<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
- ----- EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number: 000-20198
CHOLESTECH CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3065493
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3347 INVESTMENT BOULEVARD, HAYWARD, CA 94545
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 732-7200
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 and Exchange Act of 1934
during the preceding 12 months (or for 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
----- -----
At September 25, 1998, 11,486,624 shares of common stock of the Registrant were
outstanding.
<PAGE> 2
CHOLESTECH CORPORATION
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS.
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 9
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 29
SIGNATURES 30
</TABLE>
2
<PAGE> 3
CHOLESTECH CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 25, 1998 March 27, 1998(1)
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,678 $ 5,130
Marketable securities 7,082 9,621
Accounts receivable, net 3,176 3,793
Inventories 5,602 3,306
Prepaid expenses and other current assets 453 154
-------- --------
Total current assets 19,991 22,004
Property and equipment, net 4,527 3,711
Other assets, net 60 73
-------- --------
$ 24,578 $ 25,788
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,918 $ 3,003
Accrued payroll and benefits 956 1,136
Product warranty 203 203
-------- --------
Total current liabilities 3,077 4,342
-------- --------
Shareholders' equity:
Preferred stock -- --
Common stock 70,209 69,880
Accumulated other comprehensive income 49 49
Accumulated deficit (48,757) (48,483)
-------- --------
Total shareholders' equity 21,501 21,446
-------- --------
$ 24,578 $ 25,788
======== ========
</TABLE>
(1) The information in this column was derived from the Company's audited
financial statements for the fiscal year ended March 27, 1998.
See Notes to Condensed Financial Statements
3
<PAGE> 4
CHOLESTECH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
9/25/98 9/26/97 9/25/98 9/26/97
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Domestic $ 5,144 $ 4,910 $ 9,315 $ 8,718
International 963 502 1,477 897
-------- ------- -------- -------
6,107 5,412 10,792 9,615
Cost of products sold 2,984 2,705 4,886 4,701
-------- ------- -------- -------
Gross profit 3,123 2,707 5,906 4,914
-------- ------- -------- -------
Operating expenses:
Sales and marketing 1,818 1,394 3,446 2,650
Research and development 729 555 1,428 1,060
General and administrative 646 484 1,131 930
Other (175) -- 575 --
-------- ------- -------- -------
Total operating expenses 3,018 2,433 6,580 4,640
Income (loss) from operations 105 274 (674) 274
Interest income (expense), net 218 172 412 294
-------- ------- -------- -------
Income (loss) before taxes 323 446 (262) 568
Provision for income taxes 13 9 13 12
-------- ------- -------- -------
Net income (loss) $ 310 $ 437 $ (275) $ 556
======== ======= ======== =======
Net income (loss) per share:
Basic $ 0.03 $ 0.04 $ (0.02) $ 0.05
======== ======= ======== =======
Diluted $ 0.03 $ 0.04 $ (0.02) $ 0.05
======== ======= ======== =======
Shares used to compute net
income (loss) per share:
Basic 11,473 11,260 11,473 11,253
======== ======= ======== =======
Diluted 11,764 11,806 11,473 11,761
======== ======= ======== =======
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE> 5
CHOLESTECH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Twenty-six weeks ended
-------------------------------
Sept. 25, 1998 Sept. 26, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (275) $ 556
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 904 441
Changes in assets and liabilities:
Accounts receivable 617 (1,367)
Inventories (2,348) (55)
Prepaid expenses and other assets (309) (284)
Other assets (1) 7
Accounts payable and accrued expenses (1,085) 860
Accrued payroll and benefits (180) 95
------- --------
Net cash provided by (used in) operating activities (2,677) 253
------- --------
Cash flows from investing activities:
Proceeds from sale of marketable securities 7,799 9,758
Purchases of marketable securities (5,260) (11,302)
Purchases of property and equipment (1,643) (556)
------- --------
Net cash provided by (used in) investing activities 896 (2,100)
------- --------
Cash flows from financing activities:
Issuance of common stock 329 250
------- --------
Net cash provided by financing activities 329 250
------- --------
Net change in cash and cash equivalents (1,452) (1,597)
Cash and cash equivalents at beginning of period 5,130 6,088
------- --------
Cash and cash equivalents at end of period $ 3,678 $ 4,491
======= ========
</TABLE>
See Notes to Condensed Financial Statements
5
<PAGE> 6
CHOLESTECH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. INTERIM RESULTS
The interim unaudited financial information of Cholestech Corporation
(the "Company") is prepared in conformity with generally accepted
accounting principles and such principles are applied on a basis
consistent with the audited financial information contained in the
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on May 5, 1998. The financial information included herein has
been prepared by management, without audit by independent accountants
who do not express an opinion thereon, and should be read in conjunction
with the audited financial statements contained in the Annual Report on
Form 10-K for the fiscal year ended March 27, 1998. The condensed
balance sheet as of March 27, 1998 has been derived from, but does not
include all the disclosures contained in, the audited financial
statements for the year ended March 27, 1998. The information furnished
includes all adjustments and accruals consisting only of normal
recurring accrual adjustments that are, in the opinion of management,
necessary for a fair presentation of results for the interim periods.
Certain information or footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
The interim results are not necessarily indicative of the results of
operations for the full fiscal year ending March 26, 1999.
Certain reclassifications have been made in the condensed statements of
operations for the thirteen and twenty-six weeks ended September 26,
1997 to conform to the fiscal 1999 presentation. Such reclassifications
had no effect on previously reported results of operations.
2. BALANCE SHEET DATA
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 25, 1998 MARCH 27, 1998
------------------ --------------
<S> <C> <C>
Raw materials $1,644 $1,292
Work-in-process 1,669 1,038
Finished goods 2,289 976
------ ------
$5,602 $3,306
====== ======
</TABLE>
3. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income (loss) available
to common shareholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period. Diluted
earnings per share gives effect to all potential Common Stock
outstanding during a period, if dilutive. In computing diluted earnings
per
6
<PAGE> 7
CHOLESTECH CORPORATION
share, the average stock price is used in determining the number of
shares assumed to be repurchased from the exercise of stock options.
A reconciliation of the basic and diluted earnings per share
calculations follows:
(In thousands except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
September 25, 1998 September 25, 1998
------------------------------ ----------------------------
Income Shares Per share Loss Shares Per share
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $307 11,473 $0.03 $(278) 11,473 $(0.02)
Effect of dilutive
securities 291 --
------------------------------ ----------------------------
Diluted EPS $307 11,764 $0.03 $(278) 11,473 $(0.02)
============================== ============================
</TABLE>
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
September 26, 1997 September 26, 1997
----------------------------- --------------------------
Income Shares Per share Income Shares Per share
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $437 11,260 $0.04 $556 11,253 $0.05
Effect of dilutive
securities 546 508
----------------------------- --------------------------
Diluted EPS $437 11,806 $0.04 $556 11,761 $0.05
============================= ==========================
</TABLE>
4. BORROWING ARRANGEMENTS
In December 1997, the Company renewed an agreement with Wells Fargo Bank
for a $3.0 million revolving line of credit (the "Line of Credit").
While the agreement is in effect, the Company is required to maintain on
deposit assets with a collective value, as defined in the Line of
Credit, equivalent to no less than 100% of the outstanding principle
balance. Amounts outstanding under the Line of Credit bear interest at
the bank's prime rate. The Line of Credit agreement expires on November
30, 1998 and is renewable. As of September 25, 1998, there were no
borrowings outstanding under the Line of Credit.
5. NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards Board
("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements
that is displayed with the same prominence as other financial
statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources, including
unrealized gains and losses on available-for-sale securities. For all
periods presented, comprehensive income (loss) approximated net income
(loss).
7
<PAGE> 8
CHOLESTECH CORPORATION
The Company adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" in the first quarter of fiscal 1999.
This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The adoption of SFAS No.
131 has not resulted in a change in the way the Company reports
information.
6. SHAREHOLDER RIGHTS PLAN
In January 1997, the Board of Directors approved a shareholder rights
plan under which shareholders of record on March 31, 1997 received a
right to purchase (the "Right") one-thousandth of a share of Series A
Participating Preferred Stock at an exercise price of $44.00, subject to
adjustment. The Rights will separate from the Common Stock and Rights
certificates will be issued and will become exercisable upon the earlier
of: (i) 10 days (or such later date as may be determined by a majority
of the Board of Directors) following a public announcement that a person
or group of affiliated or associated persons has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the
Company's outstanding Common Stock or (ii) 10 business days following
the commencement of, or announcement of an intention to make, a tender
offer or exchange offer, the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the
Company's outstanding Common Stock. The Rights expire on the earlier of
(i) January 22, 2007 or (ii) redemption or exchange of the Rights.
7. OTHER EVENTS
In June 1998, the Company cancelled its proposed common stock offering.
This led to a non-recurring net charge of approximately $325,000, or
$(0.03) per share (diluted) related to the write-off of the offering
expenses.
In May 1998, the Company settled an outstanding litigation with a former
employee of the Company. In accordance with the settlement, the Company
agreed to a settlement fee of $250,000, or $(0.02) per share (diluted),
which was charged to operating income in the quarter ended June 26,
1998.
8
<PAGE> 9
CHOLESTECH CORPORATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors discussed herein, under "General" and "Potential Factors Affecting
Future Operating Results." These forward-looking statements include, but are not
limited to, the statement under "General" that the Company incur negative cash
flows, as it expends manufacturing, research and development and sales and
marketing and pursues regulatory approvals for its products, the statement under
in the first paragraph under "Revenues" regarding the dollar amount and
proportion of international revenues may fluctuate from period to period, the
statement under "Research and Development" regarding the development of tests
for new disease states and the Company's anticipation that research and
development expenditures will increase, and the statement's in the second and
third paragraphs under "Liquidity and Capital Resources" that the capital
expenditures relating to expansion of manufacturing, research and development
and sales and marketing will increase and the Company's liquid assets and cash
from operations will be sufficient to meet its capital requirements for the
foreseeable future.
GENERAL
The Company develops, manufactures and markets the Cholestech L-D-X(R)
System which performs near-patient diagnostic screening and therapeutic
monitoring for the management of prevalent chronic diseases (preventive care
testing). The L-D-X System is capable of measuring multiple analytes
simultaneously with a single drop of whole blood within five minutes. The
Company currently markets the L-D-X System, including the L-D-X Analyzer and a
variety of single use test cassettes, to the physician office laboratory (POL),
pharmacy and health promotion markets, in the United States and internationally.
The Company has experienced significant operating losses and, as of September
25, 1998, had an accumulated deficit of $48.8 million. The L-D-X System,
including the L-D-X Analyzer (the Company's only product platform) and single
use test cassettes, will continue to account for substantially all of the
Company's revenues for the foreseeable future. In order for the Company to
increase revenues, sustain profitability and maintain positive cash flows from
operations, the L-D-X System must continue to gain market acceptance among
health care providers, particularly in POLs and pharmacies, to which the Company
has made only limited sales to date. The Company is developing certain
additional tests designed to extend the capabilities of the L-D-X System. The
Company believes that its future growth will depend, in part, upon its ability
to complete development of and successfully introduce these new tests. The
Company may incur negative cash flows from operations as it expands
manufacturing capacity for existing and new test cassettes, increases product
research and development efforts for new test cassettes, and expands sales and
marketing activities and pursues regulatory clearances and approvals. The
development and commercialization of new tests will require additional
development, sales and marketing, manufacturing and other expenditures. The
required level and timing of such expenditures will have an impact on the
Company's ability to maintain profitability and positive cash flows from
operations. The Company expects its product mix to change from time to time, and
these changes will affect the Company's revenues and operating results. For
example, the Company has entered the physician office laboratory ("POL") and
pharmacy markets recently. In its limited experience, the Company generally has
found that these markets use a higher proportion
9
<PAGE> 10
CHOLESTECH CORPORATION
of lipid profile cassettes for therapeutic monitoring purposes, which test
cassettes typically have higher selling prices and associated gross margins than
the Company's other tests. However, the Company has also experienced a
relatively lower rate of testing per day in these markets than in the health
promotion market.
RESULT OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 25, 1998 AND SEPTEMBER 26, 1997
AND
TWENTY-SIX WEEKS ENDED SEPTEMBER 25, 1998 AND SEPTEMBER 26, 1997
Revenues . During the thirteen weeks ended September 25, 1998, revenues
increased 12.8% to $6.1 million from $5.4 million in the thirteen weeks ended
September 26, 1997. The increase in revenues primarily reflects increased unit
sales of single use test cassettes and L-D-X analyzers to health care providers
in the POL and pharmacy markets. In the U.S. pharmacy market the Company began
marketing programs with McKession Drug Company, Bergen Brunswig and eight (8)
regional pharmacy distributors. During the thirteen weeks ended September 25,
1998 pharmacy sales representatives of distribution partners were trained and
each distributor took initial stocking orders. International revenues increased
by 91.8% or $461,000 from $502,000 to $963,000 for the thirteen weeks ended
September 25, 1998 compared to the same period in fiscal 1997. The increase in
international revenues reflects continued product demand in the European market.
The Company expects that the dollar amount and proportion of international
revenues may fluctuate from period to period.
During the first twenty-six weeks of fiscal 1999, revenues increased
$1.2 million (12.2%) to $10.8 million from $9.6 million in the first twenty-six
weeks of fiscal 1997. The increase in revenues primarily reflects increased unit
sales of single use test cassettes and L-D-X analyzers to health care providers
in the POL and pharmacy markets. During the first twenty-six weeks of fiscal
1999, international revenues increased $580,000 (64.7%) to $1.5 million from
$897,000 in the first twenty-six weeks of fiscal 1998. The increase in
international revenues reflects continued product demand in the European market.
Cost of Products Sold. Cost of products sold includes direct labor,
direct material, overhead and royalties. Cost of products sold increased 10.3%
to $3.0 million in the thirteen weeks ended September 25, 1998 of fiscal 1999
from $2.7 million in the thirteen weeks ended September 26, 1997, primarily as a
result of increased unit sales of single use test cassettes and the Cholestech
L-D-X Systems. Also, contributing was the lag in production of Cholestech L-D-X
analyzers due to a six week lead-time in the delivery of a Cholestech L-D-X raw
material. This delivery delay resulted in a loss of production time and
approximately $300,000 of unabsorbed overhead. Gross margin was 51.1% and 50.0%
in the thirteen weeks ended September 25, 1998 and the thirteen weeks ended
September 26, 1997, respectively. The improvement in gross margin was primarily
attributable to increased volume of single use test cassettes manufactured
without corresponding percentage increases in manufacturing costs, improving the
absorption of manufacturing overhead and reducing unit costs.
10
<PAGE> 11
CHOLESTECH CORPORATION
During the first twenty-six weeks of fiscal 1999, cost of products sold
increased $185,000 (3.9%) to $4.9 million from $4.7 million in the first
twenty-six weeks of fiscal 1998, as unit sales of disposable test cassettes and
the Cholestech L-D-X Systems. Also contributing was the lag in production of
Cholestech L-D-X analyzers due to a six week lead time in the delivery of a
Cholestech L-D-X raw material. This delivery delay resulted in a loss of
production time and approximately $300,000 of unabsorbed overhead. Gross margin
was 54.7% and 51.1% in the first twenty-six weeks of fiscal 1999 and 1998,
respectively. The improvement in gross margin was primarily attributable to
increased volume of single use test cassettes manufactured without corresponding
percentage increases in manufacturing costs, improving the absorption of
manufacturing overhead and reducing unit costs.
The Company has licensed certain technology used in the manufacturing of
its disposable cassette products. A related agreement, which expires in 2006,
requires the Company to pay a royalty of 2.0% on net sales of the applicable
products. Total royalty expenses in the thirteen weeks ended September 25, 1998
and September 26, 1997 were $101,000 and $152,000, respectively, and were
charged to cost of products sold. Total royalty expenses for the first
twenty-six weeks of fiscal 1999 and 1998 were $232,000 and $314,000,
respectively, and also were charged to cost of products sold.
Sales and Marketing Expenses. Sales and marketing expense includes
salaries, commissions, bonuses, expenses for outside services related to
marketing programs and travel expenses. Sales and marketing expense increased
30.4% to $1.8 million in the thirteen weeks ended September 25, 1998 from $1.4
million in the thirteen weeks ended September 26, 1997. This increase was
primarily attributable to continued expansion of the Company's domestic sales
and marketing programs to target customers and end-users and increased expenses
related to greater penetration of the physician office laboratory and pharmacy
markets. Sales and marketing expense increased to 29.8% of revenues in the
thirteen weeks ended September 25, 1998 from 25.8% in the thirteen weeks ended
September 26, 1997, primarily due to lower then anticipated revenue.
Sales and marketing expenses first twenty-six weeks of fiscal 1999 were
$3.5 million compared to $2.7 million for the first twenty-six weeks of fiscal
1998. These increases in sales and marketing expenses were attributable to
continued expansion of the Company's domestic sales and marketing organization,
increased expenses related to the continued penetration in the physician office
market, and, to a lesser extent, participation in domestic conferences and trade
shows. Sales and marketing expenses as a percentage of revenues increased to
31.9% for the first twenty-six weeks of fiscal 1999 from 27.6% for the first
twenty-six weeks of fiscal 1998, primarily due to lower then anticipated
revenue.
Research and Development Expenses. Research and development expense
includes salaries, bonuses, expenses for outside services, supplies and
amortization of capital equipment. Research and development expense increased
31.4% to $729,000 in the thirteen weeks ended September 25, 1998 from $555,000
in the thirteen weeks ended September 26, 1997. This increase was primarily
attributable to continued development of new single use test cassettes and
increase in headcount. Research and development expenses as a percentage of
revenues increased to 11.9% for the thirteen weeks ended September 25, 1998 from
10.3% for thirteen weeks ended September 26, 1997.
11
<PAGE> 12
CHOLESTECH CORPORATION
Research and development expenses for the first twenty-six weeks of
fiscal 1999 were $1.4 million compared to $1.1 million for the first twenty-six
weeks of fiscal 1998. The increases in research and development expense were
attributable to continued development of additional tests and an increase in
headcount. Research and development expenses as a percentage of revenues
increased to 13.2% for the first twenty-six weeks of fiscal 1999 from 11.0% for
the first twenty-six weeks of fiscal 1998.
The Company is currently developing additional tests for diagnostic
screening and therapeutic monitoring of osteoporosis, liver damage,
cardiovascular disease and diabetes. These new tests are in various stages of
development, and the Company will be required to undertake time consuming and
costly development activities and seek regulatory approval for these new tests
before such tests can be marketed. The Company believes that revenue growth, if
any, and future operating results will depend, in part, upon completing
development of and successfully introducing these tests. The Company currently
anticipates that the dollar amount of research and development expense will
increase in future periods as costs associated with product development and
manufacturing scale up efforts for new cassettes are incurred.
General and Administrative Expense. General and administrative expense
includes compensation, benefits and expenses for outside services. General and
administrative expense increased 33.5% to $646,000 in the thirteen weeks ended
September 25, 1998 from $484,000 in the thirteen weeks ended September 26, 1997.
This increase resulted primarily from an increased utilization of legal and
computer consultant's professional services and increased headcount. General and
administrative expenses increased to 10.6% of revenues in the thirteen weeks
ended September 25, 1998 from 8.9% in thirteen weeks ended September 26, 1997.
General and administrative expenses for the first twenty-six weeks of
fiscal 1999 were $1.1 million compared to $930,000 for the same period in fiscal
1998. This increase resulted primarily from an increased utilization of
professional services and increased headcount. General and administrative
expenses increased to 10.5% of revenues in the first twenty-six weeks of fiscal
1999 from 9.7% in the same period in fiscal 1998.
Other. Other expense for the thirteen weeks ended September 25, 1998 was
a credit of $175,000. This is primarily the result of the Company's management
negotiating a cost reduction in expenses associated with its withdrawn public
stock offering.
Other expenses for the first twenty-six weeks of fiscal 1999 of $575,000
reflect a non-recurring charge of approximately $325,000 due to the cancellation
of a proposed common stock offering and $250,000 due to settlement of litigation
involving a former employee.
Interest income (expense), net. Interest income reflects income from the
investment of cash balances and marketable securities. Interest income rose
52.3% to $262,000 in the thirteen weeks ended September 25, 1998 from $172,000
in the thirteen weeks ended September 26, 1997. This increase was primarily the
result of the mix of marketable securities invested in the thirteen weeks ended
September 25, 1998 compared to same period in fiscal 1998 and adjustments
relative to earned interest.
12
<PAGE> 13
CHOLESTECH CORPORATION
Interest income rose 55.1% to $456,000 in first twenty-six weeks in
fiscal 1999 from $294,000 for the same period in fiscal 1997. This increase was
primarily the result of the mix of marketable securities invested in the
thirteen weeks ended September 25, 1998 compared to same period in fiscal 1998.
Income Taxes. As the Company has significant net operating loss and tax
credit carryforwards, the provisions for income taxes for the thirteen weeks
ended September 25, 1998 and the thirteen weeks ended September 26, 1997 and the
twenty-six weeks ended September 25, 1998 and the twenty-six weeks ended
September 26, 1997 represent the estimated alternative minimum tax. Management
expects to utilize additional net operating loss and other tax carryforward
amounts to the extent income is earned during fiscal 1999. Accordingly, the
Company's estimated effective tax rate is expected to remain below the federal
statutory rate throughout fiscal 1999.
New Accounting Pronouncements. The Company adopted Statement of
Financial Accounting Standards Board ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements that is displayed with the same prominence as other
financial statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources, including unrealized
gains and losses on available-for-sale securities. For all periods presented,
comprehensive income (loss) approximated net income (loss).
The Company adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" in the first quarter of fiscal 1999. This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The adoption of SFAS No. 131 has not resulted in a change in the way
the Company reports information.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of
equity securities and, during fiscal 1998, from positive cash flows from
operations. From inception to September 25, 1998, the Company raised
approximately $70.2 million in net proceeds from equity financings. As of
September 25, 1998, the Company had approximately $10.8 million of cash, cash
equivalents and short-term marketable securities and an accumulated deficit of
$48.8 million. In addition, the Company has available a $3 million revolving
bank line of credit agreement. While the revolving line is in effect, the
Company is required to maintain on deposit assets with a collective value, as
defined in the line of credit agreement, equivalent to no less than 100% of the
outstanding principal balance. Amounts outstanding under the line of credit bear
interest at the bank's prime rate. The line of credit agreement expires on
November 30, 1998 and is renewable. As of September 25, 1998, there were no
borrowings outstanding under the line of credit.
Net cash used in operating activities was approximately $2.7 million
during the first twenty-six weeks of fiscal 1999 compared to net cash provided
by operating activities of $253,000 during the first twenty-six weeks of fiscal
1998. In the first twenty-six weeks of fiscal
13
<PAGE> 14
CHOLESTECH CORPORATION
1999, the net loss of $275,000, decrease in accounts payable and accrued
expenses of approximately $1.1 million and increase in inventory of
approximately $2.3 million were the primary factors contributing to cash used by
operating activities. In the first twenty-six weeks of fiscal 1998, net income
of $556,000 from product sales was the primary factor contributing to cash
provided by operating activities. Net cash provided by investing activities of
$882,000 in the first twenty-six weeks of fiscal 1999 resulted primarily from
the Company's sale of marketable securities. Net cash used in investing
activities of approximately $2.1 million in the first twenty-six weeks of fiscal
resulted from the Company's net purchases of marketable securities and property
and equipment. . The increase in purchases of property and equipment between the
two periods is primarily attributable to capital investments related to the
third manufacturing line. Net cash provided by financing activities of $329,000
in the first twenty-six weeks of fiscal 1999 and $250,000 in the first
twenty-six weeks of fiscal 1998 reflected the issuance of Common Stock pursuant
to the Company's stock incentive program and stock purchase plan. The Company
intends to expend substantial funds for capital expenditures related to
expansion of its manufacturing capacity, research and development, including
expansion of its product line and enhancement of its current products, expansion
of sales and marketing activities and other working capital and general
corporate purposes.
Despite the Company's cancellation of its proposed equity financing in
the first quarter of fiscal 1999, the Company believes that the Company's cash,
cash equivalents, marketable securities, cash flows anticipated to be generated
by future operations, and available bank borrowings under an existing line of
will be sufficient to meet its capital requirements for the foreseeable future.
However, there can be no assurance that the Company will not require additional
financing. For example, the Company may be required to expend greater than
anticipated funds if unforeseen difficulties arise in expanding manufacturing
capacity for existing cassettes or in the course of completing required
additional development, obtaining necessary regulatory approvals, obtaining
waived status under the Clinical Laboratory Improvement Amendments of 1988
("CLIA") or introducing or scaling up manufacturing for new tests. The Company's
future liquidity and capital requirements will depend upon numerous additional
factors, including: the costs and timing of expansion of manufacturing capacity;
the number and type of new tests the Company seeks to develop; the success of
these development efforts; the costs and timing of expansion of sales and
marketing activities; the extent to which the Company's existing and new
products gain market acceptance; competing technological and market
developments; the progress of commercialization efforts of the Company's
distributors; the costs involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims and other intellectual property rights; developments
related to regulatory and third party reimbursement matters and CLIA; and other
factors. In the event that additional financing is needed, the Company may seek
to raise additional funds through public or private financing, collaborative
relationships or other arrangements. Any additional equity financing may be
dilutive to shareholders, and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies, products or marketing territories. The failure of the Company
to raise capital on acceptable terms when needed could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Potential Factors Affecting Future Operating Results -- Possible Future
Capital Requirements; Uncertainty of Additional Funding."
14
<PAGE> 15
CHOLESTECH CORPORATION
POTENTIAL FACTORS AFFECTING FUTURE OPERATING RESULTS
UNCERTAINTY OF MARKET ACCEPTANCE OF THE L-D-X SYSTEM. The Cholestech L-D-X
System, including the L-D-X Analyzer (the Company's only product platform) and
single use test cassettes, will continue to account for substantially all of the
Company's revenues for the foreseeable future. In order for the Company to
increase revenues, sustain profitability and maintain positive cash flows from
operations, the L-D-X System must continue to gain market acceptance among
health care providers, particularly physician office laboratories (POLs) and
pharmacies, to which the Company has made only limited sales to date.
Physicians, pharmacists and other health care providers are not likely to use
the L-D-X System unless they determine that it is an attractive alternative to
other means of diagnostic screening or therapeutic monitoring of chronic
diseases. Such determination will depend, in part, upon the L-D-X System's
accuracy, ease of use, rapid test time, reliability and cost effectiveness, as
well as the availability and amount of third party reimbursement. Even if the
advantages of the L-D-X System in diagnosing and monitoring patients with
chronic diseases are established, health care providers may elect not to
purchase and use the L-D-X System for any number of reasons. For example,
physicians and other health care providers may not change their established
means of having such tests performed or may not make the necessary investment to
purchase the L-D-X Analyzer. In addition, the growing prevalence of managed care
may adversely affect the POL market. A growing number of physicians are salaried
employees and have no financial incentive to perform testing. Many managed care
organizations have contracts with laboratories, which require participating or
employed physicians to send patient specimens to contracted laboratories.
Finally, physicians are under growing pressure by Medicare and other third party
payors to limit their testing to "medically necessary" tests. Market acceptance
of the L-D-X System by pharmacists will in part depend on the continued
availability and amount of reimbursement to them for performing tests on the
L-D-X System. Even if the Company is successful in continuing to place L-D-X
Analyzers at POLs, pharmacies and other near-patient testing sites, there can be
no assurance that placement of L-D-X Analyzers will result in sustained demand
for the Company's single use test cassettes. As a result, there can be no
assurance that demand for the L-D-X System will be sufficient to sustain
revenues and profits from operations. Because the L-D-X System currently
represents the Company's sole product focus, the Company could be required to
cease operations if the L-D-X System does not achieve and maintain a significant
level of market acceptance.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY; FLUCTUATIONS IN
OPERATING RESULTS. The Company may experience significant fluctuations in
revenues and results of operations on a quarter to quarter basis in the future.
Quarterly operating results will fluctuate due to numerous factors, including:
(i) the timing and level of market acceptance of the L-D-X System; (ii) the
timing of the introduction and availability of new tests; (iii) the timing and
level of expenditures associated with development activities; (iv) the timing
and level of expenditures associated with expansion of sales and marketing
activities and overall operations; (v) the Company's ability to cost-effectively
expand cassette manufacturing capacity and maintain consistently acceptable
yields in the manufacture of cassettes; (vi) variations in manufacturing
efficiencies; (vii) the timing of establishment of strategic distribution
arrangements and the success of the activities conducted under such
arrangements; (viii) changes in demand for its products based on changes in
third party reimbursement, competition, changes in government regulation and
other factors; (ix) the timing of significant orders from and shipments to
15
<PAGE> 16
CHOLESTECH CORPORATION
customers; (x) product pricing and discounts; (xi) variations in the mix of
products sold; and (xii) general economic conditions. These factors are
difficult to forecast, and these or other factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
Fluctuations in quarterly demand for the Company's products may adversely affect
the continuity of the Company's manufacturing operations, increase uncertainty
in operational planning and/or affect cash flows from operations. The Company's
expenses are based in part on the Company's expectations as to future revenue
levels and to a large extent are fixed in the short term. As a result, if actual
revenues do not meet expectations, the Company's ability to adjust spending
levels in the short term will be limited and its business, financial condition
and results of operations could be materially adversely affected. In addition,
as a result of these fluctuations, it is likely that in some future period the
Company's results will not meet the expectations of public market security
analysts or investors. In such event, the trading price of the Common Stock
could be materially adversely affected.
DEPENDENCE ON DEVELOPMENT, INTRODUCTION AND MARKET ACCEPTANCE OF NEW
TESTS. The Company is at various stages of development of tests designed to
extend the capabilities of the L-D-X System. The Company believes that its
revenue growth and future operating results will depend, in part, upon its
ability to complete development of and successfully introduce these new tests.
The Company will be required to undertake time-consuming and costly development,
sales and marketing, manufacturing and other activities, as well as seek
regulatory approval for these new tests. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these new tests, that
regulatory clearance or approval of any new tests will be granted by the FDA or
the CDC (for CLIA waived status) on a timely basis, or at all, that the new
tests will adequately meet the requirements of the applicable market or achieve
market acceptance or that the Company will be able to achieve and maintain cost
efficient, high volume manufacturing capacity for any new tests. In July 1997,
the FDA approved the Company's request for clearance to market the Company's
BUN/Creatinine single use test cassette pursuant to Section 510(k) of the FDC
Act. In September 1997, the Company submitted to the CDC a request for CLIA
waiver for the use of the BUN/Creatinine test cassette with the L-D-X System.
The CDC has not yet acted upon the Company's request and because the CDC's
evaluation of applications for CLIA waived status is not based upon precisely
defined objectively measurable criteria, the Company cannot predict the
likelihood of obtaining waived status. In order to successfully commercialize
the BUN/Creatinine test cassette or other future tests in the United States, the
Company believes it is critical to obtain waived status under CLIA. In order to
successfully commercialize any new tests, including the BUN/Creatinine test
cassette, the Company will be required to establish and maintain reliable, cost-
efficient, high-volume manufacturing capacity for such tests. The Company has in
the past encountered difficulties in scaling up production of new test
cassettes, including problems involving production yields, quality control and
assurance, variations and impurities in the raw materials and performance of the
manufacturing equipment.
In May 1996, the Company entered into a development, marketing and
licensing agreement with Metra Biosystems to develop an immunoassay cassette
incorporating Metra Biosystems' bone resorption technology to be used on the
L-D-X System. Metra Biosystems has the right to terminate the agreement at any
time. If the Company is unable, for technological or other reasons, to complete
the development, introduction and scale up of manufacturing of any new tests, if
the Company fails to obtain regulatory approval for any such tests on a timely
basis or if
16
<PAGE> 17
CHOLESTECH CORPORATION
such new tests do not achieve a significant level of market acceptance, the
Company's business, financial condition and results of operations would be
materially adversely affected.
RISKS ASSOCIATED WITH CASSETTE MANUFACTURING. The Company internally
manufactures all of the single use test cassettes that are used with the L-D-X
Analyzer. The manufacture of the test cassettes is a highly complex and precise
process. Such manufacturing is sensitive to a wide variety of factors, including
raw material variations and impurities, manufacturing process variances,
manufacturing equipment performance and manufacturing environment contaminants.
The Company has in the past experienced lower than expected manufacturing yields
that have adversely affected gross margins and delayed product shipments. To the
extent that the Company does not maintain acceptable manufacturing yields of
test cassettes or experiences product shipment delays, the Company's business,
financial condition and results of operations would be materially adversely
affected. The Company's cassette manufacturing lines would be costly and time
consuming to repair or replace if their operation were interrupted. As the
Company's production levels have increased, the Company has been required to use
its machinery more hours per day and the down time resulting from equipment
failure has increased. The custom nature of much of the Company's manufacturing
equipment increases the time required to remedy equipment failures and replace
equipment. Furthermore, the Company has a limited number of employees dedicated
to the operation and maintenance of the cassette manufacturing equipment, the
loss of whom could impact the Company's ability to effectively operate and
service such equipment. The interruption of cassette manufacturing operations or
the loss of employees dedicated to the cassette manufacturing facility could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company manufactures all of the cassettes at its
Hayward, California manufacturing facility, and any prolonged inability to
utilize such facility as a result of earthquake, fire or otherwise would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company believes that it will be required to expand its
manufacturing capacity for new and existing test cassettes. The Company
currently operates two manufacturing lines for dry chemistry cassettes. The
Company is currently planning and building a third manufacturing line that the
Company anticipates will become operational in fiscal 2000. There can be no
assurance that such expansion of cassette manufacturing capacity can be
completed in a timely fashion, if ever, or that the Company would not need to
increase manufacturing capacity sooner. In addition, the custom nature of much
of the Company's manufacturing equipment increases the time required to expand
manufacturing capacity. The Company also will be required to build a new
cassette manufacturing line in order to manufacture the immunoassay test
cassettes under development. To date, the Company has not developed the
processes and production equipment necessary for an immunoassay cassette
manufacturing line. Failure to expand manufacturing capacity for dry chemistry
tests or to successfully develop an immunoassay cassette manufacturing line and
achieve acceptable yields could lead to an inability to satisfy customer orders
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON SUPPLIERS. Single source vendors currently provide certain
subassemblies, components and raw materials used in the manufacture of the
Company's products. Any supply interruption in a single source subassembly,
component or raw material could have a material
17
<PAGE> 18
CHOLESTECH CORPORATION
adverse effect on the Company's ability to manufacture products until a new
source of supply is identified and qualified. There can be no assurance that the
Company will be successful in qualifying additional sources of supply on a
timely basis, or at all, and failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, an uncorrected impurity or supplier's variation in a raw material,
either unknown to the Company or incompatible with the Company's manufacturing
process, could have a material adverse effect on the Company's ability to
manufacture products. Because the Company is a small customer of many of its
suppliers and purchases its subassemblies, components and materials on a
purchase order basis, rather than pursuant to long term commitments, there can
be no assurance that the Company's suppliers will devote adequate resources to
supplying the Company's needs. Any interruption or reduction in the future
supply of any subassemblies, components or raw materials currently obtained from
single or limited sources could have a material adverse effect on the Company's
business, financial condition and results of operations.
NEED TO MANAGE EXPANDING OPERATIONS. If the Company is successful in
achieving and maintaining market acceptance for the L-D-X System, the Company
will be required to expand its operations, particularly in the areas of sales
and marketing and manufacturing. As the Company expands its operations in these
areas, such expansion will likely result in new and increased responsibilities
for management personnel and place significant strain upon the Company's
management, operating and financial systems and resources. To accommodate any
such growth and compete effectively, the Company will be required to implement
and improve its information systems, procedures and controls, and to expand,
train, motivate and manage its work force. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's future operations. Any failure to implement and improve
the Company's operational, financial and management systems or to expand, train,
motivate or manage employees as required by future growth, if any, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE; DEPENDENCE ON
THIRD PARTY DISTRIBUTORS. In order for the Company to increase revenues and
sustain profitability, the L-D-X System must achieve a significant degree of
market acceptance among health care providers and third party payors. The
Company has only limited experience in marketing and selling to the therapeutic
monitoring market in the United States and relies on third party distributors in
this market. There can be no assurance that the Company will be able to maintain
its existing distribution relationships. The Company also will be required to
enter into additional distribution arrangements in order to achieve broader
distribution of its products, particularly into the pharmacy market. There can
be no assurance that the Company will be able to enter into and maintain such
arrangements on a timely basis, if at all. The Company is dependent upon such
distributors to assist it in promoting market acceptance of the L-D-X System. It
is uncertain whether distributors will devote the resources necessary to provide
effective sales and marketing support to the Company. In addition, the Company's
distributors may give higher priority to the products of other medical
suppliers, thus reducing their efforts to sell the Company's products. If the
Company is unable to establish appropriate arrangements with distributors, or if
any of the Company's distributors do not promote, market and sell the L-D-X
Analyzer and single use test cassettes, the Company's business, financial
condition and results of operations could be materially adversely affected.
18
<PAGE> 19
CHOLESTECH CORPORATION
UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT. In the United States,
health care providers that purchase products such as the L-D-X System generally
rely on third party payors, including private health insurance plans, federal
Medicare, state Medicaid and managed care organizations, to reimburse all or
part of the cost of the procedure in which the product is being used. The
Company's ability to commercialize its products successfully in the United
States will depend in part on the extent to which reimbursement for the costs of
tests performed with the L-D-X System and related treatment will be available
from government health authorities, private health insurers and other third
party payors. Third party payors can affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement provided for testing services. Reimbursement is currently not
available for certain uses of the Company's products in particular
circumstances. As a general rule, third party reimbursement is available if a
physician has been involved in the decision to perform the test involving the
Company's products. For example, if a physician prescribes a drug that requires
therapeutic monitoring, the use of the Company's products in performing such
tests will be reimbursable. In the health promotion market, use of the Company's
products for diagnostic screening in health promotion clinics is generally
subject to reimbursement. However, diagnostic screening preformed in corporate
wellness programs and at fitness centers is likely not subject to reimbursement.
Third party payors are increasingly scrutinizing and challenging the prices
charged for medical products and services. Decreases in reimbursement amounts
for tests performed using the Company's products may decrease the amounts that
physicians and other practitioners are able to charge patients, which in turn
may adversely affect the Company's ability to sell its products on a profitable
basis. In addition, certain health care providers are moving toward a managed
care system in which such providers contract to provide comprehensive health
care for a fixed cost per patient. Managed care providers are attempting to
control the cost of health care by authorizing fewer elective procedures, such
as the screening of blood for chronic diseases. The Company is unable to predict
what changes will be made in the reimbursement methods utilized by third party
payors. Inability of health care providers to obtain reimbursement from third
party payors or changes in government and third party payors' policies toward
reimbursement of tests employing the Company's products could have a material
adverse effect on the Company's business, financial condition and results of
operations. Additionally, the Company believes that the overall escalating cost
of medical products and services has led to and will continue to lead to
increased pressures on the health care industry, both domestic and
international, to reduce the cost of products and services, including products
offered by the Company. Market acceptance of the Company's products in
international markets is also dependent, in part, upon the availability of
reimbursement within prevailing health care payment systems. Reimbursement and
health care payment systems in international markets vary significantly by
country and include both government sponsored health care and private insurance.
There can be no assurance that third party reimbursement and coverage will be
available or adequate in either United States or international markets, that
current reimbursement amounts will not be decreased in the future or that future
legislation, regulation, or reimbursement policies of third party payors will
not otherwise adversely affect demand for the Company's products or the
Company's ability to sell its products on a profitable basis, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Political, economic and regulatory influences are pushing the health
care industry in the United States to fundamental change. The Company
anticipates that Congress, state legislatures
19
<PAGE> 20
CHOLESTECH CORPORATION
and the private sector will continue to review and assess alternative health
care delivery and payment systems. Potential approaches that have been
considered include mandated basic health care benefits, controls on health care
spending through limitations on the growth of private health insurance premiums
and Medicare and Medicaid spending, the creation of large insurance purchasing
groups, price controls and other fundamental changes to the health care delivery
system. Legislative debate is expected to continue in the future, and market
forces are expected to demand reduced costs. The Company cannot predict what
impact the adoption of any federal or state health care reform measures, future
private sector reform or market forces may have on its business.
GOVERNMENT REGULATION. The manufacture and sale of diagnostic products,
including the L-D-X System, are subject to extensive regulation by numerous
governmental authorities, principally the FDA and corresponding state and
foreign regulatory agencies. The Company will not be able to commence marketing
or commercial sales in the United States of any of the new tests it is
developing until it receives clearance or approval from the FDA. The process of
obtaining FDA and other required regulatory clearances and approvals is lengthy,
expensive and uncertain. As a result, there can be no assurance that any of the
Company's new tests under development, even if successfully developed, will ever
obtain such clearance or approval. Additionally, certain material changes to
medical products already cleared or approved by the FDA are also subject to
further FDA review and clearance or approval. The loss of previously obtained
clearances, or failure to comply with existing or future regulatory
requirements, could have a material adverse effect on the Company's business,
financial condition and results of operations. The L-D-X Analyzer and all
existing test cassettes required clearance pursuant to a 510(k) clearance.
Medical devices are subject to continual review, and later discovery of
previously unknown problems with a cleared product may result in restrictions on
the product's marketing or withdrawal of the product from the market. In
general, the Company intends to develop and market tests that will require
510(k) clearance. It generally takes from four to twelve months from the date of
submission to obtain 510(k) clearance, but it may take longer. The Company does
not believe that its products under development will require submission of a
Pre-Market Approval ("PMA") application. However, if a future product were to
require submission of a PMA application, regulatory approval of such product
would involve a much longer and more costly process than a 510(k) clearance and
would involve the submission of extensive supporting data and clinical
information. A PMA application may be submitted to the United States Food and
Drug Administration ("FDA") only after clinical trials and the required patient
follow-up for a particular test are successfully completed. Upon filing of a PMA
application, the FDA commences a review process that generally takes one to
three years from the date on which the PMA application is accepted for filing,
but may take significantly longer. There can be no assurance that the Company's
products under development will require only 510(k) clearance rather than the
more lengthy and costly PMA approval. A requirement that the Company file a PMA
application for any new test would significantly delay the Company's ability to
market such test and significantly increase the costs of development.
The European Union ("EU") has promulgated rules that require that
devices such as those developed, manufactured and sold by the Company receive
the right to affix the CE mark, a symbol of adherence to applicable EU
directives. The Company has completed all the testing necessary to comply with
applicable regulations to currently be eligible for self certification and
currently has the right, as self-certified under the product testing
requirements, to affix the CE mark to its products. The Company's products will
be covered by the In Vitro Diagnostics
20
<PAGE> 21
CHOLESTECH CORPORATION
Directives that have not yet been published or adopted. While the Company
intends to satisfy the requisite policies and procedures that will permit it to
continue to affix the CE mark to its products in the future, there can be no
assurance that the Company will be successful in meeting the EU certification
requirements, and failure to receive the right to affix the CE mark may prohibit
the Company from selling its products in EU member countries and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The use of the Company's products and those of its competitors is also
affected by federal and state regulations, which provide for regulation of
laboratory testing, as well as by the laws and regulations of foreign countries.
The scope of these regulations includes quality control, proficiency testing,
personnel standards and inspections. For example, in the United States, CLIA
categorizes tests as "waived," or as being "moderately complex" or "highly
complex" on the basis of specific criteria. In January 1996, the L-D-X Analyzer
and the Company's total cholesterol, HDL (high density lipoproteins),
triglycerides and glucose tests in any combination were classified as waived
under CLIA. In order to successfully commercialize the tests that are currently
under development, the Company believes that it will be critical to obtain
waived classification for such tests under CLIA. There can be no assurance that
any new tests developed by the Company, including the BUN/Creatinine test
cassette, will qualify for CLIA waived classification. Any failure of the new
tests to obtain waived status under CLIA will adversely impact the Company's
ability to commercialize such tests, which could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, there can be no assurance that any future amendment of CLIA or the
promulgation of additional regulations impacting laboratory testing will not
have an adverse effect on the Company's ability to market the L-D-X System. For
example, if CLIA regulations were modified in a manner that reduced regulatory
requirements and burdens faced by competitive products, certain competitive
advantages of the L-D-X System's waived status could be reduced or eliminated.
The Company's manufacturing processes, as well as, in certain instances,
those of its contract manufacturers, are subject to stringent federal, state and
local regulations governing the use, generation, manufacture, storage, handling
and disposal of certain materials and wastes. The Company and its contract
manufacturers must economically manufacture products in compliance with federal,
state and foreign regulations regarding the manufacture of health care products
and diagnostic devices, including QSR, and other foreign regulations and state
and local health, safety and environmental regulations, which include testing,
control and documentation requirements. Failure to comply with QSR,
ISO9001/EN46001 requirements and other applicable regulatory requirements by the
Company and in certain ISO9001/EN46001 certification regulations circumstances,
its contract manufacturers, including marketing products for unapproved uses,
could result in, among other things, warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, refusal of the government to grant pre-market clearance or
pre-market approval for devices, withdrawal of approvals and criminal
prosecution. Changes in existing regulations or adoption of new governmental
regulations or policies could prevent or delay regulatory approval of the
Company's products. There can be no assurance that the Company will not be
required to incur significant costs in the future in complying with
manufacturing and environmental regulations.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; UNCERTAINTY OF PATENT AND
PROPRIETARY TECHNOLOGY PROTECTION; DEPENDENCE ON LICENSING OF TECHNOLOGY FROM
THIRD PARTIES. The
21
<PAGE> 22
CHOLESTECH CORPORATION
Company's ability to compete effectively will depend in part on its ability to
develop and maintain the proprietary aspects of its technology and operate
without infringing the proprietary rights of others. The Company has nine United
States patents and has filed patent applications relating to its technology
internationally under the Patent Cooperation Treaty and individual foreign
patent applications. There can be no assurance that any of the Company's pending
patent applications will result in the issuance of any patents, or that, if
issued, any such patents will offer protection against competitors with similar
technology. There can be no assurance that any patents issued to the Company
will not be challenged, invalidated or circumvented in the future or that the
rights created thereunder will provide a competitive advantage. In addition,
there can be no assurance that competitors, many of which have substantially
greater resources than the Company and have made substantial investments in
competing technologies, will not seek to apply for and obtain patents covering
technologies that are more effective than the Company's technologies, that would
render the Company's technologies or products obsolete or uncompetitive or that
would prevent, limit or interfere with the Company's ability to make, use or
sell its products either in the United States or in international markets.
The medical products industry has been characterized by extensive
litigation regarding patents and other intellectual property rights. There can
be no assurance that the Company will not in the future become subject to patent
infringement claims and litigation or interference proceedings conducted in the
United States Patent and Trademark Office ("USPTO") to determine the priority of
inventions. The defense and prosecution of intellectual property suits, USPTO
interference proceedings and related legal and administrative proceedings are
both costly and time consuming. Litigation may be necessary to enforce any
patents issued to the Company, to protect trade secrets or know-how owned by the
Company or to determine the enforceability, scope and validity of the
proprietary rights of others. Any litigation or interference proceedings will
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties or require
the Company to seek licenses from third parties which may not be available on
commercially reasonable terms or at all.
The Company's current products incorporate technologies which are the
subject of patents issued to, and patent applications filed by, others. The
Company has obtained licenses for certain of these technologies and may be
required to obtain licenses for others. There can be no assurance that the
Company will be able to obtain licenses for technology patented by others on
commercially reasonable terms, or at all, that it will be able to develop
alternative approaches if unable to obtain licenses or that the Company's
current and future licenses will be adequate for the operation of the Company's
business. The failure to obtain such licenses or identify and implement
alternative approaches could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies upon trade secrets, technical know-how and
continuing invention to develop and maintain its competitive position, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its right to its trade secrets, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
22
<PAGE> 23
CHOLESTECH CORPORATION
HIGHLY COMPETITIVE INDUSTRY; RAPID TECHNOLOGICAL CHANGE. The markets for
diagnostic screening and therapeutic monitoring in which the Company operates
are intensely competitive. The Company's competition consists mainly of clinical
and hospital laboratories, as well as manufacturers of bench top analyzers. In
order to achieve market acceptance for the L-D-X System, the Company will be
required to demonstrate that the L-D-X System is an attractive alternative to
bench top analyzers as well as to clinical and hospital laboratories. This will
require physicians to change their established means of having such tests
performed. There can be no assurance that the L-D-X System will be able to
compete with these other testing services and analyzers. In addition, companies
having a significant presence in the market for therapeutic monitoring, such as
Abbott Laboratories, Clinical Diagnostic Systems, a division of Johnson &
Johnson and formerly a division of Eastman Kodak Company, and Boehringer
Mannheim, have developed or are developing analyzers designed for near-patient
testing. These competitors have substantially greater financial, technical,
research and other resources and larger, more established marketing, sales,
distribution and service organizations than the Company. In addition, such
competitors offer broader product lines than the Company, have greater name
recognition than the Company, and offer discounts as a competitive tactic. In
addition, several smaller companies are currently making or developing products
that compete or will compete with those of the Company.
The Company expects that its competitors will compete intensely to
maintain and increase market share and seek to develop similar multi-analyte
tests that qualify for CLIA waiver. There can be no assurance that these
competitors will not succeed in obtaining CLIA waived status for their products
or in developing or marketing technologies or products that are more effective
and commercially attractive than the Company's current or future products, or
that would render the Company's technologies and products obsolete or
noncompetitive. The Company's current and future products must compete
effectively with the existing and future products of the Company's competitors
primarily on the basis of ease of use, breadth of tests available, market
presence, cost effectiveness, precision, accuracy, immediacy of results and the
ability to perform tests near the patient, to test multiple analytes from a
single sample and to conduct tests without a skilled technician or pre-treating
blood. There can be no assurance that the Company will have the financial
resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future or, if the Company does have
such resources and capabilities, that it will employ them successfully.
DEPENDENCE ON ATTRACTION AND RETENTION OF KEY EMPLOYEES. The Company's
success depends in significant part upon the continued service of certain key
scientific, technical, regulatory and managerial personnel, and its continuing
ability to attract and retain additional highly qualified personnel in those
areas. Competition for such personnel is intense, and there can be no assurance
that the Company will be able to retain such personnel or that it can attract or
retain other highly qualified personnel in the future, including key sales and
marketing personnel. The loss of key personnel or the inability to hire or
retain qualified personnel could have a material adverse effect upon the
Company's business, financial condition and results of operations.
RISK OF PRODUCT LIABILITY; PRODUCT LIABILITY INSURANCE MAY BE
INSUFFICIENT OR UNAVAILABLE. Sale of the Company's products entails risk of
product liability claims. The medical testing industry has historically been
litigious, and the Company faces financial exposure to
23
<PAGE> 24
CHOLESTECH CORPORATION
product liability claims in the event that use of its products results in
personal injury or improper diagnosis. The Company also faces the possibility
that defects in the design or manufacture of its products might necessitate a
product recall. There can be no assurance that the Company will not experience
losses due to product liability claims or recalls in the future. The Company
currently maintains product liability insurance, but there can be no assurance
that the coverage limits of the Company's insurance policies will be adequate.
Such insurance is expensive and difficult to obtain, and no assurance can be
given that product liability insurance can be maintained in the future on
acceptable terms, in sufficient amounts to protect the Company against losses
due to product liability, or at all. Inability to maintain insurance at an
acceptable cost or to otherwise protect against potential product liability
could prevent or inhibit the continued commercialization of the Company's
products. In addition, a product liability claim in excess of relevant insurance
coverage or a product recall could have a material adverse effect on the
Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE RISKS. Cholestech has an ongoing program of
assessing the extent to which its internal systems and products evaluate date
information ("Year 2000 dependencies"), and, if so, whether they can properly
process and evaluate dates on or after the Year 2000 (whether they are "Year
2000 compliant"). The Company is taking remedial action where its systems and
products are not year 2000 compliant. The Company is also evaluating contingency
plans for continuing operations if Year 2000 problems arise despite its steps to
avoid them. The Company expects these activities to continue throughout fiscal
1999.
The Company believes that it has identified the Year 2000 dependencies
in its internal systems. It has examined all critical systems including
manufacturing, sales, development, communications and financial systems. It has
also examined many of its non-computer electronic devices that contain
microprocessors (for example, telephones, manufacturing machinery and security
systems). As these dependencies have been identified, Cholestech has been taking
the remedial measures it believes are necessary for its internal systems to be
Year 2000 compliant. These measures have included establishing a Year 2000 Task
Force, increase awareness/communication of the Year 2000 issues, inventory the
Company's systems and equipment, assessment of the inventory and implementation
and review of remediated systems and equipment. The Company is not currently
aware of any Year 2000 dependencies in its internal systems that could have a
material impact on its business should the Company fail to make such systems
Year 2000 compliant. The Company is also not aware of any material operational
issues or costs associated with preparing its internal systems for the Year
2000. However, no assurances can be given that Cholestech will not experience
unanticipated material costs caused by undetected errors or defects in its
internal systems. Delays in implementation of new information systems and a
failure to identify and remediate all of its Year 2000 dependencies could result
in material adverse consequences to the Company's business, prospects and
results of operations.
Cholestech has also taken measures to ensure that its products are Year
2000 compliant. At this time, the Company believes that its products are Year
2000 compliant. However, the L-D-X System contains software that may be used to
integrate test results with an end user's medial records system. It is likely
that, commencing in the Year 2000, the functionality of certain medical records
systems will be adversely affected when one or more component products of such
systems are unable to process four digit characters representing years and,
24
<PAGE> 25
CHOLESTECH CORPORATION
therefore, the medical records system would not be Year 2000 compliant. The
inability of the L-D-X System to properly manage and manipulate financial
condition and results of operations, including increased warranty costs,
customer satisfaction issues and potential lawsuits. Although the Company
believes its products are Year 2000 complaint, the Company anticipates that
substantial litigation may be brought against vendors of all component products
provided by the Company. The Company believes that any such claims, with or
without merit, could have a material adverse effect on the Company's business,
financial condition and results of operations.
Cholestech has incurred and will incur various costs to conduct testing
and modification of its products and to provide customer support services
regarding Year 2000 issues. It also anticipates that these costs will continue
through fiscal year 1999 and thereafter.
Additionally, parties with whom the Company does business may not be in
Year 2000 compliance, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Cholestech is
working with the key suppliers of products and services used in determining
whether their systems, products and services are Year 2000 compliant. The
Company is also attempting to monitor their progress toward Year 2000
compliance. This investigational and monitoring process has included
questionnaires that the Company has sent to the organizations with which the
Company conducts a material amount of business. The Company expects these
efforts to continue for the foreseeable future. Even if the Company identifies
Year 2000 dependency problems in its key vendors or suppliers their can be no
assurance that such dependencies will be remediated or that the company would be
able to establish alternative business relationships in a timely fashion, on
acceptable terms or at all. The failure to correct these dependencies or find
alternative relationships could have a material adverse effect on the Company's
business, financial condition and results of operations.
To date, the Company has incurred costs related to its Year 2000
Readiness Program of approximately $150,000. In fiscal year 1999, these costs
are estimated to be approximately $200,000. This estimate is based on a current
assessment and is subject to change as the Company's Year 2000 readiness program
progresses. The predominant portion of the costs incurred to date, as well as
those expected to be incurred, relate to assessment phase of the Company's Year
2000 readiness program. This estimate does not include potential costs related
to customer or other claims, or costs related to internal software and hardware
replaced in the normal course of business.
Cholestech currently expects that the Year 2000 issue will not pose
significant internal, operational problems. However, a delay in implementing new
information systems, or a failure to fully identify all Year 2000 dependencies
in the Company's internal systems or in the systems of its suppliers and
distribution partners could have material adverse consequences, including delays
in the delivery or sale of products. Therefore, the Company is developing
contingency plans for continuing operations should these types of problems
arise. The Company believes that its contingency planning will be completed by
March 1999.
Cholestech believes that the purchasing patterns of its customers and
potential customers may also be affected by the Year 2000 issues as they expend
significant resources to bring their current software systems into Year 2000
compliance. These expenditures could result in reduced funds available to
purchase products such as those offered by the Company. This could have a
material adverse effect on the Company's business, operating results or
financial condition.
25
<PAGE> 26
CHOLESTECH CORPORATION
POSSIBLE FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING.
The Company intends to expend substantial funds for capital expenditures related
to expansion of its manufacturing capacity, research and development, including
expansion of its product line and enhancement of its current products, expansion
of sales and marketing activities and other working capital and general
corporate purposes. Although the Company believes that the Company's cash, cash
equivalents, marketable securities, cash flow anticipated to be generated by
future operations and available bank borrowings under an existing line of credit
will be sufficient to meet its capital requirements for the foreseeable future,
there can be no assurance that the Company will not require additional
financing. For example, the Company may be required to expend greater than
anticipated funds if unforeseen difficulties arise in expanding manufacturing
capacity for existing cassettes or in the course of completing required
additional development, obtaining necessary regulatory approvals, obtaining
waived status under CLIA or introducing or scaling up manufacturing for new
tests. The Company's future liquidity and capital requirements will depend upon
numerous additional factors, including: the costs and timing of expansion of
manufacturing capacity; the number and type of new tests the Company seeks to
develop; the success of these development efforts; the costs and timing of
expansion of sales and marketing activities; the extent to which the Company's
existing and new products gain market acceptance; competing technological and
market developments; the progress of commercialization efforts of the Company's
distributors; the costs involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims and other intellectual property rights; developments
related to regulatory and third party reimbursement matters and CLIA; and other
factors. In the event that additional financing is needed, the Company may seek
to raise additional funds through public or private financing, collaborative
relationships or other arrangements. Any additional equity financing may be
dilutive to shareholders, and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies, products or marketing territories. The failure of the Company
to raise capital on acceptable terms when needed could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that such financing, if required, will be available on
satisfactory terms, or at all. See "o Liquidity and Capital Resources."
ANTI-TAKEOVER PROVISIONS. The Company's Board of Directors (the "Board")
has the authority to issue up to 5,000,000 shares of preferred stock and to
determine the rights, preferences, privileges and restrictions of such shares
without any further vote or action by the Company's shareholders. To date, the
Board has designated 25,000 shares as Series A Participating Preferred Stock
("Series A Preferred") in connection with the Company's Preferred Share Purchase
Rights Plan. The issuance of preferred stock under certain circumstances could
have the effect of delaying or preventing a change in control of the Company or
otherwise adversely affecting the rights of the holders of Common Stock.
Pursuant to the Company's Preferred Shares Rights Agreement (the "Rights
Agreement") each share of Common Stock carries a right (a "Right") which
entitles the registered holder to purchase from the Company one-thousandth of a
share of Series A Preferred at an exercise price of $44.00, subject to
adjustment. The Rights are designed to protect and maximize the value of the
outstanding equity interests in the Company in the event of an unsolicited
attempt by an
26
<PAGE> 27
CHOLESTECH CORPORATION
acquiror to take over the Company, in a manner or on terms not approved by the
Board. The Rights have been declared by the Board in order to deter coercive
tactics, including a gradual accumulation of shares in the open market, of a 15%
or greater position to be followed by a merger or a partial or two-tier tender
offer that does not treat all shareholders equally. The Rights should not
interfere with any merger or other business combination approved by the Board.
However, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board. The
Rights may cause substantial dilution to a person or group attempting to acquire
the Company on terms or in a manner not approved by the Board, except pursuant
to an offer conditioned upon the negation, purchase or redemption of the Rights.
POTENTIAL VOLATILITY OF STOCK PRICE. The market price of the Common
Stock, like that of the common stock of many other medical products and
technology companies, has in the past been, and is likely in the future to
continue to be, highly volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new commercial
products by the Company or its competitors, government regulation, changes in
the current structure of the health care financing and payment systems and
developments in or disputes regarding patent or other proprietary rights may
have a significant effect on the market price of the Common Stock. Moreover, the
stock market has from time to time experienced extreme price and volume
fluctuations, which have particularly affected the market prices for medical
products and high technology companies and which have often been unrelated to
the operating performance of such companies. These broad market fluctuations, as
well as general economic, political and market conditions, may adversely affect
the market price of the Common Stock. In the past, following periods of
volatility in the market price of a company's stock, securities class action
suits have been filed against the issuing company. There can be no assurance
that such litigation will not occur in the future with respect to the Company.
Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
on the Company's business, financial condition and results of operations. Any
adverse determination in such litigation could also subject the Company to
significant liabilities.
ABSENCE OF DIVIDENDS. The Company has never declared or paid any cash dividends
since its inception. The Company currently expects to retain future earnings, if
any, to finance the growth and development of its business and, therefore, does
not anticipate declaring or paying any cash dividends in the foreseeable future.
27
<PAGE> 28
CHOLESTECH CORPORATION
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 20, 1998, the Company held its 1998 Annual Meeting of
Shareholders. The following is a brief description of each matter voted upon at
the meeting and a statement of the number of votes cast for, against or withheld
and the number of abstentions and the number of broker non-votes with respect to
each matter.
1. The shareholders elected the following Directors:
<TABLE>
<CAPTION>
Nominee In Favor Withheld
---------------------- ---------- --------
<S> <C> <C>
Dr. Harvey S. Sadow 10,178,542 323,111
Warren E. Pinckert, II 10,185,499 316,154
Joseph Buchman, M.D. 10,385,964 115,689
John L. Castello 10,378,231 123,422
John H. Landon 10,371,465 130,188
H.R. Shepherd 10,377,744 123,909
Larry Y. Wilson 10,381,371 120,282
</TABLE>
2. The shareholders approved the amendment of the Company's 1997
Stock Incentive Program to increase the annual non-discretionary
grant under such plan to the Chairman of Board of Directors of
the Company to 20,000 shares of common stock per annum.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote
--------- ------- ------- ---------------
<S> <C> <C> <C> <C>
8,827,984 1,287,613 171,409 214,617
</TABLE>
3 The shareholders ratified the appointment of
PriceWaterhouseCoopers LLP as independent public accountants of
the Company for the fiscal year ending March 26, 1999.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote
---------- ------- ------- ---------------
<S> <C> <C> <C> <C>
10,448,844 26,860 25,949 0
</TABLE>
28
<PAGE> 29
CHOLESTECH CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(b)
<TABLE>
<S> <C>
10.21.1 Distribution Agreement between registrant and McKesson
Drug Company dated August 18, 1998.
10.21.2 Distribution Agreement between registrant Bergen
Brunswig Drug dated July 20, 1998.
10.3.2 Standard Industrial Sublease Agreement between
Registrant and Schlumberger Resource Management
Services, Inc. dated August 5, 1998.
10.3.3 Consent to Sublease Agreement between Registrant and
Spieker Properties, L.P. dated August 5, 1998.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended September 26, 1998.
29
<PAGE> 30
CHOLESTECH CORPORATION
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.
CHOLESTECH CORPORATION
Date November 6, 1998 /s/ Warren E. Pinckert II
-------------------- -------------------------------------
Warren E. Pinckert II
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Andrea J. Tiller
-------------------------------------
Andrea J. Tiller
Vice President of Finance and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
30
<PAGE> 31
EXHIBIT INDEX
Exhibit No. Description
----------- -------------
10.21.1 Distribution Agreement between registrant and McKesson
Drug Company dated August 18, 1998.
10.21.2 Distribution Agreement between registrant Bergen
Brunswig Drug dated July 20, 1998.
10.3.2 Standard Industrial Sublease Agreement between
Registrant and Schlumberger Resource Management
Services, Inc. dated August 5, 1998.
10.3.3 Consent to Sublease Agreement between Registrant and
Spieker Properties, L.P. dated August 5, 1998.
27.1 Financial Data Schedule.
<PAGE> 1
EX. 10.21.1
[CHOLESTECH LOGO]
CHOLESTECH CORPORATION
DISTRIBUTION AGREEMENT
This Distribution Agreement (this "Agreement") is made and entered into on the
day of JULY 6, 1998 ("Effective Date") by and between MCKESSON DRUG COMPANY,
ONE POST STREET, SAN FRANCISCO, CA 94104 (the "DISTRIBUTOR") and Cholestech
Corporation ("Manufacturer"), having its principal place of business at 3347
Investment Blvd, Hayward, California 94545.
In consideration of mutual covenants contained herein, and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereby agree as follows.
1. APPOINTMENT
(a) Subject to the terms and conditions set forth herein, the Manufacturer
hereby appoints the DISTRIBUTOR as the Manufacturer's authorized distributor
for a period of one year from JULY 6, 1998 unless otherwise terminated pursuant
to Section 12. The appointment is on a non-exclusive basis in the United States
for sale of the Manufacturer's Product(s), (the "Products") listed on
Attachment A, as amended from time to time pursuant to Section 2(b) for use
solely in the United States and solely by such retail pharmacies.
2. TERMS OF PURCHASE FOR DISTRIBUTOR
(a) All purchases by the DISTRIBUTOR from Manufacturer during effective period
of Agreement shall be subject to the terms and conditions of this Agreement.
(b) Price: The purchase price to the DISTRIBUTOR for the Product(s) shall be
price set forth in the Manufacturer's McKesson's Price List which shall be
updated and delivered to the DISTRIBUTOR from time to time, attached to this
Agreement as Attachment A. The Manufacturer agrees to provide DISTRIBUTOR with
a new price list (as modified in Attachment B) announcing a price increase at
least sixty (60) days prior to the effective date thereof.
Product prices do not include local, sales, use, exercise, customs, export,
import, or similar taxes, license fees or other charges incident of the
purchase of products by DISTRIBUTOR, which shall be paid by the DISTRIBUTOR. In
lieu thereof, the DISTRIBUTOR may provide the Manufacturer with a tax-exempt
certification acceptable to the appropriate taxing authorities. The DISTRIBUTOR
shall also pay all fees, assessments and taxes levied against Products in the
DISTRIBUTOR's possession.
(c) Orders: All purchase orders of DISTRIBUTOR shall be subject to acceptance
by Manufacturer at Hayward, California. DISTRIBUTOR may use its standard
purchase order form to order Product(s); however, the terms and conditions of
this Agreement shall supersede any different, conflicting, or additional terms
on purchase orders submitted on the DISTRIBUTOR forms. Each purchase order
shall be at least $300.00 (minimum order), or pay a minimum of $300.00 for each
order totaling less than $300.00.
<PAGE> 2
Orders entered by the DISTRIBUTOR under this Agreement shall specify;
(a) Description of Products, inclusive to any of the Manufacturer's
numerical/alphabetical identification;
(b) requested delivery date;
(c) applicable price (denominated in United States dollars);
(d) location to which the Products are to be shipped;
(e) location to which invoices shall be rendered for payment; and
(f) any other ordering procedures established by the Manufacturer from
time to time.
(d) Terms of payment to the Manufacturer shall be: Net thirty (30) days after
shipment by the Manufacturer and shall be in United States dollars. A 1.5%
monthly interest rate, or the maximum rate allowed by law, whichever is less
shall be applied to all outstanding balances not paid within rate allowed by
law, whichever is less shall be applied to all outstanding balances not paid
within such thirty (30) days. If the DISTRIBUTOR should default or if its
financial condition shall at any time be deemed impaired or unsatisfactory by
the Manufacturer, in its reasonable discretion, the Manufacturer shall have the
right to cancel any order, delay any shipments, and require cash.
(e) Shipping: The terms of shipping shall be "FOB Hayward, California". If the
DISTRIBUTOR requests a drop shipment to a customer, the entire cost of
transportation designated by the DISTRIBUTOR shall be borne by the DISTRIBUTOR.
Additionally, Manufacturer, may in its sole discretion, add an additional 6% of
the invoice amount as a drop ship fee.
(f) Intent: Product is sold to the DISTRIBUTOR for the sole purpose that it
then be sold by the DISTRIBUTOR directly to end-use consumers of the Product.
The DISTRIBUTOR shall not sell the Product(s) to any person or entity that is
not such an end-user consumer without prior written consent by Manufacturer. No
product may be sold by the DISTRIBUTOR for subsequent transport outside of the
United States, except when sold to an agency of the United States government.
(g) The DISTRIBUTOR shall make every reasonable effort to meet the annual
minimum purchase targets as defined in Attachment C ("Minimum Purchase
Targets"). Failure of the DISTRIBUTOR to meet the Minimum Purchase Targets
shall entitle the Manufacturer to alter the Prices set forth in Attachment A
effective immediately and notwithstanding the 60 day time period provided for
in section 2(b).
2
<PAGE> 3
3. WARRANTY
(a) The Manufacturer hereby represents and warrants to DISTRIBUTOR that:
(i) The Manufacturer will convey to the DISTRIBUTOR good title to the
Product(s) free and clear of all security interests, liens or other
encumbrances of any kind or character.
(ii) The Manufacturer has manufactured, packaged and is selling the
Product(s) to DISTRIBUTOR in material compliance with all applicable
federal, state and local laws, rules and regulations. The Manufacturer
has notified DISTRIBUTOR as to the identity of Products(s), via copies
of the Materials Safety Data Sheets, which Product(s) when disposed of
will constitute "hazardous waste", under regulation (the
"Regulations") promulgated by the Environmental Protection Agency
under Subpart C of the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1916, as amended.
(iii) The Product(s) will conform in all material respects to the
Manufacturer's specifications until the expiration date listed on the
label. This warranty is contingent upon proper use of the Product(s)
in the application for which the Product(s) are intended and does not
cover Product(s) that were modified without the Manufacturer's
approval or that were subjected by DISTRIBUTOR or end-user customer to
shipment, storage, or use conditions other than recommended by the
Manufacturer.
(b) The DISTRIBUTOR represents and warrants that:
(i) It holds all necessary federal, state, and local licenses and permits
for the DISTRIBUTOR to distribute the Products in the United States in
accordance with applicable law;
(ii) There are no actions or proceedings pending or contemplated within the
knowledge of the DISTRIBUTOR that would in any way jeopardize any such
licenses or permits; and
(iii) It has all corporate authority to perform this Agreement and that such
performance will not violate any agreement to which it is a party.
4. ADDITIONAL OBLIGATIONS OF DISTRIBUTOR
The DISTRIBUTOR shall at its own expense, unless otherwise stated, and
consistent with the sales policies of the Manufacturer:
(a) Exert its commercial best efforts to sell and actively promote sales of the
Product(s), solicit and obtain orders for the Product(s) and provide
reasonable cooperation with the Manufacturer in carrying out promotional
programs.
(b) Comply with all applicable laws, ordinances and regulations pertaining to
responsibilities of a medical device distributor, including without
limitation, the Food, Drug, and Cosmetic Act, Hazardous Substance Act,
Clinical Laboratory Improvement Act of 1967, Clinical Laboratory Amendment,
of 1988, Medical Device Amendments of 1976, and the Safe Medical Devices
Act of 1990. Hold a valid resale permit or license, comply with Medical
Device reports requirements applicable to a wholesale distributor, if any,
pertaining to the reporting of adverse events and device deficiencies.
(c) Promptly refer all written and oral complaints concerning the Products to
Manufacturer and keep a record of all such complaints.
(d) Use reasonable efforts to maintain an adequate inventory of the Product(s)
to prevent back orders for the Product(s). Submit a written rolling annual
forecast on a quarterly basis.
3
<PAGE> 4
(e) Not use any trademark, trade name, or logo of the Manufacturer except as
provided in this Agreement without prior written approval from the
Manufacturer which can be revoked at any time for any reason or no reason.
DISTRIBUTOR may affix its name, address and telephone number to
Manufacturer's package or literature so long as the affixed material does
not obliterate or obscure any information placed thereon by the
Manufacturer.
(f) Distributor will make no representations or warranties or claims with
respect to Products other than those specifically authorized by
Manufacturer.
(g) Keep track of each individual sale for each Product to each customer and
shall provide to the Manufacturer, as mutually agreed by the parties,
point of sale information.
(h) Not relabel any Product, substitute, remove or modify any components of
any Product, unseal or open any packaged product or otherwise tamper with
any of the Products, unless mutually agreed to in writing by the parties.
5. ADDITIONAL OBLIGATIONS OF THE MANUFACTURER
The Manufacturer shall:
(a) Promptly after each request, provide the DISTRIBUTOR with marketing and
technical information concerning the Product(s) and reasonable amounts of other
printed material for the use and information of the DISTRIBUTOR'S customers.
Manufacturer will at the Manufacturer's sole expense make available to
DISTRIBUTOR training programs sponsored by the Manufacturer in connection with
the Product.
(b) Minimize delivery time to the extent reasonably possible and use its
commercially reasonable efforts to fulfill delivery obligations arising from
acceptances of purchase orders.
(c) Attend DISTRIBUTOR'S sales/marketing meetings of the DISTRIBUTOR and its
agents and employees on a timely basis, at the discretion of DISTRIBUTOR.
(d) Provide to the DISTRIBUTOR reasonable assistance with sales efforts and
inventory control programs related to the Product(s).
DISTRIBUTOR shall inspect all goods promptly upon receipt. In the event that
any of the Products when delivered to DISTRIBUTOR, do not conform to
Manufacturer's warranty as set forth in Section 3(c) hereof, or such Products
or their packaging is damaged, recipient shall notify Manufacturer as to such
condition in writing, and shall provide Manufacturer with a reasonable
opportunity to inspect such Product(s). DISTRIBUTOR'S failure to discover
non-conforming Products or to notify Manufacturer shall not negate
Manufacturer's warranties set forth in this Agreement or in any other written
Manufacturer document. If DISTRIBUTOR does not reject a shipment of Product(s),
within Five (5) days of delivery to the end user, such shipment will be deemed
to have been accepted. Manufacturer shall either replace or shall refund the
invoice price associated with any Products which do not conform to
Manufacturer's warranty, upon the return of such Products to Manufacturer under
written authorization of Manufacturer.
4
<PAGE> 5
All transportation charges for the return of such Products shall be paid by
Manufacturer, if the Manufacturer's inspection confirms that such Product(s) do
not conform to the warranty in Section 3(c). Payment for the Product(s) prior to
inspection by recipient shall not constitute acceptance thereof and is without
prejudice to any claims that recipient may have against Manufacturer under this
Section 5.
6. RETURNED PRODUCTS
(a) Pre-authorized Returns: In the event that (I) the Manufacturer fails to
correctly process the DISTRIBUTOR'S order for the Product(s), or (II) Product(s)
are unsalable due to being obsolete upon receipt by Distributor, or (III) the
Product(s) are subject to an injunction or governmental order or regulation
which substantially limits the marketability of the Product(s), or (IV) the
marketability of the Product(s) is limited as a result of an act or omission of
the Manufacturer, or (V) upon receipt, the Products are subject to expiration
dating and have a remaining "shelf life" of less than 60% (limited to Product(s)
with ninety (90) days "shelf life" or greater), or the Product(s) are rejected
in accordance with Section 5, above, then DISTRIBUTOR shall have the right to
return the affected Product(s) to the Manufacturer and receive replacement of
such Product(s), or, in the event that the Manufacturer determines in good faith
that the Product(s) cannot be replaced, the DISTRIBUTOR will receive a refund of
the invoice amount for such Product(s). All transportation charges resulting
from the return of Product(s) to the Manufacturer pursuant to section 6(a) shall
be paid by the Manufacturer.
(b) Other Returns: The DISTRIBUTOR shall otherwise not have the right to
return the Product(s) to the Manufacturer, without the written authorization of
the Manufacturer. The Manufacturer will accept return only on Product(s)
authorized by the Manufacturer in writing to be returned.
7. EXCUSABLE DELAYS
The Manufacturer will fill routine orders within 5 days. For unusually large
orders of any Product(s), greater than the last 3 months orders combined from
DISTRIBUTOR, the Manufacturer will fill the order within 21 days. For
instrument orders larger than 250 units, the Manufacturer requires a sixty (60)
day lead time notification. The Manufacturer shall not be charged with any
liability for delay or non-delivery of Product(s) when due to delays of
suppliers, acts of God or the public enemy, compliance in good faith with any
applicable foreign or domestic governmental regulation or order, whether or not
proven to be valid, riots, labor disputes, unusually severe weather or any
other causes beyond the reasonable control of the Manufacturer, only during the
period such condition continues and the reasonable period thereafter necessary
for the Manufacturer to recover from the effects thereof (including without
limitation repair or replacement of facilities and equipment and the
fulfillment of unfulfilled orders). The Manufacturer shall give DISTRIBUTOR
written notification of any material or indefinite delay due to such causes. In
the event of demand which exceeds the Manufacturer's ability to meet such
demand for Product(s), Manufacturer may allocate the supply of Product(s) among
its customers in the manner deems most appropriate.
8. DISCLAIMER
The warranties extended from Manufacturer to DISTRIBUTOR are limited to the
express warranties set forth in Section 3 and 5 above and such other warranties
as described in such Sections. The Manufacturer discloses all other warranties,
expressed or implied, including, but not limited to, the implied warranties of
merchantability and fitness for a particular purpose.
5
<PAGE> 6
9. LIMITATION OF LIABILITY
Manufacturer disclaims liability for all consequential damages in any form,
even though Manufacturer may have been advised or may otherwise know of
possibility of such damages, except as otherwise expressly provided for in this
Agreement, provided, however, the foregoing shall not limit in any way
Manufacturer's indemnity set forth in Section 11(a) in respect of third party
claims. Nothing in this Agreement shall make Manufacturer liable beyond the
expressed limitations of this warranty (Section 9), including any claims for
breach of contract, lost receipts or profits, business interruptions, or any
other tangible business loss, except as otherwise expressly provided for in
this Agreement. DISTRIBUTOR shall not be liable to Manufacturer for any
incidental or consequential damages including lost profits from any cause,
except as otherwise expressly provided for in this Agreement.
10. CONFIDENTIALITY
Except as expressly otherwise provided in this Agreement, during the term
hereof and for five (5) years from the date this Agreement expires or
terminates, each party shall hold in confidence and not use or disclose to any
third party (other than employees of such party similarly bound, provided such
disclosure is in furtherance of this Agreement) any product, technical,
marketing, financial, business or other proprietary information of the other
that is noted as "Confidential" at the time of disclosure (and promptly reduced
to writing if orally disclosed) and labeled as "Confidential" obtained by such
parties pursuant to this Agreement
Nothing contained herein will in any way restrict or impair either party's
right to use, disclose, or otherwise deal with any confidential information
which at the time of its receipt:
(a) is generally available in the public domain, or thereafter becomes
available to the public through no improper act of the receiving party; or
(b) is known to recipient at the time the information is received or becomes
known to recipient from a source other than the discloser, which source did not
receive such information directly or indirectly from the discloser; or
(c) is furnished by the discloser to others, without restrictions as to the
other recipient's right to use or disclose; or
(d) is approved for release in writing by the discloser; or
(e) is independently discovered, created, or developed by recipient; or
(f) is required to be disclosed by law or a valid order of court, providing that
the party disclosing such information seeks confidential treatment of
information so disclosed, to the extent available.
11. INDEMNIFICATION
(a) The Manufacturer hereby agrees to defend, indemnify and hold harmless
DISTRIBUTOR, its customers, agents, affiliates and subsidiaries, and the
officers, directors, and employees of each of them (collectively "Indemnities")
from and against any and all damages, losses, expenses, costs, claims, judgments
and liabilities, including reasonable attorney's fees, incurred by any of the
indemnities except to the extent caused by the negligence, recklessness or
willful misconduct of the respective indemnities arising from or in connection
with (i) ("Claims") that indemnities possession, use, promotion, marketing,
distribution, sale, or delivery of the Product(s) constitutes unfair trade
competition or the infringement of any invention or invasion of the proprietary
rights of any third party, including without limitation, the infringement of any
rights of third parties under laws relating to trademarks, trade names, trade
secrets, copyrights, patents or the violation of any
6
<PAGE> 7
copyright laws or any other applicable, federal, state or local laws, rules or
regulation; (II) any bodily injury or property damage to a third party caused by
the use or possession of the Product(s), provided, that the Manufacturer shall
not indemnify the DISTRIBUTOR in respect of bodily injury or property damage
caused by use of the Products that is not the proper use of such Products in the
application for which such Products were intended by the Manufacturer,
modification of Products without the Manufacturer's prior written approval or
the subjecting of Products by the DISTRIBUTOR or the end-user customer to
shipment, storage or use conditions other than those recommended by the
Manufacturer; (III) the negligence, recklessness, or willful misconduct of the
Manufacturer, its officers, directors, and employees; (IV) the breach of any
representation, obligation or warranty of the Manufacturer contained herein; (V)
a recall of the Product(s); (VI) the label, labeling, promotional literature, or
other information concerning products provided by Manufacturer.
(b) DISTRIBUTOR shall indemnify and hold harmless Manufacturer and its
affiliates, and their officers, directors, employees, sales persons and other
agents against any and all claims, demands, damages, losses, costs and other
expenses, including reasonable attorney's fees, sustained by Manufacturer by
reason of (I) any warranty or representation, expressed or implied, made by
DISTRIBUTOR, its affiliates, subsidiaries, officers, directors, and employees of
each of them, except for those representations and warranties relating to
Products that are expressly made by Manufacturer, appearing in Manufacturer's
labeling or literature or are expressly approved in writing by Manufacturer;
(II) any failure of DISTRIBUTOR, its affiliates, subsidiaries, directors,
officers, and employees of each of them to comply with DISTRIBUTOR'S obligations
under this Agreement, include without limitation any failure to comply with
applicable laws and regulations; and (III) any negligent, reckless, or willful
misconduct on the part of DISTRIBUTOR, its affiliates, subsidiaries, officers,
directors, and employees of each of them.
12. TERMINATION
(a) The term of this Agreement shall commence on July 6, 1998 and shall extend
for one year thereafter, and continue automatically for successive one (1) year
periods with agreed upon volume commitments as outlined in Attachment C, unless
terminated upon notice by either party at least thirty (30) days prior to the
end of the existing term. This Agreement may be terminated for any reason by
either party upon thirty (30) days written notice.
(b) This Agreement shall terminate, without notice; (I) upon the institution by
or against either party of insolvency, receivership or bankruptcy proceedings or
any other proceeding for the settlement of either party's debts; (II) upon
either party's making an assignment for the benefit of creditors; and (III) upon
either party's dissolution.
(c) Upon termination of this Agreement: (I) all licenses to DISTRIBUTOR shall
terminate and all trade names, patents, designs, drawings, copyrights,
trademarks, formulas, trade secrets, or other data, photographs, samples,
literature, and sales aids of every kind shall remain the property of the
Manufacturer; (II) and DISTRIBUTOR shall prepare all such items in its
possession with reasonable promptness for shipment, (F.O.B. the shipping point),
as the Manufacturer may direct, at the Manufacturer's expense; (III) neither
Manufacturer nor DISTRIBUTOR shall make or retain copies of any confidential
items or information of which either party may have been entrusted by the other
party; (IV) effective upon termination of this Agreement, DISTRIBUTOR shall
cease immediately the use of any and all trademarks or trade names of the
Manufacturer.
(d) Upon termination of this Agreement, with or without cause, DISTRIBUTOR may
sell any remaining inventory of the Product(s) unless Manufacturer notifies
DISTRIBUTOR that the Manufacturer will, within thirty (30) days from the date of
termination, repurchase at DISTRIBUTOR'S cost, DISTRIBUTOR'S remaining inventory
of Product(s).
7
<PAGE> 8
13. MARKS
(a) The Manufacturer grants the DISTRIBUTOR permission to use Product's
trademarks, trade names, insignia symbols, identification and logo owned
by the Manufacturer or which the Manufacturer is permitted to use
("Marks") in its advertising and promotions provided that all such
advertising and promotion using Marks or any references thereto shall:
(i) conform to current written Manufacturer standards and guidelines,
with the respect to but not limited to style, appearance and manner
of use of Marks (the "Guidelines");
(ii) be submitted in writing to the Manufacturer for review and the
Manufacturer's written approval (which approval may be withheld or
revoked for any reason). If any use by the DISTRIBUTOR does not
conform to the Manufacturer Guidelines, then the Manufacturer may
require the DISTRIBUTOR to submit materials using or referring to
Marks for republication review; and
(iii) clearly separate any non-product items or Marks of others, shown or
identified, from Marks or Products, (Marks are not to be used in the
DISTRIBUTOR'S advertising and promotion in any way to imply the
Manufacturer's endorsement of or in connection with non-Manufacturer
products or services).
(b) The DISTRIBUTOR will not alter or remove any Mark applied to the Products
without written approval of the Manufacturer. Nothing in this Agreement
shall grant to the DISTRIBUTOR any rights in the Marks of the Manufacturer.
(c) No product, copyright, software, technology licenses, express or implied,
or any licenses of any kind, other than for the distribution and sale of
the Products within the terms and conditions of this Agreement, are
granted by the Manufacturer to the DISTRIBUTOR hereunder.
14. MISCELLANEOUS
(a) The Manufacturer and the DISTRIBUTOR agree that the DISTRIBUTOR is an
independent contractor and that this Agreement does not establish either the
Manufacturer or the DISTRIBUTOR as an agent, partner, joint venture, employee,
servant, or legal representative of the other for any purpose whatsoever.
Neither the Manufacturer nor the DISTRIBUTOR is granted any right or authority
to assume or create any obligation or responsibility, expressed or implied, on
behalf of the other in any manner whatsoever.
(b) The Agreement is executed in duplicate and shall be governed by the laws of
the State of California.
(c) This Agreement embodies the entire Agreement and understanding between the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof, with the exception of the McKesson Buying Terms
Form previously executed by the Manufacturer. No subsequently delivered
invoice, purchase order, acknowledgment, confirmation, standard terms and
conditions or similar document, whether submitted in writing, electronically, or
via facsimile, containing terms inconsistent herewith shall be effective to
amend or modify this Agreement, unless such document expressly states the
intention to do so and is signed by both parties hereto.
(d) No modification, change, or amendment to the Agreement, nor waiver of any
rights in respect hereto, shall be effective unless in writing and signed by
both parties. The waiver of any breach or default hereunder shall not
constitute the waiver of any subsequent breach or default.
8
<PAGE> 9
(e) Any notice or report required or permitted by this Agreement shall be deemed
given if delivered personally, or sent by either party to the other by
registered or certified mail, postage prepaid, addressed to the other part at
its principal business address given hereunder.
(f) Neither party shall assign the Agreement nor any rights hereunder without
the prior written consent of the other party. The Agreement shall bind and inure
to the benefit of the respective parties hereto and their heirs, personal
representatives, successors and permitted assignees.
(g) The headings appearing at the beginning of the numbered sections hereof
have been inserted for convenience only and do not constitute a part of the
Agreement.
(h) If any section of this Agreement is declared invalid by any court of
competent jurisdiction or other governmental agency having jurisdiction over
either party, such declaration shall not affect the validity and
enforceability of the other sections.
(i) This Agreement may be executed in counterparts, each of which constitute an
original and all of which shall constitute one instrument.
AGREED TO AND ACCEPTED BY:
Manufacturer: Distributor:
CHOLESTECH CORPORATION MCKESSON DRUG COMPANY
Signature /s/ ROBERT DOMINICI Signature /s/ GARY V. HALICK
----------------------- -----------------------------
By: Robert Dominici By: Gary V. Halick
Title: Executive Vice President Title: Vice President, Home Health Care
Date: August 18, 1998 Date: August 19, 1998
Cholestech McKesson Drug Company
3347 Investment Blvd. One Post St.
Hayward, CA 94545 San Francisco, CA 94104-5296
9
<PAGE> 10
ATTACHMENT "A"
PRICE LIST
Price list attached.
10
<PAGE> 11
ATTACHMENT "C"
McKesson Drug Company will target a minimum purchase shipment of L.D.X.
Systems and Test Cassettes according to the following quarterly schedule:
<TABLE>
<CAPTION>
COMBINED
LDX SYSTEMS TESTS $ VOLUME
- --------------------------------------------------------------------------
<S> <C> <C>
First 12 months:
Q1 *** *** $ ***
Q2 *** *** $ ***
Q3 *** *** $ ***
Q4 *** *** $ ***
----- ------- ----------
Total *** *** $ ***
</TABLE>
**SEE ATTACHMENT "A" FOR McKESSON DRUG COMPANY PRICE LIST**
Units may vary depending on market conditions. However dollar volume must remain
fixed or increase. Manufacturer must submit a rolling quarterly forecast
commencing at the start of each quarter. DISTRIBUTOR IS ELIGIBLE FOR THE
ATTACHED FUNCTIONAL DISCOUNT SCHEDULE FOR AN ADDITIONAL .03% MARGIN WHICH HAS
BEEN BUILT INTO THE ABOVE DOLLAR VOLUME AND PRICE LIST.
It is understood and agreed that the target amount specified in this attachment
shall not constitute a binding purchase commitment by McKesson.
*** denotes material that has been omitted pursuant
to a request for confidential treatment and has
been filed with the S.E.C. separately
11
<PAGE> 12
CHOLESTECH L-D-X(R) SYSTEM CONFIDENTIAL
- --------------------------------------------------------------------------------
McKESSON PRICE LIST EFFECTIVE MAY 15, 1998
<TABLE>
<CAPTION>
Catalog No. Description Unit Price
- ----------- ----------- ---- -----
<S> <C> <C> <C>
ANALYZER
19-959 Cholestech L-D-X System 1 Each $ ***
Includes: Analyzer, Printer, Power Supply, Starter Pack, Optics Check
Cassette, User Manual, Procedure Manual and Training Video
00-001 1 Year Extended Warranty Program for Cholestech L-D-X Analyzer 1 Each $ ***
00-002 2 Year Extended Warranty Program for Cholestech L-D-X Analyzer 1 Each $ ***
00-003 3 Year Extended Warranty Program for Cholestech L-D-X Analyzer 1 Each $ ***
TEST CASSETTES (ORDER IN CASE LOTS ONLY -- 5 BOXES EACH)
10-986 TC (Total Cholesterol) 1 case (5 Boxes of 10 Cassettes) $ ***
10-988 TC and Glucose 1 case (5 Boxes of 10 Cassettes) $ ***
10-987 TC and HDL Panel 1 case (5 Boxes of 10 Cassettes) $ ***
10-990 TC-HDL-GLU Panel 1 case (5 Boxes of 10 Cassettes) $ ***
10-989 Lipid Profile 1 case (5 Boxes of 10 Cassettes) $ ***
10-991 Lipid Profile plus Glucose 1 case (5 Boxes of 10 Cassettes) $ ***
QUALITY CONTROL MATERIALS
10-987 Level 1 and Level 2 Control Materials (1 vial each) 2 Vials, 2 ML each $ ***
10-983 Level 1 and Level 1 Control Materials 1 Case (10 Boxes of 6 vials,
(3 Vials Level 1 and 3 Vials Level 2) 2 mL Each) $ ***
10-228 Optics Check Cassette with Case 1 Each $ ***
ACCESSORIES
10-965 Seiko Smart Label(TM) EZ30, IBM Compatible 1 Each $ ***
10-966 Seiko Smart Label(TM) Printer EZ30, Macintosh Compatible 1 Each $ ***
10-976 White Labels for the Seiko Smart Label(TM) Printer EZ30 2 Rolls, 130/Roll $ ***
10-903 Cholestech Printer Handi-Pak (4 rolls of single ply paper and 2 ribbons) 1 Each $ ***
10-926 Cholestech Printer 2-Ply Carbonless Paper 4 Rolls $ ***
10-009 Cholestech L-D-X Power Supply 1 Each $ ***
10-958 RS232 Adapter Kit 1 Each $ ***
11-011 Seiko Smart Label(TM) Printer EZ30 Adapter Kit 1 Each $ ***
10-973 Carrying Case 1 Each $ ***
DISPOSABLE SUPPLIES
10-972 Starter Pack: 1 vial each 50 Capillary Tubes and Plungers, 1 Each $ ***
1 Bag of 50 Pipette Tips, 50 Lancets, 1 Mini-Pet Pipette,
and Accessory Tray
10-940 Capillary Tubes (Plastic Clad) 1 case (5 Vials of 50 each) $ ***
10-311 Capillary Plungers 1 case (5 Vials of 50 each) $ ***
01-606 Microtainer(TM) Lancets Box of 50 $ ***
11-000 Mini-Pet Pipette 1 Each $ ***
11-010 Pipette Tips Bag of 50 $ ***
EDUCATIONAL MATERIALS
10-995 Cholestech L-D-X User Manual 1 Each $ ***
11-014 Cholestech Procedure Manual (CLIA '88') 1 Each $ ***
01-538 Training Videl 1 Each $ ***
00-940 "Understanding Your Blood Cholesterol Test" Brochure (Fasting-red) 1 Pack (50 each) $ ***
00-941 "Understanding Your Blood Cholesterol Test" Brochure(Non Fasting-blue) 1 Pack (50 each) $ ***
00-939 "Is Your Heart At Risk" HDL Pamphlet 1 Pack (50 each) $ ***
01-207 Fingerstick Tip Technique Pad 1 Pad $ ***
</TABLE>
- --------------------------------------------------------------------------------
[CHOLESTECH LOGO]
*** denotes material that has been omitted pursuant
to a request for confidential treatment and has
been filed with the S.E.C. separately
<PAGE> 13
Attachment "C" Continued
FUNCTIONAL DISCOUNTS FOR
NATIONAL DISTRIBUTORS
In the event the Distributor offers vendor marketing programs, preferred
vendor programs, select vendor initiatives, prime alliance programs, elite
programs, enhanced marketing vehicles, and/or programs offering enhanced sales
compensation packages, Cholestech agrees to provide an additional discount of
03%. This additional discount will be provided upon completion of the fiscal
year in which Cholestech and the Distributor have successfully participated in
such program(s) and will be paid as a fee within thirty (30) days from the close
of Cholestech's fiscal year. A 1.5% interest rate will be applied monthly to any
amounts not paid within (30) thirty days.
Such programs will minimally provide but not be limited to the following:
Point-Of-Sale monthly reports to Cholestech.
Cholestech Product line emphasis.
Sales compensation programs and incentives.
Preferred vendor status.
Marketing programs and emphasis.
Focus and Exposure in corporate newsletters.
National account support.
Participation opportunity at all Distributor sales meetings (National, area
and/or regional) with no or minimal additional costs to Cholestech.
<PAGE> 1
EX. 10.21.2
[CHOLESTECH LOGO]
CHOLESTECH CORPORATION
DISTRIBUTION AGREEMENT
This Distribution Agreement (this "Agreement") is made and entered into on the
day of JUNE 12, 1998 ("Effective Date") by and between BERGEN BRUNSWIG DRUG
COMPANY, 4000 METROPOLITAN DRIVE, ORANGE, CA 92868 (the "DISTRIBUTOR") and
Cholestech Corporation ("Manufacturer"), having its principal place of business
at 3347 Investment Blvd, Hayward, California 94545.
In consideration of mutual covenants contained herein, and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereby agree as follows.
1. APPOINTMENT
(a) Subject to the terms and conditions set forth herein, the Manufacturer
hereby appoints the DISTRIBUTOR as the Manufacturer's authorized distributor for
a period of one year from June 12, 1998 unless otherwise terminated pursuant to
Section 12. The appointment is on a non-exclusive basis in the United States for
sale of the Manufacturer's Product(s), (the "Products") listed on Attachment A,
as amended from time to time pursuant to Section 2(b) for use solely in the
United States and solely by such retail pharmacies.
2. TERMS OF PURCHASE FOR DISTRIBUTOR
(a) All purchases by the DISTRIBUTOR from Manufacturer during effective period
of Agreement shall be subject to the terms and conditions of this Agreement.
(b) Price: The purchase price to the DISTRIBUTOR for the Product(s) shall be
price set forth in the Manufacturer's BERGEN BRUNSWIG price list which shall be
updated and delivered to the DISTRIBUTOR from time to time, attached to this
Agreement as Attachment A. The Manufacturer agrees to provide DISTRIBUTOR with a
new price list (as modified by Attachment B) announcing a price increase at
least sixty (60) days prior to the effective date thereof.
Product prices do not include local, sales, use, exercise, customs, export,
import, or similar taxes, license fees or other charges incident of the sale of
Products, which shall be paid by the DISTRIBUTOR. In lieu thereof, the
DISTRIBUTOR may provide the Manufacturer with a tax-exempt certification
acceptable to the appropriate taxing authorities. The DISTRIBUTOR shall also pay
all fees, assessments and taxes levied against products in the DISTRIBUTOR'S
possession.
(c) Orders: All purchase orders of DISTRIBUTOR shall be subject to acceptance by
Manufacturer at Hayward, California. DISTRIBUTOR may use its standard purchase
order form to order Products(s); however, the terms and conditions of this
Agreement shall supersede any different,
<PAGE> 2
conflicting, or additional terms on purchase orders submitted on the DISTRIBUTOR
forms. Each purchase order shall be at least $150.00 (minimum order), or pay a
minimum of $150.00 for each order totaling less than $150.00.
Orders entered by the DISTRIBUTOR under this Agreement shall specify:
(a) Description of Products, inclusive to any of the Manufacturer's
numerical/alphabetical identification;
(b) requested delivery date;
(c) applicable price (denominated in United States dollars);
(d) location to which the Products are to be shipped;
(e) location to which invoices shall be rendered for payment; and
(f) any other ordering procedures established by the Manufacturer from
time to time.
(d) Terms of payment to the Manufacturer shall be: Net thirty (30) days after
shipment by the Manufacturer and shall be in United States dollars. A 1.5%
monthly interest rate, or the maximum rate allowed by law, whichever is less
shall be applied to all outstanding balances not paid within such thirty (30)
days. If the DISTRIBUTOR should default or if its financial condition shall at
any time be deemed impaired or unsatisfactory by the Manufacturer, in its
reasonable discretion, the Manufacturer shall have the right to cancel any
order, delay any shipments, and require cash.
(e) Shipping: The terms os shipping shall be "FOB Destination". Standard
shipping is currently specified as normal ground for LDX Systems and 2 day
delivery for all other Products. Non-standard shipping charges will be billed to
the DISTRIBUTOR. If the DISTRIBUTOR requests a drop shipment to a customer, the
entire cost of transportation designated by the DISTRIBUTOR shall be borne by
the DISTRIBUTOR. Additionally, Manufacturer, may in its sole discretion, add an
additional 6% of the invoice amount as a drop ship fee.
Title to and possession of the Products shall pass to the DISTRIBUTOR upon
receipt to destination.
(f) Intent: Product is sold to the DISTRIBUTOR for the sole purpose that it
then be sold by the DISTRIBUTOR directly to end-use consumers of the Product.
The DISTRIBUTOR shall not sell the Product(s) to any person or entity that is
not such an end-user consumer without prior written consent by Manufacturer. No
product may be sold by the DISTRIBUTOR for subsequent transport outside of the
United States, except when sold to an agency of the United States government.
(g) The DISTRIBUTOR shall meet the annual minimum purchase obligations as
defined in Attachment C ("Minimum Purchase Requirements"). Failure of the
DISTRIBUTOR to meet the Minimum Purchase Requirements shall entitle the
Manufacturer to alter the Prices set forth in Attachment A effective
immediately and not withstanding the 60 day time period provided for in section
2(b).
<PAGE> 3
3. WARRANTY
(a) The Manufacturer hereby represents and warrants to DISTRIBUTOR that:
(i) The Manufacturer will convey to the DISTRIBUTOR good title to the
Product(s) free and clear of all security interests, liens or other
encumbrances of any kind or character.
(ii) The Manufacturer has manufactured, packaged and is selling the Product(s)
to DISTRIBUTOR in material compliance with all applicable federal, state
and local laws, rules and regulations. The Manufacturer has notified
DISTRIBUTOR as to the identity of Product(s), via copies of the Materials
Safety Data Sheets, which Product(s) when disposed of will constitute
"hazardous waste", under regulations (the "Regulations") promulgated by
the Environmental Protection Agency under Subpart C of the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of
1916, as amended.
(iii) The Product(s) will conform substantially to the Manufacturer's
specifications until the expiration date listed on the label. This
warranty is contingent upon proper use of the Product(s) in the
application for which the Product(s) are intended and does not cover
Product(s) that were modified without the Manufacturer's approval or that
were subject by DISTRIBUTOR or end-user customer to shipment, storage, or
use conditions other than recommended by the Manufacturer.
(b) The DISTRIBUTOR represents and warrants that:
(i) It holds all necessary federal, state, and local licenses and permits for
the DISTRIBUTOR to distribute the Products in the United States in
accordance with applicable law;
(ii) There are no actions or proceedings pending or contemplated within the
knowledge of the DISTRIBUTOR that would in any way jeopardize any such
licenses or permits; and
(iii) It has all corporate authority to perform this Agreement and that such
performance will not violate any agreement to which it is a party.
4. ADDITIONAL OBLIGATIONS OF DISTRIBUTOR
The DISTRIBUTOR shall at its own expense, unless otherwise stated, and
consistent with the sales policies of the Manufacturer:
Exert its commercially reasonable efforts to sell and actively promote maximum
sales of the Product(s), solicit and obtain orders for the Product(s) and
cooperate with the Manufacturer in carrying out promotional programs.
(a) Comply with all applicable laws, ordinances and regulations pertaining to
responsibilities of a medical device distributor, including without
limitation, the Food, Drug, and Cosmetic Act, Hazardous Substance Act,
Clinical Laboratory Improvement Act of 1967, Clinical Laboratory Amendment,
of 1988, Medical Device Amendments of 1976, and the Safe Medical Devices
Act of 1990. Hold a valid resale permit or license, comply with Medical
Device reports requirements applicable to a wholesale distributor, if any,
pertaining to the reporting of adverse events and device deficiencies.
(b) Maintain adequate written procedures for warehouse control and records of
the distribution of Products for at least two (2) years after the end of
the useful life of the Products. This shall be done in such form as to
enable Manufacturer or the FDA to trace the location of all regulated
Products.
<PAGE> 4
(c) Immediately refer all written and oral complaints concerning the Products
to Manufacturer and keep a record of all such complaints.
(d) Use reasonable efforts to maintain an adequate inventory of the Product(s)
to prevent backorders for the Product(s).
(e) Not use any trademark, trade name, or logo of the Manufacturer except as
provided in this Agreement without prior written approval from the
Manufacturer as secured by signature of the CEO or CFO of Manufacturer.
DISTRIBUTOR may affix its name, address and telephone number to
Manufacturer's package or literature so long as the affixed material does
not obliterate or obscure any information placed thereon by the
Manufacturer.
(f) Distributor will make no representations or warranties or claims with
respect to Products other than those specifically authorized by
Manufacturer.
(g) Keep track of each individual sale for each Product to each customer and
shall provide to the Manufacturer, as mutually agreed by the parties,
information on sales, per product, per customer.
(h) Not relabel any Product, substitute, remove or modify any components of any
Product, unseal or open any packaged product or otherwise tamper with any
of the Products, unless mutually agreed to in writing by the parties.
(i) Respond to all questions, requests for assistance, and complaints from
purchasers of the Products in a timely manner.
5. ADDITIONAL OBLIGATIONS OF THE MANUFACTURER
The Manufacturer shall:
(a) Promptly after each request, provide the DISTRIBUTOR with marketing and
technical information concerning the Product(s) and reasonable amounts of other
printed material for the use and information of the DISTRIBUTOR'S customers.
Manufacturer will at the Manufacturer's sole expense make available to
DISTRIBUTOR training programs sponsored by the Manufacturer in connection with
the Product.
(b) Minimize delivery time to the extent reasonably possible and use its
commercially reasonable efforts to fulfill delivery obligations arising from
acceptances of purchase orders.
(c) Attend DISTRIBUTOR'S sales/marketing meetings of the DISTRIBUTOR and its
agents and employees on a timely basis, at the discretion of DISTRIBUTOR.
(d) Provide to the DISTRIBUTOR reasonable assistance with sales efforts and
inventory control programs related to the Product(s).
DISTRIBUTOR shall inspect all goods promptly upon receipt. In the event that
any of the Products when delivered to DISTRIBUTOR, do not conform to
Manufacturer's warranty as set forth in Section 3(c) hereof, or such Products
or their packaging is damaged, recipient shall notify Manufacturer as to such
condition in writing, and shall provide Manufacturer with a reasonable
opportunity to inspect such Product(s). DISTRIBUTOR'S failure to discover
non-conforming Products or to notify Manufacturer shall not negate
Manufacturer's warranties set forth in this Agreement or in any other written
Manufacturer document. If DISTRIBUTOR does not reject a shipment of Product(s)
within Five (5) days of delivery to the end user, such shipment will be deemed
to have been accepted. Manufacturer shall either replace or shall
<PAGE> 5
refund the invoice price associated with any Products which do not conform to
Manufacturer's warranty, or that are damaged upon the return of such Products
to Manufacturer under written authorization of Manufacturer.
All transportation charges for the return of such Products shall be paid by
Manufacturer, if the Manufacturer's inspection confirms that such Product(s) do
not conform to the warranty in Section 3(a(iii). Payment for the Product(s)
prior to inspection by recipient shall not constitute acceptance thereof and is
without prejudice to any claims that recipient may have against Manufacturer
under this Section 5.
6. RETURNED PRODUCTS
(a) Pre-authorized Returns: In the event that (I) the Manufacturer fails to
correctly process the DISTRIBUTOR'S order for the Product(s), or (II)
Product(s) are unsalable due to being obsolete upon receipt by Distributor, or
(III) the Product(s) are subject to an injunction or governmental order or
regulation which substantially limits the marketability of the Product(s), or
(IV) the marketability of the Product(s) is limited as a result of an act or
omission of the Manufacturer, or (V) upon receipt, the Products are subject to
expiration dating and have a remaining "shelf life" of less than 60% (limited
to Product(s) with ninety (90) days "shelf life" or greater), or the Product(s)
are rejected in accordance with Section 5, above, then DISTRIBUTOR shall have
the right to return the affected Product(s) to the Manufacturer and receive
replacement of such Product(s), or, in the event that the Manufacturer
determines in good faith that the Product(s) cannot be replaced, the
DISTRIBUTOR will receive a refund of the invoice amount for such Product(s).
All transportation charges resulting from the return of Product(s) to the
Manufacturer pursuant to section 6(a) shall be paid by the Manufacturer.
(b) Other Returns: The DISTRIBUTOR shall otherwise not have the right to return
the Product(s) to the Manufacturer, without the written authorization of the
Manufacturer. The Manufacturer will accept return only on Product(s) authorized
by the Manufacturer in writing to be returned.
7. EXCUSABLE DELAYS
The Manufacturer will fill routine orders within 5 days. For unusually large
orders of any Product(s), greater than the last 3 months orders combined from
DISTRIBUTOR, the Manufacturer will fill the order within 21 days. For instrument
orders larger than 250 units, the Manufacturer requires a sixty (60) day lead
time notification. The Manufacturer shall not be charged with any liability for
delay or non-delivery of Product(s) when due to delays of suppliers, acts of God
or the public enemy, compliance in good faith with any applicable foreign or
domestic governmental regulation order, whether or not proven to be valid,
riots, labor disputes, unusually severe weather or any other causes beyond the
reasonable control of the Manufacturer, only during the period such condition
continues and the reasonable period thereafter necessary for the Manufacturer to
recover from the effects thereof (including without limitation repair or
replacement of facilities and equipment and the fulfillment of unfulfilled
orders). The Manufacturer shall give DISTRIBUTOR written notification of any
material or indefinite delay due to such causes. In the event of demand which
exceeds the Manufacturer's ability to meet such demand for Product(s),
Manufacturer may allocate the supply of Product(s) among its customers in the
manner deems most appropriate.
8. DISCLAIMER
The warranties extended from Manufacturer to DISTRIBUTOR are limited to the
express warranties set forth in Section 3 and 5 above and such other warranties
as described in such Sections. The Manufacturer discloses all other warranties,
expressed or implied, including, but not limited to, the implied warranties of
merchantibility and fitness for a particular purpose.
<PAGE> 6
9. LIMITATION OF LIABILITY
Manufacturer disclaims liability for all consequential damages in any form, even
though Manufacturer may have been advised or may otherwise know of possibility
of such damages, except as otherwise expressly provided for in this Agreement,
provided, however, the foregoing shall not limit in any way Manufacturer's
indemnity set forth in Section 11(a) in respect of third party claims. Nothing
in this Agreement shall make Manufacturer liable beyond the expressed
limitations of this warranty (Section 9), including any claims for breach of
contract, lost receipts or profits, business interruptions, or any other
tangible business loss, except as otherwise expressly provided for in this
Agreement. DISTRIBUTOR shall not be liable to Manufacturer for any incidental or
consequential damages including lost profits from any cause, except as otherwise
expressly provided for in this Agreement.
10. CONFIDENTIALITY
Except as expressly otherwise provided in this Agreement, during the term hereof
and for five (5) years from the date this Agreement expires or terminates, each
party shall hold in confidence and not use or disclose to any third party (other
than employees of such party similarly bound in writing, provided such
disclosure is in furtherance of this Agreement) any product, technical,
marketing, financial, business or other proprietary information of the other
that is noted as "Confidential" at the time of disclosure (and promptly reduced
to writing if orally disclosed) and labeled as "Confidential" obtained by such
parties pursuant to this Agreement
Nothing contained herein will in any way restrict or impair either party's right
to use, disclose, or otherwise deal with any confidential information at the
time of its receipt:
(a) Is generally available in the public domain, or thereafter becomes available
to the public through no improper act of the receiving party; or
(b) Is known to recipient at the time the information is received or becomes
known to recipient from a source other than the discloser, which source did not
receive such information directly or indirectly form the discloser; or
(c) Is furnished by the discloser to others, without restrictions as to the
other recipient's right to use or disclose; or
(d) Is approved for release in writing by the discloser; or
(e) Is independently discovered, created, or developed by recipient; or
(f) Is required to be disclosed by law or a valid order of court, providing that
the party disclosing such information seeks confidential treatment of
information so disclosed, to the extent available.
11. INDEMNIFICATION
(a) The Manufacturer hereby agrees to defend, indemnify and hold harmless
DISTRIBUTOR, its customers, agents, affiliates and subsidiaries, and the
officers, directors, and employees of each of them (collectively "Indemnities")
from and against any and all damages, losses, expenses, costs, claims, judgments
and liabilities, including reasonable attorney's fees, incurred by any of the
Indemnities (except to the extent caused by the negligence, recklessness or
willful misconduct of the respective Indemnities) arising form or in connection
with (I)("Claims") that indemnities possession, use, promotion, marketing,
distribution, sale, or delivery of the
<PAGE> 7
Product(s) constitutes unfair trade competition or the infringement of any
invention or invasion of the proprietary rights of any third party, including
without limitation, the infringement of any rights of third parties under laws
relating to trademarks, trade names, trade secrets, copyrights, patents or the
violation of any copyright laws or any other applicable, federal, state or
local laws, rules or regulation; (II) any bodily injury or property damage to a
third party caused by the use or possession of the Product(s), provided, that
the Manufacturer shall not indemnify any indemnity to the extent such
indemnities is responsible for bodily injury or property damage caused by use
of the Products that is not the proper use of such Products in the application
for which such Products were intended by the Manufacturer, modification of
Products without the Manufacturer's prior written approval or the subjecting of
Products to shipment, storage or use conditions other than those recommended by
the Manufacturer; (III) the negligence, recklessness, or willful misconduct of
the Manufacturer, its officers, directors, agents and employees; (IV) the
breach of any representation, obligation or warranty of the Manufacturer
contained herein; (V) a recall of the Product(s); (VI) the label, labeling,
promotional literature, or other information concerning products provided by
Manufacturer.
(b) DISTRIBUTOR shall indemnify and hold harmless Manufacturer and its
affiliates, and their officers, directors, employees, sales persons and other
agents against any and all claims, demands, damages, losses, costs and other
expenses, including reasonable attorney's fees, sustained by Manufacturer by
reason of (I) any warranty or representation, expressed or implied, made by
DISTRIBUTOR, its affiliates, subsidiaries, officers, directors, and employees
of each of them, except for those representations and warranties relating to
Products that are expressly made by the Manufacturer, appearing in
Manufacturer's labeling or literature or are expressly approved in writing by
Manufacturer; (II) any failure of DISTRIBUTOR, its affiliates, subsidiaries,
directors, officers, and employees of each of them to comply with
DISTRIBUTOR'S obligations under this Agreement, include without limitation any
failure to comply with applicable laws and regulations; and (III) any
negligent, reckless, or willful misconduct on the part of DISTRIBUTOR, its
affiliates, subsidiaries, officers, directors, and employees of each of them.
12. TERMINATION
(a) The term of this Agreement shall commence on June 12, 1998 and shall extend
for one year thereafter, and continue automatically for successive one (1) year
periods with agreed upon volume commitments as outlined in Attachment C, unless
terminated upon notice by either party at least thirty (30) days prior to the
end of the existing term. This Agreement may be terminated for any reason by
either party upon thirty (30) days written notice.
(b) This Agreement shall terminate, without notice: (I) upon the institution by
or against either party of insolvency, receivership or bankruptcy proceedings
or any other proceeding for the settlement of either party's debts; (II) upon
either party's making an assignment for the benefit of creditors; and (III)
upon either party's dissolution.
(c) Upon termination of this Agreement: (I) all licenses to DISTRIBUTOR shall
terminate and all trade names, patents, designs, drawings, copyrights,
trademarks, formulas, trade secrets, or other data, photographs, samples,
literature, and sales aids of every kind shall remain the property of the
manufacturer; (II) and DISTRIBUTOR shall prepare all such items in its
possession with reasonable promptness for shipment, (F.O.B the shipping point),
as the Manufacturer may direct, at the Manufacturer's expense; (III) neither
Manufacturer nor DISTRIBUTOR shall make or retain copies of any confidential
items or information of which either party may have been entrusted by the other
party; (IV) effective upon termination of this Agreement, DISTRIBUTOR shall
cease immediately the use of any and all trademarks or trade names of the
Manufacturer.
<PAGE> 8
(d) Upon termination of this Agreement, with or without cause, DISTRIBUTOR may
sell any remaining inventory of the Product(s) unless Manufacturer notifies
DISTRIBUTOR that the Manufacturer will, within thirty (30) days from the date
of termination, repurchase, at DISTRIBUTOR'S cost, DISTRIBUTOR'S remaining
inventory of Product(s).
13. MARKS
(a) The Manufacturer grants the DISTRIBUTOR permission to use Product's
trademarks, trade names, insignia symbols, identification and logo types
owned by the Manufacturer or which the Manufacturer is permitted to use
("Marks") in its advertising and promotions provided that all such
advertising and promotion using Marks or any references thereto shall:
(i) conform to current written Manufacturer standards and guidelines,
with the respect to but not limited to style, appearance and manner
of use of Marks (the "Guidelines");
(ii) be submitted in writing to the Manufacturer for review and the
Manufacturer's written approval (which approval may be withheld for
any reason) as secured by signature of the CEO or CFO of
Manufacturer. If any use by the DISTRIBUTOR does not conform to the
Manufacturer Guidelines, then the Manufacturer may require the
DISTRIBUTOR to submit materials using or referring to Marks for
republication review; and
(iii) clearly separate any non-product items or Marks of others, shown or
identified, from Marks or Products, (Marks are not to be used in the
DISTRIBUTOR'S advertising and promotion in anyway to imply the
Manufacture's endorsement of or in connection with non-Manufacturer
products or services).
(a) The DISTRIBUTOR will not alter or remove any Mark applied to the Products
without written approval of the Manufacturer. Nothing in this Agreement
shall grant to the DISTRIBUTOR any rights in the Marks of the Manufacturer.
(b) No product, copyright, software, technology licenses, express or
implied, or any licenses of any kind, other than for the distribution and
sale of the Products within the terms and conditions of this Agreement,
are granted by the Manufacturer to the DISTRIBUTOR hereunder.
14. MISCELLANEOUS
(a) The Manufacturer and the DISTRIBUTOR agree that the DISTRIBUTOR is an
independent contractor and that this Agreement does not establish either the
Manufacturer or the DISTRIBUTOR as an agent, partner, joint venture, employee,
servant, or legal representative of the other for any purpose whatsoever.
Neither the Manufacturer nor the DISTRIBUTOR is granted any right or authority
to assume or create any obligation or responsibility, expressed or implied, on
behalf of the other in any manner whatsoever.
(b) The Agreement is executed in duplicate and shall be governed by the laws
of the State of California.
(c) This Agreement embodies the entire Agreement and understanding between the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof. No subsequently delivered invoice, purchase
order, acknowledgment, confirmation, standard terms and conditions or similar
document, whether submitted in writing, electronically, or via facsimile,
containing terms inconsistent herewith shall be effective to amend or modify
this Agreement, unless such document expressly states the intention to do so
<PAGE> 9
and is signed by both parties hereto, or except for any Continuing Guaranty and
Indemnification or similar document required to be delivered to DISTRIBUTOR by
all suppliers.
(d) No modification, change, or amendment to the Agreement, nor waiver of any
rights in respect hereto, shall be effective unless in writing and signed by
both parties. The waiver of any breach or default hereunder shall not
constitute the waiver of any subsequent breach or default.
(e) Any notice or report required or permitted by this Agreement shall be
deemed given if delivered personally, or sent by either party to the other by
registered or certified mail, postage prepaid, addressed to the other party at
its principal business address given hereunder.
(f) Neither party shall assign the Agreement nor any rights hereunder without
the prior written consent of the other party. The Agreement shall bind and
inure to the benefit of the respective parties hereto and their heirs, personal
representatives, successors and permitted assignees.
(g) The headings appearing at the beginning of the numbered sections hereof
have been inserted for convenience only and do not constitute a part of the
Agreement.
(h) If any section of this Agreement is declared invalid by any court of
competent jurisdiction or other government agency having jurisdiction over
either party, such declaration shall not affect the validity and enforceability
of the other sections.
(i) This Agreement may be executed in counterparts, each of which constitute an
original and all of which shall constitute one instrument.
AGREED TO AND ACCEPTED BY:
Manufacturer: Distributor:
CHOLESTECH CORPORATION BERGEN BRUNSWIG DRUG COMPANY
Signature: /s/ MARK J. KUSSMAN Signature: /s/ CRAIG A. SMITH
------------------------------ -------------------------
By: Mark J. Kussman By: Craig A. Smith
Title: Vice President of Sales Marketing Title: Products, National Director
Date: 7/20/98 Date: 7/20/97
------------------------- ------------------------------
Cholestech Bergen Brunswig DRUG Company
3347 Investment Blvd. 4000 Metropolitan Drive
Hayward, CAL 94545 Orange, CA 92868
<PAGE> 10
ATTACHMENT "A"
PRICE LIST
Price list attached.
<PAGE> 11
CHOLESTECH L-D-X(R) SYSTEM
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
BERGEN BRUNSWIG PRICE LIST EFFECTIVE MAY 15, 1998
Catalog No. Description Unit Price
- ----------- ----------- ---- -----
<S> <C> <C> <C>
ANALYZER
10-959 Cholestech L-D-X(R) System 1 Each $ ***
Includes: Analyzer, Printer, Power Supply, Starter Pack, Optics Check
Cassette, User Manual, Procedure Manual and Training Video
00-001 1 Year Extended Warranty Program for Cholestech L-D-X Analyzer 1 Each $ ***
00-002 2 Year Extended Warranty Program for Cholestech L-D-X Analyzer 1 Each $ ***
00-003 3 Year Extended Warranty Program for Cholestech L-D-X Analyzer 1 Each $ ***
TEST CASSETTES
10-986 TC (Total Cholesterol) Box of 10 Cassettes $ ***
10-988 TC and Glucose Box of 10 Cassettes $ ***
10-987 TC and HDL Panel Box of 10 Cassettes $ ***
10-990 TC-HDL-GLU Panel Box of 10 Cassettes $ ***
10-989 Lipid Profile Box of 10 Cassettes $ ***
10-991 Lipid Profile plus Glucose Box of 10 Cassettes $ ***
QUALITY CONTROL MATERIALS
10-982 Level 1 and Level 2 Control Materials 2 Vials, 2 mL Each $ ***
(1 Vial Level 1 and 1 Vial Level 2)
10-983 Level 1 and Level 2 Control Materials 6 Vials, 2 mL Each $ ***
(3 Vials Level 1 and 3 Vials Level 2)
10-228 Optics Check Cassette with Case 1 Each $ ***
ACCESSORIES
10-965 Seiko Smart Label(TM) Printer EZ30, IBM(R) Compatible 1 Each $ ***
10-966 Seiko Smart Label(TM) Printer EZ30, Macintosh(R) Compatible 1 Each $ ***
10-976 White Labels for the Seiko Smart Label(TM) Printer EZ30 2 Rolls, 130/Roll $ ***
10-903 Cholestech Printer Handi-Pak (4 rolls of single ply paper and 2 ribbons) 1 Each $ ***
10-926 Cholestech Printer 2-Ply Carbonless Paper 4 Rolls $ ***
10-009 Cholestech L-D-X Power Supply 1 Each $ ***
10-958 RS232 Adapter Kit 1 Each $ ***
11-011 Seiko Smart Label(TM) Printer EZ30 Adapter Kit 1 Each $ ***
10-973 Carrying Case 1 Each $ ***
DISPOSABLE SUPPLIES
10-972 Starter Pack: 1 vial each of 50 Capillary Tubes and Plungers, 1 Each $ ***
1 Bag of 50 Pipette Tips, 50 Lancets, 1 Mini-Pet Pipettes
and Accessory Tray
10-940 Capillary Tubes (Plastic Clad) Vial of 50 $ ***
10-311 Capillary Plungers Vial of 50 $ ***
01-606 Lancets Box of 50 $ ***
11-000 Mini-Pet Pipette 1 Each $ ***
11-010 Pipette Tips Bag of 50 $ ***
EDUCATIONAL MATERIALS
10-995 Cholestech L-D-X User Manual 1 Each $ ***
11-014 Cholestech Procedure Manual (CLIA '88") 1 Each $ ***
01-538 Training Video 1 Each $ ***
00-940 "Understanding Your Blood Cholesterol Test" Brochure (Fasting-red) 1 Pack (50 each) $ ***
00-941 "Understanding Your Blood Cholesterol Test" Brochure (Non Fasting-blue) 1 Pack (50 each) $ ***
00-939 "Is Your Heart At Risk"? HDL Pamphlet 1 Pack (50 each) $ ***
01-207 Fingerstick Tip Technique Pad 1 Pad $ ***
To place an order, please call Cholestech Customer Service at 800-733-0404 between 6:00 AM - 5:00 PM Pacific time
- -----------------------------------------------------------------------------------------------------------------------------------
Cholestech Corporation - 3347 Investment Blvd. - Hayward, CA 94545-3008 - 510-732-7200 - FAX: 510-732-72127 CHOLESTECH [LOGO]
</TABLE>
*** denotes material that has been omitted pursuant
to a request for confidential treatment and has
been filed with the S.E.C. separately
<PAGE> 12
ATTACHMENT "C"
Bergen Brunswig Company agrees to a minimum purchase and shipment of L.D.X.
Systems and Test Cassettes according to the following quarterly schedule:
<TABLE>
<CAPTION>
COMBINED
LDX SYSTEMS TESTS $ VOLUME
- ------------------------------------------------------
<S> <C> <C>
First 12 months:
Q1 *** *** $ ***
Q2 *** *** $ ***
Q3 *** *** $ ***
Q4 *** *** $ ***
- ----- --- ------- ----------
Total *** *** $ ***
</TABLE>
**SEE ATTACHMENT "A" FOR BERGEN BRUNSWIG COMPANY PRICE LIST**
-------------------------------------------------------------
Units may vary depending on market conditions. However dollar volume must remain
fixed or increase. DISTRIBUTOR must submit a rolling quarterly forecast
commencing at the start of each quarter, with the first quarter as a firm order
commitment. IF DOLLAR VOLUME ABOVE IS ACHIEVED (BY QUARTER), DISTRIBUTOR IS
ELIGIBLE FOR THE ATTACHED FUNCTIONAL DISCOUNT SCHEDULE FOR AN ADDITIONAL .03%
MARGIN.
*** denotes material that has been omitted pursuant
to a request for confidential treatment and has
been filed with the S.E.C. separately
<PAGE> 13
ATTACHMENT "C" CONTINUED
FUNCTIONAL DISCOUNTS FOR NATIONAL
DISTRIBUTORS
In the event the Distributor offers vendor marketing programs, preferred
vendor programs, select vendor initiatives, prime alliance programs, elite
programs, enhanced marketing vehicles, and/or programs offering enhanced sales
compensation packages, Cholestech agrees to provide an additional discount of
03%. This additional discount will be provided upon achieving sales goals and on
completion of the quarter in which Cholestech and the Distributor have
successfully participated in such program(s) and will be paid within thirty (30)
days from the close of the quarter. A 1.5% interest rate will be applied monthly
to any amounts not paid within thirty (30) days.
Such programs will minimally provide but not be limited to the
following:
Point-of-Sale monthly reports to Cholestech
Cholestech Product line emphasis
Sales compensation programs and initiatives
Preferred vendor status
Marketing programs and emphasis
National account support
Participation opportunity at all Distributor sales meetings (national,
area, and/or regional) with no or minimal additional costs to Cholestech
<PAGE> 1
EXHIBIT 10.3.2
SUBLEASE
[CB COMMERCIAL REAL ESTATE GROUP, INC. LOGO]
1. PARTIES.
This Sublease, dated June 12, 1998, is made between Schlumberger Resource
Management Services, Inc. a Delaware Corporation ("Sublessor"), and
Cholestech Corporation, a California Corporation ("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated June 24, 1997, wherein
Spieker Properties, L.P., a California LTD, Partnership ("Lessor") leased
to Sublessor the real property located in the City of Hayward, County of
Alameda, State of California, described as an approximately 5,800 sq. ft.
office and warehouse space located at 26254 Eden Landing Road and an
approximately 900 sq. ft. of storage space located in Building B totalling
approximately 6,700 sq. ft. ("Master Premises"). Said lease has been
amended by the following amendments:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
said lease and amendments are herein collectively referred as the "Master
Lease" and are attached hereto as Exhibit "A."
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): as described above.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default or breach of any of the provisions of the Master Lease,
and that Sublessor has no knowledge of any claim by Lessor that Sublessor
is in default or breach of any of the provisions of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on August 1, 1998 ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is
required under the Master Lease), whichever shall last occur, and end on
June 30, 2000 ("Termination Date"), unless otherwise sooner terminated in
accordance with the provisions of this Sublease. In the event the Term
commences on a date other than the Commencement Date, Sublessor and
Sublessee shall execute a memorandum setting forth the actual date of
commencement of the Term. Possession of the Premises ("Possession") shall
be delivered to Sublessee on the commencement of the Term. If for any
reason Sublessor does not deliver Possession to Sublessee on the
commencement of the Term, Sublessor shall not be subject to any liability
for such failure, the Termination Date shall not be extended by the delay,
and the validity of this Sublease shall not be impaired, but rent shall
abate until delivery of Possession. Notwithstanding the foregoing, if
Sublessor has not delivered Possession to Sublessee within thirty (30) days
after the Commencement Date, then at any time thereafter and before
delivery of Possession, Sublessee may give written notice to Sublessor of
Sublessee's intention to cancel this Sublease. Said notice shall set forth
an effective date for such cancellation which shall be at least ten (10)
days after delivery of said notice to Sublessor. If Sublessor delivers
Possession to Sublessee on or before such effective date, this Sublease
shall remain in full force and effect. If Sublessor fails to deliver
Possession to Sublessee on or before such effective date, this Sublease
shall be cancelled, in which case all consideration previously paid by
Sublessee to Sublessor on account of this Sublease shall be returned to
Sublessee, this Sublease shall thereafter be of no further force or effect,
and Sublessor shall have no further liability to Sublessee on account of
such delay or cancellation. If Sublessor permits Sublessee to take
Possession prior to the commencement of the Term, such early Possession
shall not advance the Termination Date and shall be subject to the
provisions of this Sublease, including without limitation the payment of
rent.
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent,
without deduction, setoff, notice, or demand, at Larry Russo,
Schlumberger Resource Management Services, 1600 Alabama Hwy. 229,
Tallassee, AL 36076 or at such other place as Sublessor shall
designate from time to time by notice to Sublessee, the sum of Three
Thousand Six Hundred Fifty Dollars ($3,650.00) per month, in advance
on the first day of each month of the Term. Sublessee shall pay to
Sublessor upon execution of this Sublease the sum of Three Thousand
Six Hundred Fifty Dollars ($3,650.00) as rent for August 1998. If the
Term begins or ends on a day other than the first or last day of a
month, the rent for the partial months shall be prorated on a per diem
basis. Additional provisions:
----------------------------------------------------------------------
----------------------------------------------------------------------
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building
and/or project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance, then
Sublessee shall pay to Sublessor as additional rent One Hundred
percent (100%) of the amounts payable by Sublessor for Operating Costs
incurred during the Term. Such
1
<PAGE> 2
additional rent shall be payable as and when Operating Costs are payable by
Sublessor to Lessor. If the Master Lease provides for the payment by
Sublessor of Operating Costs on the basis of an estimate thereof, then as
and when adjustments between estimated and actual Operating Costs are made
under the Master Lease, the obligations of Sublessor and Sublessee
hereunder shall be adjusted in a like manner; and if any such adjustment
shall occur after the expiration or earlier termination of the Term, then
the obligations of Sublessor and Sublessee under this Subsection 6.2 shall
survive such expiration or termination. Sublessor shall, upon request by
Sublessee, furnish Sublessee with copies of all statements submitted by
Lessor of actual or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Four Thousand Three Hundred Fifty-Five Dollars ($4,355.00) as
security for Sublessee's faithful performance of Sublessee's obligations
hereunder ("Security Deposit"). If Sublessee fails to pay rent or other
charges when due under this Sublease, or fails to perform any of its other
obligations hereunder, Sublessor may use or apply all or any portion of the
Security Deposit for the payment of any rent or other amount then due
hereunder and unpaid, for the payment of any other sum for which Sublessor
may become obligated by reason of Sublessee's default or breach, or for any
loss or damage sustained by Sublessor as a result of Sublessee's default or
breach. If Sublessor so uses any portion of the Security Deposit, Sublessee
shall, within ten (10) days after written demand by Sublessor, restore the
Security Deposit to the full amount originally deposited, and Sublessee's
failure to do so shall constitute a default under this Sublease. Sublessor
shall not be required to keep the Security Deposit separate from its
general accounts, and shall have no obligation or liability for payment of
interest on the Security Deposit. In the event Sublessor assigns its
interest in this Sublease, Sublessor shall deliver to its assignee so much
of the Security Deposit as is then held by Sublessor. Within ten (10) days
after the Term has expired, or Sublessee has vacated the Premises, or any
final adjustment pursuant to Subsection 6.2 hereof has been made, whichever
shall last occur, and provided Sublessee is not then in default of any of
its obligations hereunder, the Security Deposit, or so much thereof as had
not theretofore been applied by Sublessor, shall be returned to Sublessee
or to the last assignee, if any, of Sublessee's interest hereunder.
8. USE OF PREMISES.
The Premises shall be used and occupied only for Administrative offices and
warehousing of office equipment and supplies unless Sublessee gets
Sublessor's approval of any change of use of the premises and for no other
use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master
Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder. Sublessee the lessee thereunder, and the Premises the Master
Premises except for the following;
Sublessee agrees to perform the lessee's obligations under the Master Lease
during the Term to the extent that such obligations are applicable to the
Premises and incorporated herein. Sublessee shall not commit or suffer any
act or omission that will violate any of the provisions of the Master
Lease. If the Master Lease terminates, this Sublease shall terminate and
the parties shall be relieved of any further liability or obligation under
this Sublease, provided however, that if the Master Lease terminates as a
result of a default or breach by Sublessor or Sublessee under this Sublease
and/or the Master Lease, then the defaulting party shall be liable to the
nondefaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, if the Master Lease gives
Sublessor any right to terminate the Master Lease in the event of the
partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
11. ATTORNEYS' FEES.
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorneys' fees.
12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except: CB
COMMERCIAL REAL ESTATE GROUP, INC., who represents Sublessor and Grubb &
Ellis, who represents Sublessee. In the event that CB COMMERCIAL REAL
ESTATE GROUP, INC. represents both Sublessor and Sublessee, Sublessor and
Sublessee hereby confirm that they were timely advised of the dual
representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential
information of the other party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with
Sublessor's contract with Broker for the subleasing of the Premises, if
any, and otherwise in the amount of Six Thousand One Hundred Thirty-Two and
00/100 Dollars ($6,132.00), for services rendered in effecting this
Sublease. Broker is hereby made a third party beneficiary of this Sublease
for the purpose of enforcing its right to said commission.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other or any and all notices of master Lessor
to Sublessor that may adversely affect Sublessee's right under Sublease
hereunder shall be in writing. All notices and demands by the Sublessor to
Sublessee shall be sent by United States Mail, postage prepaid, addressed
to the Sublessee at the Premises, and to the address hereinbelow, or to
such other place as Sublessee may from
2
<PAGE> 3
time to time designate in a notice to the Sublessor. All notices and
demands by the Sublessee to Sublessor shall be sent by United States Mail,
postage prepaid, addressed to the Sublessor at the address set forth
herein, and to such other person or place as the Sublessor may from time to
time designate in a notice to the Sublessee.
To Sublessor: Larry Russo, Schlumberger Resource Management Services, Inc.
1600 Alabama Hwy 229, Tallassee, AL 36076
To Sublessee: Cholestech, 3347 Investment Blvd., Hayward, CA 94545
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 15 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER
THE TERMS OF THE MASTER LEASE.
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment in Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and
The Americans With Disabilities Act.
Sublessor: Schlumberger Resource Management Sublessee: Cholestech Corporation
Services, Inc., a Delaware a California
Corporation Corporation
By: /s/ KENNETH PREVATTE By: /s/ STEVE BARBATO
---------------------------------------- ------------------------------
Title: Dir-Operations Title: VP of Operations
By: By: /s/ WARREN E. PINCKERT II
---------------------------------------- ------------------------------
Title:_____________________________________ Title: President
Date: 8/5/98 Date: 7/30/98
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease without waiver of any restriction in the Master Lease
concerning further assignment or subletting. Lessor certifies that, as of the
date of Lessor's execution hereof, Sublessor is not in default or breach of any
of the provisions of the Master Lease, and that the Master Lease has not been
amended or modified except as expressly set forth in the foregoing Sublease.
Lessor: Spieker Properties
By:________________________________________
Title:_____________________________________
By:________________________________________
Title:_____________________________________
Date:______________________________________
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISERS -- This document has been prepared for approval by your
attorney. No representations or recommendation is made by Broker as to the
legal sufficiency or tax consequences of this document or the transaction to
which it relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
17. CONDITION OF PROPERTIES:
Sublessee to take the premises on an "as-is" basis except for the
following:
1. Sublessor at Sublessor's sole cost and expense, shall clean carpets and
repaint office area.
3
<PAGE> 4
[LOGO] DISCLOSURES AND ACKNOWLEDGMENT
ADDENDUM TO LEASING LISTING AGREEMENT/LEASE & SUBLEASE AGREEMENT/
PROPOSAL TO LEASE
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
Date: January 23, 1998
Sublessor: Schlumberger Resource Management Services, Inc.
Sublessee: Cholestech Corporation
Property: 26254 Eden Landing Road, Hayward, CA
I. NOTIFICATION RE: NATIONAL FLOOD INSURANCE PROGRAM (CBC Form 5230)
This property [X} is / [ ] is not located in a Special Flood Hazard Area on
United States Department of Housing and Urban Development (HUD) "Special Flood
Zone Area Maps." Federal law requires that as a condition of obtaining federally
related financing on most properties located in "flood zones," banks, savings
and loan associations, and some insurance lender require flood insurance to be
carried where the property, real or personal, is security for a loan. This
requirement is mandated by the national Flood Insurance Act of 1968 and the
Flood Disaster Protection Act of 1973. The purpose of the program is to provide
flood insurance to property owners at a reasonable cost. Cities or counties
participating in the National Flood Insurance Program may have adopted building
or zoning restrictions, or other measures, as part of their participation in the
program. You should contact the city or county in which the property is located
to determine any such restrictions. The extent of coverage available in your
area and the cost of this coverage may vary, and for further information, you
should consult your lender or insurance carrier.
FLOOD ZONE DESIGNATION: ZONE: A1 SOURCE: Firm 0650330018D
II. ALQUIST-PRIOLO NOTIFICATION: ALQUIST-PRIOLO SPECIAL EARTHQUAKE FAULT ZONING
ACT (CBC Form 5228-5229) The Property described above [ ] is / [X] is not / [ ]
may or may not be situated in an Earthquake Fault Zone as designated under the
Alquist-Priolo Earthquake Fault Zoning Act, Sections 2621-2630, inclusive, of
the California Public Resources Code; and, as such, the construction or
development on the property of any structure for human occupancy may be subject
to the findings of a geologic report prepared by a geologist registered in the
State of California, unless such report is waived by the city or county under
the terms of that Act. No representations on the subject are made by Lessor or
by CB Commercial Real Estate Group, Inc. or its agents or employees and the
Lessee should make his/her/its own inquiry or investigation.
For further information, you may wish to contact appropriate city or county
agencies:
III. HAZARDOUS WASTES OR SUBSTANCES AND UNDERGROUND STORAGE TANKS
Comprehensive federal and state laws and regulations have been enacted in the
past several years in an effort to control the use, storage, handling, clean-up,
removal and disposal of hazardous wastes or substances. Some of these laws and
regulations (such as, for example, the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA)) provide for broad liability on the part
of owners, tenants, or other users of property for clean-up costs and damages,
regardless of fault. Another such statute is California Health and Safety Code
Section 25359.7(a), which provides in part that a Lessor of nonresidential real
property who knows, or has reasonable cause to believe, that any release of a
hazardous substance has come to be located on or beneath that real property
shall, prior to the Lease, give written notice of that condition to the Lessee;
and that failure of the Lessor to provide written notice as required shall
subject the Lessor to liability for damages. Other laws and regulations set
standards for the handling of asbestos, and establish requirements for the use,
modification, abandonment, and closure of underground storage tanks.
It is not practical or possible to list all such laws and regulations in this
Notice. Therefore, Lessors and Lessees are urged to consult legal counsel to
determine their respective rights and liabilities with respect to the issues
described in this Notice, as well as all other aspects of the proposed
transaction. If hazardous wastes or substances have been, or are going to be
used, stored, handled or disposed on the property, or if the Property has been
or may have underground storage tanks, it is essential that legal and technical
advice be obtained to determine, among other things, the nature of permits and
approvals which have been obtained or may be required; the estimated costs and
expenses associated with the use, storage, handling, clean-up, disposal or
removal of hazardous wastes or substances; and the nature and extent of
contractual provisions necessary or desirable in this transaction. Broker
recommends expert assistance and site investigation to determine past uses of
the property, which may provide valuable information as to the likelihood of
hazardous wastes or substances, or underground storage tanks, being on the
Property.
Lessor agrees to disclose to Broker and to Lessee any and all information which
he/she/it has regarding present and future zoning and environmental matters
affecting the Property and regarding the condition of the Property, including,
but not limited to structural, mechanical and soils conditions, the presence and
location of asbestos, PCB transformers, other toxic, hazardous or contaminated
substances, and underground storage tanks, in, on, or about the Property.
<PAGE> 5
Broker hereby requests that such information be provided immediately so that it
may be timely communicated to the Lessee. Broker has conducted no investigation
regarding the subject matter hereof, except as may be contained in a separate
written document signed by Broker. Broker makes no representations concerning
the existence or nonexistence of hazardous wastes or substances, or underground
storage tanks, in, on, or about the property. Lessee should contact a
professional, such as a civil engineer, industrial hygienist or other persons
with experience in these matters, to advise on these matters.
The term "hazardous wastes or substances" is used herein in its very broadest
sense and includes, but is not limited to, petroleum based products, paints and
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonium
compounds, asbestos, PCBs and other chemical products. Hazardous wastes or
substances and underground storage tanks may be present on all types of real
property. This Notice is intended to apply to any transaction involving any
type of real property, whether improved or unimproved.
IV. BROKER DISCLOSURE
The parties hereby expressly acknowledge that Broker has made no independent
determination or investigation regarding the following: present or future use or
zoning of the property; environmental matters affecting the Property; the
condition of the Property, including, but not limited to structural, mechanical
and soils conditions as well as issues surrounding hazardous wastes or
substances as set out above; violations of the Occupational Safety and Health
Act or any other federal, state, county or municipal laws, ordinance, or
statutes; measurements of land and/or buildings. Lessee agrees to make its own
investigation and determination regarding such items. A real estate broker is
qualified to advise on real estate. If you desire legal advice, consult your
attorney.
V. AMERICANS WITH DISABILITIES ACT (ADA)
Owners or tenants of real property may be subject to the Americans with
Disabilities Act (ADA), a federal law codified at 42 USC Section 12101 et seq.
Among other requirements of the ADA that could apply to your property, Title III
of the Act requires owners and tenants of "public accommodations" to remove
barriers to access by disabled persons and provide auxiliary aids and services
for hearing, vision or speech impaired persons. The regulations under Title III
of the ADA are codified at 28 CFR Part 36.
Broker recommends that you and your attorney review the ADA and the
regulations, and, if appropriate, your proposed lease or purchase and sale
agreement to determine if this would apply to you and the nature of the
requirements. Thee are legal issues. You are responsible for conducting your
own independent investigation of these issues.
VI. COMPLIANCE WITH LAWS
The parties hereto agree to comply with all applicable federal, state and local
laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment in Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and The
Americans With Disabilities Act.
RECEIPT OF A COPY OF THESE DISCLOSURES IS HEREBY ACKNOWLEDGED.
SUBLESSOR: Schlumberger Resource Management SUBLESSEE: Cholestech Corporation
Services, Inc.
By: /s/ KENNETH PREVATTE By: /s/ STEVE BARBATO
-------------------------------------- -------------------------------
Title: Dir. - Operations Title: VP of Operation
----------------------------------- ----------------------------
Date: 8/5/98 Date: 7/30/98
------------------------------------ -----------------------------
This portion to be completed in conjunction with negotiations and/or
consummation of lease or purchase and sale agreement.
VII. BROKER REPRESENTATION DISCLOSURE AND ACKNOWLEDGMENT
CB Richard Ellis, Inc. herein represents Sublessor.
Grubb & Ellis herein represents Sublessee.
/ / (check if applicable) Lessor and Lessee hereby acknowledge that Broker
represents both parties hereto; and both parties consent thereto.
/s/ KDP Sublessor's initials /s/ SLB Sublessee's initials
------- -------
- --------------------------------------------------------------------------------
Consult Your Advisors. No representation or recommendation is made by CB
Commercial Real Estate Group, Inc. or any of its agents or employees as to the
legal effect, interpretation, or economic consequences of this agreement, the
transaction contemplated hereunder, the national flood insurance program and
related legislation, nor of other legislation referred to herein. These are
questions that you should address with your consultants and advisors.
- --------------------------------------------------------------------------------
<PAGE> 6
EXHIBIT E
PREMISES/FLOOR PLAN
[DIAGRAM]
<PAGE> 7
FIRST ADDENDUM TO SUBLEASE
This First Addendum to Sublease (this "Addendum") is made by and between
Schlumberger Resource Management Services, Inc., a Delaware corporation
("Sublessor"), and Cholestech Corporation, a California corporation
("Sublessee"), to be a part of that certain Sublease of even date herewith
between Sublessor and Sublessee (the "Sublease"). Sublessor and Sublessee
agree that, notwithstanding anything to the contrary in the Sublease, the
Sublease is hereby modified and supplemented as set forth below. All terms
with initial capital letters used herein as defined terms shall have the
meanings ascribed to them in the Sublease unless specifically defined herein.
1. Condition of premises. Sublessor hereby represents that as of the
Commencement Date, to Sublessor's actual current knowledge as of the effective
date of this Addendum and without any obligation of investigation, (a) the
Premises are in good condition, (b) the Premises do not violate any applicable
building code regulation or ordinance and (c) the heating, ventilating and air
conditioning systems serving the Premises are in good condition, working order
and repair.
2. Other Provisions of Sublease. The provisions of the Master Lease
shall be incorporated into the Sublease, except as follows: (a) the following
portions of the Master Lease shall not be incorporated; Basic Lease Information
and Sections 2, 3, 6, 19 and 32; and (b) references to Landlord in Sections 20,
24, 28 and 29 shall mean Lessor only.
3. Assignment and Subletting. Sublessee, without Sublessor's prior
written consent, subject, however, to Master Lessor's consent (if required), may
sublet the Premises or assign the Sublease to: (a) a corporation controlling,
controlled by or under common control with Sublessee; (b) a corporation related
to Sublessee by merger, consolidation or non-bankruptcy reorganization; or (c) a
purchaser of substantially all of Sublessee's assets. Sublessee shall not,
however, be relieved of its primary obligations under the Sublease. A sale of
Sublessee's capital stock shall not be deemed an assignment, subletting or other
transfer of the Sublease or the Premises.
4. Rental Adjustments. In no event shall Sublessee's obligation to pay
Basic Operating Costs exceed the amount of Basic Operating Costs due and
payable by Sublessor under the Master Lease. Sublease shall pay Sublessee's
share of such expenses as and when the same are due and payable to Lessor under
the Master Lease. Sublessee shall be entitled to its pro rata share of all
credits, if any, given by Lessor to Sublessor for Sublessor's overpayment of
such expenses.
5. Surrender of Premises. Subject to Sublessee's indemnification
obligations and obligations with respect to hazardous materials under the
Sublease and the terms of the Master Lease incorporated herein, in no event
shall Sublessee's obligations to surrender the Premises require Sublessee to
repair or restore the Premises to a condition better than the condition in
which the Premises existed as of the commencement date of the Sublease and
sublessee shall only be responsible for repairing or restoring those elements
of the Premises damaged during the Sublease Term or caused by Sublessee.
Additionally, Sublessee shall not be required to remove at the expiration of
the Sublease term or otherwise, alterations or improvements to the Premises
made by or for the account of Sublessor.
6. Sublessor's Obligations. Sublessor shall not, without Sublessee's
prior written consent (which consent shall not be unreasonably withheld),
terminate the Master Lease, commit any acts that would entitle Lessor to
terminate the Master Lease, or amend or waive any provisions of the Master
Lease or make any elections, exercise any right or remedy or give any consent
or approval under the Master Lease that would materially affect Sublessee's
rights under the Sublease. Sublessor may, however, exercise any termination
rights under the Master Lease with respect to casualty or condemnation.
Sublessor, with respect to the obligations of Lessor under the Master Lease,
shall use Sublessor's reasonable efforts, at Sublessee's sole cost and expense,
to cause Lessor to perform such obligations for the benefit of Sublessee. Such
reasonable efforts shall include, without limitation: (a) upon Sublessee's
written request, immediately notifying Lessor of its nonperformance under the
Master Lease, and requesting that Lessor perform its obligations under the
Master Lease; and (b) with Sublessor's prior written consent (which consent
shall not be unreasonably withheld), permitting Sublessee to commence a lawsuit
or other action in Sublessee's name to obtain the performance required from
Lessor under the Master Lease; provided, however, that if Sublessee commences a
lawsuit or other action, Sublessee shall pay all costs and expenses incurred in
connection therewith, and Sublessee shall indemnify Sublessor against, and hold
Sublessor harmless from, all reasonable costs and expenses incurred by
Sublessor in connection therewith.
7. Quiet Enjoyment. Sublessee shall peacefully have, hold and enjoy the
Premises, subject to the terms and conditions of the Sublease, provided that
there is not an event of default by Sublessee. Sublessor shall fully perform
all of its obligations under the Master Lease to the extent Sublessee has not
expressly agreed to perform such obligations under the Sublease. In the event,
however, that Sublessor defaults in the performance or observance of any of
Sublessor's remaining obligations under the Master Lease or fails to perform
Sublessor's stated obligations under the Sublease or to enforce, for
Sublessee's benefit, Lessor's obligations under the Master Lease, then
Sublessee shall give Sublessor notice specifying in what manner Sublessor has
defaulted, and if such default shall not be cured by Sublessor within thirty
(30)
<PAGE> 8
days thereafter (except that if such default cannot be cured within said thirty
(30) period, this period shall be extended for an additional reasonable time,
provided that Sublessor commences to cure such default within such thirty (30)
day period and proceeds diligently thereafter to effect such cure as quickly as
possible), then Sublessee shall be entitled to cure such default and promptly
collect from Sublessor, Sublessee's reasonable expenses in so doing (including,
without limitation, reasonable attorneys' fees and court costs), or, at
Sublessee's option, to offset such reasonable expenses against all future
payments of rent and additional rent due under the Sublease. Sublessee shall not
be required, however, to wait the entire cure period described herein if earlier
action is required to comply with the Master Lease or with any applicable
governmental law, regulation or order.
8. Rights under Master Lease. Sublessor, at Sublessee's sole cost and
expense, shall reasonably cooperate with Sublessee to enforce all warranties and
indemnities given or made by Lessor to Sublessor under the Master Lease which
would reduce Sublessee's obligations hereunder.
9. Notice. All notices and demands sent by United States Mail shall be
deemed delivered three (3) business days after mailing.
10. Approvals. Whenever the Sublease requires an approval, consent,
designation, determination, selection or judgment by either Sublessor or
Sublessee, such approval, consent, designation, determination, selection or
judgment, and any conditions imposed thereby shall be reasonable and shall not
be unreasonably withheld or delayed and, in exercising any right or remedy
hereunder, each party shall at all times act reasonably and in good faith.
SUBLESSOR: SUBLESSEE:
SCHLUMBERGER RESOURCE CHOLESTECH CORPORATION,
MANAGEMENT SERVICES, INC., a California corporation
a Delaware corporation
By /s/ KENNETH PREVATE By /s/ STEVE BARBATO
------------------------ --------------------------------
Name Kenneth Prevatte Name Steve Barbato
----------------------- ------------------------------
Title Director - Operations Title Vice President of Operations
---------------------- -----------------------------
Dated 8/5/98 Dated 7/30/98
---------------------- -----------------------------
By /s/ WARREN E. PINCKERT II
--------------------------------
Name Warren E. Pinckert II
------------------------------
Title President
-----------------------------
Date 7/31/98
------------------------------
<PAGE> 1
EXHIBIT 10.3.3
CONSENT TO SUBLEASE AGREEMENT
This Consent to Sublease Agreement (this "Agreement") is made as of June
24, 1998 by and among Spieker Properties, L.P., a California limited
partnership ("Landlord"), Schlumberger Resource Management Services, Inc., a
Delaware corporation, ("Sublandlord"), and Cholestech Corporation, a California
corporation ("Subtenant").
RECITALS
This Agreement is made with regard to the following facts:
A. Landlord and Sublandlord, as tenant, entered into a Lease dated June
24, 1997, (the "Lease"), for premises located at 26254 Eden Landing Rd, Hayward
CA (the "Premises") in the office building commonly known as Bay Center
Business Park I (the "Building"). Initially capitalized terms not otherwise
defined herein shall have the same meanings as described in the Lease.
B. Under the terms of Paragraph 21 of the Lease, Sublandlord has
requested Landlord's consent to the Sublease Agreement dated June 12, 1998
between Sublandlord and Subtenant (the "Sublease"), which would sublease to
Subtenant the Premises, as more particular described in the Sublease (the
"Subleased Premises"). A copy of the Sublease is attached to this Agreement as
Exhibit A.
C. Landlord is willing to consent to the Sublease on the terms and
conditions contained in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for valuable consideration, the receipt and sufficiency of which
are acknowledged by the parties, the parties agree as follows.
1. LANDLORD'S CONSENT. Landlord consents to the Sublease. This
consent is granted only on the terms and conditions stated in this Agreement.
Landlord is not bound by any of the terms, covenants, or conditions of the
Sublease. The Sublease is subject and subordinate to the Lease. The Sublease
shall not be extended or amended without the prior written approval of
Landlord. Subtenant understands that notwithstanding a copy of the Sublease
being furnished to Landlord, and notwithstanding that its consent to the
Sublease is given in this Agreement, Landlord's contractual obligations as
landlord are solely to Sublandlord, and not to Subtenant, and Subtenant agrees
to look solely to Sublandlord for any breach or violation of the Sublease.
2. LIMITS OF CONSENT.
2.1 NONRELEASE OF SUBLANDLORD; FURTHER TRANSFERS; RECAPTURE
RIGHTS. Neither the Sublease nor this Agreement will:
(a) release Sublandlord from any liability, whether past,
present or future, under the Lease;
(b) after the primary liability of Sublandlord to pay the
Rent and perform all of the Tenant's obligations under the Lease (including
the payment of all bills rendered by Landlord for charges incurred by Subtenant
for services and materials supplied to the Subleased Premises);
(c) be construed as a waiver of Landlord's right to
consent to any proposed assignment, subletting or other transfer after the date
hereof by Sublandlord under the Lease or Subtenant under the Sublease, or as a
consent to any portion of the Subleased Premises being sued or occupied by any
other party; or
(d) limit Landlord's right, in the event of a proposed
future assignment or sublease, in recapture any portion of the Premises,
including the Subleased Premises, affected by that proposed sublease, as
provided in Paragraph 21 of the Lease; or
(e) constitute an assignment or partial assignment of any
rights under the Lease; or
(f) constitute any amendment, express or implied, of the
Lease.
Landlord may consent to any subsequent sublease and assignment of the
Sublease or any amendments or modifications to the Sublease without notifying
Sublandlord or anyone else liable under the Lease, including any guarantor of
the Lease, and without obtaining their consent. No such action by Landlord will
relieve any such persons from any liability to Landlord or otherwise with
regard to the Subleased Premises.
2.2 DENIAL OF CONSENT TO CERTAIN PROVISIONS. Landlord
specifically denies its consent to the following provisions of the Sublease.
Consent by Landlord to this subletting shall not include consent to the
assignment or transferring of any lease renewal, expansion or other option
rights, or any special privileges or extra services granted to Sublandlord by
the Lease, or addendum or amendment hereto or letter of agreement (and such
options, rights, privileges or services shall terminate upon such assignment or
transfer. Those provisions will not be binding on the Landlord in the event of
an attornment between Landlord and Subtenant.
<PAGE> 2
3. RELATIONSHIP WITH LANDLORD.
3.1 ASSIGNMENT OF TENANT'S INTEREST TO LANDLORD. Sublandlord
assigns and transfers to Landlord Tenant's interest in the Sublease and all
rentals and income arising from the Sublease, subject to the terms of this
Section 3. Landlord, by consenting to the Sublease, agrees that, until
Sublandlord defaults in performing its obligations under the Lease, Sublandlord
may receive, collect, and enjoy the rents accruing under the Sublease provided
that ninety percent (90%) of such rents and any other consideration realized by
Sublandlord under the Sublease in excess of the Rent payable under the Lease,
after amortization of a reasonable assignment and subletting costs by
Sublandlord, shall be paid to Landlord in accordance with Paragraph 21.B of the
Lease.
3.2 EFFECT OF SUBLANDLORD DEFAULT UNDER LEASE. If Sublandlord
defaults in the performance of its obligations to Landlord under the Lease
(whether or not Landlord terminates the Lease), if such default is not cured
within the applicable time period (if any) set forth in the Lease, Landlord
may, at its option by notice to Sublandlord, do either of the following:
(h) elect to receive and collect, directly from Subtenant,
all rent and any other sums owing and to be owed under the Sublease, as further
set forth in Section 3.3, below, without, however, waiving any of Landlord's
rights against Sublandlord as a result of such default.
3.3 LANDLORD'S ELECTION TO RECEIVE RENTS. Landlord will not, as a
result of the Sublease, or as a result of the collection of rents or any other
sums from Subtenant under Section 3.1 or 3.2(b), above, be liable to Subtenant
for any failure of Sublandlord to perform any obligation of Sublandlord under
the Sublease.
Sublandlord irrevocably authorizes and directs Subtenant, on receipt of
any written notice from Landlord stating that a default exists in the
performance of Sublandlord's obligations under the Lease, to pay to Landlord
the rents and any other sums due and to become due under the Sublease.
Sublandlord agrees that Subtenant has the right to rely on any such statement
from Landlord, and that Subtenant will pay those rents and other sums to
Landlord without any obligation or right to inquire as to whether a default
exists and despite any notice or claim from Sublandlord to the contrary,
Sublandlord will not have any right or claim against Subtenant for those rents
or other sums paid by Subtenant to Landlord pursuant to any such notice from
Landlord. Landlord will credit Sublandlord with any rent received by Landlord
under this assignment, but the acceptance of any payment on account of rent
from Subtenant as the result of a default by Sublandlord will not: (a) be an
attornment by Landlord to Subtenant or by Subtenant to Landlord; (b) be a
waiver by Landlord of any provision of the Lease; or (c) release Sublandlord
from any liability under the terms, agreements, or conditions of the Lease. No
payment of rent by Subtenant directly to Landlord, regardless of the
circumstances or reasons for that payment, will be deemed an attornment by
Subtenant to Landlord in the absence of a specific written agreement signed by
Landlord to that effect.
3.4 LANDLORD'S ELECTION OF TENANT'S ATTORNMENT. In the event the
Lease is terminated prior to the expiration of the term of the Sublease,
Landlord shall have the right, at Landlord's option, pursuant to notice to
Subtenant, to succeed to Sublandlord's interest in the Sublease and cause
Subtenant to attorn to Landlord. Landlord will prior to the expiration of the
term of the Sublease, Landlord shall have the right, at Landlord's option,
pursuant to notice to Subtenant, to succeed to Sublandlord's interest in the
Sublease and cause Subtenant to attorn to Landlord. Landlord will assume the
obligations of Sublandlord under the Sublease [(except as provided in Section
2.2 above)] from the time of the exercise of the option, but Landlord will not
be:
(a) liable for any rent paid by Subtenant to Sublandlord
more than one month in advance, of any security deposit paid by Subtenant to
Sublandlord;
(b) liable for any act or omission of Sublandlord under the
Lease or for any default of Sublandlord under the Sublease which occurred prior
to the Landlord's assumption;
(c) subject to any defenses or offsets that Subtenant may
have against Sublandlord which arose prior to Landlord's assumption; or
(d) bound by any changes or modifications made to the
Sublease without the prior written consent of Landlord.
4. CONSIDERATION FOR SUBLEASE. Sublandlord and Subtenant represent and
warrant that there are no additional payments of rent or any other
consideration of any type which has been paid or is payable by Subtenant to
Sublandlord in connection with the Sublease, other than as disclosed in the
Sublease.
5. GENERAL PROVISIONS.
5.1 BROKERAGE COMMISSION. Sublandlord and Subtenant agree that
Landlord will not be liable for any brokerage commission or finder's fee in
connection with the consummation of the Sublease or this Agreement. Sublandlord
and Subtenant will protect, defend, indemnify, and hold Landlord harmless from
any brokerage commission or finder's fee in connection with the consummation of
the Sublease or this Agreement, and from any cost or expense (including
attorneys' fees and costs) incurred by Landlord in resisting any claim for any
such brokerage commission or finder's fee. The provisions of this Section 5.1
shall survive the expiration or earlier termination of the Sublease and this
Agreement.
5.2 NOTICE. Any notice that may or must be given by any party
under this Agreement will be delivered (i) personally, (ii) by certified mail,
return receipt requested, or (iii) by a nationally recognized overnight
2
<PAGE> 3
courier, addressed to the party to whom it is intended. Any notice given to the
Landlord, Sublandlord or Subtenant shall be sent to the respective address set
forth on the signature page below, or to such other address as that party may
designate for service of notice by a notice given in accordance with the
provisions of this Section 5.2. A notice sent pursuant to the terms of this
Section 5.2 shall be deemed delivered (a) when delivery is attempted, if
delivered personally, (b) three (3) business days after deposit into the United
States mail, or (c) the day following deposit with a nationally recognized
overnight courier.
5.3 CONTROLLING LAW. The terms and provisions of this Agreement will be
construed in accordance with, and will be governed by, the laws of the State of
California.
5.4 ENTIRE AGREEMENTS WAIVER. In the event of any conflict between the
terms and provisions of the Lease and the Sublease, the terms and provisions of
the Lease shall control. This Agreement constitutes the final, complete and
exclusive statement between the parties to this Agreement pertaining to the
terms of Landlord's consent to the Sublease, supersedes all prior and
contemporaneous understandings or agreements of the parties, and (subject to
the provisions of Paragraph 21 of the Lease and Section 2.1 above) is binding
on and inures to the benefit of their respective heirs, representatives,
successors and assigns. No party has been induced to enter into this Agreement
by, nor is any party relying on, any representation or warranty outside those
expressly set forth in this Agreement. Any agreement made after the date of
this Agreement is ineffective to modify, waive, or terminate this Agreement, in
whole or part, unless that agreement is in writing, is signed by the parties to
this Agreement, and specifically states that that agreement modifies this
Agreement.
5.5 PARTIAL INVALIDITY. If any term, covenant, or condition in this
Agreement is, to any extent, held by a court of competent jurisdiction to be
invalid or unenforceable, the remainder of this Agreement, or the application
of that term, covenant, or condition to persons or circumstances other than
those as to which it is held to be invalid or unenforceable, will not be
affected by that invalidity or unenforceability, and all other terms,
covenants, and conditions of this Agreement will be valid and enforceable to
the fullest extent permitted by law.
5.6 WAIVER OF JURY TRIAL; ATTORNEY FEES. If any party commences
litigation against any other party for the specific performance of this
Agreement, for damages for the breach hereof or otherwise for enforcement of
any remedy hereunder, the parties waive any right to a trial by jury and, in
the event of any commencement of litigation, the prevailing party shall be
entitled to recover from the applicable party such costs and reasonable
attorneys' fees and costs as may have been incurred.
5.7 LIMITATION OF LANDLORD'S LIABILITY. Redress for any claims against
Landlord under the Lease or this Agreement shall be limited as provided in
Paragraph 20 of the Lease.
5.8 See below
The parties have executed this Consent to Sublease Agreement as of the
above date.
LANDLORD: Landlord Address:
Spieker Properties, L.P., _________________________________
a California Limited Partnership _________________________________
_________________________________
_________________________________
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By:______________________
Its:__________________
SUBLANDLORD: Sublandlord Address:
Schlumberger Resource Management 5430 Metric Pl. #300
Services, Inc. Norcross, GA 30092
By: /s/ KENNETH PREVATTE
-----------------------
Its: Dir.- Operations
SUBTENANT: Subtenant Address:
Cholestech corporation 3347 Investment Blvd.
a California Corporation Hayward, CA 94545
By: /s/ STEVE BARBATO
-----------------------
Its: VP of Operations
/s/ WARREN E. PINCKERT
-----------------------
President
5.8 The Waiver of Subrogation set forth in section 9 of the Master Lease
shall apply as between Landlord and both Tenant and Subtenant.
3
<PAGE> 4
BASIC LEASE INFORMATION
Lease Data: June 24, 1997
Tenant: Schlumberger Industries, Inc.
A Delaware Corporation
Address of Tenant: 26254 Eden Landing Road
Hayward, California
Landlord: Spieker Properties, L.P.
A California Limited Partnership
Address of Landlord: 2200 Powell Street, Suite 325
Emeryville, California 94608
Project Description: An approximately 148,665 square foot project
located Hayward, California and more commonly
known as Bay Center Business Park I, as outlined in
green on Exhibit "A".
Building Description: An approximately 26,639 square foot building and an
approximately 20,700 square foot building
designated as Building "A" and Building "B"
respectively, located in Bay Center Business Park I
as outlined in blue on Exhibit "A".
Premises: Approximately 5,800 square feet, more or less, of
office and warehouse space located in Building "A"
and approximately 900 square feet, more or less, of
storage space located in Building "B" of Bay Center
Business Park I, as outlined in red on Exhibit "A".
Permitted Uses: General office and warehouse.
Occupancy Density: Twelve (12) people
Scheduled Term
Commencement Date: July 1, 1997
Length of Term: Three (3) years
Rent:
Base Rent: Months Base Rent
------ ---------
1-12 $3,685 per month ($.55/sf/mo)
13-24 $3,819 per month ($.57/sf/mo)
25-36 $3,953 per month ($.59/sf/mo)
Estimated First
Year Basic
Operating Cost: $670 per month.
Security Deposit: $4,355
Tenant's Proportionate
Share: 21.77% of Building "A".
4.35 of Building "B".
4.51% of Project.
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
Page 1
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Basic Lease Information 1
Table of Contents 2
1. Premises 3
2. Possession and Lease Commencement 3
3. Term 3
4. Use 3
5. Rules and Regulations 4
6. Rent 4
7. Basic Operating Cost 4
8. Insurance and Indemnification 6
9. Waiver of Subrogation 7
10. Landlord's Repairs and Services 7
11. Tenant's Repairs 7
12. Alterations 7
13. Signs 8
14. Inspection/Posting Notices 8
15. Utilities 8
16. Subordination 8
17. Financial Statements 8
18. Estoppel Certificate 9
19. Security Deposit 9
20. Tenant's Remedies 9
21. Assignment and Subletting 9
22. Quiet Enjoyment 9
23. Condemnation 10
24. Casualty Damage 10
25. Holding Over 10
26. Default 11
27. Liens 12
28. Substitution 12
29. Transfers by Landlord 12
30. Right of Landlord to Perform Tenant's Covenants 12
31. Waiver 12
32. Notices 13
33. Attorneys' Fees 13
34. Successors and Assigns 13
35. Force Majeure 13
36. Miscellaneous 13
37. Additional Provisions 13
</TABLE>
EXHIBIT "A" Site Plan
Page 2
<PAGE> 6
LEASE
THIS LEASE is made as of this 24th day of June, 1997, between Spieker
Properties, L.P. (hereinafter called "Landlord") and Schlumberger Industries,
Inc. a Delaware Corporation (hereinafter called "Tenant").
PREMISES
1. Landlord leases to Tenant and tenant leases from Landlord, upon the terms
and conditions hereafter set forth, those premises (the "Premises")
outlined in red on Exhibit "A" and described in the Basic Lease
Information. The Premises may be all or part of the building (the
"Building") or of the project (the "Project") which may consist of more
than one building. The Building and Project are outlined in blue and green
respectively on Exhibit "A".
POSSESSION
AND LEASE
COMMENCEMENT
2. A. In the event this Lease pertains to a Premises in which the interior
improvements have already been constructed (existing improvements), the
provisions of this subparagraph 2.A. shall apply and the Term Commencement
Date shall be the earlier of the date on which (1) Tenant takes possession
of some or all of the Premises, or (2) Landlord delivers the Premises to
Tenant. If for any reason Landlord cannot deliver possession of the
Premises to Tenant on the Scheduled Term Commencement Date, Landlord shall
not be subject to any liability therefor, nor shall Landlord be in default
hereunder, and Tenant agrees to accept possession of the Premises at such
time as Landlord is able to deliver the same, which date shall then be
deemed the Term Commencement Date. Tenant shall not be liable for any Rent
for any period prior to delivery of the Premises. Tenant acknowledges that
it has inspected and accepts the Premises in their present condition as
suitable for the purpose for which the Premises are leased. Tenant agrees
that said Premises and other improvements are in good and satisfactory
condition as of when possession was taken. Tenant further acknowledges that
no representations as to the condition or repair of the Premises, nor
promises to alter, remodel, or improve the Premises have been made by
Landlord, unless such are expressly set forth in this Lease. Tenant shall,
upon demand, execute and deliver to Landlord a letter of acceptance of
delivery of the Premises.
B. In the event this Lease pertains to a Building to be constructed or
improvements to be constructed within a Building, the provisions of this
subparagraph 2.B. shall apply in lieu of the provisions of subparagraph
2.A. above and the Term Commencement Date shall be the earlier of the date
on which (1) Tenant takes possession of some or all of the Premises, or (2)
the improvements constructed or to be constructed in the Premises shall
have been substantially completed in accordance with the plans and
specifications described on Exhibit "B" attached hereto and incorporated
herein by reference, whether or not substantial completion of the Building
itself shall have occurred. In the event of any dispute as to substantial
completion of work performed or required to be performed by Landlord, the
certificate of Landlord's architect or general contractor shall be
conclusive. Substantial completion shall have occurred notwithstanding a
requirement for Landlord to complete punch list items or similar corrective
work. Tenant shall, upon demand, execute and deliver to Landlord a letter
of acceptance of delivery of the Premises.
TERM
3. The Term of this Lease shall commence on the Term Commencement Date and
continue in full force and effect for the number of months specified as the
Length and Term in the Basic Lease information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a
date other than the first day of the calendar month, the Term shall be the
number of months of the Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date.
USE
4. A. Tenant shall use the Premises for the Permitted Use and for no other use
or purpose without prior written consent of Landlord. No increase in the
Occupant Density of the Premises shall be made without the prior written
consent of Landlord. Tenant and its employees, customers, visitors, and
licensees shall have the non-exclusive right to use, in common with other
parties occupying the Buildings or Project, the parking areas and driveways
of the Project, subject to such reasonable rules and regulations as
Landlord may from time to time prescribe.
B. Tenant shall not permit any odors, smoke, dust, gas, substances, noise
or vibrations to emanate from the Premises, nor take any action which would
constitute a nuisance or would disturb, obstruct or endanger any other
tenants of the Building or Project in which the Premises are situated or
unreasonably interfere with their use of their respective premises. Tenant
shall not receive, store or otherwise handle any product, material or
merchandise which is toxic, harmful, explosive, highly inflammable or
combustible. Storage outside the Premises of materials, vehicles or any
other items Landlord deems objectionable is prohibited without Landlord's
prior written consent. Tenant shall not use or allow the Premises to be
used for any improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer the commission of any waste in,
on or about the Premises. Tenant shall not allow any sale by auction upon
the Premises, or place any loads upon the floors, walls or ceilings which
endanger the structure, or place any harmful liquids in the drainage system
of the Building or Project. No waste, materials or refuse shall be dumped
upon or permitted to remain outside the Premises except in trash containers
placed inside exterior enclosures designated for that purpose by Landlord.
C. Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may
hereafter be canceled or promulgated. Tenant shall at its sole cost and
expense obtain any and all licenses or permits necessary for Tenant's use
of the Premises. Tenant shall promptly comply with the requirements of any
board of fire underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or occupancy of the
Premises. The judgment of any court of competent jurisdiction or the
admission of Tenant in any actions against Tenant, whether Landlord be a
party thereto or not, that Tenant has so violated any such law, statute,
ordinance, rule, regulation or requirement, shall be conclusive of such
violation as between Landlord and Tenant. Tenant shall not do or permit
anything to be done in, on or about the Premises or bring or keep anything
which will in any way increase the rate of any
Page 3
<PAGE> 7
insurance upon the Premises, Building or Project, or upon
any contents therein or cause a cancellation of said
insurance or otherwise affect said insurance in any manner.
Tenant shall indemnify Landlord and hold Landlord harmless
against any loss, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply
with any applicable law or comply with the requirements as
set forth in this Section 4.C.
RULES AND
REGULATIONS 5. Tenant and Tenant's agents, employees, and invitees shall
faithfully observe and comply with any rules and regulations
Landlord may from time to time prescribe in writing for the
purpose of maintaining the proper care, cleanliness, safety,
traffic flow and general order of the Premises or Project.
Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the
Building or Project with any of the rules and regulations.
RENT 6. Tenant shall pay to Landlord, without demand throughout the
term, Rent as specified in the Basic Lease Information,
payable in monthly installments in advance on or before the
first day of each calendar month, in lawful money of the
United States, without deduction or offset whatsoever to
Landlord at the address specified in the Basic Lease
Information or to such other firm or to such other place as
Landlord may from time to time designate in writing. Rent
for the first full month of the Term shall be paid by Tenant
upon Tenant's execution of this Lease. If the obligation for
payment of Rent commences on other than the first day of a
month, then Rent shall be prorated and the prorated
installment shall be paid on the first day of the calendar
month next succeeding the Term Commencement Date.
BASIC
OPERATING
COSTS 7. A. BASIC OPERATING COST. In addition to the Base Rent
required to be paid hereunder, Tenant shall pay as
additional Rent, Tenant's Proportionate Share, as defined in
the Basic Lease Information of Basic Operating Cost in the
manner set forth below. Basic Operating Cost shall mean all
expenses and costs of every kind and nature which Landlord
shall pay or become obligated to pay and actually pays at a
later date because of or in connection with the management,
maintenance, preservation and operation of the Project and
its supporting facilities servicing the Project (determined
in accordance with generally accepted accounting principles,
consistently applied) including, but not limited to, the
following:
(1) All real estate taxes, possessory interest taxes,
business or license taxes or fees, service payment in lieu
of such taxes or fees, annual or periodic license or use
fees, excises, transit charges, housing fund assessments,
open space charge, assessments, levies, fees or charges,
general and special, ordinary and extraordinary, unforeseen
as well as foreseen, of any kind (including fees "in-lieu"
of any such tax or assessment) which are assessed, levied,
charged, confirmed, or imposed by any public authority upon
the Project, its operations or the rent (or any portion or
component thereof), except (a) inheritance or estate taxes
imposed upon or assessed against the Project, or any part
thereof or interest therein, and (b) taxes computed on the
basis of the net income of Landlord or the owner of any
interest therein.
(2) All insurance premiums and costs, including, but
not limited to, any deductible amounts, premiums and cost of
fire, casualty and liability coverage, rental abatement and
special hazard insurance applicable to the Project and
Landlord's personal property used in connection therewith;
provided, however, that Landlord may, but shall not be
obligated to, carry special hazard insurance covering losses
caused by casualty not insured under standard fire and
extended coverage insurance.
(3) Repairs, replacements and general maintenance for
the Premises, Building and Project (except for those repairs
expressly the responsibility of Landlord, those repairs paid
for by proceeds of insurance or by Tenant or other third
parties and alterations attributable solely to tenants of
the Project other than Tenant).
(4) All maintenance, janitorial and service agreements
and costs of supplies and equipment used in maintaining the
Premises, Building and Project and the equipment therein and
the adjacent sidewalks, driveways, parking and service
areas, including, without limitation, alarm service, window
cleaning, elevator maintenance, Building exterior
maintenance and landscaping.
(5) Utilities which benefit all or a portion of the
Premises.
(6) A management and accounting cost recovery equal to
ten percent (10%) of Basic Operating Costs.
Notwithstanding the foregoing, the term Basic Operating Cost
shall not include, and Landlord expressly agrees that Tenant
shall not be charged for, the following items:
(1) Capital improvements made to the Project except
for items which, though capital for accounting purposes, are
properly considered maintenance and repair items, including
without limitation, painting of common areas, replacement of
carpet in elevator lobbies.
(2) Repair, replacements and general maintenance
covered by proceeds of insurance or by Tenant or other third
parties and alterations attributable solely to tenants of
the Project.
(3) Interest, amortization or other payments or loans
to Landlord.
(4) Depreciation of the Buildings or the Project.
(5) Leasing commissions.
(6) Legal expenses, other than those incurred for the
general benefit of the Project's tenants (e.g., tax
disputes).
Page 4
<PAGE> 8
(7) Renovating or otherwise improving space for
occupants of the Project or vacant space in the Project.
(8) Federal and state income taxes imposed on or
measured by the income of Landlord from the operation of the
Project.
(9) Fines or costs due to violations of law unless
directly related to Tenant's use of the Premises.
(10) The cost of any work or services performed for any
tenants (including Tenant) at such tenant's cost.
(11) The wages and salaries of any supervisory or
management employee of Landlord not involved in the
operation or maintenance of the Project and wages and
salaries for any personnel above the grade of building
manager.
(12) Costs of space planning, tenant improvements,
marketing expenses and leasing expenses and commissions or
the cost of any repairs, alterations, additions, changes,
replacements and other items which are made for another
tenant's premises or in order to prepare for a tenant's
occupancy or renewal.
(13) Mark-ups on electricity in excess of Landlord's
costs and any charges for electricity and other utilities
separately metered to other tenants.
(14) Ground lease rents or charges.
(15) Prepayments (including prepayments of taxes) when
such payments may be and are customarily paid in
installments.
(16) Hazardous waste materials or substance compliance
caused prior to lease execution unless directly related to
Tenant's use of the Premises.
(17) Any costs incurred by Landlord and payable to
subsidiaries or affiliates of Landlord and in excess of the
market rate for the services or materials provided.
(18) Services provided to only some tenants and which
are not standard to the Project or Premises therein without
additional charge therefor.
(19) The cost of repairing or curing defects in other
tenant's tenant improvements.
(20) Any expenses attributable to Landlord or its
agents, employees' or contractors' gross negligence or
intentional wrongful acts or omissions.
(21) The cost of installing, operating and maintaining
any specialty service or improvement, such as a cafeteria,
luncheon or dining facility or recreational club or health
club.
(22) The cost of repair and/or restoration in
accordance with the provisions of the Lease relating to
casualty or condemnation.
(23) Any penalties or interest for late payments on
any such items, including without limitation, taxes,
utilities services and/or assessments.
(24) Costs and expenses for repairs or maintenance
covered by warranties, guarantees or service contracts.
In the event that the Building and/or Project is not fully
occupied during any fiscal year of the Term as determined by
Landlord, an adjustment shall be made in computing the Basic
Operating Cost for such year so that Tenant pays an
equitable portion of all variable items (i.e., component
expenses that are affected by variations in occupancy
levels) of Basic Operating Cost, as reasonably determined
by Landlord; provided, however, that in no event shall
Landlord be entitled to collect in excess of one hundred
percent (100%) of the total Basic Operating Cost from all of
the tenants in the Building or Project, as the case may be.
All costs and expenses shall be determined in accordance
with generally accepted accounting principles which shall be
consistently applied. Basic Operating Cost shall not include
specific costs incurred for the account of, separately
billed to and paid by specific tenants. Notwithstanding
anything herein to the contrary, any instance wherein
Landlord, at Landlord's reasonable discretion, deems Tenant
to be solely responsible for any amounts substantially
greater than its Proportionate Share, Landlord shall have
the right to allocate costs in any manner Landlord deems
reasonably appropriate.
B. PAYMENT OF ESTIMATED BASIC OPERATING COST. "Estimated
Basic Operating Cost" for any particular year shall mean
Landlord's estimate of the Basic Operating Cost for such
fiscal year made prior to commencement of such fiscal year
as hereinafter provided. Landlord shall have the right from
time to time
Page 5
<PAGE> 9
to revise its fiscal year and interim accounting periods so
long as the periods as so revised are reconciled with prior
periods in accordance with generally accepted accounting
principles applied in a consistent manner. During the last
month of each fiscal year during the Term, or as soon
thereafter as practicable, Landlord shall give Tenant
written notice of the Estimated Basic Operating Cost for
ensuing fiscal year. Tenant shall pay Tenant's Proportionate
Share of the Estimated Basic Operating Costs with
installments of Base Rent for the fiscal year to which the
Estimated Basic Operating Costs applies in monthly
installments on the first day of each calendar month during
such year, in advance. If at any time during the course of
the fiscal year, Landlord determines that Basic Operating
Cost will apparently vary from the then Estimated Basic
Operating Cost by more than ten percent (10%). Landlord
may, by written notice to Tenant, revise the Estimated Basic
Operating Cost for the balance of such fiscal year and
Tenant shall pay Tenant's Proportionate Share of the
Estimated Basic Operating Cost as so revised for the balance
of the then current fiscal year on the first of each
calendar month thereafter.
C. COMPUTATION OF BASIC OPERATING COST ADJUSTMENT. "Basic
Operating Cost Adjustment" shall mean the difference between
Estimated Basic Operating Cost and Basic Operating Cost for
any fiscal year determined as hereinafter provided. Within
one hundred twenty (120) days after the end of each fiscal
year, as determined by Landlord, or as soon thereafter as
practicable, Landlord shall deliver to Tenant a statement of
Basic Operating Cost for the fiscal year just ended
accompanied by a computation of Basic Operating Cost
Adjustment. If such statement shows that Tenant's payment
based upon Estimated Basic Operating Cost is less than
Tenant's Proportionate Share of Basic Operating Cost, then
Tenant shall pay to Landlord the difference within twenty
(20) days after receipt of such statement. If such statement
shows that Tenant's payments of Estimated Basic Operating
Cost exceed Tenant's Proportionate Share of Basic Operating
Costs, then (provided that Tenant is not in default under
this Lease). Landlord shall pay to Tenant the difference
within twenty (20) days of such statement. If this Lease has
been terminated or the Term hereof has expired prior to the
date of such statement, then the Basic Operating Cost
Adjustment shall be paid by the appropriate party within
twenty (20) days after the date of delivery of the
statement. Should this Lease commence or terminate at any
time other than the first day of the fiscal year, Tenant's
Proportionate Share of the Basic Operating Cost adjustment
shall be prorated by reference to the exact number of
calendar days during such fiscal year for which Tenant is
obligated to pay Base Rent.
D. NET LEASE. This shall be a net Lease and Base Rent shall
be paid to Landlord absolutely not of all costs and expenses
except as herein provided. The provisions for payment of
Basic Operating Cost and the Basic Operating Cost Adjustment
are intended to pass on to tenant and reimburse Landlord for
all costs and expenses of the nature described in Paragraph
7.A. incurred in connection with ownership and operation of
the Building or Project and such additional facilities now
and in subsequent years as may be determined by Landlord to
be necessary to the Building or Project.
E. TENANT AUDIT. Tenant shall have the right, at Tenant's
expense and upon not less than five (5) days prior written
notice to Landlord, to review at reasonable times, in
Landlord's office, Landlord's books and records applicable
to Tenant's Lease for purposes of verifying Landlord's
calculation of the Basic Operating Cost and Basic Operating
Cost Adjustment.
In the event that Tenant shall dispute the amount set forth
in any statement provided by Landlord under Paragraph 7.B.
or 7.C, above, Tenant shall have the right, not later than
twenty (20) days following the receipt of such statement
and upon condition that Tenant shall first deposit with
Landlord the full amount in dispute, to cause Landlord's
books and records with respect to such fiscal year to be
audited by certified public accountants selected by Tenant
and subject to Landlord's reasonable right of approval. The
Basic Operating Cost Adjustment shall be appropriately
adjusted on the basis of such audit. If such audit
discloses a liability for a refund in excess of ten percent
(10%) of Tenant's Proportionate Share of the Basic
Operating Cost Adjustment previously reported, the cost of
such audit shall be borne by Landlord; otherwise, the cost
of such audit shall be paid by Tenant.
INSURANCE AND
INDEMNIFICATION 8. A. CASUALTY INSURANCE. Landlord agrees to maintain
insurance insuring the Buildings of the Project of which
the Premises are a part against fire, lightning, extended
coverage, vandalism and malicious mischief in an amount not
less than eighty percent (80%) of the replacement cost
thereof. Such insurance shall be for the sole benefit of
Landlord and under its sole control. Landlord shall not be
obligated to insure any furniture, equipment, machinery,
goods or supplies not covered by this Lease which Tenant
may keep or maintain in the Premises or any leasehold
improvements, additions or alterations which Tenant may
make upon the Premises.
B. LIABILITY INSURANCE. Tenant shall purchase at its own
expense and keep in force during this Lease a policy or
policies of comprehensive liability insurance, including
personal injury and property damage, in the amount of not
less than Five Hundred Thousand Dollars ($500,000.00) for
property damage and Two Million Dollars ($2,000,000.00) per
occurrence for personal injuries or deaths of persons
occurring at or about the Premises and Project. Said
policies shall (1) name Landlord and, if applicable, its
agent, and any party holding an interest to which this
Lease may be subordinated as additional insureds, (2) be
issued by an insurance company acceptable to Landlord and
licensed to do business in the State of California, and (3)
provide that said insurance shall not be canceled unless
thirty (30) days prior written notice shall have been given
to Landlord. Sold policy or policies or certificates
thereof shall be delivered to Landlord by Tenant upon
commencement of the Lease and upon each renewal of said
insurance.
C. INDEMNIFICATION. Landlord shall not be liable to Tenant
for any loss or damage to person or property caused by
theft, fire, act of God, acts of a public enemy, riot,
strike, insurrection, war, court order, requisition or
order of governmental body or authority or for any damage
or inconvenience which may arise through repair or
alteration of any part of the Building or Project or
failure to make any such repair except as expressly
otherwise provided by Paragraphs 10 and 12. Each party (the
"Indemnifying Party")
Page 6
<PAGE> 10
<TABLE>
<CAPTION>
<S> <C>
shall indemnify Landlord and hold harmless the other party
(the "Indemnified Party") from any and all loss, cost,
damage, injury or expense arising out of or related to (1)
claims of injury to or death of persons or damage to
property occurring or resulting directly or indirectly from
the use or occupancy of the Premises or from activities of
the Indemnifying Party its agents servants employers or
anyone in or about the Premises or Project or (2) claims for
work or labor performed or for materials or supplies
furnished to or at the request of the Indemnifying Party or
in connection with performance of any work done for the
account of the Indemnifying Party within the Premises or
Project and (3) claims arising from any breach or default on
the part of the Indemnifying Party in the performance of any
covenant contained in this Lease. Such indemnity shall
include without limitation the obligation to provide all
costs of defense against any such claims including any
action or proceeding brought against the Indemnified Party.
The foregoing indemnity shall not be applicable to claims
arising from the active negligence or willful misconduct of
the Indemnified Party. The provisions of this paragraph
shall survive the expiration or termination of this Lease
with respect to any claims or liability occurring prior to
such expiration or termination.
WAIVER OR
SUBROGATION 9. To the extent permitted by law and without affecting the
coverage provided by insurance required to be maintained
hereunder, Landlord and Tenant each waive any right to
recover against the other (a) damages for injury to or death
of persons, (b) damages to property, (c) damages to the
Premises or any part thereof, or (d) claims arising by
reason of the foregoing. This provision is intended to waive
fully, and for the benefit of each party, any rights and/or
claims which might give rise to a right of subrogation on
any insurance carrier. The coverage obtained by each party
pursuant to this Lease shall include, without limitation, a
waiver of subrogation by the carrier which conforms to the
provisions of this paragraph.
LANDLORD'S
REPAIRS AND
SERVICES 10. Landlord shall at Landlord's expense maintain the structural
soundness of the roof, foundations and exterior walls of the
Building in good repair, reasonable wear and tear excepted.
The term "walls" as used herein shall not include windows,
glass or plate glass, special store fronts or office
entries. The term "roof" as used herein shall not include
skylights, smoke hatches or roof vents. Landlord shall
perform on behalf of Tenant and other tenants of the Project
the maintenance of the public and common areas of the
Project including, but not limited to, the landscaped areas,
parking areas, driveways, the truck staging areas, rail spur
areas, fire sprinkler systems, sanitary and storm sewer
lines, utility services, electric and telephone equipment
servicing the Building(s), exterior lighting, and anything
which affects the operation and exterior appearance of the
Project, which determination shall be at Landlord's sole
discretion. Tenant shall reimburse Landlord for all such
costs in accordance with Paragraph 7. Any damage caused by
or repairs necessitated by any act of Tenant may be
repaired by Landlord at Landlord's option and at Tenant's
expense. Tenant shall immediately give Landlord written
notice of any defect or need of repairs after which Landlord
shall have reasonable opportunity to repair same. Landlord's
liability with respect to any defects, repairs, or
maintenance for which Landlord is responsible under any of
the provisions of this Lease shall be limited to the cost of
such repairs or maintenance.
TENANT'S
REPAIRS 11. Tenant shall, at Tenant's expense, maintain all parts of the
Premises in a good clean and secure condition promptly
making all necessary repairs and replacements including, but
not limited to, all windows, glass, doors and any special
office entries, walls and walls finishes, floor covering,
heating, ventilating and air conditioning systems, truck
doors, dock bumpers, dock plates and levelers, roofing,
plumbing work and fixtures, down spouts, skylights, smoke
hatches and roof vents. Tenant shall at Tenant's expense
also perform necessary pest extermination and regular
removal of trash and debris. If required by the railroad
company, Tenant agrees to sign a joint maintenance agreement
containing items reasonably acceptable to Tenant governing
the use of the rail spur, if any. Tenant shall, at its own
expense, enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor
for servicing all hot water, heating and air conditioning
systems and equipments within or serving the Premises. The
maintenance contractor and the contract must be approved by
Landlord. The service contract must include all services
suggested by the equipment manufacturer within the
operation/maintenance manual, including maintaining the
system and ducts in a weatherproof condition, and must
become effective and a copy thereof delivered to Landlord
within thirty (30) days of the Term Commencement Date.
Tenant shall not damage any demising wall or disturb the
integrity and support provided by any demising wall and
shall, at its sole expense, immediately repair any damage to
any demising wall caused by Tenant or its employees, agents
or invitees.
ALTERATIONS 12. Tenant shall not make, or allow to be made, any alterations
or physical additions in, about or to the Premises without
obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to
proposed alterations and additions which (a) comply with all
applicable laws, ordinances, rules and regulations, (b) are
in Landlord's opinion compatible with the Project and its
mechanical, plumbing, electrical, and heating/ventilation/
air conditioning systems, and (c) in Landlord's opinion will
not interfere with the use and occupancy of any other
portion of the Building or Project by any other tenant or
its invitees. Specifically, but without limiting the
generality of the foregoing, Landlord shall have the right
of consent for all plans and specifications for the proposed
alterations or additions, construction means and methods,
any contractor or subcontractor to be employed on the work
of alterations or additions, and the time for performance of
such work. Tenant shall also supply to Landlord any
documents and information reasonably requested by Landlord
in connection with its consideration of a request for
approval hereunder. Tenant must have Landlord's written
approval and all appropriate permits and licenses prior to
the commencement of said alterations and additions. All
alterations and additions permitted hereunder shall be made
and performed by Tenant without costs or expense to Landlord
including any costs or expenses which Landlord may incur in
electing to have an outside agency review said plans and
specifications. Landlord shall have the right to require
Tenant to remove any or all alterations, additions,
improvements and partitions made by Tenant and restore the
Premises to their original condition by the termination of
this Lease, by lapse of time or otherwise, all at Tenant's
expense. All such removals and restoration shall be
accomplished in a good workmanlike manner so as not to cause
any damage to the Premises or Project whatsoever. If
Landlord
</TABLE>
Page 7
<PAGE> 11
so elects, such alterations, physical additions or
improvements shall become the property of Landlord and
surrendered to Landlord upon the termination of this Lease
by lapse of time or otherwise; provided, however, that this
clause shall not apply to trade fixtures or furniture owned
by Tenant. In addition to and wholly apart from its
obligation to pay Tenant's Proportionate Share of Basic
Operating Costs, tenant shall be responsible for and shall
pay prior to delinquency any taxes or governmental service
fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed
upon, levied with respect to or assessed against its
personal property, on the value of its alterations,
additions or improvements and on its interest pursuant to
this Lease. To the extent that any such taxes are not
separately assessed or billed to Tenant, Tenant shall pay
the amount thereof as invoiced to Tenant by Landlord.
SIGNS 13. All signs, notices and graphics of every kind or character,
visible in or from public view or corridors, the common
areas or the exterior of the Premises, shall be subject to
Landlord's prior written approval, which Landlord shall have
the right to withhold in its absolute and sole discretion.
Tenant shall not place or maintain any banners whatsoever or
any window decor in or any exterior window or window
fronting upon any common areas or service area or upon any
truck doors or man doors without Landlord's prior written
approval which Landlord shall have the right to grant or
withhold in its absolute and sole discretion. Any
installation of signs or graphics on or about the Premises
and Project shall be subject to any applicable governmental
laws, ordinances, regulations and to any other requirements
imposed by Landlord. Tenant shall remove all such signs and
graphics by the termination of this Lease. Such
installations and removals shall be made in such manner as
to avoid injury to or defacement of the Premises, Building
or Project and any other improvements contained therein, and
Tenant shall repair any injury or defacement including,
without limitation, discoloration caused by such
installation or removal.
INSPECTION/
POSTING
NOTICES 14. After reasonable notice, except in emergencies where no
such notice shall be required, Landlord, its agents and
representatives, shall have the right to enter the Premises
to inspect the same, to clean, to perform such work as may
be permitted or required hereunder, to make repairs or
alterations to the Premises or Project or to other tenant
spaces therein, to deal with emergencies, to post such
notices as may be permitted or required by law to prevent
the perfection of liens against Landlord's interest in the
Project or to exhibit the Premises to prospective tenants,
purchasers, encumbrances or others, or for any other
purpose as Landlord may deem necessary or desirable;
provided, however, that Landlord shall not unreasonably
interfere with Tenant's business operations. Tenant shall
not be entitled to any abatement of Rent by reason of the
exercise of any such right of entry. Six months prior to
the end of the Lease, Landlord shall have the right to
erect on the Premises and/or Project a suitable sign
indicating that the Premises are available for lease.
Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the premises and shall
meet with Landlord for a joint inspection of the Premises
at the time of vacating. In the event of Tenant's failure
to give such notice or participate in such joint
inspection, Landlord's inspection at or after Tenant's
vacating the Premises shall conclusively be deemed correct
for purposes of determining Tenant's responsibility for
repairs and restoration.
UTILITIES 15. Tenant shall pay for all water, gas, heat, air conditioning,
light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or from the Premises,
together with any taxes, penalties, surcharges or the like
pertaining thereto, and maintenance charges for utilities
and shall furnish all electric light bulbs, ballasts and
tubes. If any such services are not separately metered to
Tenant, Tenant shall pay a reasonable proportion, as
determined by Landlord, of all charges jointly serving other
premises. Landlord shall not be liable for any damages
directly or indirectly resulting from nor shall the Rent or
any monies owed Landlord under this Lease herein reserved be
abated by reason of (a) the installation, use or
interruption of use of any equipment used in connection with
the furnishing of any of the foregoing utilities and
services, (b) failure to furnish or delay in furnishing any
such utilities or services when such failure or delay is
caused by acts of God or the elements, labor disturbances of
any character, any other accidents or other conditions
beyond the reasonable control of Landlord, or (c) the
limitation, curtailment, rationing or restriction on use of
water, electricity, gas or any other form of energy or any
other service or utility whatsoever servicing the Premises
or Project. Landlord shall be entitled to cooperate
voluntarily and in a reasonable manner in the efforts of
national, state or local governmental agencies or utility
suppliers in reducing energy or other resource consumption.
The obligation to make services available hereunder shall be
subject to the limitations of any such voluntary, reasonable
program.
SUBORDINATION 16. Subject to the Tenant executing a satisfactory
substitution, non-disturbance and attornment agreement with
the relevant parties, this Lease shall be subject and
subordinate at all times to (a) all ground leases or
underlying leases which may now exist or hereafter be
executed affecting the Premises and/or the land upon which
the Premises and Project are situated, or both, and (b) any
mortgage or deed of trust which may now exist or be placed
upon said Project, land, ground leases or underlying
leases, or Landlord's interest or estate in any of said
items, which is specified as security. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. In the
event that any ground lease or underlying lease terminates
for any reason or any mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made
for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the
successor in interest to Landlord at the option of such
successor in interest.
FINANCIAL
STATEMENTS 17. At the request of Landlord, Tenant shall provide to
Landlord its current financial statements or other
information discussing financial worth which Landlord shall
use solely for purposes of this Lease and in connection
with the ownership, management and disposition of the
property subject hereto.
Page 8
<PAGE> 12
ESTOPPEL
CERTIFICATES 18. Tenant agrees from time to time within ten (10) days
after request of Landlord, to deliver to Landlord, or
Landlord's designee, an estoppel certificate stating
that this Lease is in full force and effect provided
that it is indeed the case, the date to which Rent has
been paid, the unexpired portion of this Lease and such
other matters pertaining to this Lease as may be
reasonably requested by Landlord. Failure by Tenant to
execute and deliver such certificate shall constitute
an acceptance of the Premises and acknowledgment by
Tenant that the statements included are true and
correct without exception. Landlord and Tenant intend
that any statement delivered pursuant to this paragraph
may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Project or
any interest therein. The parties agree that Tenant's
obligation to furnish such estoppel certificates in a
timely fashion is a material inducement for Landlord's
execution of the Lease.
SECURITY
DEPOSIT 19. Tenant agrees to deposit with Landlord upon execution
of this Lease, a Security Deposit as stated in the
Basic Lease Information which sum shall be held by
Landlord, without obligation for interest, as security
for the performance of Tenant's covenants and
obligations under this Lease, it being expressly
understood and agreed that such deposit is not an
advance rental deposit or a measure of damages incurred
by Landlord in case of Tenant's default. Upon the
occurrence of any event of default by Tenant, Landlord
may, from time to time, without prejudice to any other
remedy provided herein or provided by law, use such
fund to the extent necessary to make good any arrears
of Rent or other payments due to Landlord hereunder,
and any other damage, injury, expense or liability
caused by such event of default, and Tenant shall pay
to Landlord, on demand, the amount so applied in order
to restore the Security Deposit to its original amount.
Any remaining balance of such deposit shall be returned
by Landlord to Tenant at such time after termination of
this Lease that all of the Tenant's obligations under
this Lease have been fulfilled.
TENANT'S
REMEDIES 20. Tenant shall look solely to Landlord's interest in the
Project for recovery of any judgment from Landlord.
Landlord, or if Landlord is a partnership, its partners
whether general or limited, or if it is a corporation,
its directors, officers or shareholders, shall never be
personally liable for any such judgment. Any lien
obtained to enforce any such judgment and any levy of
execution thereon shall be subject and subordinate to
any lien, mortgage or deed of trust on the Project.
ASSIGNMENT
AND
SUBLETTING 21. A. Tenant shall not assign or sublet the Premises or
any part thereof without Landlord's prior written
approval except as provided herein. If Tenant desires
to assign this Lease or sublet any or all of the
Premises, Tenant shall give Landlord written notice
ninety (90) days prior to the anticipated effective
date of the assignment or sublease. Landlord shall then
have a period of thirty (30) days following receipt of
such notice to notify Tenant in writing that Landlord
elects either (1) to terminate this Lease as to the
space so affected as of the date so requested by Tenant
provided Tenant agrees, or (2) to permit Tenant to
assign this Lease or sublet such space, subject,
however, to Landlord's prior written approval of the
proposed assignee or subtenant and of any related
documents or agreements associated with the assignment
or sublease, such consent not to be unreasonably
withheld so long as the use of the Premises by such
proposed assignee or subtenant would be a Permitted Use
and would not in Landlord's opinion increase Occupant
Density of the Project, the proposed assignee or
subtenant is of sound financial condition, and the
proposed assignment or sublease would not be likely to
result in any decrease in Rent. If Landlord should fail
to notify Tenant in writing of such election within
said period, Landlord shall be deemed to have waived
option (1) above, but written approval by Landlord of
the proposed assignee or subtenant shall be required.
Failure by Landlord to approve a proposed assignee or
subtenant shall not cause a termination of this Lease.
B. Any Rent or other consideration realized by Tenant
under any such sublease or assignment in excess of the
Rent payable hereunder, after amortization of (1) the
reasonable cost of any improvements which Tenant has
made for the purpose of assigning or subletting all or
part of the Premises and (2) reasonable subletting and
assignment costs, shall be divided and paid, ten
percent (10%) to Tenant, ninety percent (90%) to
Landlord.
C. In any subletting or assignment undertaken by
Tenant, Tenant shall diligently seek to obtain the
maximum rental amount available in the marketplace for
such subletting or assignment.
D. If Tenant is a corporation, a transfer of corporate
shares by sale, assignment, bequest, inheritance,
operation of law or other disposition (including such a
transfer to or by a receiver or trustee in federal or
state bankruptcy, insolvency or other proceedings), so
as to result in a change in the present control of such
corporation or any of its parent corporations by the
person or persons owning a majority of said corporate
shares, shall constitute an assignment for purposes of
this paragraph.
E. If Tenant is a partnership, joint venture or other
unincorporated business form, a transfer of the
interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment,
bequest, inheritance, or operation of law or other
disposition, so as to result in the present control of
said entity and/or a change in the identity of the
persons responsible for the general credit obligations
of said entity shall constitute an assignment for all
purposes of this paragraph.
F. No assignment or subletting by Tenant shall relieve
Tenant of any obligations under this Lease. Any
assignment or subletting which conflicts with the
provisions hereof shall be void.
QUIET
ENJOYMENT 22. Landlord represents that it has full right and
authority to enter into this Lease and that Tenant,
upon paying the Rent and performing its other covenants
and agreements herein set forth, shall peaceably and
quietly
Page 9
<PAGE> 13
have, hold and enjoy the Premises for the Term hereof without
hindrance or molestation from Landlord, subject to the terms
and provisions of this Lease.
CONDEMNATION 23. A. If the whole, or any substantial portion of the Project
of which the Premises are a part, should be taken or
condemned for any public use under governmental law,
ordinance, or regulation, or by right of eminent domain, or
by private purchase in lieu thereof, and the taking would
prevent or materially interfere with the Permitted Use of the
Premises, this Lease shall terminate and the Rent shall be
abated during the unexpired portion of this lease, effective
when the physical taking of said Premises shall have occurred.
B. If a portion of the Project of which the Premises are a
part should be taken or condemned for any public use under
any governmental law, ordinance, or regulation, or by right
of eminent domain, or by private purchase in lieu thereof,
and this Lease is not terminated as provided in subparagraph
23.A. above, this Lease shall not terminate, but the Rent
payable hereunder during the unexpired portion of the Lease
shall be reduced to such extent as may be fair and reasonable
under all of the circumstances.
C. Landlord shall be entitled to any and all payment,
income, rent, award, or any interest therein whatsoever which
may be paid or made in connection with such taking or
conveyance and Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired portion of this
Lease. Notwithstanding the foregoing paragraph, any
compensation specifically awarded Tenant for loss of
business, Tenant's personal property, moving cost or loss of
goodwill, shall be and remain the property of Tenant.
CASUALTY
DAMAGE 24. A. If the Premises should be damaged or destroyed by fire,
tornado or other casualty, Tenant shall give immediate
written notice thereof to Landlord. Within thirty (30) days
of such notice, Landlord shall notify Tenant whether in
Landlord's opinion such repairs can be made either (1) within
ninety (90) days, (2) in more than ninety (90) days, but in
less than one hundred eighty (180) days, or (3) in more than
one hundred eighty (180) days from the date of such notice;
Landlord's determination shall be binding on Tenant.
B. If the Premises should be damaged by fire, tornado or
other casualty but only to such extent that rebuilding or
repairs can in Landlord's estimation be completed within
ninety (90) days after the date upon which Landlord's is
notified by Tenant of such damage, this Lease shall not
terminate, and Landlord shall as its sole cost and expense
thereupon proceed with reasonable diligence to rebuild and
repair the Premises to substantially the condition in which
they existed prior to such damage, except that Landlord shall
not be required to rebuild, repair or replace any part of the
partitions, fixtures, additions and other improvements which
may have been placed in, on or about the Premises by Tenant.
If the Premises are untenantable in whole or in part
following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be reduced to
such extent as may be fair and reasonable under all of the
circumstances.
C. If the Premises should be damaged by fire, tornado or
other casualty, but only to such extent that rebuilding or
repairs can in Landlord's estimation be completed in more than
ninety (90) days but in less than one hundred eighty (180)
days, then Landlord shall have the option of either (1)
terminating the Lease effective upon the date of the
occurrence of such damage, in which event the Rent shall be
abated during the unexpired portion of the Lease, or (2)
electing to rebuild or repair the Premises to substantially
the condition in which they existed prior to such damage
except that Landlord shall not be required to rebuild, repair
or replace any part of the partitions, fixtures, additions and
other improvements which may have been placed in, on or about
the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable
shall be reduced to such extent as may be fair and reasonable
under all of the circumstances. In the event that Landlord
should fail to complete such repairs and rebuilding within one
hundred eighty (180) days after the date upon which Landlord
is notified by Tenant of such damage, such period of time to
be extended for delays caused by the fault or neglect of
Tenant or because of acts of God, acts of public agencies,
labor disputes, strikes, fires, freight embargoes, rainy or
stormy weather, inability to obtain materials, supplies or
fuels, or delay of the contractors or subcontractors due to
such causes or other contingencies beyond the reasonable
control of Landlord, Tenant may at its option terminate this
Lease by delivering thirty (30) days prior written notice of
termination to Landlord as Tenant's exclusive remedy,
whereupon all rights and obligations hereunder shall cease and
terminate.
D. If the Premises should be so damaged by fire, tornado, or
other casualty that rebuilding or repairs cannot in
Landlord's estimation be completed within one hundred eighty
(180) days after the date upon which Landlord is notified by
Tenant of such damage, this Lease shall terminate and the
Rent shall be abated during the unexpired portion of this
Lease, effective upon the date of the occurrence of such
damage.
E. Notwithstanding anything herein to the contrary, in the
event that holder of any indebtedness secured by a mortgage
or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then
Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within
fifteen (15) days after such requirement is made by any such
holder, whereupon all rights and obligations hereunder shall
cease and terminate.
F. The provision of Section 1942, Subdivision 2, and Section
1933, Subdivision 4, of the Civil Code of California is
superseded by the foregoing.
HOLDING OVER 25. If Tenant shall retain possession of the Premises or any
portion thereof without Landlord's consent following the
expiration of the Lease or sooner termination for any reason,
then Tenant shall pay to Landlord for each day of such
retention triple the amount of the daily rental for the first
month prior to the date of expiration or termination. Tenant
shall also indemnify and hold Landlord harmless from any loss
or liability resulting from delay be Tenant in surrendering
the Premises, including, without limitation, any claims made
by any succeeding tenant founded on such delay.
Alternatively, if Landlord gives notice of Landlord's consent
to Tenant's holding over, such holding over shall constitute
renewal of the Lease on whatever terms are specified in such
notice. Acceptance of Rent by Landlord following expiration
or termination shall not
Page 10
<PAGE> 14
constitute a renewal of this Lease, and nothing contained in
this paragraph shall waive Landlord's right of reentry or any
other right. Unless Landlord exercises the option hereby given
to it, Tenant shall be only a tenant at sufferance, whether or
not Landlord accepts any Rent from Tenant while Tenant is
holding over without Landlord's written consent. Additionally,
in the event that upon termination of the Lease, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of
the Premises or any other Tenant obligations as set forth in
this Lease, then Landlord shall have the right to perform any
such obligations as it deems necessary at Tenant's sole cost and
expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the
terms of this paragraph shall apply.
DEFAULT 26. A. EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an event of default on the part of Tenant:
(1) ABANDONMENT. Vacation or abandonment of the Premises
for a continuous period in excess of five (5) days. Tenant
waives any right of notice Tenant may have under section 1951.3
of the Civil Code of the State of California, the terms of this
subparagraph 26A being deemed such notice to Tenant as required
by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of
Rent or any other amount due and payable hereunder upon the date
when said payment is due, such failure continuing without cure
by payment of the delinquent Rent and late charge or other
obligations for a period of five (5) days after written notice
and demand; provided, however, that except as expressly
otherwise provided herein, Landlord shall not be required to
provide such notice more than twice during the Term, the third
such non-payment constituting default for all purposes hereof
without requirements of notice.
(3) OTHER OBLIGATIONS. Failure to perform any material
obligations, agreement or covenant under this Lease other than
those matters specified in subparagraphs (1) and (2) of this
subparagraph 26A, such failure continuing for fifteen (15) days
after written notice of such failure, or such longer period as
Landlord determines to be necessary to remedy such default,
provided that Tenant shall continuously and diligently pursue
such remedy at all times until such default is cured.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for
the benefit of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition
by Tenant's creditors, which involuntary petition remains
undischarged for a period of thirty (30) days. In the event that
under applicable law, the trustee in bankruptcy or Tenant has
the right to affirm this Lease and continue to perform the
obligation of Tenant hereunder, such trustee or Tenant shall,
in such time period as may be permitted by the bankruptcy court
having jurisdiction, cure all defaults of Tenant hereunder
outstanding as of the date of the affirmance of this Lease and
provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's
obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take
possession of substantially all of Tenant's assets of the
Premises, if such attachment or other seizure remains
undismissed or undischarged for a period of ten (10) days after
the levy thereof.
(7) ATTACHMENT. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets of the
Premises, if such attachment or other seizure remains
undismissed or undischarged for a period of ten (10) days after
the levy thereof.
B. REMEDIES UPON DEFAULT.
(1) RENT. All failures to pay any monetary obligation to be
paid by Tenant under this Lease shall be construed as
obligations for payment of Rent.
(2) TERMINATION. In the event of the occurrence of any event
of default, Landlord shall have the right, with or without notice
or demand, to immediately terminate this Lease, and at any time
thereafter recover possession of the Premises or any part thereof
and expel and remove therefrom Tenant and any other person
occupying the same, by any lawful means, and again repossess and
enjoy the Premises without prejudice to any of the remedies that
Landlord may have under this Lease, or at law or equity by reason
of Tenant's default or of such termination.
(3) CONTINUATION AFTER DEFAULT. Even though Tenant has
breached this Lease and/or abandoned the Premises, this Lease
shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession under Paragraph 26.B.(2)
hereof, and Landlord may enforce all its rights and remedies
under this Lease, including, but without limitation, the right to
recover Rent as it becomes due, and Landlord, without terminating
this Lease, may exercise all of the rights and remedies of a
Landlord under Section 1951.4 of the Civil Code of the State of
California or any successor code section. Acts of maintenance
preservation or efforts to lease the Premises or the appointment
of a receiver upon application of Landlord to protect Landlord's
interest under this Lease shall not constitute an election to
terminate Tenant's right to possession.
C. DAMAGES UPON TERMINATION. Should Landlord terminate this
Lease pursuant to the provisions of Paragraph 26.B.(2) hereof,
Landlord shall have all the rights and remedies of a Landlord
provided by Section 1951.2 of the Civil Code of the State of
California, or successor code sections. Upon such termination,
in addition to any other rights and remedies to which Landlord
may be entitled under applicable law, Landlord shall be entitled
to recover from Tenant: (1) the worth at the time of award of
the unpaid Rent and other amounts which had been earned at the
time of termination, (2) 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 Rent loss that the Tenant proves could have been reasonably
avoided, (3) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the term after the time
of award
Page 11
<PAGE> 15
exceeds the amount of such Rent loss that the Tenant proves
could be reasonably avoided, and (4) any other amount
necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its
obligations under the lease or which, in the ordinary course
of things, would be likely to result therefrom. The "worth
at the time of award" of the amount referred to in (1) and
(2) above shall be computed with interest at the maximum
rate allowed by law. The "worth at the time of award" of the
amount referred to in (3) above shall be computed by
discounting such amount at the Federal Discount Rate of the
Federal Reserve Bank of San Francisco at the time of the
award plus one percent (1%).
D. LATE CHARGE. In addition to its other remedies,
Landlord shall have the right without notice or demand to
add to the amount of any payment required to be made by
Tenant hereunder, and which is not paid on or before the
date the same is due, an amount equal to five percent (5%)
of the delinquency for each month or portion thereof that
the delinquency remains outstanding to compensate Landlord
for the loss of the use of the amount not paid and the
administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such
delinquencies would be difficult to compute and the amount
stated herein represents a reasonable estimate thereof.
E. REMEDIES CUMULATIVE. All rights, privileges and
elections or remedies of the parties are cumulative and not
alternative to the extent permitted by law and except as
otherwise provided herein.
F. NOTHING CONTAINED HEREIN SHALL EFFECT LANDLORD'S
OBLIGATIONS TO MITIGATE ITS DAMAGES.
LIENS 27. Tenant shall keep the premises free from liens arising
out of or related to work performed, materials or supplies
furnished or obligations incurred by Tenant or in
connection with work made, suffered or done by Tenant in or
on the Premises or Project. In the event that Tenant shall
not, within ten (10) days following the imposition of any
such lien, cause the same to be released of record by
payment or posting of a proper bond, Landlord shall have,
in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause the same
to be released by such means as it shall deem proper,
including payment of the claim giving rise to such lien.
All sums paid by Landlord on behalf of Tenant and all
expenses incurred by Landlord in connection therefore shall
be payable to Landlord by Tenant on demand with interest at
the maximum rate allowable by law. Landlord shall have the
right at all times to post and keep posted on the Premises
any notices permitted or required by law, or which Landlord
shall deem proper, for the protection of Landlord, the
Premises, the Project and any other party having an
interest herein, from mechanics' and materialmen's liens,
and Tenant shall give Landlord not less than ten (10)
business days prior written notice of the commencement of
any work in the Premises or Project which could lawfully
give rise to a claim for mechanics' or materialmen's lien.
SUBSTITUTION 28. SUBJECT TO TENANT'S PRIOR WRITTEN CONSENT, WHICH CONSENT
SHALL NOT BE UNREASONABLY WITHHELD, at any time after
execution of this Lease, Landlord may substitute for the
Premises other premises in the Project (the "New Premises")
upon not less than sixty (60) days prior written notice. In
which event the New Premises shall be deemed to be the
Premises for all purposes hereunder; provided however, that:
(a) The area of the Premises is less than twenty-five
(25%) of the area of the Project;
(b) The New Premises shall be similar in area and in
appropriateness for Tenant's purposes;
(c) Any such substitution is effected for the purpose
of accommodating a Tenant who will occupy all or a
substantial portion of the Project area; and
(d) If Tenant is occupying the Premises at the time
of such substitution, Landlord shall pay the expense of
physically moving Tenant, its property and equipment to the
New Premises and shall, at its sole cost, improve the New
Premises with improvements substantially similar to those
Landlord has committed to provide or has provided in the
premises.
TRANSFERS BY
LANDLORD 29. In the event of a sale or conveyance by Landlord of the
Project, the same shall operate to release Landlord from
any future liability upon any of the covenants or
conditions, express or implied, herein contained in favor
of Tenant, and in such event Tenant agrees to look solely
to the responsibility of the successor in interests of
Landlord in and to this Lease. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to
the purchaser or assignee.
RIGHT OF
LANDLORD TO
PERFORM
TENANT'S
COVENANTS 30. All covenants and agreements to be performed by Tenant
under any of the terms of this Lease shall be performed by
Tenant, at Tenant's sole cost and expense, and without any
abatement of Rent. If Tenant shall fail to pay any sum of
money other than Rent, required to be paid by it hereunder,
or shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue for
five (5) days after notice thereof by Landlord, Landlord
may, but shall not be obligated to do so, and without
waiving or releasing Tenant from any obligations of the
Tenant, make any such payment or perform any such act on
the Tenant's part to be made or performed. All sums so paid
by Landlord and all necessary incidental costs together
with interest thereon at the maximum rate permitted by law
from the date of such payment by the Landlord shall be
payable to Landlord on demand, and Tenant covenants to pay
such sums, and Landlord shall have, in addition to any
other right or remedy of Landlord, the same right and
remedies in the event of the nonpayment thereof by tenant
as in the case of default by Tenant in the payment of Rent.
WAIVER 31. If either Landlord or Tenant waives the performance of any
term, covenant or condition contained in this Lease, such
waiver shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition
contained herein. The acceptance of rent by Landlord shall
not constitute a
Page 12
<PAGE> 16
waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time
Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for
any length of time shall not be deemed to waive or to
decrease the right of Landlord to insist thereafter upon
strict performance by Tenant. Waiver of Landlord of any
term, covenant or condition contained in this Lease may only
be made by a written document signed by Landlord.
NOTICES 32. Each provision of this Lease or of any applicable
governmental laws, ordinances, regulations and other
requirements with reference to the sending, mailing or
delivery of any notice or the making of any payment by
Landlord or Tenant to the other shall be deemed to be
complied with when and if the following steps are taken:
A. All Rent and other payments required to be made by
Tenant to Landlord hereunder shall be payable to Landlord at
the address set forth in the Basic Lease Information, or at
such other address as Landlord may specify from time to time
by written notice delivered in accordance herewith. Tenant's
obligation to pay Rent and any other amounts to Landlord
under the terms of this Lease shall not be deemed satisfied
until such Rent and other amounts have been actually
received by Landlord.
B. All notices, demands, consents and approvals which may
or are required to be given by either party to the other
hereunder shall be in writing and shall be deemed to have
been fully given when deposited in the United States mail,
certified or registered, postage prepaid, and addressed to
the party to be notified at the address for such party
specified in the Basic Lease Information or to such other
place as the party to be notified may from time to time
designate by at least fifteen (15) days notice to the
notifying party. Tenant appoints as its agent to receive the
service of all default notices and notice of commencement of
unlawful detainer proceedings the person in charge of or
apparently in charge of or occupying the Premises at the
time, and, if there is no such person, then such service may
be made by attaching the same on the main entrance of the
Premises.
ATTORNEYS'
FEES 33. In the event either party places the enforcement of this
Lease, or any part thereof, or the collection of any Rent
due, or to become due hereunder, or recovery of the
possession of the Premises in the hands of an attorney or
files suit upon the same, the prevailing party shall recover
its reasonable attorneys' fees and court costs.
SUCCESSORS
AND ASSIGNS 34. This Lease shall be binding upon and inure to the benefit of
Landlord, its successors and assigns, and shall be binding
upon and inure to the benefit of Tenant, its successors, and
to the extent assignment may be approved by Landlord
hereunder, Tenant's assigns.
FORCE MAJEURE 35. Whenever a period of time is herein prescribed for action to
be taken by either party, that Party shall not be liable or
responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to
strike, riots, acts of God, shortages of labor or materials,
war, governmental laws, regulations or restrictions or any
other causes of any kind whatsoever which are beyond the
control of that party.
MISCELLANEOUS 36. A. The term "Tenant" or any pronoun used in place thereof
shall indicate and include the masculine or feminine, the
singular or plural number, individuals, firms or
corporations, and their and each of their respective
successors, executors, administrators and permitted assigns,
according to the context hereof.
B. Time is of the essence regarding this Lease and all of
its provisions.
C. This Lease shall in all respects be governed by the
laws of the State of California.
D. This Lease, together with its exhibits, contains all
the agreements of the parties hereto and supersedes any
previous negotiations.
E. There have been no representations made by the Landlord
or understandings made between the parties other than those
set forth in this Lease and its exhibits.
F. This Lease may not be modified except by a written
Instrument by the parties hereto.
G. If, for any reason whatsoever, any of the provisions
hereof shall be unenforceable or ineffective, all of the
other provisions shall be and remain in full force and
effect.
ADDITIONAL
PROVISIONS 37. A. Lease Effective Date. Submission of this instrument for
examination or signature by Tenant does not constitute a
reservation or option for lease, and it is not effective as
a lease or otherwise until execution by Landlord and Tenant.
B. Notwithstanding anything herein to the contrary, Tenant
shall only be responsible for that portion of a release,
spill or discharge of toxic and/or hazardous substances,
materials, gases, waste or contamination caused by Tenant.
Under no circumstances shall Tenant be liable for any toxic
and/or hazardous substances, materials, gases, waste or
contamination released, spilled, discharged or located in,
on, under or about the Premises prior to or after Tenant's
occupancy. In no event shall Tenant be liable for any
releases, spills or discharges of toxic and/or hazardous
substances, materials, gases, waste or contamination in
compliance with applicable law.
Page 13
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease
this 22 day of Aug, 1997.
"LANDLORD"
SPIEKER PROPERTIES, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
By: Spieker Properties, Inc.
a Maryland Corporation
Its General Partner
By: /s/ PETER H. SCHNUGG
------------------------------------
Peter H. Schnugg
Senior Vice President
"TENANT"
SCHLUMBERGER INDUSTRIES, INC.,
A DELAWARE CORPORATION
By: /s/ GEORGE C. ROBERTS
-------------------------------------
Its: National Sales Manager
-------------------------------------
Print Name: George C. Roberts
-----------------------------
Date: 7/8/97
----------------------------------
Page 14
<PAGE> 18
Bay Center Business Park
[MAP]
EXHIBIT "A"
<PAGE> 19
EXHIBIT
ENVIRONMENTAL QUESTIONNAIRE AND DISCLOSURE STATEMENT
The purpose of this form is to obtain information regarding the use of
hazardous substances on the premises. Prospective tenants should answer the
questions in light of their proposed operations on the premises. Existing
tenants should answer the questions as they relate to on-going operations on the
premises and should update any information previously submitted. If additional
space is needed to answer the questions, you may attach separate sheets of paper
to this form.
Your cooperation in this matter is appreciated. Any questions should be
directed to, and when completed, the form should be mailed to:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
Attn:
-----------------------------------------------------------------
Phone: ( )
-----------------------------
1. GENERAL INFORMATION
Name of Responding Company:
-------------------------------------------------
Check the Applicable Status:
Prospective Tenant [ ] Existing Tenant [ ]
Mailing Address:
------------------------------------------------------------
----------------------------------------------------------------------------
Contact Person and Title:
---------------------------------------------------
Telephone Number: ( ) -
----------- -------------
Address of Leased Premises:
-------------------------------------------------
Length of Lease Term:
-------------------------------------------------------
Describe the proposed operations to take place on the property, including
principal products manufactured or services to be conducted. Existing
tenants should describe any proposed changes to on-going operations.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2. STORAGE OF HAZARDOUS MATERIALS
2.1 Will any hazardous materials be used or stored on-site?
Wastes Yes [ ] No [ ]
Chemical Products Yes [ ] No [ ]
2.2 Attach the list of any hazardous materials to be used or stored, the
quantities that will be on-site at any given time, and the location and
method of storage (e.g., 55 gallon drums on concrete pad).
3. STORAGE TANKS & SUMPS
3.1 Is any above or below ground storage of gasoline, diesel, or other
hazardous substances in tanks or sumps proposed or currently conducted
on the premises?
Yes [ ] No [ ]
If yes, describe the materials to be stored, and the type, size and
construction of the sump or tank. Attach copies of any permits obtained
for the storage of such substances.
------------------------------------------------------------------------
------------------------------------------------------------------------
3.2 Have any of the tanks or sumps been inspected or tested for leakage?
Yes [ ] No [ ]
If so, attach the results.
3.3 Have any spills or leaks occurred from such tanks or sumps?
Yes [ ] No [ ]
If so, describe.
------------------------------------------------------------------------
------------------------------------------------------------------------
3.4 Were any regulatory agencies notified of the spill or leak?
Yes [ ] No [ ]
If so, attach copies of any spill reports filed, any clearance letters
or other correspondence from regulatory agencies relating to the spill
or leak.
3.5 Have any underground storage tanks or sumps been taken out of service or
removed?
Yes [ ] No [ ]
If yes, attach copies of any closure permits and clearance obtained from
regulatory agencies relating to closure and removal of such tanks.
<PAGE> 20
4. SPILLS
4.1 During the past year, have any spills occurred on the premises?
Yes [ ] No [ ]
Is so, please describe the spill and attach the results of any
testing conducted to determine the extent of such spills.
4.2 Were any agencies notified in connection with such spills?
Yes [ ] No [ ]
Is so, attach copies of any spill reports or other correspondence
with regulatory agencies.
4.3 Were any clean-up actions undertaken in connection with the spills?
Yes [ ] No [ ]
Is so, briefly describe the actions taken. Attach copies of any
clearance letters obtained from any regulatory agencies involved and
the results of any final soil or groundwater sampling done upon
completion of the clean-up work.
---------------------------------------------------------------------
---------------------------------------------------------------------
5. WASTE MANAGEMENT
5.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number?
Yes [ ] No [ ]
5.2 Has your company filed a biennial report as a hazardous waste
generator?
Yes [ ] No [ ]
If so, attach a copy of the most recent report filed.
5.3 Attach the list of the hazardous waste, if any, generated or to be
generated at the premises, its hazard class and the quantity generated
on a monthly basis.
5.4 Describe the method(s) of disposal for each waste. Indicate where and
how often disposal will take place.
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
5.5 Indicate the name of the person(s) responsible for maintaining copies
of hazardous waste manifests completed for off-site shipments of
hazardous waste.
---------------------------------------------------------------------
5.6 Is any treatment or processing of hazardous wastes currently
conducted or proposed to be conducted at the premises:
Yes [ ] No [ ]
Is yes, please describe any existing or proposed treatment methods.
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
5.7 Attach copies of any hazardous waste permits or licenses issued to
your company with respect to its operations on the premises.
3. WASTEWATER TREATMENT/DISCHARGE
6.1 Is your discharge wastewater to:
______ storm drain? ______ sewer?
______ surface water? ______ no industrial discharge
6.2 Is your wastewater treated before discharge?
Yes [ ] No [ ]
If yes, describe the type of treatment conducted.
---------------------------------------------------------------------
6.3 Attach copies of any wastewater discharge permits issued to your
company with respect to its operations on the premises.
7. ALL DISCHARGES
7.1 Do you have any air filtration systems or stacks that discharge into
the air?
Yes [ ] No [ ]
2
<PAGE> 21
7.2 Do you operate any of the following types of equipment, or any other
equipment requiring an air emissions permit?
______ Spray booth
______ Dip tank
______ Drying oven
______ Incinerator
______ Other (Please Describe)
______ No Equipment Requiring Air Permits
7.3 Are air emissions from your operations monitored?
Yes / / No / /
If so, indicate the frequency of monitoring and a description of the
monitoring results.
______________________________________________________________________
7.4 Attach copies of any air emissions permits pertaining to your
operations on the premises.
8. HAZARDOUS MATERIALS DISCLOSURES
8.1 Does your company handle hazardous materials in a quantity equal to
or exceeding an aggregate of 500 pounds, 55 gallons, or 200 cubic
feet?
Yes / / No / /
8.2 Has your company prepared a hazardous materials management plan
("business plan") pursuant to Orange County Fire Department
requirements?
Yes / / No / /
If so, attach a copy of the business plan.
8.3 Are any of the chemicals used in your operations registered under
Proposition 65?
Yes / / No / /
If so, describe the actions taken, or proposed actions to be taken, to
comply with Proposition 65 requirements.
______________________________________________________________________
8.4 Describe the procedures as followed to comply with OSHA Hazard
Communication Standard requirements.
______________________________________________________________________
9. ENFORCEMENT ACTIONS, COMPLAINTS
9.1 Has your company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees?
Yes / / No / /
If so, describe the actions and any continuing compliance obligations
imposed as a result of these actions.
9.2 Has your company ever received requests for information, notice or
demand letters, or any other inquiries regarding its operations?
Yes / / No / /
9.3 Have there ever been, or are there now pending, any lawsuits against
the company regarding any environmental or health and safety concerns?
Yes / / No / /
9.4 Has any environmental audit ever been conducted at your company's
current facility?
Yes / / No / /
If so, discuss the results of the audit.
______________________________________________________________________
9.5 Have there been any problems or complaints from neighbors at the
company's current facility?
Yes / / No / /
___________________________________
Company
By:________________________________
Title:__________________
Date:__________________
3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-26-1999
<PERIOD-START> MAR-28-1998
<PERIOD-END> SEP-25-1998
<CASH> 3,678
<SECURITIES> 7,082
<RECEIVABLES> 3,335
<ALLOWANCES> 159
<INVENTORY> 5,602
<CURRENT-ASSETS> 453
<PP&E> 10,382
<DEPRECIATION> 5,855
<TOTAL-ASSETS> 24,578
<CURRENT-LIABILITIES> 3,077
<BONDS> 0
0
0
<COMMON> 70,209
<OTHER-SE> 48,708
<TOTAL-LIABILITY-AND-EQUITY> 24,578
<SALES> 10,792
<TOTAL-REVENUES> 10,792
<CGS> 4,886
<TOTAL-COSTS> 10,891
<OTHER-EXPENSES> 575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (262)
<INCOME-TAX> 13
<INCOME-CONTINUING> (275)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (275)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
