential Information. For
purposes of this Agreement, Employee agrees that "Confidential Information"
shall mean any and all information or material proprietary to the Company or
designated as Confidential Information by the Company and not generally known by
non-the Company personnel, which Employee develops or of or to which Employee
may obtain knowledge or access through or as a result of Employee's relationship
with the Company (including information conceived, originated, discovered or
developed in whole or in part by Employee). Confidential Information includes,
but is not limited to, the following types of information and other information
of a similar nature (whether or not reduced to writing) related to the Company's
business: discoveries, inventions, ideas, concepts, research, development,
processes, procedures, "know-how", formulae, marketing or manufacturing
techniques and materials, marketing and development plans, business plans,
customer names and other information related to customers, price lists, pricing
policies, methods of operation, financial information, employee compensation,
and computer programs and systems. Confidential Information also includes any
information described above which the Company obtains from another party and
which the Company treats as proprietary or designates as Confidential
Information, whether or not owned by or developed by the Company, including
Confidential Information acquired by the Company from any of its affiliates.
Employee acknowledges that the Confidential Information derives independent
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use. Information publicly known without
breach
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<PAGE>
of this Agreement that is generally employed by the trade at or after the time
Employee first learns of such information, or generic information or knowledge
which Employee would have learned in the course of similar employment or work
elsewhere in the trade, shall not be deemed part of the Confidential
Information. Employee further agrees:
a. To furnish the Company on demand, at any time during or
after employment, a complete list of the names and addresses of all present,
former and potential suppliers, financing sources, clients, customers and other
contacts gained while an employee of the Company in Employee's possession,
whether or not in the possession or within the knowledge of the Company.
b. That all notes, memoranda, electronic storage,
documentation and records in any way incorporating or reflecting any
Confidential Information shall belong exclusively to the Company, and Employee
agrees to turn over all copies of such materials in Employee's control to the
Company upon request or upon termination of Employee's employment with the
Company.
c. That while employed by the Company and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report, publish,
disclose or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Employee's work for the Company.
d. That any idea in whole or in part conceived of or made by
Employee during the term of his employment, consulting, or similar relationship
with the Company which relates directly or indirectly to the Company's current
or planned lines of business and is made through the use of any of the
Confidential Information of the Company or any of the Company's equipment,
facilities, trade secrets or time, or which results from any work performed by
Employee for the Company, shall belong exclusively to the Company and shall be
deemed a part of the Confidential Information for purposes of this Agreement.
Employee hereby assigns and agrees to assign to the Company all rights in and to
such Confidential Information whether for purposes of obtaining patent or
copyright protection or otherwise. Employee shall acknowledge and deliver to the
Company, without charge to the Company (but at its expense) such written
instruments and do such other acts, including giving testimony in support of
Employee's authorship or inventorship, as the case may be, necessary in the
opinion of the Company to obtain patents or copyrights or to otherwise protect
or vest in the Company the entire right and title in and to the Confidential
Information.
8. Loyalty During Employment Term. Employee agrees that during the term
of Employee's employment by the Company, before an Election is made, Employee
will devote substantially all of Employee's business time and effort to the
Company. Throughout the period of employment, he will also give undivided
loyalty to the Company, and will not engage in any way whatsoever, directly or
indirectly, in any business that is competitive with the Company or its
affiliates, nor solicit, or in any other manner work for or assist any business
which is
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competitive with the Company or its affiliates. During the term of Employee's
employment by the Company, Employee will undertake no planning for or
organization of any business activity competitive with the Company or its
affiliates, and Employee will not combine or conspire with any other employee of
the Company or any other person for the purpose of organizing any such
competitive business activity. However, Employee shall be entitled to make a
passive investment in a publicly traded stock of a competitor of the Company so
long as he does not at any time own more than 5% of the total outstanding stock
of such competitor.
9. Non-competition; Non-solicitation. The parties acknowledge that
Employee will acquire much knowledge and information concerning the business of
the Company and its affiliates as the result of Employee's employment. The
parties further acknowledge that the scope of business in which the Company is
engaged as of the date of execution of this Agreement is world-wide and very
competitive and one in which few companies can successfully compete. Certain
activities by Employee after this Agreement is terminated would severely injure
the Company. Accordingly, after the termination of Employee's employment and so
long as he is receiving any payments from the Company pursuant to Section 6,
Employee will not:
a. Engage in any work activity for or in conjunction with any
business or entity that is in competition with or is preparing to compete with
the Company;
b. Persuade or attempt to persuade any potential customer or
client to which the Company or any of its affiliates has made a proposal or
sale, or with which the Company or any of its affiliates has been having
discussions, not to transact business with the Company or such affiliate, or
instead to transact business with another person or organization;
c. Solicit the business of any customers, financing sources,
clients, suppliers, or business patrons of the Company or any of its
predecessors or affiliates which were customers, financing sources, clients,
suppliers, or business patrons of the Company at any time during Employee's
employment by the Company, or within three years prior to the Effective Date of
Employee's employment, provided, however, that if Employee becomes employed by
or represents a business that exclusively sells products that do not compete
with products then marketed or intended to be marketed by the Company, such
contact shall be permissible; or
d. Solicit, endeavor to entice away from the Company or any of
its affiliates, or otherwise interfere with the relationship of the Company or
any of its affiliates with, any person who is employed by or otherwise engaged
to perform services for the Company or any of its affiliates, whether for
Employee's account or for the account of any other person or organization.
10. Injunctive Relief. It is agreed that the restrictions contained in
Sections 7, 8, and 9 of this Agreement are reasonable, but it is recognized that
damages in the event of the breach of any of those restrictions will be
difficult or impossible to ascertain; and, therefore, Employee agrees that, in
addition to and without limiting any other right or remedy the Company may have,
5
<PAGE>
the Company shall have the right to an injunction against Employee issued by a
court of competent jurisdiction enjoining any such breach without showing or
proving any actual damage to the Company. This paragraph shall survive the
termination of Employee's employment.
11. Part of Consideration. Employee also agrees, acknowledges,
covenants, represents and warrants that he is fully and completely aware that,
and further understands that, the restrictive covenants contained in Sections 7,
8, and 9 of this Agreement are an essential part of the consideration for the
Company entering into this Agreement and that the Company is entering into this
Agreement in full reliance on these acknowledgments, covenants, representations
and warranties.
12. Time and Territory Reduction. If any of the periods of time and/or
territories described in Sections 7, 8, and 9 of this Agreement are held to be
in any respect an unreasonable restriction, it is agreed that the court so
holding may reduce the territory to which the restriction pertains or the period
of time in which it operates or may reduce both such territory and such period,
to the minimum extent necessary to render such provision enforceable.
13. Survival. The obligations described in Sections 7 and 9 of this
Agreement shall survive any termination of this Agreement or any termination of
the employment relationship created hereunder.
14. Indemnification. The Company will provide indemnification to
Employee in accordance with the current Certificate and Bylaws of the Company.
These obligations shall survive the termination of Employee's employment.
15. Testimony. If Employee has knowledge of or is alleged to have
knowledge of any matters which are the subject of any pending, threatened or
future litigation involving the Company (or any subsidiary), he will make
himself available to testify if and as necessary. Employee will also make
himself available to the attorneys representing the Company in connection with
any such litigation or dispute for such purposes as they may deem necessary or
appropriate, including but not limited to the review of documents, discussion of
the case and preparation for any legal proceedings. This Agreement is not
intended to and shall not be construed so as to in any way limit or affect the
testimony which Employee gives in any such proceedings. Further, it is
understood and agreed that Employee will at all times testify fully, truthfully
and accurately, whether in deposition, hearing, trial or otherwise.
16. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement.
6
<PAGE>
This Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
17. Amendment. Except for documents regarding the grant of stock
options and an Invention, Confidential Information and Non-Competition
Agreement, this Agreement contains, and its terms constitute, the entire
agreement of the parties and supersedes any prior agreements, including any
Employment Agreements, and it may be amended only by a written document signed
by both parties to this Agreement.
18. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
19. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.
20. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given for all purposes (i) upon personal delivery,
(ii) one day after being sent, when sent by professional overnight courier
service from and to locations within the Continental United States, (iii) five
days after posting when sent by United States registered or certified mail, with
return receipt requested and postage paid, or (iv) on the date of transmission
when sent by facsimile with a hard-copy confirmation; if directed to the person
or entity to which notice is to be given at his or its address set forth in this
Agreement or at any other address such person or entity has designated by
notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chief Executive Officer
To Employee: Frank P. Magee
602 Woodriver Drive
Ketchum, ID 83340
21. Entire Agreement. This Agreement, and the Invention, Confidential
information and Non-Competition Agreement previously executed by Employee
constitute the final written expression of all of the agreements between the
parties (except those relating to Employee's service as a director of the
Company), and are a complete and exclusive statement of those terms. They
supersede all understandings and negotiations concerning the matters specified
herein. Any representations, promises, warranties or statements made by either
party that differ in any way
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<PAGE>
from the terms of these two written Agreements shall be given no force or
effect. The parties specifically represent, each to the other, that there are no
additional or supplemental agreements between them related in any way to the
matters herein contained unless specifically included or referred to herein. No
addition to or modification of any provision of either of such Agreements shall
be binding upon any party unless made in writing and signed by all parties. To
the extent that there is any conflict between this Agreement and the Invention,
Confidential information and Non-Competition Agreement, the provisions of this
Agreement shall govern.
22. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
23. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
24. Attachments. All attachments or exhibits to this Agreement are
incorporated herein by this reference as though fully set forth herein. In the
event of any conflict, contradiction or ambiguity between the terms and
conditions in this Agreement and any of its attachments, the terms of this
Agreement shall prevail.
25. Interpretation of Agreement. When a reference is made in this
Agreement to an article or section, such reference shall be to an article or
section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
26. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
27. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
28. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
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<PAGE>
This Agreement has been executed by the parties as of October 20, 1997.
ORTHOLOGIC CORP.
("Company")
By: /s/ John M. Holliman, III
Chairman of Board
FRANK P. MAGEE
("Employee")
By: /s/ Frank P. Magee
9
EMPLOYMENT AGREEMENT
This Agreement, which shall be effective as of October 17, 1997, is by
and between OrthoLogic Corp., a Delaware corporation (the "Company"), and Allan
M. Weinstein ("Employee").
RECITALS:
- ---------
A. Employee is presently employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.
B. The parties wish to set forth in this Agreement the terms and
conditions of such continuing employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs Employee to serve in a managerial capacity and
Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties as may be assigned to him from time to time by the
Company's Board of Directors (the "Board"). Initially, Employee's title shall be
Board Member, with responsibility for strategic product alliances and
acquisitions. Such title and duties may be changed from time to time by the
Board or the Company's Chief Executive Officer (the "CEO"). Employee will report
to the Company's CEO. Employee shall not have set work hours, and while various
projects may require more or less time within any given month, it is
contemplated that he will commit to working on Company matters for up to five
days per month. Until October 19, 1999, the Company shall use its best efforts
to maintain Employee as a member of the Board. Employee understands that from
and after October 20, 1997, the Company will not provide him with an office, but
will provide reasonable secretarial and other staff support and will provide
ancillary office equipment such as a fax machine, dictating equipment and a
computer.
2. Term. The term of Employee's employment pursuant to this Agreement
shall be for two years beginning on October 20, 1997 and ending on October 19,
1999.
3. Compensation.
(a) Salary. During the term of employment, the Company shall
pay Employee a minimum base annual salary, before deducting all applicable
withholdings, of $218,000 per year, payable at the times and in the manner
dictated by the Company's standard payroll policies.
<PAGE>
(b) Bonus. Employee shall be eligible to receive discretionary
bonuses based on his accomplishments and success, as determined from time to
time by the CEO and Board. Any such bonuses shall be based upon the achievement
of individual goals and Company performance and shall be granted solely in the
discretion of the Board.
(c) Stock Options. Employee currently has options to purchase
shares of the Company's Common Stock. On October 17, 1997, the Company shall
grant to Employee, from the Company's 1987 Stock Option Plan, options to
purchase 25,000 shares of the Company's common stock, with an exercise price
equal to the fair market value of the stock on the effective date of the grant,
with such value determined as specified in the 1987 Stock Option Plan. So long
as Employee is still employed by the Company at each such time of vesting,
options to purchase 1,042 shares shall vest on November 19, 1997 and on the 19th
day of each calendar month thereafter, until such shares are fully vested;
provided that all options from such 25,000-option grant and all other unvested
options shall vest immediately upon a termination of Employee's employment for
any reason.
4. Fringe Benefits. In addition to the compensation, bonus and options
as described in Section 3, and any other employee benefit plans (including
without limitation pension, savings and disability plans) generally available to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible, any group retirement plan instituted by the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity. The Company agrees to maintain
term life insurance during the term of this Agreement in an amount equal to two
times Employee's base salary, as it may be adjusted from time to time, with the
beneficiary to be designated by Employee. Employee shall be entitled to vacation
with pay in accordance with the Company's vacation policy as in effect from time
to time. In addition, Employee shall be entitled to such holidays as the Company
may approve from time to time.
5. Expenses and Automobile. The Company shall, upon receipt of
appropriate documentation, reimburse Employee each month for his reasonable
travel, lodging, entertainment, promotion and other ordinary and necessary
business expenses consistent with Company policies. Employee shall also be
entitled to an automobile allowance of $450 per month while he is an Employee.
6. Termination.
(a) Without Cause. The Company may terminate Employee's
employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause, so long as
Employee continues to comply with the requirements of this Agreement, including
Sections 7 and 9, it shall continue to pay to Employee his minimum base salary
in effect at the time of termination through October 19, 1999, at the time and
in the manner dictated by the Company's standard payroll policies.
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<PAGE>
(b) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate Employee's employment by giving
notice to Employee. If the Company terminates Employee for disability, so long
as Employee continues to comply with the requirements of this Agreement,
including Sections 7 and 9, it shall continue to pay to Employee his minimum
base salary in effect at the time of termination through October 19, 1999, at
the time and in the manner dictated by the Company's standard payroll policies.
(c) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee until October 19,
1999, at a time and in a manner similar to when it would have been paid to
Employee if he had survived, except for any change in withholding justified by
the change in circumstances.
7. Confidential Information. Employee acknowledges that Employee may
receive, or contribute to the production of, Confidential Information. For
purposes of this Agreement, Employee agrees that "Confidential Information"
shall mean any and all information or material proprietary to the Company or
designated as Confidential Information by the Company and not generally known by
non-the Company personnel, which Employee develops or of or to which Employee
may obtain knowledge or access through or as a result of Employee's relationship
with the Company (including information conceived, originated, discovered or
developed in whole or in part by Employee). Confidential Information includes,
but is not limited to, the following types of information and other information
of a similar nature (whether or not reduced to writing) related to the Company's
business: discoveries, inventions, ideas, concepts, research, development,
processes, procedures, "know-how", formulae, marketing or manufacturing
techniques and materials, marketing and development plans, business plans,
customer names and other information related to customers, price lists, pricing
policies, methods of operation, financial information, employee compensation,
and computer programs and systems. Confidential Information also includes any
information described above which the Company obtains from another party and
which the Company treats as proprietary or designates as Confidential
Information, whether or not owned by or developed by the Company, including
Confidential Information acquired by the Company from any of its affiliates.
Employee acknowledges that the Confidential Information derives independent
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use. Information publicly known without
breach of this Agreement that is generally employed by the trade at or after the
time Employee first learns of such information, or generic information or
knowledge which Employee would have learned in the course of similar employment
or work elsewhere in the trade, shall not be deemed part of the Confidential
Information. Employee further agrees:
a. To furnish the Company on demand, at any time during or
after employment, a complete list of the names and addresses of all present,
former and potential suppliers, financing sources, clients, customers and other
contacts gained while an employee of
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<PAGE>
the Company in Employee's possession, whether or not in the possession or within
the knowledge of the Company.
b. That all notes, memoranda, electronic storage,
documentation and records in any way incorporating or reflecting any
Confidential Information shall belong exclusively to the Company, and Employee
agrees to turn over all copies of such materials in Employee's control to the
Company upon request or upon termination of Employee's employment with the
Company.
c. That while employed by the Company and thereafter Employee
will hold in confidence and not directly or indirectly reveal, report, publish,
disclose or transfer any of the Confidential Information to any person or
entity, or utilize any of the Confidential Information for any purpose, except
in the course of Employee's work for the Company.
d. That any idea in whole or in part conceived of or made by
Employee during the term of his employment, consulting, or similar relationship
with the Company which relates directly or indirectly to the Company's current
or planned lines of business and is made through the use of any of the
Confidential Information of the Company or any of the Company's equipment,
facilities, trade secrets or time, or which results from any work performed by
Employee for the Company, shall belong exclusively to the Company and shall be
deemed a part of the Confidential Information for purposes of this Agreement.
Employee hereby assigns and agrees to assign to the Company all rights in and to
such Confidential Information whether for purposes of obtaining patent or
copyright protection or otherwise. Employee shall acknowledge and deliver to the
Company, without charge to the Company (but at its expense) such written
instruments and do such other acts, including giving testimony in support of
Employee's authorship or inventorship, as the case may be, necessary in the
opinion of the Company to obtain patents or copyrights or to otherwise protect
or vest in the Company the entire right and title in and to the Confidential
Information.
8. Loyalty During Employment Term. Employee agrees that during the term
of Employee's employment by the Company, Employee will give undivided loyalty to
the Company, and will not engage in any way whatsoever, directly or indirectly,
in any business that is competitive with the Company or its affiliates, nor
solicit, or in any other manner work for or assist any business which is
competitive with the Company or its affiliates. During the term of Employee's
employment by the Company, Employee will undertake no planning for or
organization of any business activity competitive with the Company or its
affiliates, and Employee will not combine or conspire with any other employee of
the Company or any other person for the purpose of organizing any such
competitive business activity. However, Employee shall be entitled to make a
passive investment in a publicly traded stock of a competitor of the Company so
long as he does not at any time own more than 5% of the total outstanding stock
of such competitor.
9. Non-competition; Non-solicitation. The parties acknowledge that
Employee will acquire much knowledge and information concerning the business of
the Company and its
4
<PAGE>
affiliates as the result of Employee's employment. The parties further
acknowledge that the scope of business in which the Company is engaged as of the
date of execution of this Agreement is world-wide and very competitive and one
in which few companies can successfully compete. Certain activities by Employee
after this Agreement is terminated would severely injure the Company.
Accordingly, between the termination of his Employment for any reason, and
October 20, 1999, Employee will not:
a. Engage in any work activity for or in conjunction with any
business or entity that is in competition with or is preparing to compete with
the Company;
b. Persuade or attempt to persuade any potential customer or
client to which the Company or any of its affiliates has made a proposal or
sale, or with which the Company or any of its affiliates has been having
discussions, not to transact business with the Company or such affiliate, or
instead to transact business with another person or organization;
c. Solicit the business of any customers, financing sources,
clients, suppliers, or business patrons of the Company or any of its
predecessors or affiliates which were customers, financing sources, clients,
suppliers, or business patrons of the Company at any time during Employee's
employment by the Company, or within three years prior to the Effective Date of
Employee's employment, provided, however, that if Employee becomes employed by
or represents a business that exclusively sells products that do not compete
with products then marketed or intended to be marketed by the Company, such
contact shall be permissible; or
d. Solicit, endeavor to entice away from the Company or any of
its affiliates, or otherwise interfere with the relationship of the Company or
any of its affiliates with, any person who is employed by or otherwise engaged
to perform services for the Company or any of its affiliates, whether for
Employee's account or for the account of any other person or organization.
10. Injunctive Relief. It is agreed that the restrictions contained in
Sections 7, 8, and 9 of this Agreement are reasonable, but it is recognized that
damages in the event of the breach of any of those restrictions will be
difficult or impossible to ascertain; and, therefore, Employee agrees that, in
addition to and without limiting any other right or remedy the Company may have,
the Company shall have the right to an injunction against Employee issued by a
court of competent jurisdiction enjoining any such breach without showing or
proving any actual damage to the Company. This paragraph shall survive the
termination of Employee's employment.
11. Part of Consideration. Employee also agrees, acknowledges,
covenants, represents and warrants that he is fully and completely aware that,
and further understands that, the restrictive covenants contained in Sections 7,
8, and 9 of this Agreement are an essential part of the consideration for the
Company entering into this Agreement and that the Company is entering into this
Agreement in full reliance on these acknowledgments, covenants, representations
and warranties.
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<PAGE>
12. Time and Territory Reduction. If any of the periods of time and/or
territories described in Sections 7, 8, and 9 of this Agreement are held to be
in any respect an unreasonable restriction, it is agreed that the court so
holding may reduce the territory to which the restriction pertains or the period
of time in which it operates or may reduce both such territory and such period,
to the minimum extent necessary to render such provision enforceable.
13. Survival. The obligations described in Sections 7 and 9 of this
Agreement shall survive any termination of this Agreement or any termination of
the employment relationship created hereunder.
14. Indemnification. The Company will provide indemnification to
Employee in accordance with the current Certificate and Bylaws of the Company.
These obligations shall survive the termination of Employee's employment.
15. Testimony. If Employee has knowledge of or is alleged to have
knowledge of any matters which are the subject of any pending, threatened or
future litigation involving the Company (or any subsidiary), he will make
himself available to testify if and as necessary. Employee will also make
himself available to the attorneys representing the Company in connection with
any such litigation or dispute for such purposes as they may deem necessary or
appropriate, including but not limited to the review of documents, discussion of
the case and preparation for any legal proceedings. This Agreement is not
intended to and shall not be construed so as to in any way limit or affect the
testimony which Employee gives in any such proceedings. Further, it is
understood and agreed that Employee will at all times testify fully, truthfully
and accurately, whether in deposition, hearing, trial or otherwise.
16. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
17. Amendment. Except for documents regarding the grant of stock
options and an Invention, Confidential Information and Non-Competition
Agreement, this Agreement contains, and its terms constitute, the entire
agreement of the parties and supersedes any prior agreements, including any
Employment Agreements, and it may be amended only by a written document signed
by both parties to this Agreement.
18. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
6
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19. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.
20. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given for all purposes (i) upon personal delivery,
(ii) one day after being sent, when sent by professional overnight courier
service from and to locations within the Continental United States, (iii) five
days after posting when sent by United States registered or certified mail, with
return receipt requested and postage paid, or (iv) on the date of transmission
when sent by facsimile with a hard-copy confirmation; if directed to the person
or entity to which notice is to be given at his or its address set forth in this
Agreement or at any other address such person or entity has designated by
notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chief Executive Officer
To Employee: Allan M. Weinstein
3177 E. Sierra Vista Drive
Phoenix, AZ 85016
21. Entire Agreement. This Agreement and the Invention, Confidential
information and Non-Competition Agreement previously executed by Employee
constitute the final written expression of all of the agreements between the
parties (except those relating to Employee's service as a director of the
Company), and are a complete and exclusive statement of those terms. They
supersede all understandings and negotiations concerning the matters specified
herein. Any representations, promises, warranties or statements made by either
party that differ in any way from the terms of these two written Agreements
shall be given no force or effect. The parties specifically represent, each to
the other, that there are no additional or supplemental agreements between them
related in any way to the matters herein contained unless specifically included
or referred to herein. No addition to or modification of any provision of either
of such Agreements shall be binding upon any party unless made in writing and
signed by all parties. To the extent that there is any conflict between this
Agreement and the Invention, Confidential information and Non-Competition
Agreement, the provisions of this Agreement shall govern.
22. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
23. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining
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provisions hereof, but the same shall remain in full force and effect as if such
invalid or unenforceable provisions were omitted.
24. Attachments. All attachments or exhibits to this Agreement are
incorporated herein by this reference as though fully set forth herein. In the
event of any conflict, contradiction or ambiguity between the terms and
conditions in this Agreement and any of its attachments, the terms of this
Agreement shall prevail.
25. Interpretation of Agreement. When a reference is made in this
Agreement to an article or section, such reference shall be to an article or
section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
26. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
27. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
28. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
This Agreement has been executed by the parties as of October 20, 1997.
ORTHOLOGIC CORP.
("Company")
By: /s/ John M. Holliman, III
Chairman of Board
ALLAN M. WEINSTEIN
("Employee")
By: /s/ Allan M. Weinstein
8
SEVERANCE AGREEMENT
This Severance Agreement, which shall be effective as of May 21, 1997
is by and between David E. Derminio ("Derminio") and OrthoLogic Corp., a
Delaware corporation, ("OrthoLogic").
RECITALS
A. Derminio is currently employed as a Vice President of OrthoLogic.
B. The parties mutually desire to provide for an orderly termination of
Derminio's employment by OrthoLogic, all on terms satisfactory to both Derminio
and OrthoLogic, as further set forth in this Agreement.
AGREEMENTS
In Consideration of the acts, payments, covenants and mutual agreements
contained herein, OrthoLogic and Derminio agree as follows:
1. Modification of Current Relationship. Effective as of May 21, 1997
(the "Date of Termination"), Derminio shall resign as a Vice President of
OrthoLogic. From and after the Date of Termination, Derminio shall have no
further rights or duties as an employee or officer for or on behalf of
OrthoLogic. Derminio acknowledges that OrthoLogic has no obligation to recall or
reemploy Derminio in the future. Derminio acknowledges that OrthoLogic was not
obligated to provide all consideration described in this Agreement and that a
portion of such consideration constitutes an additional benefit that is being
provided to Derminio in exchange for and in consideration for his promises,
covenants and releases contained in this Agreement.
2. Severance Payment. OrthoLogic agrees to pay to Derminio an amount
equal to 12 months base salary, over a 12-month period beginning May 21, 1997,
at the times and in the amounts that are presently paid to Derminio in
accordance with the normal payroll procedures of OrthoLogic.
3. Additional Benefits. So long as Derminio continues to comply with
all requirements of this Agreement, and provided Derminio does not cancel this
Agreement as provided in Paragraph 6, Derminio shall also be entitled to the
benefits described in Paragraphs 3.1 through 3.6.
3.1 If Derminio elects continued coverage under COBRA, OrthoLogic
agrees to pay an amount equal to Derminio's current medical
insurance premiums for medical benefits, after the Date of
Termination, until the earlier to occur of 12 months
<PAGE>
following the Date of Termination or the time when other
coverage becomes available to Derminio in connection with
other employment.
3.2 OrthoLogic agrees to pay up to $10,000 for out-placement
counseling and assistance provided by a mutually acceptable
out-placement firm; provided that such payment will only be
available if such service is engaged within 90 days of the
Date of Termination.
3.3 OrthoLogic will provide a single lump-sum payment in the gross
amount of $18,953.57 in lieu of club dues (which had
previously been paid monthly).
3.4 OrthoLogic will provide a mutually acceptable letter of
reference.
3.5 OrthoLogic will accelerate the vesting of options to acquire a
total of 10,000 shares of OrthoLogic's common stock, which
would not otherwise vest, so that such options will be
exercisable on the Date of Termination.
3.6 OrthoLogic will extend the time in which Derminio can exercise
all options that have vested as of the Date of Termination
until November 30, 1997.
4. Car Phone Payments. OrthoLogic will only pay Derminio charges for
the mobile telephone in his automobile through May 31, 1997.
5. Release and Covenant Not to Sue. Except as provided in this
Agreement, Derminio hereby releases, acquits and forever discharges OrthoLogic,
its subsidiaries, affiliates, directors, officers, employees and agents of and
from any and all actions, claims, damages, expenses or costs of whatever nature
arising out of Derminio's employment and the termination of such relationship,
including, but not limited to, any rights or claims to any vacation, sick leave,
severance, medical, dental or any other benefits under the Company's internal
policies, under any federal, state or local statute or regulation, or under
common law. By way of example only and without limiting the immediately
preceding paragraph, this release is applicable to any cause of action, right,
claim or liability under Title VII of the 1964 Civil Rights Act, Section 1981 of
the 1866 Civil Rights Act, the Equal Pay Act of 1963, the Americans with
Disabilities Act, the Arizona Civil Rights Act, the Age Discrimination in
Employment Act of 1967, all as amended, and any other equal employment
opportunity law or statute, or of wrongful discharge, breach of implied or
express contract, breach of the covenant of good faith and fair dealing,
intentional or negligent infliction of emotional distress, defamation and any
other claim in contract or tort.
Derminio further covenants and agrees not to join in or commence any
action, suit or proceeding, in law or in equity, or before any administrative
agency, or to incite, encourage, or participate in any such action, suit or
proceedings, against OrthoLogic, its subsidiaries, affiliates, directors,
officers, employees or agents in any way pertaining to or arising out of the
termination
2
<PAGE>
of his employment by or service as an employee, consultant, officer or director
of OrthoLogic, or any subsidiary of OrthoLogic.
Derminio acknowledges that the consideration afforded him under this
Agreement is in full and complete satisfaction of any claims Derminio may have,
or may have had, arising out of or relating to the Employment Agreement, his
employment with OrthoLogic (or any subsidiary) or the termination thereof.
6. Time Period for Considering or Canceling this Agreement. Derminio
acknowledges that OrthoLogic has encouraged him to consult with an attorney of
his choice with respect to this Agreement. Derminio further acknowledges that he
has been offered a period of time of at least 21 days to consider whether to
sign this Agreement, and OrthoLogic agrees that Derminio may cancel this
Agreement at any time during the seven days following the date on which this
Agreement has been signed by him. In order to cancel or revoke this Agreement,
Derminio must deliver to OrthoLogic 2850 South 36th Street, Suite 16, Phoenix,
Arizona 85034, Attention: Chief Executive Officer, written notice stating that
Derminio is canceling or revoking this Agreement. If this Agreement is canceled
or revoked by Derminio within such time period, none of the provisions of this
Agreement shall be effective or enforceable and OrthoLogic shall not be
obligated to make the payments described in this Agreement except as may be
required by any other agreement.
7. Confidentiality of Agreement. Derminio agrees to maintain in
confidence the terms and existence of this Agreement and the discussions that
led to its creation and execution, with the exception that Derminio may disclose
such matters to any attorney who is providing advice to Derminio, to any
accountant or federal or state tax agency for purposes of complying with any tax
laws, or as otherwise required by law. Further, Derminio acknowledges that any
duties of confidentiality imposed upon Derminio by agreement or by law,
including without limitation those imposed by Paragraphs 7 and 9 of this
Agreement, shall survive the termination of Derminio's employment.
8. Reliance. Derminio warrants and represents that (i) he has relied on
his own judgment regarding the consideration for and language of this Agreement;
that (ii) OrthoLogic has not in any way coerced or unduly influenced him to
execute this Agreement; and (iii) that this Agreement is written in a manner
that is understandable to him and he has read and understood all paragraphs of
this Agreement.
9. Confidential Information. Derminio acknowledges that, during his
employment by OrthoLogic, Derminio has received and also contributed to the
production of, Confidential Information. For purposes of this Agreement,
Derminio agrees that "Confidential Information" shall mean information or
material proprietary to OrthoLogic or designated as Confidential Information by
OrthoLogic and not generally known by non-OrthoLogic personnel, which Derminio
developed or to which Derminio obtained knowledge or access through or as a
result
3
<PAGE>
of Derminio's relationship with OrthoLogic (including information conceived,
originated, discovered or developed in whole or in part by Derminio). Derminio
further agrees:
9.1 To furnish OrthoLogic on demand, a complete list of the names
and addresses of all present, former and potential customers
and other contacts gained while an employee of OrthoLogic,
whether or not in the possession or within the knowledge of
OrthoLogic.
9.2 That all notes, memoranda, documentation and records in any
way incorporating or reflecting any Confidential Information
shall belong exclusively to OrthoLogic, and Derminio agrees
promptly to turn over all copies of such materials in
Derminio's control to OrthoLogic.
9.3 That Derminio will hold in confidence and not directly or
indirectly reveal, report, publish, disclose or transfer any
of the Confidential Information to any person or entity, or
utilize any of the Confidential Information for any purpose,
except in the course of Derminio's work for OrthoLogic.
9.4 That any ideas in whole or in part conceived of or made by
Derminio during the term of his employment or relationship
with OrthoLogic which were made through the use of any of the
Confidential Information of OrthoLogic or any of OrthoLogic's
equipment, facilities, trade secrets or time, or which result
from any work performed by Derminio for OrthoLogic, belong
exclusively to OrthoLogic and shall be deemed a part of the
Confidential Information for purposes of this Agreement.
Derminio hereby assigns and agrees to assign to OrthoLogic all
rights in and to such Confidential Information whether for
purposes of obtaining patent or copyright protection or
otherwise. Derminio shall acknowledge and deliver to
OrthoLogic, without charge to OrthoLogic (but at its expense)
such written instruments and do such other acts, including
giving testimony in support of Derminio's authorship or
inventorship, as the case may be, necessary in the opinion of
OrthoLogic to obtain patents or copyrights or to otherwise
protect or vest in Derminio the entire right and title in and
to the Confidential Information.
10. Non-Compete After Employment Term. The parties acknowledge that
Derminio has acquired much knowledge and information concerning the business of
OrthoLogic and its affiliates as the result of Derminio's employment. The
parties further acknowledge that the scope of business in which OrthoLogic is
engaged as of the date of execution of this Agreement is world-wide and very
competitive and one in which few companies can successfully compete. Competition
by Derminio in that business would severely injure OrthoLogic. Accordingly,
until one year after the Date of Termination, Derminio will not:
4
<PAGE>
10.1 Within any jurisdiction or marketing area in which OrthoLogic
or any of its affiliates is doing business or is qualified to
do business, directly or indirectly own, manage, operate,
control, be employed by or participate in the ownership,
management, operation or control of, or be connected in any
manner with, any business of the type and character engaged in
and competitive with that conducted by OrthoLogic or any of
its affiliates. For these purposes, ownership of securities of
not in excess of 1% of any class of securities of a public
company shall not be considered to be competition with
OrthoLogic or any of its affiliates;
10.2 Persuade or attempt to persuade any potential customer or
client to which OrthoLogic or any of its affiliates has made a
proposal or sale, or with which OrthoLogic or any of its
affiliates has been having discussions, not to transact
business with OrthoLogic or such affiliate, or instead to
transact business with another person or organization;
10.3 Solicit the business of any company which is a customer or
client of OrthoLogic or any of its affiliates at any time
during Derminio's employment by the OrthoLogic, provided,
however, if Derminio becomes employed by or represents a
business that exclusively sells products that do not compete
with products then marketed or intended to be marketed by
OrthoLogic, such contact shall be permissible; or
10.4 Solicit, endeavor to entice away from OrthoLogic or any of its
affiliates, or otherwise interfere with the relationship of
OrthoLogic or any of its affiliates with, any person who is
employed by or otherwise engaged to perform services for
OrthoLogic or any of its affiliates, whether for Derminio's
account or for the account of any other person or
organization.
11. Common Law of Torts or Trade Secrets. Nothing in this Agreement
shall be construed to limit or negate the common law of torts or trade secrets
where such common law provides OrthoLogic with broader protection than the
protection provided by this Agreement.
12. Nature of the Agreement. This Agreement and all provisions hereof,
including all representations and promises contained herein, are contractual and
not a mere recital and shall continue in permanent force and effect. This
Agreement and all attachments constitute the sole and entire agreement of the
parties with respect to the subject matter hereof, superseding all prior
agreements and understandings between the parties, and there are no agreements
of any nature whatsoever between the parties hereto except as expressly stated
herein. This Agreement may not be modified or changed except by means of a
written instrument signed by both parties. If any portion of this Agreement is
found to be unenforceable for any reason whatsoever, the unenforceable provision
shall be considered to be severable, and the remainder of the Agreement
5
<PAGE>
shall continue to be in full force and effect. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Arizona.
13. No Admission of Liability. Nothing contained in this Agreement
shall be construed in any manner as an admission by OrthoLogic or Derminio that
he or it has violated any statute, law or regulation, or breached any contract
or agreement.
14. Remedies. Any and all remedies set forth herein are intended to be
nonexclusive and either party may, in addition to such remedies, seek any
additional remedies available either in law or in equity in the event of default
or breach by the other party.
15. Injunctive Relief. Derminio agrees that it would be difficult to
measure the damage to OrthoLogic from any breach by Derminio of the covenants
set forth herein, that injury to OrthoLogic from any such breach would be
impossible to calculate, and that money damages would therefore be an inadequate
remedy for any such breach. Accordingly, Derminio agrees that if Derminio should
breach any term of this Agreement, OrthoLogic shall be entitled, in addition to
and without limitation of all other remedies it may have, to offset payments to
Derminio required by this Agreement and/or to injunctions or other appropriate
orders to restrain any such breach without showing or proving any actual damage
to OrthoLogic. This paragraph shall survive termination of Derminio's
employment.
16. Indemnification. OrthoLogic will provide indemnification to
Derminio in accordance with the current Certificate and Bylaws of OrthoLogic.
These obligations shall survive the termination of Derminio's employment.
17. Testimony. If Derminio has knowledge of or is alleged to have
knowledge of any matters which are the subject of any pending, threatened or
future litigation involving OrthoLogic (or any subsidiary), he will make himself
available to testify if and as necessary. Derminio will also make himself
available to the attorneys representing OrthoLogic in connection with any such
litigation or dispute for such purposes as they may deem necessary or
appropriate, including but not limited to the review of documents, discussion of
the case and preparation for any legal proceedings. This Agreement is not
intended to and shall not be construed so as to in any way limit or affect the
testimony which Derminio gives in any such proceedings. Further, it is
understood and agreed that Derminio will at all times testify fully, truthfully
and accurately, whether in deposition, hearing, trial or otherwise.
18. Publicity. Derminio agrees that he will not, without the prior
consent of OrthoLogic, either (i) make any announcements or public statements
regarding this Agreement or the termination of his employment; or (ii) mention
or discuss this Agreement or the termination of his employment to or with any
past or present employee or consultant of OrthoLogic, or any other person
whatsoever. The parties understand that a form of press release acceptable to
OrthoLogic was issued on or about May 21, 1997.
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<PAGE>
19. No Disparagement. Derminio agrees that as part of the consideration
for this Agreement, he will not make disparaging or derogatory remarks, whether
oral or written, about OrthoLogic or about its subsidiaries, affiliates,
officers, directors, employees or agents. OrthoLogic agrees that it will not
make any disparaging or derogatory remarks, whether oral or written, about
Derminio and agrees to instruct its officers to behave in the same manner.
Dated this ___ day of May, 1997.
/s/ David E. Derminio
DAVID E. DERMINIO
ORTHOLOGIC CORP.
By: /s/ Allan M. Weinstein
Allan M. Weinstein, Ph.D.
Its: Chairman and CEO
7
SEVERANCE AGREEMENT
This Severance Agreement, which shall be effective as of September 19,
1997 is by and between Nicholas A. Skaff ("Skaff") and OrthoLogic Corp., a
Delaware corporation, ("OrthoLogic").
RECITALS
A. Skaff is currently employed as a Vice President of OrthoLogic.
B. The parties mutually desire to provide for an orderly termination of
Skaff's employment by OrthoLogic, all on terms satisfactory to both Skaff and
OrthoLogic, as further set forth in this Agreement.
AGREEMENTS
In Consideration of the acts, payments, covenants and mutual agreements
contained herein, OrthoLogic and Skaff agree as follows:
1. Modification of Current Relationship. Effective as of September 19,
1997 (the "Date of Termination"), Skaff shall resign as a Vice President of
OrthoLogic. From and after the Date of Termination, Skaff shall have no further
rights or duties as an employee or officer for or on behalf of OrthoLogic. Skaff
acknowledges that OrthoLogic has no obligation to recall or reemploy Skaff in
the future. Skaff acknowledges that OrthoLogic was not obligated to provide the
consideration described in this Agreement and that such consideration
constitutes a benefit that is being provided to Skaff in exchange for and in
consideration for his promises, covenants and releases contained in this
Agreement.
2. Severance Payment. So long as Skaff continues to comply with all
requirements of this Agreement, and provided Skaff does not cancel this
Agreement as provided in Paragraph 6, Skaff shall also be entitled to the
benefits described in Paragraphs 2 and 3. OrthoLogic agrees to pay to Skaff an
amount equal to 12 months base
<PAGE>
salary ($135,000 less applicable withholdings), over a 12-month period beginning
September 19, 1997, at the times and in the amounts that are presently paid to
Skaff in accordance with the normal payroll procedures of OrthoLogic.
3. Additional Benefits. OrthoLogic agrees to pay Skaff's standard
premium for health benefits through September 30, 1997 and acknowledges that he
is entitled to be paid for two weeks of accrued vacation. OrthoLogic will
continue to pay the employer portion of Skaff's COBRA premiums for medical and
dental coverage through December 31, 1997. OrthoLogic hereby transfers ownership
to Skaff of the used Zaurus 5800 used by him in connection with his employment.
OrthoLogic agrees to pay $9,400 for expenses incurred by Skaff in seeking new
employment, $7,500 of which may be paid to an out-placement firm designated by
Skaff, and the balance of which shall be reimbursed to Skaff upon proper
documentation of such expenses. OrthoLogic shall extend the date on which
Skaff's vested options expire until March 31, 1998; and Skaff agrees to consult
with his own advisors concerning the tax effect of such extension and any
exercise of such options and sale of the underlying stock.
4. Release and Covenant Not to Sue. Except as provided in this
Agreement, Skaff hereby releases, acquits and forever discharges OrthoLogic, and
its subsidiaries, affiliates, directors, officers, employees and agents of and
from any and all actions, claims, damages, expenses or costs of whatever nature
arising out of Skaff's employment and the termination of such relationship,
including, but not limited to, any rights or claims to any vacation, sick leave,
severance, medical, dental or any other benefits under the Company's internal
policies, under any federal, state or local statute or regulation, or under
common law. Except as provided in this Agreement, OrthoLogic hereby releases,
acquits and forever discharges Skaff and his heirs and successors from any and
all actions, claims, damages, expenses or costs of whatever nature arising out
of Skaff's employment and the termination of such relationship. By way of
example only and without limiting the immediately preceding paragraph, this
release is applicable to any
2
<PAGE>
cause of action, right, claim or liability under Title VII of the 1964 Civil
Rights Act, Section 1981 of the 1866 Civil Rights Act, the Equal Pay Act of
1963, the Americans with Disabilities Act, the Arizona Civil Rights Act, the Age
Discrimination in Employment Act of 1967, all as amended, and any other equal
employment opportunity law or statute, or of wrongful discharge, breach of
implied or express contract, breach of the covenant of good faith and fair
dealing, intentional or negligent infliction of emotional distress, defamation
and any other claim in contract or tort.
Skaff further covenants and agrees not to join in or commence any
action, suit or proceeding, in law or in equity, or before any administrative
agency, or to incite, encourage, or participate in any such action, suit or
proceedings, against OrthoLogic, its subsidiaries, affiliates, directors,
officers, employees or agents in any way pertaining to or arising out of the
termination of his employment by or service as an employee, consultant, officer
or director of OrthoLogic, or any subsidiary of OrthoLogic.
Skaff acknowledges that the consideration afforded him under this
Agreement is in full and complete satisfaction of any claims Skaff may have, or
may have had, arising out of or relating to the Employment Agreement, his
employment with OrthoLogic (or any subsidiary) or the termination thereof.
5. Time Period for Considering or Canceling this Agreement. Skaff
acknowledges that OrthoLogic has encouraged him to consult with an attorney of
his choice with respect to this Agreement. Skaff further acknowledges that he
has been offered a period of time of at least 21 days to consider whether to
sign this Agreement, and OrthoLogic agrees that Skaff may cancel this Agreement
at any time during the seven days following the date on which this Agreement has
been signed by him. In order to cancel or revoke this Agreement, Skaff must
deliver to OrthoLogic 2850 South 36th Street, Suite 16, Phoenix, Arizona 85034,
Attention: Chief Executive Officer, written notice stating that Skaff is
canceling or revoking this Agreement. If this Agreement is canceled or
3
<PAGE>
revoked by Skaff within such time period, none of the provisions of this
Agreement shall be effective or enforceable and OrthoLogic shall not be
obligated to make the payments described in this Agreement.
6. Confidentiality of Agreement. Skaff agrees to maintain in confidence
the terms and existence of this Agreement and the discussions that led to its
creation and execution, with the exception that Skaff may disclose such matters
to any attorney who is providing advice to Skaff, to any accountant or federal
or state tax agency for purposes of complying with any tax laws, or as otherwise
required by law or by an order of a court of competent jurisdiction. OrthoLogic
agrees to maintain in confidence the terms and existence of this Agreement and
the discussions that led to its creation and execution, with the exception that
OrthoLogic may disclose such matters to any attorney who is providing advice to
OrthoLogic, to any accountant or federal or state tax agency for purposes of
complying with any tax laws, or as otherwise required by law or by an order of a
court of competent jurisdiction. Further, the parties acknowledge that any
duties of confidentiality imposed by agreement or by law, including without
limitation those imposed by Paragraphs 6, 7 and 9 of this Agreement, shall
survive the termination of Skaff's employment.
7. Reliance. Skaff warrants and represents that (i) he has relied on
his own judgment regarding the consideration for and language of this Agreement;
that (ii) OrthoLogic has not in any way coerced or unduly influenced him to
execute this Agreement; and (iii) that this Agreement is written in a manner
that is understandable to him and he has read and understood all paragraphs of
this Agreement.
8. Confidential Information. Skaff acknowledges that, during his
employment by OrthoLogic, Skaff has received and also contributed to the
production of, Confidential Information. For purposes of this Agreement, Skaff
agrees that "Confidential Information" shall mean information or material
proprietary to
4
<PAGE>
OrthoLogic or designated as Confidential Information by OrthoLogic and not
generally known by non-OrthoLogic personnel, which Skaff developed or of or to
which Skaff obtained knowledge or access through or as a result of Skaff's
relationship with OrthoLogic (including information conceived, originated,
discovered or developed in whole or in part by Skaff). Skaff further agrees:
8.1 To furnish OrthoLogic on demand, a complete list of the names
and addresses of all present, former and potential customers
and other contacts gained while an employee of OrthoLogic,
whether or not in the possession or within the knowledge of
OrthoLogic.
8.2 That all notes, memoranda, documentation and records in any
way incorporating or reflecting any Confidential Information
shall belong exclusively to OrthoLogic, and Skaff agrees
promptly to turn over all copies of such materials in Skaff's
control to OrthoLogic.
8.3 That Skaff will hold in confidence and not directly or
indirectly reveal, report, publish, disclose or transfer any
of the Confidential Information to any person or entity, or
utilize any of the Confidential Information for any purpose,
except in the course of Skaff's work for OrthoLogic.
8.4 That any ideas in whole or in part conceived of or made by
Skaff during the term of his employment or relationship with
OrthoLogic which were made through the use of any of the
Confidential Information of OrthoLogic or any of OrthoLogic's
equipment, facilities, trade secrets or time, or which result
from any work performed by Skaff for OrthoLogic, belong
exclusively to OrthoLogic and shall be deemed a part of the
Confidential Information for purposes of this Agreement. Skaff
hereby assigns and agrees to assign to OrthoLogic all rights
in
5
<PAGE>
and to such Confidential Information whether for purposes of
obtaining patent or copyright protection or otherwise. Skaff
shall acknowledge and deliver to OrthoLogic, without charge to
OrthoLogic (but at its expense) such written instruments and
do such other acts, including giving testimony in support of
Skaff's authorship or inventorship, as the case may be,
necessary in the opinion of OrthoLogic to obtain patents or
copyrights or to otherwise protect or vest in Skaff the entire
right and title in and to the Confidential Information.
9. Non-Compete After Employment Term. The parties acknowledge that
Skaff has acquired much knowledge and information concerning the business of
OrthoLogic and its affiliates as the result of Skaff's employment. The parties
further acknowledge that the scope of business in which OrthoLogic is engaged as
of the date of execution of this Agreement is world-wide and very competitive
and one in which few companies can successfully compete. Competition by Skaff in
that business would severely injure OrthoLogic. Accordingly, until one year
after the Date of Termination, Skaff will not:
9.1 Within any jurisdiction or marketing area in which OrthoLogic
or any of its affiliates is doing business or is qualified to
do business, directly or indirectly own, manage, operate,
control, be employed by or participate in the ownership,
management, operation or control of, or be connected in any
manner with, any business of the type and character engaged in
and competitive with that conducted by OrthoLogic or any of
its affiliates in areas of or related to bone-growth
stimulation, external fixation of bones, continuous passive
motion devices, or Hyalgen or any similar product. For these
purposes, ownership of securities of not in excess of 5% of
any class of securities of a public company shall not be
considered to be competition with OrthoLogic or any of its
affiliates;
6
<PAGE>
9.2 Persuade or attempt to persuade any potential customer or
client to which OrthoLogic or any of its affiliates has made a
proposal or sale, or with which OrthoLogic or any of its
affiliates has been having discussions, not to transact
business with OrthoLogic or such affiliate, or instead to
transact business with another person or organization;
9.3 Solicit the business of any company which is a customer or
client of OrthoLogic or any of its affiliates at any time
during Skaff's employment by the OrthoLogic, provided,
however, if Skaff becomes employed by or represents a business
that exclusively sells products that do not compete with
products then marketed or intended to be marketed by
OrthoLogic, such contact shall be permissible; or
9.4 Solicit, endeavor to entice away from OrthoLogic or any of its
affiliates, or otherwise interfere with the relationship of
OrthoLogic or any of its affiliates with, any person who is
employed by or otherwise engaged to perform services for
OrthoLogic or any of its affiliates, whether for Skaff's
account or for the account of any other person or
organization.
10. Common Law of Torts or Trade Secrets. Nothing in this Agreement
shall be construed to limit or negate the common law of torts or trade secrets
where such common law provides OrthoLogic with broader protection than the
protection provided by this Agreement.
11. Nature of the Agreement. This Agreement and all provisions hereof,
including all representations and promises contained herein, are contractual and
not a mere recital and shall continue in permanent force and effect. This
Agreement and all attachments constitute the sole and entire agreement of the
parties
7
<PAGE>
with respect to the subject matter hereof, superseding all prior agreements and
understandings between the parties, and there are no agreements of any nature
whatsoever between the parties hereto except as expressly stated herein. This
Agreement may not be modified or changed except by means of a written instrument
signed by both parties. If any portion of this Agreement is found to be
unenforceable for any reason whatsoever, the unenforceable provision shall be
considered to be severable, and the remainder of the Agreement shall continue to
be in full force and effect. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Arizona.
12. No Admission of Liability. Nothing contained in this Agreement
shall be construed in any manner as an admission by OrthoLogic or Skaff that he
or it has violated any statute, law or regulation, or breached any contract or
agreement.
13. Remedies. Any and all remedies set forth herein are intended to be
nonexclusive and either party may, in addition to such remedies, seek any
additional remedies available either in law or in equity in the event of default
or breach by the other party.
14. Injunctive Relief. Skaff agrees that it would be difficult to
measure the damage to OrthoLogic from any breach by Skaff of the covenants set
forth herein, that injury to OrthoLogic from any such breach would be impossible
to calculate, and that money damages would therefore be an inadequate remedy for
any such breach. Accordingly, Skaff agrees that if Skaff should breach any term
of this Agreement, OrthoLogic shall be entitled, in addition to and without
limitation of all other remedies it may have, to offset payments to Skaff
required by this Agreement and/or to injunctions or other appropriate orders to
restrain any such breach without showing or proving any actual damage to
OrthoLogic. This paragraph shall survive termination of Skaff's employment.
15. Indemnification. OrthoLogic will provide indemnification
8
<PAGE>
to Skaff in accordance with the Certificate and Bylaws of OrthoLogic in effect
as of the date of this Agreement. These obligations shall survive the
termination of Skaff's employment.
16. Testimony. If Skaff has knowledge of or is alleged to have
knowledge of any matters which are the subject of any pending, threatened or
future litigation or proceedings involving OrthoLogic (or any subsidiary), he
will make himself available to testify if and as necessary. Skaff will also make
himself available to the attorneys representing OrthoLogic in connection with
any such litigation, dispute or proceedings for such purposes as they may deem
necessary or appropriate, including but not limited to the review of documents,
discussion of the case and preparation for any legal proceedings. This Agreement
is not intended to and shall not be construed so as to in any way limit or
affect the testimony which Skaff gives in any such proceedings. Further, it is
understood and agreed that Skaff will at all times testify fully, truthfully and
accurately, whether in deposition, hearing, trial or otherwise. To the extent
not prohibited by conflicts between the interests of Skaff and OrthoLogic,
OrthoLogic will make its attorneys available to advise Skaff in connection with
any such proceedings. If there is a conflict, at the sole discretion of
OrthoLogic, OrthoLogic will pay for separate counsel selected by Skaff.
17. No Disparagement. Skaff agrees that as part of the consideration
for this Agreement, he will not make disparaging or derogatory remarks, whether
oral or written, about OrthoLogic or about its subsidiaries, affiliates,
officers, directors, employees or agents. OrthoLogic agrees that it will not
make any disparaging or derogatory remarks, whether oral or written, about Skaff
and agrees to instruct its officers to behave in the same manner.
9
<PAGE>
Dated this 31st day of October, 1997.
/s/ Nicholas A. Skaff
NICHOLAS A. SKAFF
ORTHOLOGIC CORP.
By: /s/ MaryAnn G. Miller
MaryAnn G. Miller
Its: Vice President,
Human Resources
10
Exhibit 11
ORTHOLOGIC CORP.
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
----------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $ (14,745) $ 456 $ (17,789) $ 2,871
================= ============== ================ ==============
Common shares outstanding at end of period 25,144 25,022 25,144 25,022
Adjustment to reflect weighted average for shares
issued during the period (31) (3) (62) (2,335)
Adjustment to reflect assumed exercise of
outstanding stock options - 782 - 1,072
----------------- -------------- ---------------- --------------
Weighted average number of common shares outstanding
25,113 25,801 25,082 23,759
================= ============== ================ ==============
Net income (loss) per weighted average number of
common shares outstanding $ (0.59) $ 0.02 $ (0.71) $ 0.12
================= ============== ================ ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from financial statements in
OrthoLogic Corp.'s Form 10-Q for the quarterly
period ended September 30, 1997 and is qualified
in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 11,345
<SECURITIES> 4,355
<RECEIVABLES> 40,295
<ALLOWANCES> (10,429)
<INVENTORY> 9,659
<CURRENT-ASSETS> 66,354
<PP&E> 14,522
<DEPRECIATION> (3,737)
<TOTAL-ASSETS> 101,569
<CURRENT-LIABILITIES> 15,551
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 84,338
<TOTAL-LIABILITY-AND-EQUITY> 101,569
<SALES> 27,169
<TOTAL-REVENUES> 53,818
<CGS> 7,737
<TOTAL-COSTS> 13,772
<OTHER-EXPENSES> 51,465
<LOSS-PROVISION> 7,579
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> (17,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,789)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
