U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
For the fiscal year ended February 29, 1996.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)
For the transition period From _________ To _______________
Commission file number 0-21320
Magna-Lab Inc.
----------------------------------------------
(Name of small business issuer in its charter)
New York 11-3074326
- -------------------------------------------------------------- ----------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
I.D. Number)
250Z Executive Drive, NY(formerly 950 So. Oyster Bay Road) 11717(formerly 11801)
- ---------------------------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Issuers telephone number - (516) 595-2111
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.001 par value per share
-----------------------------------------------
(Title of Class)
Redeemable Class A Warrants
---------------------------
(Title of Class)
Redeemable Class B Warrants
---------------------------
(Title of Class)
Redeemable Class E Warrants
---------------------------
(Title of Class)
Units, each consisting of one share of Class A Common Stock, $.001 par value per
share, one Redeemable Class A Warrant and one Redeemable Class B Warrant
- --------------------------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES (X) NO ( )
Check if no disclosure of delinquent files in response to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this form 10-KSB ( )
The issuer's revenues for its most recent fiscal year ended
February 29, 1996: $ 730,000
The aggregate market value on May 20, 1996 of the publicly trading voting stock
held by non-affiliates (consisting of Class A Common Stock, $.001 par value)
computed on the average bid and asked prices of such stock on that date was
approximately $10,600,000. As of May 20, 1996, 3,740,616 shares of Class A
Common Stock, $.001 par value and 1,849,384 shares of Class B Common Stock,
$.001 par value, were outstanding.
Transitional small business disclosure format (check one) YES ( ) NO (X)
DOCUMENTS INCORPORATED BY REFERENCE - Proxy Statement for 1996 Annual
Shareholders' meeting
<PAGE>
PART I
ITEM 1. Description of Business
(a) Business Development
Magna-Lab Inc. (the "Company") was incorporated as a New York
corporation on February 22, 1991 and commenced operations on February 10, 1992.
Prior to February 10, 1992, the activities of Minkoff Research Labs, Inc. (the
"Predecessor") can be considered a predecessor to the Company. Minkoff Research
Labs, Inc. was formed in October 1989 by Dr. Lawrence Minkoff, the Company's
President, Chief Executive Officer and Chairman of the Board, to, among other
things, conduct research and development of magnet technologies. In February
1992, the Company was initially funded.
In October 1992, the Board of Directors approved a split (effective in
December 1992) of the Company's shares of approximately 21,532 for one. In
December 1992, the Company effected a recapitalization pursuant to which all
then outstanding shares of Common Stock were reclassified as Class B Common
Stock having 5 votes per share. In April and May of 1993, the Company completed
an initial public offering of 1,150,000 units of its equity securities (see
"Item 5. Market for Common Equity and Related Stockholder Matters" and Note 6 to
Financial Statements) yielding net proceeds of approximately $5.4 million. In
July and August 1995, $1,250,000 principal amount of Bridge Notes together with
warrants to purchase 625,000 shares of Class A Common Stock and an additional
$166,667 in cash were converted into 625,000 shares of Class A Common Stock. In
January 1996, the Company completed the public offering of 1,850,000 shares of
Class A Common Stock and Class E Warrants to purchase 925,000 shares of Class A
Common Stock yielding net proceeds of approximately $4.6 million. In April 1996,
the Company's principal executive office was relocated to 250Z Executive Drive,
Edgewood, N.Y. 11767 and its telephone number is now 516-595-2111. Prior
thereto, the Company's principal executive office was located at 950 South
Oyster Bay Road, Hicksville, New York 11801 and its telephone number was
516-575-2111.
(b) Business of Issuer
General
The Company has developed and now manufactures and markets the
MAGNA-SL(R), the first of the Company's proposed series of anatomy-specific MRI
products which are smaller and cost less to own, install and operate than
present "whole body" MRI systems. Further, because the Company's scanners are
open on three sides and require only the part of the body being scanned to be
placed inside the scanner, they should not elicit the claustrophobic responses
many patients have to most whole body scanners. Unlike new "open" whole body
systems, which use "low-field" magnets, the MAGNA-SL uses a "mid-field"
permanent magnet and therefore produces image quality comparable to that of
"mid-field" whole body scanners (which the Company believes represent the
majority of the MRI market).
The Company received US marketing clearance for the MAGNA-SL in
September 1994 from the Food and Drug Administration ("FDA") through submission
of a 510(k) premarket notification. The Company has sold and delivered two
MAGNA-SL scanners and has received customer deposits for additional scanners.
One such sale was made to, and deposits of $540,000 out of total deposits of
$555,000 at May 20, 1996 were received from, a related party with which the
Company has entered into a sales, marketing and distribution agreement. The sale
to the unrelated party resulted in the recognition of a loss due to the
Company's agreement to special pricing terms which results in the deferral of a
portion of the expected revenue. See "Item 12. Certain Relationships and Related
Transactions" and Notes 7 and 9 to Financial Statements.
The Company has entered into a letter of intent, subject to
finalization of definitive agreements, with Elscint, Ltd. ("Elscint") an
international manufacturer, distributor and servicer of computer-based medical
imaging equipment, under which Elscint would manufacture the MAGNA-SL for
marketing and sale by Elscint in certain non-United States territories. Elscint
would also serve as a second source of production for products sold by the
Company and the parties would share the benefits of any cost reductions
identified by each party. The Company would be paid a royalty for each system
manufactured and sold by Elscint. See "Marketing and Distribution."
1
<PAGE>
Industry Background
MRI, also known as nuclear magnetic resonance imaging, is a medical
diagnostic imaging procedure which produces images of slices of the body
allowing physicians to view the internal human anatomy. MRI has certain
advantages over other imaging procedures such as computerized axial tomography
(CAT), Positron Emission Tomography (PET) and X-ray. MRI does not use X-rays, or
any other ionizing radiation as in other nuclear medicine techniques and can
produce soft tissue contrast differences many times greater than other
procedures. MRI can acquire data in any planar orientation, is not limited to
cross sectional slices and provides greater flexibility in imaging a wide
variety of pathologies. MRI systems create images by analyzing the behavior of
hydrogen atom nuclei in the body. The living body contains a number of hydrogen
atoms, mostly in the form of water. MRI systems typically consist of a large
magnet, radio signal generators, radio signal receivers and computer hardware
and software. By affecting the alignment and behavior of nuclei using an
external magnet and radio waves, MRI systems obtain information and process the
information by a computer to create an image of the internal human anatomy which
is displayed on a video monitor.
MRI systems in use are often categorized into low-field, mid-field and
high-field systems. Such designations refer to the strength of the magnetic
field utilized in the system. Generally, higher field strength equates to
greater resolution and/or speed of production of the images. Published industry
data suggest that mid-field systems are the most prevalent systems. There are
estimated to be over four thousand MRI scanners in operation in the United
States. Substantially all of them require the human body to be placed in a long
tube in which the magnetic field is generated. Whole body MRI machines generally
cost in excess of $1,000,000 and typically require substantial space to install.
Recently, so called "open" machines have entered the marketplace. Such systems
primarily rely on low-field magnets in a more open architecture to accommodate
those persons who cannot tolerate the mid-field and high-field whole body MRI
systems because of the person's size or feelings of claustrophobia. An industry
source has estimated that during 1991 approximately six million four hundred
thousand MRI procedures were performed in the United States. The number of
procedures were estimated, by that industry source, to increase to eleven
million MRI procedures by 1995. Of the 1991 historical estimate and 1995
projected estimate, approximately 31% and 35%, respectively, were estimated to
be head scans, 42% and 39%, respectively, were estimated to be spine scans, 19%
and 19%, respectively, were estimated to be extremities (knees, elbows, wrists,
feet and hands) scans and 8% and 7%, respectively, were estimated to be other
(breasts, cardiac, jaw, abdomen, shoulder and hip) scans.
The Company's MRI System and Proposed Systems
The MAGNA-SL
The Company has developed and, in September 1994, received regulatory
clearance from the FDA to begin marketing, its first MRI scanner, the MAGNA-SL.
The MAGNA-SL sell for less than $500,000 and has low installation and operating
costs compared to whole body MRI scanners. Through May 20, 1996, two MAGNA-SL
scanners have been delivered to and accepted by customers. The MAGNA-SL is
approximately two and one-half feet high, three and one-half feet deep and two
feet wide. The magnet structure is open at the top, bottom and front providing
access from three sides thereby permitting non-claustrophobic scanning. A
bed/chair is placed next to the magnet for various scans and would reclines into
the magnet for head scans (if such scans become practical in the future).
Sitting or reclining in the moveable bed/chair, patients may position their leg,
knee, arm, elbow, wrist, hand or (possibly) head in the magnet opening without
having to put their entire body into the scanner. The magnet will rotate 90
degrees into a horizontal position for arm, elbow, wrist and hand scanning as
well as certain positions for knee and leg scanning. In addition, images of legs
or feet may be obtained from either a weight-bearing position (standing up) or
from a sitting or lying down position. This approach adds to the inherent
patient friendliness by having the patient sitting for many scans where
typically they are in a prone position. Separate from the magnet is the digital
and analog MRI electronics and computer terminal which controls the operation of
the magnet and produces the image. The entire system may be installed in
approximately 150 square feet of office space making it suitable for use in
radiology suites, hospital emergency rooms, or offices of private medical
practices. Management believes that, because the MAGNA-SL is specifically
designed for extremities, it may be a more effective MRI scanner for these areas
particularly because of its capability for bent limb and weight bearing images.
Substantially all conventional whole-body MRI systems use magnets which are
larger than the magnet used for the Company's product and proposed products,
which surround patients on all sides, leaving access only from the front and
back. Certain manufacturers have begun to introduce "open" whole body systems
and one manufacturer has introduced a dedicated extremity system, which systems
are less claustrophobic than traditional whole body systems. These systems,
however, use "low-field" magnets. The MAGNA-SL uses a "mid-field" permanent
magnet and therefore produces image quality comparable to that of "mid-field"
whole body scanners (which the Company believes represent the majority of the
MRI market).
2
<PAGE>
The MAGNA-SL is expected initially to have applications in radiology,
orthopedics, pediatrics, chiropractic and podiatry and, if and when possible,
for applications in neurology, vascular and certain areas of dentistry.
Other Proposed Products
The Company intends to build on the technology of the MAGNA-SL magnet
and system to design and develop other anatomy specific MRI scanners. Initially,
the Company intends to utilize its magnet technologies to further its
development of a mammography scanner which would be designed to permit
non-claustrophobic MRI mammography scanning at a cost more comparable to current
X-ray testing. The Company anticipates that such a scanner, if it is developed,
may have applications in radiology, gynecology and internal medicine. The
Company has also commenced very preliminary research efforts for a back and
spine scanner. Aspects of the research and development efforts with respect to
the two scanners will coincide. This scanner would be intended to permit the
non-claustrophobic imaging of the back and spine of a patient and would also
make possible the imaging of the back and spine in a weight bearing position
which cannot be accomplished with currently available MRI devices. To date, the
Company has been engaged in computer simulation of the design of magnets which
it believes could be used in such MRI scanners and has not to date commenced
constructing any prototypes.
Production and Assembly
The MAGNA-SL system is comprised of three major subsystems; a magnet
subsystem (assembled by the Company), an MRI computer subsystem (purchased from
a third party) and a rack of power and electronic components (purchased from
third parties).
The production plan is to utilize a "Systems Integration Approach,"
under which the magnet subsystem is assembled by the Company and then shipped to
the customer's site for integration with the other subsystems shipped directly
to the customer site by qualified suppliers. Early production models have been
and will continue to be integrated first at the Company's facility to ensure
quality and repeatability. The customer will be responsible for certain site
preparations, such as the installation of radio frequency shielding to shield
the MRI system from interference and certain electrical work. The costs of radio
frequency shielding and certain other installation costs, are lower for the
MAGNA-SL than for whole body systems. Some of the customer site preparation may
be offered on a value added basis by the Company. The magnet subsystem is
anticipated to be assembled from purchased materials, tested by Company
employees, and then shipped to the customer for integration. The Company has had
discussions with various third parties who may wish to assemble the magnet on a
subcontract basis for the Company. No conclusions have been reached about the
possibility of having the magnet assembled by others and it is anticipated that
no conclusion will be reached until after the production of the first several or
more units.
In order to assemble the magnet, the Company intends to purchase
generally available magnet material, steel and other mechanical components from
others. Using specially manufactured tools and equipment designed by the
Company, the Company intends to assemble the magnet for each scanner
individually.
The MRI computer subsystem is purchased from a supplier in Europe. In
August 1993, the Company established a multi-system purchase relationship with
this vendor by making a $480,000 non-refundable deposit payment. Such agreement,
as amended in July 1994, provides for purchases of MRI computer subsystems and
the license of certain technology underlying the subsystems. The Company has
agreed to purchase initial subsystems which, as amended, would result in an
additional payment of $240,000 beyond the $480,000 paid as a deposit. Of that
additional $240,000, approximately $188,000 has been paid at February 29, 1996.
Once all initial subsystems have been purchased, an unamortized deposit of
$320,000 will remain at such time. Such remaining deposit will be amortized over
the remaining MRI computer subsystems to be purchased under the amended
agreement. If the Company does not purchase subsystems beyond the initial
consoles, such remaining deposit (or portion thereof) would be forfeited.
Through February 29, 1996, the Company received 80% of certain initial consoles,
leaving an unamortized deposit of $352,000 at February 29, 1996. Purchase orders
for the remaining 20% of the initial consoles have been placed with this
supplier. While the Company has chosen to have a relationship with this vendor,
the Company believes that other vendors could provide the Company with similar
equipment on competitive terms, although such change in vendor would involve
interface issues and possible delays in receipt of components. The Company
believes that its relationship with this vendor is satisfactory.
3
<PAGE>
The power and electronics components necessary for the MAGNA-SL system
are generally available from a variety of vendors. The Company has established
sources of supply for such components, and in many cases believes it has
available to it multiple sources of supply.
While the Company's cash position over the past year has caused
peroidic problems in vendor relations, the Company believes that its
relationships with its vendors are generally positive.
The Company is also required to conform to FDA Good Manufacturing
Practice regulations and various other statutory and regulatory requirements
applicable to the manufacture of medical devices. The Company's production and
assembly operations are subject to FDA inspections at all times. See
"Governmental Regulation."
Marketing and Distribution
The Company is selling and marketing the MAGNA-SL in the United States
through a combination of its own sales force and contractual arrangements with
others. The principal markets for the MAGNA-SL include private practitioners and
institutions initially for applications in radiology, orthopedics, pediatrics,
chiropractic and podiatry and, if and when possible, for applications in
neurology, vascular and certain areas of dentistry. The Company's sales force,
presently consisting of three persons (including the V.P. of Sales and
Marketing), concentrates primarily on the United States radiology market.
The Company has entered into several separate distribution and sales
representation agreements. Each agreement grants certain defined exclusive
rights generally provided (except for an agreement granting exclusive
distribution rights in the orthopedic market in 20 U.S. states) that a minimum
number of scanners are purchased within a specified time frame. One of these
agreements is with Beta, a private company founded by two directors and
shareholders of the Company. The Company and Beta are in discussions concerning
an extension of the initial time frame necessary for Beta to purchase a minimum
number of scanners. The Company has sold and delivered two MAGNA-SL scanners and
has received customer deposits for additional MAGNA-SL scanners. One such sale
was made to, and deposits for $620,000 out of total deposits of $635,000 at
February 29, 1996 were received from, Beta. For a more detailed description of
the relationship with Beta, see "Item 12. Certain Relationships and Related
Transactions."
In November 1995, the Company and Elscint, Ltd. ("Elscint") agreed on
the principles of a strategic business arrangement which is subject to, among
other things, completion of due diligence, entry into definitive agreements and
approval by each party's Board of Directors. Under the principles of the
strategic arrangement, Elscint would manufacture the MAGNA-SL for marketing and
sale by Elscint in certain non-United States territories including Europe, the
Peoples Republic of China, parts of the Middle East and Latin America, Australia
and other territories. The Company would be paid royalties on each system
manufactured and sold. To maintain its rights under the agreement, Elscint is
required to sell a minimum number of systems in the first two year period
(commencing after an agreed upon period of start-up) and a higher number of
systems in a permitted two year renewal period thereafter. The Company estimates
that, if definitive agreements are signed under the principles formulated and if
Elscint sells the minimum quantities contemplated by the agreement (including
the two-year renewal period), none of which can be assured, minimum royalties
would approximate $4.5 million, of which, $250,000 would be paid upon signing of
definitive agreements as a non-refundable deposit. The Company and Elscint are
to cooperate in identifying and sharing certain manufacturing benefits and in
development of improvements and certain potential new products. Further, Elscint
is to serve as a second source of supply to the Company. The Company would grant
Elscint a right of first negotiation on any new products which it develops which
are competitive with the MAGNA-SL.
The Company has also been engaged, from time to time, in discussions
with other MRI/medical equipment manufacturers, marketers and others concerning
possible relationships.
The Company will seek to emphasize to individual practitioners the
advantages of having a specific use MRI machine in their office. Currently MRI
machines are not typically purchased by non-radiologist, individual
practitioners due to the size and cost of whole body MRI units. In addition, MRI
systems are not typically used for arms, legs, feet or hands (existing product)
or for mammography (future proposed product). Accordingly, the Company will be
seeking to establish a new market for its products. There can be no assurance
that practitioners will be receptive to spending even the reduced amount that
the Company's equipment may cost or that they will be motivated to overcome the
use of x-rays for the specific applications of the Company's product and future
products.
4
<PAGE>
Warranty and Service
The Company intends to warrant that each scanner will be free from
defects in material and workmanship for a period of one year after acceptance of
the scanner and provide routine servicing free of charge for the first year.
After the first year, servicing will be offered to customers on a contract basis
or by charges for service calls. In the medical device market, the ability to
provide comprehensive and timely service can be a key competitive advantage and
is important for establishing customer confidence. In recent years third party
service organizations have begun to play an increasing role in servicing medical
diagnostic equipment. The Company presently plans to utilize third party service
organizations in the service of the Company's scanners. Discussions have been
had with several such organizations and the Company believes that it will be
able to conclude national or regional arrangements which will be satisfactory.
The Company plans to establish a service support function at its headquarters
consisting of a service manager who would be responsible to train third party
servicers, trouble shoot difficult or unusual problems, and serve as a customer
service consultancy function. The service manager would be supported by several
technicians and customer service representatives. Installation, warranty and
service are provided for the first year as part of the standard terms of sale in
the United States. Although the Company would also be responsible for first year
warranty in non US markets, first year service may be provided, and in the case
of Elscint will be provided, by distributors through which the Company may sell.
After the first year, service and maintenance is intended to be available either
on a time and materials basis or pursuant to a yearly service agreement for an
annual fee.
Underwriters Laboratories Inc. or Equivalent Listing
The Company will seek to have its scanners listed by Underwriters
Laboratories Inc. ("UL"), which is a not-for-profit independent organization or
by ETL Testing Laboratories, Inc. ("ETL"). Both UL and ETL are entities which
test numerous consumer and commercial products for compliance with nationally
recognized safety standards. Listing of a product indicates that samples of that
product have been tested to such safety standards and found to be reasonably
free from foreseeable risk of fire, electric shock and related hazards. Under
the laws of certain states, the Company will not be permitted to operate and
install its products without obtaining and maintaining such a listing. Even in
those states where the Company is not required by law or otherwise to obtain a
listing, if it is unable to obtain and maintain a listing on an ongoing basis
its ability to market and sell its scanners may be adversely affected.
Underwriters Laboratories Inc. or equivalent testing and review generally can be
completed in a two to three month period, although the process may be extended
under certain circumstances. The cost of obtaining and maintaining such a
listing is estimated to be in excess of $60,000. The Company may be subject to
similar requirements in the non-US countries in which the MAGNA-SL may be sold.
Proprietary Rights
Dr. Lawrence Minkoff, Chief Executive Officer, President and a Director
of the Company, has filed one patent application relating to the permanent
magnet structure of the MAGNA-SL. The Company intends to file other patent
applications relating to the permanent magnet structures for a proposed
dedicated use scanner. In December 1992, Dr. Minkoff assigned his rights to
these magnet technologies to the Company. Additionally, the Company has filed
applications for patent protection internationally, including an application
under the Patent Cooperation Treaty ("PCT"), relating to the permanent magnet
structure, but has permitted its rights under that PCT application to lapse. The
Company has been informed that the PCT application was published, making it
unlikely that additional foreign patent protection with respect to the permanent
magnet structure can now be obtained. The Company does not believe that failure
to obtain such additional patent protection will have a material adverse effect
on the Company's business. In March 1995, the Company was issued a U.S. patent
concerning a certain proprietary imaging sensing coil assembly. The Company has
filed applications for patent protection internationally, including under the
PCT, relating to the imaging sensing coil assembly.
The Company's policy is to obtain patents to protect technology,
inventions and improvements that are important to the development of its
business. The Company also relies upon trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain its
competitive position.
5
<PAGE>
The patent position of any medical device manufacturer, including the
Company, is uncertain and may involve complex legal and factual issues.
Consequently, even though the Company is currently prosecuting its patent
application in the U.S. the Company does not know whether its application will
result in the issuance of any patents, or, for any patents issued, whether they
will provide significant proprietary protection or will be circumvented or
invalidated. Since patent applications are maintained in the U.S. in secrecy
until patents issue, and since publications of discoveries in the scientific or
patent literature tend to lag behind actual discoveries by several months, the
Company cannot be certain that it was the first creator of inventions covered by
its pending patent application or that it was the first to file a patent
application for such inventions. There can be no assurance that any of the
Company's patent applications will result in any patents being issued or that,
if issued, patents will offer protection against competitors with similar
technology; nor can there be any assurance that others will not obtain patents
that the Company would need to license or circumvent. Moreover, the Company may
have to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine the priority of inventions, which could result in
substantial cost to the Company.
The Company may utilize technologies, patents or other rights which may
be held by third parties. Certain technologies utilized by the Company are
covered by patents owned or administered by the British Technologies Group, PLC.
The Company has had discussions with British Technologies Group, PLC. concerning
licencing such technology, and the Company believes that such licence will be
available to it on terms that are generally available to MRI manufacturers.
The Company also relies upon unpatented trade secrets, 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 unpatented technology.
The Company requires its employees, consultants and advisors to execute
confidentiality agreements upon the commencement of an employment or a
consulting relationship with the Company. Each agreement provides that all
confidential information developed or made known to the individual during the
course of the relationship will be kept confidential and not disclosed to third
parties except in specified circumstances. In the case of employees, the
agreements provide that all inventions conceived by an individual shall be the
exclusive property of the Company, other than inventions unrelated to the
Company's business and developed entirely on the employee's own time. There can
be no assurance, however, that these agreements will provide meaningful
protection or adequate remedies for the Company's trade secrets in the event of
unauthorized use or disclosure of such information. To the extent that
consultants, key employees or other third parties apply technological
information independently developed by them or by others to Company projects,
disputes may arise as to the proprietary rights to such information which may
not be resolved in favor of the Company. The Company's Medical Advisors are
employed by or have consulting agreements with third parties and any inventions
of such individuals which are not subject to agreement between the Company and
these individuals will not become the property of the Company.
Three of the Company's executive officers and several of its scientists
and other personnel were formerly employed, at various times prior to November
1989, by a company engaged in the development, manufacture and sale of MRI
devices. Each of these executive officers and senior scientists has informed the
Company that he was not subject to any agreement with such company containing a
restrictive covenant limiting competitive activities at the termination of
employment with this company. However, since the prior employer is a potential
competitor of the Company, it may threaten or commence legal action to deter the
development of the Company's technology alleging, among other things, that it
may have rights to technology developed by the Company through the efforts of
such persons. The prior employer also holds patents relating to MRI devices and
has instituted litigation against certain manufacturers of MRI devices
including, Hitachi Ltd., General Electric and others alleging, among other
things, that the manufacture of MRI devices by such companies constitutes patent
infringement, violations of the Lanham Act and unfair competition. It has been
reported that the prior employer and Hitachi Ltd. have settled their action out
of court and that a jury has rendered a verdict in favor of the former employer
against General Electric in an amount which has been reported to be reduced by a
judge and exceeds $60 million. General Electric is reported to be appealing this
decision. There can be no assurance that this potential competitor will not name
the Company in its current litigation, or commence a new action against the
Company. The costs of defending such an action, if brought, could require
substantial financial resources. Although no assurance can be given that such
claims will not be instituted against the Company, the Company believes, based
upon the advice of its patent counsel, Darby and Darby, that the use of its
magnet technologies, at its stage of development in December 1995, in its
scanners, will not infringe the patents of such competitor granted through
December 1, 1995.
6
<PAGE>
Governmental Regulation
The operations of the Company are subject to extensive federal and
state regulation. MRI devices generally, and any scanners the Company has
developed or may develop, in particular, are subject to regulation by the FDA,
certain state and federal agencies that regulate the provision of health care,
particularly the Health Care Financing Administration ("HCFA"), and the
Environmental Protection Agency ("EPA").
A. FDA Regulation
The FDA categorizes devices into three regulatory classifications
subject to varying degrees of regulatory control. Class I devices are those
devices whose safety and efficacy can reasonably be ensured through the general
control provisions. These provisions include requirements that a device not be
adulterated or misbranded, that the device is manufactured in conformity with
GMP regulations and that appropriate FDA premarket notification requirements be
met. Class II devices are those devices whose safety and efficacy can reasonably
be ensured through the use of special controls, such as performance standards,
post-market surveillance, patient registries and FDA guidelines. All other
devices are placed in Class III. Class III devices, which are typically invasive
or life sustaining products, require clinical testing to assure safety and
effectiveness and FDA approval prior to marketing and distribution. The FDA also
has the authority to require clinical testing of Class I and Class II devices.
The MAGNA-SL(R) is a Class II medical device subject to clearance by
the FDA prior to commercialization in the United States. Such FDA clearance was
received in September 1994 through submission of a 510(k) notification
(discussed below). The Company believes, but cannot assure, that the other
proposed dedicated use scanners which the Company intends to develop will
similarly be regulated as Class II medical devices by the FDA and as such will
require regulatory clearance prior to commercialization.
Pursuant to the FDC Act and regulations promulgated thereunder, the FDA
regulates the manufacture, distribution and promotion of medical devices in and
the exportation from the United States. Various states and foreign countries in
which the Company's products may be sold in the future may impose additional
regulatory requirements.
If a manufacturer or distributor of medical devices can establish that
a device is "substantially equivalent" to a legally marketed Class I or Class II
medical device or to a Class III medical device for which the FDA has not
required premarket approval, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) notification. The 510(k)
notification and the claim of substantial equivalence will almost certainly have
to be supported by various types of data indicating that the device is as safe
and effective for its intended use as a legally marketed predicate device. Until
the FDA issues an order finding that a device is substantially equivalent, the
manufacturer or distributor may not place the device into commercial
distribution. The order may be sent within 90 days of the submission and may
declare the FDA's determination that the device is "substantially equivalent" to
another legally marketed device, and allow the device to be marketed in the
United States. The FDA may, however, determine that the proposed device is not
substantially equivalent, or may require further information, such as additional
test data, before the FDA is able to make a determination regarding substantial
equivalence. Such determination or request for additional information could
delay the Company's market introduction of its products and could have a
materially adverse effect on the Company's continued operations.
If a manufacturer or distributor cannot establish to the FDA's
satisfaction that a new device is substantially equivalent, the device will be
considered a Class III device and the manufacturer or distributor will have to
seek premarket approval or reclassification of the new device. A PMA would have
to be submitted and be supported by extensive data, including preclinical and
clinical trial data, to demonstrate the safety and efficacy of the device. Upon
receipt, the FDA will conduct a preliminary review of the PMA to determine
whether the submission is sufficiently complete to permit a substantive review.
If sufficiently complete, the submission is declared fileable by the FDA. By
statute and regulation, the FDA has 180 days to review a PMA once determined to
be fileable. During that time an advisory committee may also evaluate the
application and provide recommendations to the FDA. While the FDA has responded
to PMA's within the allotted time period, PMA reviews more often occur over a
significantly protracted time period, and generally take approximately two or
more years to complete from the date of filing. A number of devices have never
been cleared for marketing. An application and petition to reclassify a device
can also be extensive in time and cost.
7
<PAGE>
If human clinical trials of a device are required, and the device
presents "significant risk," the manufacturer or distributor of the device will
have to file an investigational device exemption ("IDE") application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and mechanical
testing. If the IDE application is approved, human clinical trials may begin at
the specific number of investigational sites and could include the number of
patients approved by FDA. Sponsors of clinical trials are permitted to sell
those devices distributed in the course of the study, provided such compensation
does not exceed recovery of the costs of manufacturer, research, development and
handling.
In 1988, the FDA reclassified MRI devices and all substantially
equivalent devices of this generic type from Class III to Class II. This
encompassed MRI systems from 13 petitioners. Accordingly, if the Company can
demonstrate to the FDA that its proposed products or any other scanner developed
by the Company are substantially equivalent either to the reclassified MRI
devices or to other currently marketed mammography or back and spine scanning
devices, its proposed products could be considered Class II medical devices
which can be cleared for commercial distribution via 510(k) notification. There
can be no assurance that the FDA will find such products to be substantially
equivalent to reclassified MRI devices or any other legally marketed devices.
The FDA may require the Company or its competitors to file PMAs for new products
or technologies if the devices are sufficiently different from the reclassified
MRI devices. Such a determination by the FDA would delay the Company's market
introduction of its proposed products and could have a material adverse effect
on the Company's operations. FDA recently announced its intent to impose higher
safety standards on premarket clearance of devices that might pose potential
risks if they fail. Such a change in policy could have a material adverse effect
on the Company.
The costs associated with the filing of applications with the FDA and
of conducting clinical trials can be significant. While the MAGNA-SL has
received clearance from the FDA, there is no assurance that any of the Company's
product enhancements, if any, or the Company's proposed products will ever
obtain the necessary FDA clearance for commercialization.
If determined to be Class II medical devices under the Safe Medical
Devices Act of 1990, the Company's proposed products are potentially subject to
performance standards and other special controls that the FDA has the authority
to establish. Currently, no such performance standards or special controls
applicable to the Company's products have been established. If any such
performance standards or other special controls are established, obtaining
initial marketing clearance for its products or maintaining continued clearance
will be dependent upon the Company's ability to satisfactorily comply with such
standards or controls.
The MAGNA-SL and any future products distributed by the Company
pursuant to the above described clearances will be subject to pervasive and
continuous regulation by the FDA. Moreover, the FDC Act will also require the
Company to manufacture its products in registered establishments and in
accordance with Good Manufacturing Practice (GMP) regulations. Once registered,
the Company's facility will be subject to periodic inspections by the FDA.
Labeling and promotional activities are subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. In addition, the Company's
proposed products are expected to be subject to technical standards established
by the Federal Communications Commission regarding radio frequency emission
limits. The export of medical devices is also subject to regulations in certain
instances and in certain circumstances to FDA approval as well as to approval by
certain countries to which these devices might be exported. In addition, the use
of the Company's products may be regulated by various state agencies. There can
be no assurance that the Company's products will be able to comply successfully
with any such requirements or regulations. Moreover, future changes in
regulations or enforcement policies could impose more stringent requirements on
the Company, compliance with which could adversely affect the Company's
business. Failure to comply with applicable regulatory requirements could result
in enforcement action, including withdrawal of marketing authorization,
injunction, seizure or recall of products, operating restrictions, refusal of
government to approve product applications or allow a company to enter into
supply contracts and liability for civil and/or criminal penalties.
B. Third Party Coverage, Reimbursement and Related Health Care
Regulations.
The market for MRI scanners, including the Company's products and
proposed products, is affected significantly by the amount which Medicare,
Medicaid or other third party payors, including private insurance companies,
will reimburse hospitals and other providers for diagnostic procedures using MRI
systems. The health care industry has changed dramatically during the 1980's and
the early 1990's in reaction to changes in third party reimbursement systems
designed to contain health care costs. In the MRI market, third party
reimbursement issues will focus principally on whether MRI diagnostic procedures
using the Company's products and proposed products will be covered procedures
and, if so, the level of reimbursement that will be available for the MRI
8
<PAGE>
procedure. The Company has been advised that the MAGNA-SL operating at customer
sites in San Antonio, Texas and Buffalo, New York are being reimbursed by third
parties for the scans they produce.
HCFA, the agency responsible for administering the Medicare program,
sets requirements for coverage and reimbursement under the program, pursuant to
the Medicare law. In addition, each state Medicaid program has individual
requirements that affect coverage and reimbursement decisions under state
Medicaid programs for certain health care providers and recipients. Private
insurance companies also set their own coverage and reimbursement policies.
Private insurance companies and state Medicaid programs are influenced, however,
by the HCFA requirements.
As of November 22, 1985, under a national policy, Medicare covers
certain diagnostic procedures using MRI technology (as described by Medicare)
for certain clinical indications. There can be no assurance that the Company's
products or proposed products, once available, will be included within the then
current Medicare coverage determination. In the absence of a national Medicare
coverage determination, local contractors that administer the Medicare program,
within certain guidelines, can make their own coverage decisions. Favorable
coverage determinations are made in those situations where a service is of a
type that falls within allowable Medicare benefits and a review concludes that
the service is safe, effective and not experimental. Under HCFA coverage
requirements, FDA approval for the marketing of a medical device, including the
Company's proposed MRI mammography scanning systems and any other MRI technology
devices, will not necessarily lead to a favorable coverage decision. A
determination will still need to be made as to whether the device is reasonable
and necessary for the purpose used. In addition, HCFA has proposed adopting
regulations that would add cost-effectiveness as a criterion in determining
Medicare coverage. Although the Company believes that its products and proposed
products provide a cost effective alternative to "whole body" scanners, no
assurance can be given that the scans utilizing the Company's products will be
covered under Medicare, especially if HCFA changes its coverage policy to
include a cost-effectiveness criterion. Changes in HCFA's coverage policy,
including adoption of a cost-effective criterion could have a material adverse
effect on the Company.
Currently, MRI diagnostic services provided on an outpatient basis are
reimbursable under Part B of the Medicare program. The professional and
technical components of radiological procedures which are performed in a
physician's office or freestanding diagnostic imaging center, and the
professional component of radiological procedures performed in a hospital
setting, are currently reimbursed on the basis of a recently adopted relative
value scale which phases in, beginning January 1, 1992. There can be no
assurance that the implementation of this system, or other governmental actions,
will not limit or decrease reimbursement levels for services using any products
developed by the Company. Any reduction in the willingness of physicians to
perform procedures using the Company's proposed products could have a material
adverse effect on the Company.
Medicare reimbursement for the technical component (the operating
costs) for MRI diagnostic services furnished in the hospital outpatient setting
generally is currently calculated on a formula that is the lesser of the
hospital's reasonable costs and a 42/58 blended amount respectively of hospital
reasonable costs and the blended amount of reimbursement for the technical
component of the service if furnished in a physician's office in the same
locality.
The market for the Company's products and proposed products could also
be adversely affected by the amount of reimbursement provided by third party
payors to hospitals or private practitioners for procedures performed using such
products. Reimbursement rates from private insurance companies vary depending
upon the procedure performed, the third-party payor, the insurance plan, and
other factors. Medicare generally reimburses hospitals that are expected to
purchase the Company's products and proposed products for their operating costs
for in-patients on a prospectively-determined fixed amount for the costs
associated with an inpatient hospital stay based on the patient's discharge
diagnosis, regardless of the actual costs incurred by the hospital in furnishing
care. The willingness of these hospitals ("PPS hospitals") or private
practitioners to purchase the Company's products and proposed products could be
adversely affected if they determined that the prospective payment amount to be
received for the procedures for which the Company's products or proposed
products are used would be inadequate to cover the costs associated with
performing the procedures using the Company's proposed products, or to be less
profitable than using an alternative procedure for the same condition.
9
<PAGE>
Until October 1991, hospitals were generally able to pass their capital
costs on to Medicare which reimbursed such costs on a reasonable basis subject
to percentage limitations. However, under regulations which became effective
October 1, 1991, reimbursement for capital-related costs began to be included in
the prospective payment system. In general, under the new system, which has a 10
year phase-in period, hospitals will be reimbursed for capital costs related to
services provided to inpatients through an add-on payment made to the hospital
based upon the Diagnostic Related Group (DRG) for each such inpatient. While it
is unclear what effects the prospective payment systems will have, it may cause
hospitals to more closely scrutinize new capital expenditures and it could have
an adverse effect on recovery of capital costs for equipment such as the
Company's product and proposed products. Capital costs for hospital outpatient
departments are currently reimbursed by Medicare in an amount equal to 90% of
their reasonable capital costs.
A number of states, through Certificate of Need ("CON") laws, limit the
establishment of new facility or service or the purchase of major medical
equipment to situations where it has been determined that the need for such
facility, service or equipment exists. The market for the MAGNA-SL(R) and the
Company's proposed products may be adversely affected by CON regulation to the
extent that institutional health care facility purchasers and lessors of the
products are subject to CON regulation. While many states exempt
non-institutional providers from CON coverage, a number of states have extended
CON coverage to physicians' offices or medical groups by restricting the
purchase of major medical equipment wherever located.
C. EPA Regulation
The Company, and any research facility which it operates, will also be
required to comply with any applicable federal and state environmental
regulations and other regulations related to hazardous materials used,
generated, and/or disposed of in the course of its operations. Although the
Company does not expect to have to incur substantial costs in order to comply
with such regulations, no assessment can be made as to the impact of future
regulations upon operations of the Company.
Competition
The health care industry in general, and the market for diagnostic
imaging equipment in particular, is highly competitive and virtually all of the
other entities known to management of the Company to be engaged in the
manufacture of MRI scanners possess substantially greater resources than the
Company. At the present time, manufacturers of whole body scanners include the
General Electric Company; Toshiba; Bruker Medical Imaging Inc.; Elscint, Ltd.;
Siemens Corporation; Philips Medical Systems, a division of Philips Industries,
N.V.; Picker International Corporation; Shimadzu; and Hitachi. The Company
believes that the principal elements of competition which will affect the
ability of the Company to engage in the successful marketing of MRI systems will
include price, product performance, service and support capability, financing
terms and brand name recognition. The Company is aware of one company, Esaote
Biomedica SpA. engaged in marketing an MRI device for extremity imaging. Their
product, the ARTOSCAN, received FDA marketing clearance in October 1993,
approximately 11 months prior to the Company's receipt of clearance. The Company
believes that the MAGNA-SL has substantial performance advantages over the
ARTOSCAN product including: mid-field rather than low-field magnet, greater
imaging volume, ability to do weight bearing and fully bent limb scans, greater
patient positioning opportunities and superior image quality. The list price of
the ARTOSCAN product is believed to be approximately 25% lower, however, than
the Company's list price. The Company plans to compete with the ARTOSCAN product
on the basis of image quality, a wider range of imaging opportunities and
greater patient comfort.
The Company is aware of one company, Advanced Mammography Systems,
Inc., which is engaged in the research and development of an MRI device for
mammography screening, and the Company believes that competition in the field
may intensify. The Company may experience competition from either entities
developing MRI scanners to image specific parts of the body or companies
manufacturing whole body scanners. In addition to competition on price, the
Company's product competes and proposed products would compete on the quality
and usefulness of images that are produced, on patient comfort and on financing
availability.
The Company will also experience competition from the use of x-ray
machines. The Company believes that the use of x-ray machines is widely
established and clinically accepted. Although the Company believes that an MRI
scanner will represent a safer and more effective diagnostic imaging device,
there can be no assurance that any products developed by the Company will be
commercially accepted, especially in light of the cost-savings involved in
purchasing x-ray machines and the familiarity of current practitioners in
operating such devices. While the Company believes that the price of the
MAGNA-SL as well as its low operating costs would permit health care providers
to conduct MRI imaging and diagnostic readings for less cost than is currently
possible, there can be no assurance that the cost of the MAGNA-SL or any other
products developed will be able to successfully compete with conventional x-ray
10
<PAGE>
machines. In addition, although the Company believes that the cost of whole body
MRI scanners will render their use in screening mammography or diagnostic
purposes undesirable, there can be no assurance that this technology or other
technologies will not successfully compete with any MRI scanner designed to
image specific parts of the body. In addition, there can be no assurance that
other technologies will not be developed that will render the Company's proposed
MRI scanners obsolete or uneconomical. To some extent, competition will also
come from the manufacturers of other types of diagnostic imaging systems, such
as ultrasound or thermography.
Product Liability
Product liability claims relating to the Company's products may be
asserted against the Company. If such claims are asserted against the Company,
there can be no assurance that the Company will have sufficient resources to
defend against any such claim or satisfy any such successful claim. The Company
presently has product liability insurance which it believes is adequate based on
its planned activities over the next 12-months. There can be no assurance that
such insurance can be maintained at an acceptable cost or that it will be
sufficient to cover potential claims. In the event of an uninsured or
inadequately insured product liability claim, the Company's business and
financial condition could be materially adversely affected. If the Company
enters into a joint venture or other arrangement with a third party with respect
to a Company product or if the Company licenses a product to a third party, the
Company intends to require such joint venturers or licensees to maintain product
liability insurance for manufacturing defects and the Company to carry product
liability insurance for design defects. The Company's agreement with Elscint
requires Elscint to carry product liability insurance. However, there can be no
assurance that such joint venturers or licensees will agree, or will be able, to
obtain or maintain insurance at an acceptable cost or that, if such insurance is
obtained, it will be adequate to cover the Company's potential liability.
Human Resources
As of May 20, 1996, the Company had twenty employees, including four
who possess Ph.D.'s. Included in the employees are four executive officers (two
of whom are active in research and development), nine employees devoted to
research and development (including six employees who also devote a significant
portion of their time to production activities), three employees devoted to
sales and marketing and four employees devoted to finance, administration and
production planning. Of the research and development employees, the Company
expects that at least three persons will play active roles in production. The
Company plans to add additional personnel in the areas of sales, production,
research/development and finance and administration depending on the success of
sales and marketing efforts. None of the employees is covered by collective
bargaining agreements and management considers its relations with employees to
be good.
Item 2: Description of Property
Since April 26, 1996, the Company leases approximately 16,000 square
feet of office, manufacturing and research and development space in Edgewood,
New York. The existing lease expires in April 2003. Prior to April 26, 1996, the
Company leased approximately 10,000 square feet of office, manufacturing and
research and development space in Hicksville, New York under a lease which was
to expire in September 1997. Under a "Surrender of Lease Agreement", the Company
and the landlord agreed to the early termination of the lease and the
forgiveness of certain amounts payable under the lease which were overdue. The
Company believes that its present facilities are suitable and adequate for its
current needs.
Item 3: Legal Proceedings
On May 24, 1996, an action was commenced in the United States District
Court, Eastern District of New York against the Company and two of its officers
by M.D.D.M., Inc. t/a DevCom, an advertising and promotional services company.
The dispute concerns certain contested balances due and certain alleged
commitments for services in the future. The Company intends to vigorously
contest this litigation unless the vendor agrees to negotiate a settlement on a
reasonable basis. While the ultimate liability in this matter is not known and
the vendor seeks damages in excess of $1,000,000, the Company believes, based on
the advice of counsel, that its liability will not exceed amounts recorded in
the financial statements.
Item 4: Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended February 29, 1996.
11
<PAGE>
PART II
Item 5: Market for Common Equity and Related Stockholder Matters
(a) Market Information
The following sets forth the high and low bid prices for the Company's
Class A Common Stock, Class A Warrants, Class B Warrants, Class E Warrants, and
IPO Units (each consisting of one share of Common Stock, one Class A Warrant and
one Class B Warrant) for each quarter during the last two fiscal years and
through April 30, 1996. The source for the high and low bid information for
periods prior to March 13, 1995, and subsuquent to December 27, 1995 is Nasdaq
and for periods between March 14 and December 26, 1995 is the OTC Bulletin
Board. Quotations reflect interdealer prices without retail mark-up, mark-down
or commission, and may not represent actual transactions.
Fiscal Year ending February 28 or 29,
1997 1996 1995
---- ---- ----
High Low High Low High Low
---- --- ---- --- ---- ---
Class A Common Stock:
First Quarter ended
May 31, (a) 4 3 5 1/4 1 3/4 5 1/8 2 1/8
Second Quarter ended
August 31, 4 3/4 3 1/4 4 1/4 2 1/2
Third Quarter ended
November 30, 4 1/4 3 4 1/2 2 7/8
Fourth Quarter ended
February 28, 3 7/8 2 1/2 3 1/2 2 1/4
Class A Warrants:
First Quarter ended
May 31, (a) 13/16 3/8 1 1/8 1/16 1 1/4
Second Quarter ended
August 31, 1 1/4 5/8 1/4
Third Quarter ended
November 30, 3/4 1/4 9/16 3/8
Fourth Quarter ended
February 28, 7/8 1/2 1/2 3/16
Class B Warrants:
First Quarter ended
May 31, (a) 5/32 1/8 7/16 1/32 3/8 1/8
Second Quarter ended
August 31, 7/16 3/16 3/16 1/8
Third Quarter ended
November 30, 5/16 1/8 3/16 1/8
Fourth Quarter ended
February 28, 1/4 1/8 3/32 1/16
Class E Warrants:
First quarter ended
May 31 (a) 13/16 5/8
Fourth quarter ended
February 29, 3/4 1/4
IPO Units:
First Quarter ended
May 31, (a) 4 1/8 3 3/4 7 2 6 1/4 2 3/4
Second Quarter ended
August 31, 5 3 1/4 5 1/8 3
Third Quarter ended
November 30, 5 1/4 3 1/4 5 1/2 3
Fourth Quarter ended
February 28, 4 1/4 3 4 1/8 2 1/4
- ----------
(a) Information for the first quarter ended May 31, 1996 is given
through April 30, 1996.
II-1
<PAGE>
Each Class E Warrant entitles the holder to purchase one share of Class
A Common Stock at $4.375, is exercisable until December 26, 2000 and is subject
to redemption by the Company at $0.05 per warrant, upon thirty days' written
notice, based upon certain closing bid prices over certain periods of time.
Each Class A Warrant initially entitled the holder to purchase one share of
Common Stock and one Class B Warrant at approximately $9.00 and each Class B
Warrant initially entitled the holder to purchase one share of Common Stock at
approximately $13.50 per share. The number of shares purchasable upon exercise
of the Class A and Class B Warrants, and the respective exercise prices of such
securities, have been adjusted to give effect to certain securities issuances
during fiscal 1996 as a result of antidilution provisions of such securities.
The Class A and Class B Warrants are exercisable until March 30, 1998 and are
subject to redemption by the Company at $0.05 per warrant, upon 30 days' written
notice, based upon certain closing bid prices over certain periods of time. See
Note 6 to "Financial Statements."
There is no established public trading market for the Company's Class B
Common Stock.
On May 20, 1996, the closing bid price for the Class A Common Stock was
$3.44.
(b) Approximate Number of Equity Stock Holders
Based upon information supplied from the Company's transfer agent, the
Company believes that the number of record holders of the Company's equity
securities as of May 20, 1996 are approximately as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Class A Common Stock 98
Class B Common Stock 52
Class E Warrants 4
Class A Warrants 36
Class B Warrants 33
The Company believes that the number of beneficial holders of the
Company's Common Stock as of May 20, 1996 is in excess of 300.
(c) Dividends
The Company has never declared or paid a cash dividend on any class of
its common stock and anticipates that for the foreseeable future any earnings
will be retained for use in its business. Accordingly, the Company does not
expect to pay cash dividends in the foreseeable future.
II-2
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
(a) Plan of Operation:
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto and other information about the
business elsewhere in this annual report.
Discussion of cash requirements (next 12 months) and financing needs
During the fiscal year ended February 28, 1994, the Company realized
net proceeds of approximately $5.4 million in connection with the initial public
offering of its equity securities. At that time, it was estimated that the
proceeds of the public offering would last the Company for approximately one
year and that the Company may be dependent upon the receipt of additional
financing in order to continue its activities beyond that time. During the
fiscal year ended February 28, 1995, the Company raised an aggregate of $1.65
million through the private placement of notes payable in 1995 and warrants (see
notes 5 and 6 to the Financial Statements). During the fiscal year ended
February 29, 1996, the Company raised $500,000 (approximately $410,000 net
proceeds) in a bridge loan transaction and approximately $4.6 million in net
proceeds from a public offering of equity securities.
The Company believes, based upon present resources and anticipated
operations, that it has the financial resources to fund its operations for the
coming twelve months. This belief is based upon estimates and assumptions
including, among other things, levels of existing and projected orders and
sales, as well as existing and projected production costs, efficiencies and
scheduling. The sales and production levels projected for the fiscal year ending
February 28, 1997 are substantially greater than the sales and production levels
in the past fiscal year. In that regard, it is noted that the Company has only
emerged from the development stage in the fourth quarter of the fiscal year
ended February 29, 1996. The ability of the Company to achieve increased sales
and production will depend upon, among other things, the success of the Company
and its distributors in fostering market acceptance of the Company's product and
the success of production programs and vendor cooperation. The Company has
assumed that shipments will commence in the second quarter of the fiscal year
ending February 28, 1997 and will increase in later quarters. The Company has
also assumed the finalization of an arrangement with Elscint substantially as
described elsewhere in this report, including the receipt of an up-front
nonrefundable royalty payment. In the event that the Company's estimates and
assumptions prove materially incorrect, the Company's financial resources may
not be adequate to fund planned operations which could have a material adverse
effect on the Company's business and operations. The foregoing information
constitutes forward-looking statements within the meaning of Section 21E under
the Securities Exchange Act of 1934, as amended.
Summary of product research and development being performed and to be
performed
The Company plans to maintain an ongoing program of research and
development aimed at continuous improvement of existing scanners in order to
keep pace with changing technology and developing scanners capable of imaging
other parts of the human body. Further, during the fiscal year ending February
28, 1997, the Company is commited to complete certain development tasks under
its strategic business arrangement with Elscint which both parties have agreed
are necessary for marketing in the non U. S. territories covered by the
agreeement with Elscint. There can be no assurance that the Company will have
sufficient funds from operations to maintain its research and development
efforts at levels which it considers necessary. In the event that sufficient
funds are not generated from operations, the Company may be forced to limit its
development efforts. In any event, the Company does not presently anticipate
that it will have sufficient funds in the coming fiscal year to enable the
Company to develop a working prototype of any new or significantly enhanced
scanners without additional financing.
Expected purchase or sale of plant or significant equipment
The Company expects to continue to purchase equipment as needed in the
ordinary course of its activities. The Company expects to make commitments to
purchase up to approximately $300,000 of test equipment and production tooling
during the fiscal year ending February 28, 1997. Additional capital expenditures
may need to be made based upon the level of operations.
II-3
<PAGE>
Reference is made to Note 3 to the Financial Statements which discusses
certain purchase commitments made with a vendor for components of the MAGNA-SL
system. Such agreement calls for additional payments as specified therein. In
addition, the Company has commenced certain purchasing activities related to
other components for the MAGNA-SL.
Expected changes in the number of employees
At May 20, 1996, the Company had approximately 20 full time employees.
During the next 12 months, the Company plans to add additional employees in the
areas of sales and marketing, service/support, applications, production and
general and administrative functions. The number and timing of such hiring will
vary depending upon the success of sales and marketing efforts.
II-4
<PAGE>
Item 7. Financial Statements
MAGNA-LAB INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-1
Balance Sheets F-2
Statements of Operations F-3
Statements of Cash Flows F-4
Statements of Stockholders' Equity (Deficit) F-5
Notes to Financial Statements F-6 - F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Magna-Lab Inc.
We have audited the accompanying balance sheets of Magna-Lab Inc. as of February
29, 1996 and February 28, 1995, and the related statements of operations, cash
flows and stockholders' equity (deficit) for each of the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Magna-Lab Inc. as of February
29, 1996 and February 28, 1995, and the results of its operations and its cash
flows for each of the years then ended in conformity with generally accepted
accounting principles.
ROTHSTEIN KASS & COMPANY P.C.
Roseland, New Jersey
May 15, 1996
F-1
<PAGE>
MAGNA-LAB INC.
BALANCE SHEETS
February 29, 1996 and February 28, 1995
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,047,000 $ 903,000
Accounts receivable, net 62,000 --
Inventory 199,000 440,000
Deposits and other 475,000 441,000
---------- ----------
Total current assets 3,783,000 1,784,000
---------- ----------
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization of approximately $272,000 and
$170,000, respectively 351,000 413,000
---------- ----------
OTHER ASSETS 2,000 20,000
---------- ----------
$4,136,000 $2,217,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable $ -- $1,417,000
Accounts payable and accrued liabilities 1,312,000 1,311,000
Customer deposits 635,000 420,000
----------- ----------
Total current liabilities 1,947,000 3,148,000
----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, par value $.01 per share,
5,000,000 shares authorized, no shares issued -- --
Common stock, Class A, par value $.001 per
share, 40,000,000 shares authorized, 3,736,802
shares issued, 3,736,802 and 1,163,922 shares
outstanding, respectively 4,000 1,000
Common stock, Class B, par value $.001 per
share, 3,750,000 shares authorized, 1,875,000
shares issued, 1,853,198 and 1,861,078 shares
outstanding, respectively 2,000 2,000
Capital in excess of par value 13,324,000 7,312,000
Accumulated deficit (11,141,000) (8,246,000)
----------- ----------
Total stockholders' equity (deficit) 2,189,000 (931,000)
----------- ----------
$ 4,136,000 $2,217,000
=========== ==========
See accompanying notes to financial statements
F-2
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF OPERATIONS
Fiscal years ended February 29, 1996 and February 28, 1995
1996 1995
----------- -----------
REVENUES $ 730,000 $ --
----------- -----------
COSTS AND EXPENSES:
Cost of Sales 612,000 --
General and administrative 971,000 1,192,000
Selling and marketing 611,000 500,000
Research and development 1,127,000 1,352,000
----------- -----------
3,321,000 3,044,000
----------- -----------
LOSS FROM OPERATIONS 2,591,000 3,044,000
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (323,000) (132,000)
Interest income 19,000 23,000
----------- -----------
NET LOSS $(2,895,000) (3,153,000)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 2,710,000 2,025,000
=========== ===========
NET LOSS PER SHARE $ (1.07) $ (1.56)
=========== ===========
See accompanying notes to financial statements
F-3
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Fiscal years ended February 29, 1996 and February 28, 1995
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,895,000) $(3,153,000)
----------- -----------
Adjustments:
Depreciation and amortization 102,000 89,000
Imputed interest 220,000 92,000
Shares issued to consultant 7,000 --
Effect on cash of changes in operating
assets and liabilities:
Accounts receivable (62,000) --
Inventory 241,000 (82,000)
Deposits and other (34,000) 19,000
Accounts payable and accrued liabilities 1,000 512,000
Customer deposits 215,000 420,000
----------- -----------
Total adjustments 690,000 1,050,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,205,000) (2,103,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (40,000) (108,000)
All other, net -- (18,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (40,000) (126,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of stock and warrants 5,781,000 --
Conversion of notes and warrants (non-cash
portion - see Note 5) 167,000 --
Sales of notes and, in 1995, warrants 675,000 1,650,000
Repayment of notes (1,065,000)
Debt and equity offering expenses (1,169,000) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,389,000 1,650,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,144,000 (579,000)
CASH AND CASH EQUIVALENTS:
Beginning of year 903,000 1,482,000
----------- -----------
End of year $ 3,047,000 $ 903,000
=========== ===========
See accompanying notes to financial statements
F-4
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Fiscal years' ended February 29, 1996 and February 28, 1995
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------- Capital in
Class A Class B Excess
--------------------- ---------------------- Of Par Accumulated
Shares Amount Shares Amount Value Deficit
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, February 28, 1994 1,150,000 $1,000 1,875,000 $2,000 $ 6,987,000 $ (5,093,000)
CONVERT B SHARES TO A 13,922 -- (13,922) -- -- --
ISSSUANCE OF WARRANTS -- -- -- -- 325,000 --
NET LOSS -- -- -- -- (3,153,000)
--------------------------------------------------------------------------------------
BALANCES, February 28, 1995 1,163,922 1,000 1,861,078 2,000 7,312,000 (8,246,000)
DEBT/WARRANT
CONVERSION 625,000 1,000 -- -- 1,373,000
CONVERT B SHARES TO A 7,880 -- (7,880) -- -- --
PUBLIC OFFERING OF STOCK
AND WARRANTS, NET 1,850,000 2,000 -- -- 4,622,000 --
CONVERSION OF BRIDGE NOTES,
NET 60,000 -- -- -- 10,000 --
SHARES ISSUED TO WARRANT
HOLDERS (Note 6) 25,000 -- -- -- -- --
SHARES ISSUED TO CONSULTANT 5,000 -- -- -- 7,000 --
NET LOSS -- -- -- -- -- (2,895,000)
--------- ------ --------- ------ ----------- ------------
BALANCES, February 29, 1996 3,736,802 $4,000 1,853,198 $2,000 $13,324,000 $(11,141,000)
========= ====== ========= ====== =========== ============
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
Magna-Lab Inc.
Notes to Financial Statements
Note 1 - Discussion of the Company's activities/products and cash requirements -
Activities/products - Since commencement of operations on February 10, 1992,
Magna-Lab Inc. (the "Company")has directed its activities toward anatomy
specific MRI (Magnetic Resonance Imaging) products which are smaller and cost
less to own, install and operate than present "whole body" MRI systems. Such
products are usable in smaller spaces, such as doctor's offices, small clinics
and hospitals, in addition to traditional radiology suites and hospitals.
The Company's first product is the MAGNA-SL, a small, low cost MRI scanner for
human extremities. The Company received US marketing clearance [510(k)] for the
MAGNA-SL in September 1994 from the Food and Drug Administration ("FDA"), made
its initial clinical installation in May 1995 and commenced commercial
production with its second customer installation in February 1996.
Prior to February 29, 1996 the Company has reported its activities as a
development stage company.
Note 2 - Summary of significant accounting policies -
Cash and cash equivalents
Included in cash and cash equivalents are deposits with financial institutions
as well as short term money market instruments with maturities of three months
or less when purchased. Short term money market instruments with maturities
greater than three months when purchased are accounted for as temporary
investments.
Research and development costs
Costs of research and development activities are charged to operations when
incurred. Items of equipment or materials which are purchased and have
alternative future uses either in production or research and development
activities are capitalized, at cost, as equipment or inventory.
Inventory
Materials or components are capitalized at the lower of cost or estimated
market. Assembly, systems integration and installation labor and overhead are
capitalized into inventory based on estimated standard production levels. Cost
is determined on a first-in, first-out basis unless specifically identifiable.
Property and equipment
Items of property and equipment, including purchased software, are stated at
cost, less accumulated depreciation and amortization. The Company provides for
depreciation and amortization principally using the declining balance method as
follows:
F-6
<PAGE>
Estimated
Asset Useful life
----- -----------
Machinery and Equipment 5-7 years
Purchased Software 5 years
Revenue Recognition
The Company recognizes revenue when its product is shipped to and accepted or
first used by the customer. The Company accrues an estimate of the cost of the
one-year warranty and service it offers to its customers.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between financial statement and tax bases of assets and liabilities that will
result in future taxable or deductible amounts, and based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Net loss per share
Net loss per share is computed based on the weighted average number of Class A
Common and Class B Common shares outstanding after subtracting certain shares
which are forfeitable unless certain events occur (Note 6) from shares
outstanding in computing net loss per share. Such forfeitable shares are not
deducted in computing net income per share. Dilutive options and warrants
outstanding are considered in the computation of net income per share under the
treasury stock method when their effect is to reduce reported net income per
share.
Use of estimates and assumptions
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect or can affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results can, and in many cases will, differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year's presentation in order
to conform to current year presentation.
Note 3 - Deposits -
In August 1993, the Company made a $480,000 non-refundable deposit payment
pursuant to an agreement with an unaffiliated European supplier of MRI
components (consoles). Such agreement, as amended in July 1994, provides for
purchases of consoles and the license of certain technology underlying consoles.
The Company has agreed to purchase initial consoles which, as amended, would
result in an additional payment of $240,000 (approximately $188,000 of which has
been paid at February 29, 1996) beyond the $480,000 paid as a deposit. Once all
initial consoles have been purchased an unamortized deposit of $320,000 would
remain at such time. Such remaining deposit will be amortized over the remaining
consoles to be purchased under the amended agreement. If the Company does not
purchase consoles beyond the initial consoles, such remaining deposit (or
portion thereof) would be forfeited.
As of February 29, 1996 the Company has received 80% of such consoles, leaving
an unamortized deposit of $352,000 at that date. Such amount is included in
deposits and other assets in the accompanying financial statements.
F-7
<PAGE>
Note 4 - Property and Equipment -
Property and equipment at February 29, 1996 and February 28, 1995 consisted of
the following:
Estimated life 1996 1995
-------------- ---- ----
Machinery and equipment 5 - 7 years $ 547,000 $507,000
Purchased software 5 years 76,000 76,000
--------- --------
623,000 583,000
Less accumulated depreciation
and amortization (272,000) (170,000)
--------- --------
$ 351,000 $413,000
--------- --------
Note 5 - Notes Payable -
In November 1994, the Company issued $400,000 principal amount of 10% bridge
notes payable in May 1995 and warrants ("Class C Warrants") to purchase 200,000
shares of Class A Common Stock (see Note 6) in a private placement. Such notes
were collateralized by certain assets pledged by two stockholders and directors
of the Company and were repaid at maturity in May 1995 together with accrued
interest of approximately $20,000. In December 1994, the Company issued
$1,250,000 principal amount of 12% bridge notes payable in December 1995 and
warrants ("Class D Warrants") to purchase 625,000 shares of Class A Common Stock
(see Note 6) in a private placement. During July and August 1995, all of the
holders of $1,250,000 principal amount of 12% bridge notes completed the
conversion of their notes (together with accrued interest of approximately
$90,000), warrants to purchase 625,000 shares of Class A Common Stock and an
additional $166,667 in cash, into 625,000 shares of Class A Common Stock.
Of the $1.65 million principal amount of notes and warrants issued in November
and December 1994, the Company has allocated approximately $325,000 as the
estimated value of the warrants issued with the notes. This amount was being
amortized as additional interest expense and an increase to notes payable over
the lives of the respective notes using the effective interest method until such
notes were repaid (May 1995) or converted to equity (July and August 1995). At
February 28, 1995, approximately $92,000 had been amortized and the remaining
balance of approximately $233,000 at February 28, 1995 is reflected as a
reduction in notes payable. There is no remaining balance at February 29, 1996.
A member of the Board of Directors of the Company is an officer and principal of
an entity which participated in $500,000 of the notes and Class D warrants which
were subsequently converted to equity.
In August 1995, the Company issued $500,000 of notes bearing interest at 10% and
payable in August 1997 or upon the earlier offering of equity securities of the
Company ("Bridge Notes"). A portion of the Bridge Notes ($10,000, the
"convertible portion") is repayable in 60,000 shares of Class A Common Stock.
The Company does not allocate a value to the conversion feature and allocates
all of the proceeds of the debt to notes payable in accordance with established
accounting practice. In January 1996, in accordance with the terms of the Bridge
Notes, all of the Bridge Note holders exercised their rights to convert the
convertible portion to a total of 60,000 shares of Class A Common Stock and the
remaining $490,000 was paid together with approximately $20,000 in accrued
interest. Approximately $92,000 of issuance costs were incurred in connection
with this Bridge Note financing. Such costs have been charged to interest
expense in the accompanying financial statements.
In November 1995, the Company borrowed $100,000 under a 10% note payable to an
individual who is a director of the Company and an officer of a corporate
shareholder of the Company. $75,000 was repaid and then reborrowed in December
1995 and the entire amount, together with interest of approximately $3,000, was
repaid in January 1996.
Total cash interest paid in the fiscal year ended February 29, 1996 was
approximately $45,000. There was no cash interest paid in the year ended
February 28, 1995.
F-8
<PAGE>
Note 6 - Stockholders' Equity (Deficit)-
General
The Company was incorporated on February 22, 1991 in the state of New York and
commenced operations on February 10, 1992. All references to share or per share
data in the Company's financial statements refer to amounts after a stock split,
approved by the Board of Directors on October 29, 1992, of approximately 21,532
shares for one.
Description of Class A and Class B Common Stock
The Class A and Class B Common Stock are identical in most respects except that:
(i) the Class B Common Stock has five votes per share and the Class A Common
Stock has 1 vote per share, (ii) shares of Class B Common Stock are convertible
into shares of Class A Common Stock and require conversion to Class A for sale
or transfer to a non-Class B stockholder and (iii) by agreement with an
underwriter, no more Class B Common Stock can be issued. Holders of Class A and
Class B Common Stock have equal ratable rights to dividends and, upon
liquidation, are entitled to share ratably, as a single class, in the net assets
available for distribution. Shares of Class A and Class B Common Stock are not
redeemable, have no preemptive rights or cumulative voting power, and vote as
one class, except in certain circumstances, in matters before the shareholders.
Class B Common Stock Subject to Forfeiture
Of the shares of Class B Common Stock outstanding, 1,000,000 shares are subject
to forfeiture, to be returned to the Company by the holders, if certain
conditions are not met. Such conditions remaining include certain minimum
amounts of net income prior to February 28, 1998. Such conditions are subject to
adjustment upon certain issuances of additional shares of Class A Common Stock.
In the event that the conditions summarized above are met and the subject shares
are released from restriction, the Company would be required to recognize a
potentially significant charge to compensation expense, and credit to capital in
excess of par value, with respect to such shares owned by officers or other
employees.
Initial Public Offering of Class A Common Stock and Warrants
During the first quarter of fiscal 1994, the Company completed its initial
public offering of 1,150,000 units of its equity securities (including exercise
of the underwriter's over allotment option) yielding gross proceeds of $6.9
million (approximately $5.4 million, net of underwriting discounts and
expenses). Each unit consists of one share of Class A Common Stock, one
redeemable Class A warrant (which entitles the holder to purchase one share of
Class A Common Stock initially at $9.00 and includes one redeemable Class B
warrant) and one redeemable Class B warrant (which entitles the holder to
purchase one share of Class A Common Stock initially at $13.50 per share). The
Class A and Class B warrants are exercisable until March 1998 and are subject to
redemption by the Company at $.05 per warrant, upon 30 days' written notice,
based upon maintenance of certain closing bid prices of the Class A Common Stock
for a specific period. The warrants are also subject to adjustment under certain
conditions (see below).
In connection with the initial public offering, the Company sold an option
permitting the underwriter to purchase 100,000 units at an exercise price of
$7.20 per unit, subject to adjustment upon certain issuances of additional
shares of Class A Common Stock (see below). The units underlying the
underwriter's option are identical to the units described above except that the
Class A and Class B warrants contained therein are not subject to redemption by
the Company.
The July and August 1995 issuances of 625,000 shares of Class A Common Stock
(discussed elsewhere in this note) as well as the conversion feature of the
August 1995 Bridge Notes and the January 1996 public offering of Class A Common
Stock result in an adjustment to the number of Class A and Class B warrants and
underwriter's unit purchase option as well as to the respective exercise prices.
The Company estimates that the approximate number of shares subject to warrants
outstanding and approximate warrant exercise prices are as follows:
F-9
<PAGE>
Units or
Shares Subject Unit or
to Warrants Share Price
----------- -----------
Class A Warrants 1,267,719 $ 8.16
Class B Warrants 1,267,719 $12.25
Unit Purchase Option (each unit consisting
of one share of Class A
Common Stock, one Class
A warrant and one Class B warrant) 109,684 $ 6.56
Second public offering of Class A Common Stock and Warrants-
In January 1996, the Company completed the public offering of 1,850,000 shares
of Class A Common Stock and 925,000 Class E Warrants sold through an underwriter
in units of two shares and one warrant. Each Class E Warrant entitles the holder
to purchase one share of Class A Common Stock at $4.375 per share prior to
December 26, 2000. The Class E Warrants are redeemable by the Company at $0.05
per share at any time that the average closing bid price of the Class A Common
Stock is in excess of $5.6875 for twenty consecutive trading days. The offering
yielded gross proceeds of $5.8 million (approximately $4.6 million net of
offering discounts and expenses). The net proceeds are anticipated to be used to
pay down certain indebtedness and to fund working capital and other requirements
of the Company's production of its first product, the MAGNA-SL.
Stock Options and Warrants
In December 1992, the Company adopted its 1992 Stock Option Plan (the "Plan")
which, as amended in 1993 and again in 1995, provides for the granting of
incentive stock options (ISO), nonqualified stock options or stock appreciation
rights (SAR) to purchase 1,000,000 shares of the Company's Class A Common Stock.
Stock option activity for the fiscal years ended February 29, 1996 and February
28, 1995 was as follows:
1996 1995
---------------------------- -----------------------------
Shares under Price Shares under Price
option option
------------ ------- ------------ -------
Beginning 744,500 $2.50 - $2.81 353,500 $4.25 - $6.00
Cancelled 27,500 $2.50 353,500 $4.25 - $6.00
Granted 265,000 $2.50 - $2.63 744,500 $2.50 - $2.81
Exercised/Expired -- -- -- --
Ending 982,000 $2.50 - $2.81 744,500 $2.50 - $2.81
Of the options granted to date, options to purchase 702,500 shares have been
granted to officers and/or directors of the Company. Options granted contain
various vesting provisions and expiration dates. Of the options granted to date,
approximately 800,000 and 450,000, respectively, are exercisable at February 29,
1996 and February 28, 1995 at a weighted average exercise price of approximately
$2.50 and $2.50, respectively.
The option agreement with one officer obligates the Company to use its best
efforts to register the shares underlying the options.
F-10
<PAGE>
During the year ended February 28, 1995, five year warrants to purchase 825,000
shares of Class A Common Stock were issued in connection with the private
placement of an aggregate amount of $1.65 million principal amount of notes
payable issued in November and December 1994 and described in Note 5. Such
warrants were valued at approximately $325,000, an estimate of their fair value
at the time of issuance (see Note 5). In July and August 1995, warrants to
purchase 625,000 shares, together with related notes payable, accrued interest
and an additional cash payment, were exchanged as described in Note 5. Such
warrants were issued with an exercise price of $2.85 per share, a price which
was in excess of the market price of the Class A Common Stock when issued. The
remaining warrants to purchase 200,000 shares are subject to adjustment for
anti-dilution in certain circumstances and grant the holders certain other
rights including those summarized below.
The agreement with certain holders of warrants to purchase 200,000 shares of
Class A Common Stock permit those holders to obtain warrants to purchase 200,000
additional shares if they chose to invest $600,000 in an offering, by the
Company, of securities and grant such holders certain registration rights. On
June 16, 1995, the Company agreed to grant, upon the completion of a public
offering, 25,000 shares of stock to such warrant holders in exchange for their
agreement, in connection with a proposed public offering, not to sell their
shares prior to July 1, 1996.
The pro-forma effect, as if such transactions had occurred at the beginning of
the periods presented, on Net Loss, Net Loss per Share and Weighted Average
Number of Shares Outstanding of: (i) the conversion of $1.25 million principal
amount of notes and warrants into 625,000 shares of Class A Common Stock
(discussed in Note 5), (ii) the conversion of the convertible portion of the
1995 Bridge Notes (discussed in Note 5) into 60,000 shares of Class A Common
Stock and (iii) the issuance of 25,000 shares of stock to the Class C
warrantholders as described above, is as follows:
As Reported Pro-Forma
----------- ---------
Year ended February 28, 1995:
Net Loss $(3,153,000) $(2,990,000)
Weighted Average Shares 2,025,000 2,735,000
Net Loss Per Share $ (1.56) $ (1.08)
Year ended February 29, 1996:
Net Loss $(2,895,000) $(2,783,000)
Weighted Average Shares 2,710,000 3,043,000
Net Loss Per Share $ (1.07) $ (0.92)
Note 7 - Sales and Distribution Agreements/Customer Deposits-
The Company has entered into various sales, distribution and sales
representation agreements covering the sale of the MAGNA-SL. Such agreements
include an exclusive arrangement for fee-for-service leasing, mobile
applications, veterinary uses and certain overseas markets with an entity ( Beta
Numerics, Inc., "Beta") in which three directors and beneficial shareholders of
the Company are significant shareholders. Customer deposits at February 29, 1996
and February 28, 1995 consist of $620,000 and $420,000, respectively, received
from that customer.
During the fourth quarter of fiscal 1996, the Company returned $30,000 of
deposits from Beta at Beta's request. In April 1996, the Company returned to
Beta, at Beta's request, an aggregate of $80,000 in deposits.
F-11
<PAGE>
Note 8 - Income Taxes -
At February 29, 1996, the Company had net operating loss carryforwards of
approximately $11 million to offset future income subject to tax and
approximately $350,000 of research tax credits available to offset future taxes
payable. These resulted in an estimated $3.8 million of federal and $0.8 million
of state deferred tax assets at February 29, 1996. Of these amounts,
approximately $1.1 million of federal and $0.2 million of state deferred tax
assets arose in the year ended February 29, 1996. The benefits of these
carryforwards have not been recorded since realization is not assured.
A change in the ownership of a majority of the fair market value of the
Company's common stock could possibly delay or limit the utilization of existing
net operating loss carryforwards and credits. The Company believes, based upon
limited analysis, that such a change may have occurred in 1993 at a time when
net operating losses (subject to limitation) were less than $2 million. The
Company believes that a significant issuance of additional stock after February
1996 could trigger an additional change and new limitation.
Such carryforwards and credits expire through the fiscal year ended in 2011.
Note 9 - Other matters -
Cash and cash equivalents - Included in cash and cash equivalents at February
29, 1996 and February 28, 1995 are approximately $2,000,000 and $500,000,
respectively, of U. S. Treasury bills with maturities of less than three months.
The remaining cash balances (approximately $1,047,000 and $403,000) at February
29, 1996 and February 28, 1995, respectively are maintained with a financial
institution where such balances are insured up to $100,000.
Intellectual property rights - In connection with an agreement dated February
28, 1992, a founder of the Company assigned his right and interest to certain
MRI technology to the Company. No value is assigned to this right in the
Company's financial statements.
Current liabilities - Included in accrued liabilities are approximately $57,000
and $101,000, respectively, of accrued payroll costs and approximately $-0- and
$43,000, respectively, in deferred credits related to rent as of February 29,
1996 and February 28, 1995
Selling and marketing costs - Included in selling and marketing costs for the
year ended February 29, 1996, is a charge of approximately $60,000 related
primarily to certain customer site, delivery and other costs which the Company
has assumed in connection with an order received and sale recorded in the fiscal
year ended February 29, 1996. These costs were recognized at the time of the
order because the revenues recognizable upon shipment of the unit, due to
special deferred payment terms, will not assure realization of these costs.
Related party transactions - A director of the Company, who is also a principal
owner of a company which owns stock in the Company, is a partner in a law firm
which provides legal services to the Company. Fees accruing to such firm in the
fiscal years ended February 29, 1996 and February 28, 1995 have been recorded at
approximately $ 275,000 and $205,000, respectively, related to financing and
general corporate matters. Amounts owing to such firm are included in the
financial statements at approximately $130,000 and $115,000 at February 29, 1996
and February 28, 1995, respectively. At February 28, 1995 approximately $28,000
had been collected on a sublease (and the Company was in process of terminating
the sublease) with a party in which two directors and beneficial owners of the
Company are significant owners.
See also, notes 5 and 7.
Note 10 - Commitments and Contingencies -
Since April 1996, the Company leases approximately 16,000 square feet of office,
manufacturing and research and development space under a lease which expires in
April 2003 and provides for minimum annual rent plus the Company's share of
certain common expenses and increases in taxes over a base year amount. The
lease also calls for periodic increases beginning in the third year of the
lease.
F-12
<PAGE>
Future minimum annual rental payments (excluding common charges and increases in
taxes) under the lease are as follows:
Years ending February, Amount
---------------------- ------
1997 $ 138,000
1998 138,000
1999 143,000
2000 148,000
2001 155,000
Prior to April 1996, the Company leased approximately 10,000 square feet of
office, manufacturing and research and development space at a different location
under a lease which was to expire in September 1997. Under a "Surrender of Lease
Agreement", the Company and the landlord agreed to the early termination of the
lease and the forgiveness of certain amounts payable under the lease which were
overdue.
Rent expense related to the facility lease was approximately $120,000 and
$150,000 for the years ended February 29, 1996 and February 28, 1995,
respectively. The fiscal 1996 amount excludes a credit of approximately $60,000
related to the surrender of the related lease.
The Company and its two key executive officers entered into three year
employment agreements starting in February 1992 and which called for certain
annual salaries, payments in the event of death or disability and a twenty four
month period of non-competition in the event of termination. Such agreements
expired on February 28, 1995 and have been extended to August 9, 1996.
One vendor has threatened litigation over certain contested balances due and
certain alleged commitments for services in the future. The Company intends to
vigorously contest this threatened litigation unless the vendor agrees to
negotiate a settlement on a reasonable basis. While the ultimate liability in
this matter is not known and the vendor has threatened to seek damages
materially in excess of amounts recorded, the Company believes, based on the
advice of counsel, that its liability will not exceed amounts recorded in the
financial statements.
F-13
<PAGE>
Item 8: Changes in and Disagreement with Accountants.
NONE
PART III
Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16 (a) of the Exchange Act:
The Company's Directors and executive officers are as follows:
Name Age Positions with the Company
---- --- --------------------------
Lawrence A. Minkoff, Ph.D.(1)(2) 48 Chairman of the Board of Directors,
Chief Executive Officer and President
Joel M. Stutman, Ph.D.(1) 61 Vice-President, Chief Operating Officer
and Director
John D. Haytaian 52 Vice-President - Sales and Marketing
Kenneth C. Riscica 42 Vice-President - Finance, Chief
Financial Officer, Assistant Secretary
Cynthia R. May 43 Director
Dr. Herbert Moskowitz 54 Director
Irwin M. Rosenthal(2) 65 Director
- ----------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Lawrence A. Minkoff, Ph.D. is a co-founder of the Company and has
served as Chairman of the Board, President and Chief Executive Officer since its
inception in February 1991. Since October 1989, Dr. Minkoff has served as
President and a director of the Predecessor. The Predecessor is a principal
shareholder of the Company and prior to the formation of the Company conducted
the development activities relating to the Company's current technology. From
October 1989 to February 1992, Dr. Minkoff was engaged in the development of MRI
technology. From July 1978 to October 1989, Dr. Minkoff was an executive
vice-president of Fonar Corporation, a publicly traded corporation, engaged in
developing and commercializing the use of nuclear magnetic resonance for
scanning the human body. Dr. Minkoff served as a member of its Board of
Directors from January 1985 to February 1989.
Joel M. Stutman, Ph.D. is a co-founder of the Company and has served as
Vice President, Chief Operating Officer and a Director since its inception in
February 1991. From November 1987 to June 1991, Dr. Stutman was president and a
director of Imaging Systems International (ISI). ISI is a company that
establishes and manages MRI centers. From October 1989 to June 1991, he served
as the general manager of ISI's North Georgia Diagnostic Imaging, L.P., a public
limited partnership providing MRI imaging services. From July 1978 to August
1986, Dr. Stutman served as vice-president of computer sciences and from August
1986 to November 1987, as an executive vice-president of marketing at Fonar
Corporation.
John D. Haytaian has served as Vice President of Sales and Marketing of
the Company since November 1991 and as Acting Chief Financial Officer of the
Company from November 1991 to November 1993. From August 1990 to November 1991,
Mr. Haytaian served as a managing director and vice president-sales of EquiMed
Leasing Inc., a company engaged in medical equipment leasing. From September
1989 to August 1990 he was an independent consultant to the medical equipment
industry. Mr. Haytaian served Fonar Corporation in the following capacities:
from January 1982 to December 1983 as assistant to the president, from January
1984 to July 1986 as vice-president of operations and from August 1986 to
September 1989 as vice-president of sales.
III-1
<PAGE>
Kenneth C. Riscica has served as Vice President-Finance and Chief
Financial Officer of the Company since November 1993 (after joining the Company
in August 1993), as Treasurer since July 1995 and as Assistant Secretary since
September 1994. From 1976 through 1992, Mr. Riscica was with Arthur Andersen and
Co., S.C., where he served as a partner in charge of an enterprise group program
for emerging companies from 1987 through 1992. Since 1992, Mr. Riscica has
served as a financial consultant and as managing director-chief executive
officer of Riscica Associates, Inc. a financial and management consulting firm.
Mr. Riscica is a certified public accountant in the State of New York.
Ms. Cynthia R. May has served as a Director of the Company since
January 1996. Since 1981, Ms. May has been employed by Saginaw Controls &
Engineering Corp., a private manufacturing company, most recently as a vice
president. Since 1994, Ms. May has been treasurer of Marathon Investments L.L.C.
and vice president and treasurer of GRQ, L.L.C., two entities involved in
investment and financing. Marathon Investments L.L.C. is a principal shareholder
of the Company.
Dr. Herbert Moskowitz has served as a Director of the Company since
February 1992 and as its Treasurer from February 1992 to July 1994. Dr.
Moskowitz has been the Chairman of the Board of Life Medical Sciences, Inc.
("Life Medical"), a publicly traded medical technology company from August 1990
to the present, and has been its Chief Executive Officer from August 1990 to
March 1993 and from December 1994 to the present. From 1986 to June 1990 he
served in various capacities, including director, chairman of the board, chief
executive officer and president of Advanced Tissue Sciences, Inc., a publicly
traded medical technology company. Dr. Moskowitz is also a director of EchoCath,
Inc. ("EchoCath"), a publicly traded medical technology company. Dr. Moskowitz
is also president, a director and principal stockholder of Magar Inc. ("Magar"),
a private investment firm, and a general partner of Alliance Partners ("Alliance
Partners"), a private investment partnership.
Irwin M. Rosenthal has served as a Director of the Company since
February 1992. He has served as a senior partner at Rubin Baum Levin Constant &
Friedman since December 1991. From December 1989 to December 1991, he served as
a partner at Baer Marks Upham, and from 1983 to December 1989, a senior partner,
at Botein Hays & Sklar. Mr. Rosenthal is a director of Life Medical, Symbollon
Corporation, a publicly traded chemical and medical technology company, and a
director and officer of EchoCath. Mr. Rosenthal serves as secretary and director
of Magar, of which he is a principal stockholder, and is a general partner of
Alliance Partners.
In October 1995, the Company's Board of Directors voted to increase the
number of directors from five to seven. In connection therewith, Ms. Cynthia R.
May was elected to serve as a Director with her term to commence after the
effectiveness of a public offering of securities which became effective in
December 1995. In February 1996, Hon. Leonard Braman resigned from the Board.
The Company has obtained key-person life insurance coverage in the face
amount of $1,000,000 for each of Dr. Lawrence A. Minkoff and Dr. Joel M. Stutman
naming the Company as beneficiary under such policies.
Item 10: Executive Compensation.
The information called for by this item is incorporated by reference to
the definitive Proxy Statement to be filed by the Company pursuant to Regulation
14A within 120 days after the close of the 1996 fiscal year.
Item 11: Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is incorporated by reference to
the definative Proxy Statement to be filed by the Company pursuant to Regulation
14A within 120 days after the close of the 1996 fiscal year.
III-2
<PAGE>
Item 12: Certain Relationships and Related Transactions
In November 1994, Dr. Moskowitz and Mr. Rosenthal advanced $90,000 and
$10,000, respectively, to the Company for working capital purposes. In November
1994, the Company sold $400,000 principal amount of bridge notes and 200,000
Class C Warrants for $400,000 to Michael Cantor ($240,000) and four other
individuals in a private placement. The bridge notes carried interest at 10% and
were repaid at their maturity on May 23, 1995. Dr. Moskowitz and Mr. Rosenthal
agreed to pledge certain assets in connection with these bridge notes and the
amounts advanced by Dr. Moskowitz and Mr. Rosenthal were repaid, in November
1994, out of the proceeds of the notes and warrants. The Class C Warrants grant
the holders the right to purchase a total of approximately 212,000 (127,200 with
respect to Michael Cantor) shares of Class A Common Stock at a per share price
estimated at $2.70 (subject to adjustment) prior to November 1999 and carry
certain registration rights. The warrant holders also have certain rights to
participate in a private offering of Company securities and, under certain
circumstances in connection therewith, receive additional warrants to purchase
200,000 shares of Class A Common Stock at $2.85 (subject to adjustment). In
connection with a public offering of equity securities completed in January
1996, the Company has agreed to issue 25,000 shares of Class A Common Stock to
the Class C Warrantholders in exchange for their agreement to not sell the
shares underlying the Class C Warrants as well as such 25,000 shares before July
1, 1996 and deferral of their registration right relating to the shares
underlying the Class C Warrants.
In December 1994 the Company sold for $1,250,000 a total of $1,250,000
principal amount (including $500,000 to Marathon Investments, L.L.C. and
$500,000 to Fred Kassner) of 12% bridge notes payable in December 1995 (or
earlier completion of a public or private offering of securities) and five year
warrants to purchase a total of 625,000 shares (including 250,000 to Marathon
Investments, L.L.C. and 250,000 to Fred Kassner) of Class A Common Stock at
$2.85 (subject to adjustment) in a private placement. During July and August
1995, all of the holders of $1,250,000 principal amount of the 12% Notes
converted their 12% Notes (together with accrued interest), Class D Warrants to
purchase 625,000 shares of Class A Common Stock (at an exercise price of $2.85
per share) and an additional $166,667 in cash (including $100,000 from Marathon
Investments, L.L.P. and $66,667 from Fred Kassner) into 625,000 shares of Class
A Common Stock. Ms. Cynthia May, who has been elected to serrve on the Board of
Directors beginning in January 1996, is a beneficial owner and officer of
Marathon Investments, L.L.C. In November 1995, Ms May loaned to the Company
$100,000 under a 10% note which was paid in January 1996. In December 1995,
$75,000 of this amount was repaid and then reborrowed.
In December 1994, the Company entered into a sales, marketing and
distribution agreement with Beta Numerics, Inc. ("Beta"). Beta is a private
company, two founders and principal stockholders of which are Dr. Herbert
Moskowitz and Mr. Irwin Rosenthal, each of whom is a director and stockholder of
the Company. Further, Marathon Investments, L.L.P. and Fred Kassner also have
financial investments in Beta. Under the agreement, Beta was granted the
following rights: (i) an exclusive worldwide right to distribute the Company's
MAGNA-SL on a fee-for-service lease basis, (ii) a non-exclusive right to act as
an additional leasing source for customers preferring to lease rather purchase
the Company's scanners, (iii) an exclusive worldwide right to distribute the
MAGNA-SL in the veterinary market, (iv) an exclusive worldwide right to
distribute mobile versions of the MAGNA-SL which may be developed in the future
and (v) an exclusive right to distribute the MAGNA-SL in certain territories
other than the United States. The agreement, which has a term of ten years
(subject to renewal by Beta for an additional ten year period), is terminable by
the Company if Beta fails to place orders for a minimum of eight scanners in
year one, 16 scanners in year two and 24 scanners in each year thereafter. Under
the agreement, the purchase price to be paid is to be at a minimum discount of
15% from the then list price. The Company is required to offer Beta any better
pricing, or other terms, with respect to the same number of units, offered to
any other customer. Beta has agreed to fund up to $350,000 of expenses in
connection with the development of a mobile version of the MAGNA-SL, subject to
its right to terminate such funding if it determines that such development is
not advantageous. Although the Company anticipates that Beta will seek financing
sufficient to meet its minimum obligations under the agreement, there can be no
assurance that Beta will be successful in obtaining such financing or that these
minimum obligations will be met. The Company and Beta are in discussions
concerning an extension of the initial time frame necessary for Beta to purchase
its minimum obligations. Through May 20, 1996, Beta has paid the Company
approximately $1,075,000, representing payment on the first system delivered,
deposits on another six additional scanners and advance payments for development
of the mobile version. Four of the deposits received from Beta do not represent
orders, and there can be no assurance that such deposits will ultimately be
converted to orders. In February 1996, the Company returned $30,000 in deposits
to Beta at Beta's request and in April 1996, the Company returned an additional
$80,000 in deposits to Beta at Beta's request.
III-3
<PAGE>
The Company sublet approximately 950 square feet of space at its
Corporate Headquarters to a company of which Magar Inc. is a principal
shareholder and Irwin M. Rosenthal and Dr. Herbert Moskowitz are directors. The
sublease provided for a minimum annual rental commitment of approximately
$18,000 (excluding allocated real estate taxes, utilities and other costs)
through September 1997. During 1995, the sublease was terminated by the Company
after collection of a total of approximately $28,000 of rent and related costs.
Transactions between the Company and its Directors, officers and
principal shareholders have been approved by the disinterested directors of the
Company and determined to be on terms no less favorable than those available
from independent third parties.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits on Page E-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended February 29, 1996.
III-4
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNA-LAB INC.
Dated: May 24, 1996
By:/s/Lawrence A. Minkoff
----------------------
Lawrence A. Minkoff
President, Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/Lawrence A. Minkoff President, Chairman of the Board
- ------------------------ and Chief Executive Officer
Lawrence A. Minkoff (principal executive officer) May 24, 1996
/s/Joel M. Stutman Vice President, Chief Operating
- ------------------------ Officer and Director
Joel M. Stutman May 24, 1996
/s/Kenneth C. Riscica Vice President-Finance, Chief
- ------------------------ Financial Officer, Assistant
Kenneth C. Riscica Secretary and Trasurer (principal
financial and accounting officer) May 24, 1996
/s/Cynthia R. May
- ------------------------
Cynthia R. May Director May 24, 1996
/s/Herbert Moskowitz
- ------------------------
Herbert Moskowitz Director May 24, 1996
/s/Irwin M. Rosenthal
- ------------------------
Irwin M. Rosenthal Director May 24, 1996
III-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
3.1 Restated Certificate of Incorporation of the Company. (1)
3.1(a) Form of Certificate of Amendment to Restated Certificate of
Incorporation of the Company. (3)
3.1(b) Certificate of Amendment of Restated Certificate of Incorporation (4).
3.2 By-Laws of the Company. (1)
3.2(a) Amendment to By-Laws of the Company. (3)
10.1 1992 Stock Option Plan of the Company, as amended. (7)(8)
10.2 Form of Stock Restriction Agreement among the Company, Class B Common
shareholders of the Company and D. H. Blair Investment Banking Corp.
(2)
10.3 License Agreement, dated February 28, 1992, between the Company and Dr.
Lawrence A. Minkoff. (1)
10.4 Employment Agreement, dated February 28, 1992, between the Company and
Dr. Joel M. Stutman. (1)(8)
10.4(a) Letter Agreement dated as of February 28, 1995 between the Company and
Dr. Joel M. Stutman. (7)
10.5 Employment Agreement, dated February 28, 1992, between the Company and
Dr. Lawrence A. Minkoff. (1)(8)
10.5(a) Letter Agreement dated as of February 28, 1995 between the Company and
Dr. Lawrence A. Minkoff. (7)
10.6 Form of Subscription Agreement (with certain Exhibits, including form
of Notes and Warrant Agreemnet) for 10% notes and Class C Warrants.
Incorporated by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended November 30, 1994 (File No.
0-21320)
10.7 Form of Subscription Agreement (with certain Exhibits, including form
of Notes and Warrant Agreement) for 12% Notes and Class D Warrants.
Incorporated by reference to Exhibit 4.2 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended November 30, 1994 (File No.
0-21320).
10.8 Sales, Marketing and Distribution Agreement between Beta Numerics Inc.
and Magna-Lab Inc. Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
November 30, 1994 (File No. 0-21320).
10.9(a) Medical Advisory Board Agreement, dated as of December 31, 1992,
between the Company and Dr. Kurt Isselbacher. (2)
10.9(b) Medical Advisory Board Agreement, dated as of December 31, 1992,
between the Company and Dr. Valentin Fuster. (3)
10.9(c) Medical Advisory Board Agreement between the Company and Dr. Thomas
Brady. (3)
10.10 Lease dated February 28, 1992 between Grumman Aerospace Corporation and
the Company. (1)
10.11 Form of Indemnification Agreement entered into between the Company and
each officer and Director of the Company. (1)(8)
10.12 Assignment from Dr. Lawrence Minkoff to the Company dated December 22,
1992. (1)
10.13 Agreement, dated November 22, 1991, between the Company and John
Haytaian, as amended. (1)(8)
E-1
<PAGE>
10.14 Form of Stock Option Agreement between the Company and each officer and
Director of the Company (7)(8)
10.15 Employment Agreement between the Company and Kenneth C. Riscica. (5)(8)
10.16 Form of Consulting Agreement between the Company and D.H. Blair
Investment Banking Corp.(3)
10.18 Agreement between Magna-Lab Inc. and Surrey Medical Imaging Systems
Limited dated August 23, 1993. Incorporated by reference to Exhibit
10.18 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended August 31, 1993 File No. 0-211320)
10.19 Letter Amendment dated December 8, 1993 to Agreement with Surrey
Medical Imaging Systems Limited. Incorporated by reference to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
November 30, 1993 (File No. 0-21320)
10.19(a) Letter of amendment dated July 11, 1994 to agreement with Surrey
Medical Imaging Systems Limited. Incorporated by reference to exhibit
10.20 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended May 31, 1994. (File Number 0-21320)
10.20 Foreign Distributorship Agreement and Coordination Foreign Distributor
Agreement between Magna-Lab Inc. and Apic-Medarax dated January 22,
1994. (5)
10.20(a) Letter amendment dated September 1, 1994 to Foreign Distributor
Agreement dated January 22, 1994. Incorporated by reference to Exhibit
10.20(a) to the Company's Quarterly Report on Form 10-QSB for the
quarter ended August 31, 1994. (7)
10.20(b) Letter amendment dated October 20, 1995 to Foreign Distributor
Agreement dated January 22, 1994. (7)
10.21 Form of stock option agreement between the Company and each non
executive option holder. (5)
10.22 Medical Advisory Board Agreement, dated January 19, 1994, between the
Company and Dr. William Abbott. (5)
10.23 Form of Underwriting Agreement, dated March 30, 1993, between the
Company and D.H. Blair Investment Banking Corp. Incorporated by
reference to Exhibit 1.1 to Amendment No. 2 to the Registration
Statement described in notes 1 and 3 to this Exhibit Index.
10.24 Form of Unit Purchase Option, dated April 6, 1993 between the Company
and D.H. Blair Investment Banking Corp. Incorporated by reference to
Exhibit 1.2 to Amendment No. 2 to the Registration Statement described
in notes 1 and 3 to this Exhibit Index
10.25 Form of Warrant Agreement among the Company, D.H. Blair Investment
Banking Corp. and American Stock Transfer and Trust Company.(3)
10.26 Placement Agent Agreement, dated as of June 20, 1995, among the
Company, the Representative and, for purposes of certain sections,
Dreyer & Traub, L.L.P. (7)
10.27 Form of Subscription Agreement, dated as of August 4, 1995, between the
Company and Bridge Note investors. (7)
10.28 Lock-up letters from Bridge Note investors. (7)
10.29 Letter Agreements, dated June 19, 1995, between the Company and Class C
Warrantholders. (7)
10.30 Letter of Intent, dated November 25, 1995, between the Company and
Elscint, Ltd. (7)
10.31 Surrender of Lease Agreement dated April 4, 1996 between the Company
and Grumman Aerospace Corporation.
10.32 Lease Agreement, dated April 4, 1996, between the Company and Heartland
Rental Properties Partnership.
10.33 Letter amendment to Lease Agreement, dated April 4, 1996, between the
Company and Heartland Rental Properties Partnership.
10.34 Form of Underwriting Agreement between the Company and H.J. Meyers &
Co., Inc. (7)
10.35 Form of Representative's Warrant Agreement. (7)
10.36 Form of Merger and Acquisition Agreement between the Company and H.J.
Meyers & Co., Inc. (7)
10.37 Form of Financial Consulting Agreement between the Company and H.J.
Meyers & Co., Inc. (7)
11 Statement re computation of per share earnings. (6)
27 Financial Data Schedule.
- ----------
(1) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 33-56344) filed
on December 24, 1992 and declared effective on March 30, 1993 (the "S-1").
(2) Incorporated by reference to the correspondingly numbered exhibit to
Amendment No. 1, filed on March 3, 1993, to the S-1.
(3) Incorporated by reference to the correspondingly numbered exhibit to
Amendment No. 2, filed on March 25, 1993, to the S-1.
E-2
<PAGE>
(4) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Quarterly Report on Form 10-QSB for the quarter ended August 31, 1994
(File No. 0-21320).
(5) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Annual Report on Form 10-KSB for the year ended February 28, 1994
(File No. 0-21320).
(6) Incorporated by reference to Exhibit 11 to the Form 10-KSB for the year
ended February 28, 1994; year ended February 28, 1995 not required; year and
quarter ended February 29, 1996 included herewith.
(7) Incorporated by reference to the correspondingly numbered exhibit to the
Company's Registration Statement on Form SB-2 (Registration Statement No.
33-96272) filed on August 28, 1995 including Amendment No. 1 filed on October
20, 1995 and Amendment No. 2 filed on December 19, 1995.
(8) Constitutes a management contract or compensatory plan or arrangement.
E-3
EXHIBIT 10.31
SURRENDER OF LEASE
SURRENDER OF LEASE AGREEMENT made as of this 4th day of April, 1996 by and
between GRUMMAN AEROSPACE CORPORATION, a New York corporation having its
principal place of business at 1111 South Oyster Bay Road, Bethpage, New York
11714 (hereinafter referred to as the "Lessor") and MAGNA-LAB, INC., a New York
corporation having its principal place of business at 950 South Oyster Bay Road,
Hicksville, New York 11801 (hereinafter referred to as the "Lessee").
W I T N E S S E T H:
WHEREAS, the Lessor by lease dated February,28, 1992 (the "Lease"), leased
to Lessee for a term ending September 30, 1997, the premises located at 950
South Oyster Bay Road, Hicksville, New York, as more particularly described in
the Lease (the "Premises"); and
WHEREAS, for the mutual benefit of both parties, Lessor desires to recover
the Premises from Lessee prior to the expiration of the Lease and Lessee
desires to surrender the Premises to Lessor and to forever surrender its right
to use and occupy the Premises pursuant to the Lease.
NOW, THEREFORE, in consideration of Ten and 00/100 ($10.00) Dollars and
other good and valuable consideration paid by Lessee to the Lessor, the receipt
and legal sufficiency of which is acknowledged by the parties hereto, Lessor
and Lessee hereby agree as follows:
1. Lessee agrees that it shall forthwith (i) surrender possession of
the Premises to the Lessor on or before April 30, 1996, TIME BEING OF THE
ESSENCE, and (ii) on such date, give, grant and surrender to Lessor, its
successors and assigns, all of Lessee's right, title and interest to the
Lease. Through the date Lessee vacates the Premises, Lessee shall keep in
full force and effect any and all insurance policies it was required to
maintain under the terms of the Lease.
2. Lessee hereby waives any and all options it may have under the
Lease, including, but not limited to, an option to expand its use of the
Premises and to renew the term of the Lease.
<PAGE>
3. Lessee represents and warrants to Lessor that there is no subtenant
or assignee of the Lease, nor, to the best of its knowledge, any user,
occupant or squatter in any portion of the Premises and, further, that no
third party has any right or claim to use or occupy any portion of the
Premises by virtue of any acts or omissions of Lessee. Lessor represents
and warrants to Lessee that it knows of no other occupant or user of the
Premises other than Lessee.
4. Upon the execution of this Agreement, Lessee shall pay to Lessor
the sum of $55,276.29, representing one-half (1/2) of the current rent
arrears due and owing to Lessor from Lessee. This payment shall be made to
Lessor by acceptable certif ied or official bank check payable directly to
Lessor on a bank having an office in the New York City metropolitan area.
5.Lessee hereby waives any and all rights with respect to any and all
security, including interest accrued thereon (collectively, the "Security
Deposit"). being held by Lessor in accordance with the Lease. Upon
execution hereof, Lessee hereby transfers all right, title and interest in
and to the Security Deposit to Lessor. Lessor accepts same. Lessee
represents and warrants to Lessor that it has done nothing to encumber or
permit an encumbrance of or lien against any portion of the Security
Deposit, and Lessee further represents and warrants to Lessor that,to the
best of its knowledge, no other party has or can have claim thereto. The
provisions of this paragraph shall survive the termination of this
Agreement.
6. As security for Lessee remaining in possession of the Premises
through, but no later than, April 30, 1996, TIME OF THE ESSENCE, Lessee,
upon execution hereof, shall deposit with its attorney, Alan Kraut, Esq.,
by separate letter dated of even date herewith, the sum of $10,161.81. Said
monies shall be released in accordance with said letter. In the event
Lessee complies with and performs all of its obligations as set forth in
this Agreement and in the accompanying escrow letter, the said monies shall
be released to Lessee and Lessor shall release Lessee from its remaining
obligation to pay rent under the Lease, including the balance of rent
arrears, interest thereon and Lessor's administrative charge.
Simultaneously, Lessee shall release Lessor from its obligations to Lessee
hereunder and under the Lease.
7. If, for any reason whatsoever, Lessee stays in possession of the
Premises beyond April 30, 1996, then for every day until Lessee vacates,
Lessee shall owe and pay to Lessor without deductions or set-off the sum of
$677.46. This sum represents a charge equal to two (2) times the per them
rent in effect for April, 1996. In addition, should Lessee hold over beyond
April 30, 1996, Lessor may bring any proceedings permissible at law or
equity to remove Lessee from the Premises and regain possession thereof. In
such case, Lessor shall be entitled to recover reasonable costs,
disbursements and legal fees from Lessee.
<PAGE>
8. Upon the Lessee's surrender of the Premises, Lessee will deliver
the Premises, including, but not limited to, all fixtures and equipment, in
the same condition as delivered by Lessor to Lessee upon the commencement
of the Lease, reasonable wear and tear excepted. Notwithstanding the
foregoing, all trade fixtures, equipment, appliances and personal property
of Lessee shall be removed by Lessee prior to its surrender of the
Premises, at Lessee's sole cost and expense. Any such items left by Lessee
after its surrender may be regarded as debris and scrap and disposed of by
Lessor at Lessee's sole cost and expense. To that extent, any obligation of
Lessee to reimburse Lessor for expenses related to such disposal shall
survive the surrender of the Lease.
9. Upon surrender of the Premises, Lessee shall return to Lessor all
keys to the Premises in its and its employees, possession.
10. Lessee and Lessor hereby represent to each other that other than
due to the non-performance of this Agreement, this Agreement is intended to
settle pending claims each party may have against the other, and to that
end, neither party has any claim pending or threatened against the other
for any matter relating to the Lease and/or Lessee's occupation, use and
possession of the Premises.
11. This Agreement shall be governed and construed under the laws of
the State of New York. The burdens and benefits of this Agreement shall
bind and enure to the successors and legal representatives of the
respective parties hereto. This Agreement shall be modified only in writing
executed by both parties hereto. This Agreement shall be construed without
regard to which party caused it to be drafted. Any clause of this Agreement
which is found to be unenforceable shall be stricken from this Agreement as
if it were not contained herein, and the balance of this Agreement shall
remain enforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Surrender of
Lease as of the day and year first above written.
Lessor
GRUMMAN AEROSPACE CORPORATION
By: /s/ Mitchell D. Mroz
-------------------------
Lessee
MAGNA-LAB, INC.
By: /s/ Lawrence A. Minkoff
-------------------------
EXHIBIT 10.32
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
Agreement of Lease, made as of this 4th day of April 1996, between Heartland
Rental Properties Partnership, a New York Partnership, 1 Executive Drive,
Edgewood, New York 11717 party of the first part, hereinafter referred to as
OWNER, and/or Landlord and MAGNA-LAB, INC., a corporation duly organized and
existing under the laws of the State of New York, with an office at Unit Z, 250
Executive Drive, Edgewood, New York 11717 party of the second part, hereinafter
referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
Unit Z, as more particularly cross-hatched in red on Exhibit "A" attached hereto
and made part hereof in the building known as 250 Executive Drive, Edgewood, New
York 11717, for the term of seven (7) years (or until such term shall sooner
cease and expire as hereinafter provided) to commence on the 1st day of April
nineteen hundred and ninety-six, and to end on the 31st day of March two
thousand and three and both dates inclusive, at an annual rental rate as more
particularly set forth in paragraph 41 of the rider attached hereto and made
part hereof which Tenant agrees to pay in lawful money of the United States
which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, in equal monthly installments in advance on the
first day of each month during said term, at the office of Owner or such other
place as Owner may designate, without any set off or deduction whatsoever,
except that Tenant shall pay the first monthly installment(s) on the execution
hereof (unless the lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter provided.
Occupancy: 2. Tenant shall use and occupy demised premises for offices, research
and development and warehousing in connection with a magnetic calibration
business and research and development, systems, integration, warehousing and
light manufacturing in connection with a magnetic resonance imaging business
(continued at rider paragraph 51(A))
Alterations: 3. Tenant shall make no changes in or to the demised premises of
any nature without Owner's prior written consent. Subject to the prior written
consent of Owner, and to the provisions of this article, Tenant, at Tenant's
expense, may make alterations, installations, additions or improvements which
are nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
at its expense, before making any alterations, additions, installations or
improvements obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within sixty (60) days
thereafter, at Tenant's expense, by payment or filing the bond required by law
or otherwise. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of Owner
and shall remain upon and be surrendered with the demised premises unless Owner,
by notice to Tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right thereto and to
have them removed by Tenant, in which event the same shall be removed from the
demised premises by Tenant prior to the expiration of the lease, at Tenant's
expense. Nothing in this Article shall be construed to give Owner title to or to
prevent Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such from the premises or upon removal of
other installations as may be required by Owner, Tenant shall immediately and at
its expense, repair and restore the premises to the condition existing prior to
installation and repair any damage to the demised premises or the building due
<PAGE>
to such removal. All property permitted or required to be removed by Tenant at
the end of the term remaining in the premises after Tenant's removal shall be
deemed abandoned and may, at the election of Owner, either be retained as
Owner's property or removed from the premises by Owner, at Tenant's expense.
Repairs: 4. Owner shall maintain and repair the public portions of the building.
Tenant shall, throughout the term of this lease, take good care of the demised
premises including the bathrooms and lavatory facilities and the windows and
window frames and, the fixtures and appurtenances therein and at Tenant's sole
cost and expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6, Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture or
equipment. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If the demised premises be or become infested
with vermin, Tenant shall, at its expense, cause the same to be exterminated.
Tenant shall give Owner prompt notice of any defective condition in any
plumbing, heating system or electrical lines located in the demised premises and
following such notice, Owner shall remedy the condition with due diligence, but
at the expense of Tenant, if repairs are necessitated by damage or injury
attributable to Tenant, Tenant's servants, agents, employees, invitees or
licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any set off or reduction of rent by
reason of any failure of Owner to comply with the covenants of this or any other
article of this lease. Tenant agrees that Tenant's sole remedy at law in such
instance will be by way of any action for damages for breach of contract. The
provisions of this Article 4 with respect to the making of repairs shall not
apply in the case of fire or other casualty with regard to which Article 9
hereof shall apply.
Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the New York State Labor Law or any other applicable law or of
the Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
Requirements of Law, Fire Insurance: 6. Prior to the commencement of the lease
term, if Tenant is then in possession, and at all times thereafter Tenant shall,
at Tenant's sole cost and expense, promptly comply with all present and future
laws, orders and regulations of all state, federal, municipal and local
governments, departments, commissions and boards and any direction of any public
officer pursuant to law, and all orders, rules and regulations of the New York
Board of Fire Underwriters, or the Insurance Services Office, or any similar
body which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, or, with respect to the building, if arising out of
Tenant' use or manner or use of the demised premises of the building (including
the use permitted under the lease). Except as provided in Article 30 hereof,
nothing herein shall require Tenant to make structural repairs or alterations
unless Tenant has, by its manner of use of the demised premises or method of
operation therein, violate any such laws, ordinances, orders, rules, regulations
or requirements with respect thereto. Tenant shall not do or permit any act or
thing to be done in or to the demised premises which is contrary to law, or
which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner. Tenant
shall not keep anything in the demised premises except as now or hereafter
permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance
Rating Organization and other authority having jurisdiction, and then only in
such manner and such quantity as so not to increase the rate for fire insurance
applicable to the building, nor use the premises in a manner which will increase
the insurance rate for the building or any property located therein over that in
effect prior to the commencement of Tenant's occupancy. If by reason of failure
to comply with the foregoing the fire insurance rate shall, at the beginning of
this lease or at any time thereafter, be higher than it otherwise would be, then
Tenant shall reimburse Owner, as additional rent thereunder, for that portion of
all life insurance premiums thereafter paid by Owner which shall have been
charged because of such failure by Tenant. In any action or proceeding wherein
Owner and Tenant are parties, a schedule or "make-up" or rate for the building
or demised premises issued by a body making fire insurance rates applicable to
<PAGE>
said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's judgement to adsorb and prevent
vibration, noise and annoyance.
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
Tenant's Liability Insurance Property Loss, Damage, Indemnity: 8. Owner or its
agents shall not be liable for any damage to property of Tenant or of others
entrusted to employees of the building, nor for loss of or damage to any
property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants or employees; Owner
or its agents shall not be liable for any damage caused by other tenants or
persons in, upon or about said building or cause by operations in connection of
any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby and Tenant shall be not entitled to any
compensation therefor nor abatement or diminution of rent nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorney's fees,
paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licenses, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of the Tenant,
Tenant's agents, contractors, employees, invitees or licenses. Tenant's
liability under this lease extends to the acts and omissions of any sub-tenant,
and any agent, contractor, employee, invitee or licensee of any sub-tenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any part
thereof shall be damaged by fire or other casualty, Tenant shall give immediate
notice thereof to Owner and this lease shall continue in full force and effect
except as hereinafter set forth. (b) If the demised premises are partially
damaged or rendered partially unusable by fire or other casualty, the damages
thereto shall be repaired by and at the expense of Owner and the rent and other
items of additional rent, until such repair shall be substantially completed,
shall be apportioned from the day following the casualty according to the part
of the premises which is usable. (c) If the demised premises are totally damaged
or rendered wholly unusable by fire or other casualty, then the rent and other
items of additional rent as hereinafter expressly provided shall be
proportionately paid up to the time of the casualty and thence forth shall cease
until the date when the premises shall have been repaired and restored by Owner
(or sooner reoccupied in part by Tenant then rent shall be apportioned as
provided in subsection (b) above), subject to Owner's right to elect not to
restore the same as hereinafter provided. (d) If the demised premises are
rendered wholly unusable or (whether or not the demised premises are damaged in
whole or in part) if the building shall be so damaged that Owner shall decide to
demolish it or to rebuild it, then, in any such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90 days after
such fire or casualty, or 30 days after adjustment of the insurance claim for
such fire or casualty, whichever is sooner, specifying a date for the expiration
of the lease, which date shall not be more than 60 days after the giving of such
notice, and upon the date specified in such notice the term of this lease shall
expire as fully and completely as if such date were the date set forth above for
the termination of this lease and Tenant shall forthwith quit, surrender and
vacate the premises without prejudice however, to Owner's rights and remedies
against Tenant under the lease provisions in effect prior to such termination,
and any rent owing shall be paid up to such date and any payments of rent made
by Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
herein, Owner shall make the repairs and restorations under the conditions of
(b) and (c) hereof, with all reasonable expedition, subject to delays due to
<PAGE>
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and movable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for Tenant's
occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability
that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, including Owner's obligation to restore under
subparagraph (b) above, each party shall look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery with respect to
subparagraphs (b), (d) and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The release
and waiver herein referred to shall be deemed to include any loss or damage to
the demised premises and/or to any personal property, equipment, trade fixtures,
goods and merchandise located therein. The foregoing release and waiver shall be
in force only if both releasors, insurance policies contain a cause providing
that such a release or waiver shall not invalidate the insurance. If, and to the
extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefiting from the waiver shall pay such premium
within ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver or subrogation. Tenant acknowledges
that Owner will not carry insurance on Tenant's furniture and or furnishings or
any fixtures or equipment, improvements, or appurtenances removable by Tenant
and agrees that Owner will not be obligated to repair any damage thereto or
replace the same. (f) Tenant hereby waives the provisions of Section 227 of the
Real Property Law and agrees that the provisions of this article shall govern
and control in lieu thereof.
Eminent Domain: 10. If the whole of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of such lease. Tenant shall have the right to make
an independent claim to the condemning authority for the value of Tenant's
moving expenses and personal property, trade fixtures and equipment, provided
Tenant is entitled pursuant to the terms of the lease to remove such property,
trade fixtures and equipment at the end of the term and provided further such
claim does not reduce Owner's award.
Assignment, Mortgage, Etc. 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. Transfer of the majority of the stock of a corporate Tenant or the
majority partnership interest of a partnership Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but not such
assignment, underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
Electric Current: (1) 12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times is use of electric current shall not
exceed the capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
- ----------
(1) Rider to be added if necessary.
<PAGE>
Access to Premises: 13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building, or for the purpose of complying with
laws, regulations and other directions of governmental authorities. Tenant shall
permit Owner to use and maintain and replace pipes and conduits in and through
the demised premises and to erect new pipes and conduits therein provided,
wherever possible, they are within walls or otherwise concealed. Owner may,
during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of less or interruption of
business or otherwise. Throughout the term hereof Owner shall have the right to
enter the demised premises at reasonable hours for the purpose of showing the
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants and may, during said six months period, place upon the demised premises
the usual notices "To Let" and "For Sale" which notices Tenant shall permit to
remain thereon without molestation. If Tenant is not present to open and permit
an emtry into the demised premises, Owner or Owner's agents may enter the same
whenever such entry may be necessary or permissible by master key or forcibly
and provided reasonable care is exercised to safeguard Tenant's property, such
entry shall not render Owner or its agents liable therefor, nor any event shall
the obligations of the tenant hereunder be affected. If during the last month of
the term Tenant shall have removed all or substantially all of Tenant's property
therefrom. Owner may immediately enter, alter, renovate or redecorate the
demised premises without limitation or abatement of rent, or incurring liability
to Tenant for any compensation and such act shall have no effect on this lease
or Tenant's obligation hereunder.
Vault, Vault Space, Area: 14. No vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the building is leased
hereunder anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant, if used by
Tenant, whether or not specifically leased hereunder.
Occupancy: 15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record. If any governmental license or permit shall be required for the
proper and lawful conduct of tenant's business, tenant shall be responsible for
and shall procure and maintain such license or permit.
Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by sending of a written
notice to Tenant within a reasonable time after the happening of any one or more
of the following events: (1) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant as debtor; or (2) the making by Tenant of an
assignment or any other arrangement for the benefit of creditors under any state
statute. Neither Tenant nor any person claiming through or under tenant, or by
reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premise. If this lease shall be assigned in accordance with its terms, the
provisions of this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
<PAGE>
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default: 17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payments of rent or additional rent; or
if the demised premises becomes vacant or deserted "or if this lease be rejected
under Section 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any
execution or attachment shall be issued against tenant or any Tenant's property
whereupon the demised premises shall be taken or occupied by someone other than
Tenant; or if Tenant shall make default with respect to any other lease between
Owner and Tenant; or if Tenant shall have failed, after five (5) days written
notice, to redeposit with Owner any portion of the security deposited hereunder
which Owner has applied to the payment of any rent and additional rent due and
payable hereunder or failed to move into or take possession of the premises
within thirty (30) days after the commencement of the terms of this lease; then
in any one or more of such events, upon Owner serving written thirty (30) days
notice upon Tenant specifying the nature of said default and upon the expiration
of said thirty (30) days, if Tenant shall have failed to comply with or remedy
such default or if the said default or omission complained of shall be of a
nature that the same cannot be completely cured or remedied within said thirty
(30) day period, and if Tenant shall not have diligently commenced during such
default within such thirty (30) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written five (5) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said five (5) days this lease and
the term thereunder shall end and expires as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and the
term shall expire as aforesaid; or if Tenant shall make default in the payment
of the rent reserved herein or any item of additional rent herein mentioned or
any part of either or in making any other payment herein required; then and in
any of such events Owner may without notice, re-enter the demised premises
pursuant to a court order either by force or otherwise, and dispossess Tenant by
summary proceedings or otherwise, and the legal representative of Tenant or
other occupant of demised premises and remove their effects and hold the
premises as if this lease had not been made, and Tenant hereby waives service of
notice of intention to re-enter or to institute legal proceedings to that end.
If Tenant shall make default hereunder prior to the date fixed as the
commencement of any renewal or extension of this lease, Owner may cancel and
terminate such nenewal or extension agreement by written notice.
Remedies of Owner and Waiver of Redemption: 18. In case of any such default,
re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a)
the rent, and additional rent, shall become due thereupon and be paid up to the
time of such re-entry, dispossess and/or expiration, (b) Owner may re-let the
premises or any part or parts thereof, either in the name of Owner or otherwise,
for a term or terms, which may at Owner's option be less than or exceed the
period which would otherwise have constituted the balance of the term of this
lease and may grant concessions or free rent or charge a higher rental than that
in this lease, (c) Tenant or the legal representatives of Tenant shall also pay
Owner as liquidated damages for the failure of any deficiency between the rent
hereby reserved and or covenanted to be paid and the net amount, if any, of the
rents collected on account of the subsequent lease or leases of the demised
premises for each month of the period which would otherwise have constituted the
balance of the term of this lease. The failure of Owner to re-let the premises
or any part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to the said
deficiency such expenses as Owner may incur in connection with re-letting, such
as legal expenses, reasonable attorneys' fees, brokerage, advertising and for
<PAGE>
keeping the demised premises in good order or for preparing the same for
re-letting. Any such liquidated damages shall be paid in monthly installments by
Tenant on the rent day specified in this lease and any suit brought to collect
the amount of the deficiency for any month shall not prejudice in any way the
rights of Owner to collect the deficiency for any subsequent month by a similar
proceeding. Owner, in putting the demised premises in good order or preparing
the same for re-rental may, at Owner's option, make such alterations, repairs,
replacements, and/or decorations in the demised premises as Owner, in Owner's
sole judgment, considers advisable and necessary for the purpose or re-letting
the demised premises, and the making of such alterations, repairs, replacements,
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that he
demised premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
Fees and Expenses: 19. If Tenant shall default in the observance or performance
of any term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this lease, after
notice if required and upon expiration of any applicable grace period if any,
(except in an emergency), then, unless otherwise provided elsewhere in this
lease, Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder. If Owner, in connection with the
foregoing or in connection with any default by Tenant in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to reasonable attorney's fees, in
instituting, prosecuting or defending any action or proceedings, then Tenant
will reimburse Owner for such sums so paid or obligations incurred with interest
and costs. The foregoing expenses incurred by reason of Tenant's default shall
be deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within ten (10) days of rendition of any bill or statement to Tenant therefor.
If Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Owner as damages.
Building Alterations and Management: 20. Owner shall have the right at any time
without the same constituting an eviction and without incurring liability to
Tenant therefor to change the arrangement and or location or public entrances,
passageways, doors, doorways, corridors, elevators, stairs, toilets or other
public parts of the building and to change the name, number or designation by
which the building may be known. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or other
Tenant making any repairs in the building or any such alterations, additions and
improvements. Furthermore, Tenant shall not have any claim against Owner by
reason of Owner's imposition of any controls of the manner of access to the
building by Tenant's social or business visitors as the Owner may deem necessary
for the security of the building and its occupants.
No Representations by Owner: 21. Neither Owner nor Owner's agents have made any
representations or promises with respect to physical condition of the building,
the land upon which it is erected or the demised premises, the rents, leases,
expenses of operation or any other matter or thing affecting or related to the
demised premises or the building except as herein expressly set forth and no
rights, easements or licenses are acquired by Tenant by implication or otherwise
except as expressly set forth in the provisions of this lease. Tenant has
inspected the building and the demised premises and is thoroughly acquainted
with their condition and subject to Landlord's work set forth in paragraph 65 of
the rider, agrees to take the same "as is" on the date possession is tendered
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part,
<PAGE>
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
End of Term: 22. Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Owner the demised premises broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property from the demised premises. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of this lease. If the last day of the term of this Lease or any
renewal thereof, falls on Sunday, this lease shall expire at noon on the
preceding Saturday unless it be a legal holiday in which case it shall expire at
noon on the preceding business day.
Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 34 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
Failure to Give Possession: 24. If Owner is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured or if Owner has not completed any work required
to be performed by Owner, or for any other reason, Owner shall not be subject to
any liability for failure to give possession on said date and the validity of
the lease shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extent the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession or complete any work required) until after Owner
shall have given Tenant notice that Owner is able to deliver possession in the
condition required by this lease. If permission is given to Tenant to enter into
the possession of the demised premises or to occupy premises other than the
demised premises prior to the date specified as the commencement of the term of
this lease, Tenant covenants and agrees that such possession and/or occupancy
shall be deemed to be under all the terms, covenants, conditions and provisions
of this lease, except the obligation to pay the fixed annual rent set forth in
page one of this lease. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
233-a of the New York Real Property Law.
No Waiver: 25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constitute a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach and no provision of this lease
shall be deemed to have been waived by Owner unless such waiver be in writing
signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount
then the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
of any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. All checks tendered to Owner as and for the
rent of the demised premises shall be deemed payments for the account of Tenant.
Acceptance by Owner of rent from anyone other than Tenant shall not be deemed to
operate as an attornment of Owner by the payor of such rent or as a consent by
Owner to an assignment or subletting by Tenant of the demised premises to such
payor, or as a modification of the provisions of this lease. No act or thing
done by Owner or Owner's agents during the term hereby demised shall be deemed
an acceptance of a surrender of said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No employee of Owner
or Owner's agent shall have any power to accept the keys of said premises prior
to the termination of the lease and the delivery of keys to any such agent or
employee shall not operate as a termination of the lease or a surrender of the
premises.
Waiver of Trial by Jury: 26. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising our of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
<PAGE>
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any proceeding or
action for possession including a summary proceeding for possession of the
premises, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding including a counterclaim under Article 4
except for statutory mandatory counterclaims.
Inability to Perform: 27. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder or
part of Tenant to be performed shall in no wise be affected, impaired or excused
because Owner is unable to fulfill any of its obligations under this lease or to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying any
equipment, fixtures or other materials if Owner is prevented or delayed from
doing so by reason of strike or labor troubles or any cause whatsoever beyond
Owner's sole control including, but not limited to, government preemption or
restrictions or by reason of any rule, order or regulation of any department or
subdivision thereof of any government agency or by reason of the conditions
which have been or are affected, either directly or indirectly, by war or other
emergency.
Bills and Notices: 28. Except as otherwise in this lease provided, a bill
statement, notice or communication which Owner may desire or be required to give
to Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail addressed
to Tenant at the building of which the demised premises form a part or at the
last known residence address or business address of Tenant or left at any of the
aforesaid premises addressed to Tenant, and the time of the rendition of such
bill or statement and of the giving of such notice or communication shall be
deemed to be the time when the same is delivered to Tenant, mailed, or left at
the premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
Water Charges: 29. If Tenant requires, uses or consumes water for any purpose in
addition to ordinary lavatory purposes (or which fact Tenant constitutes Owner
to be the sole judge) Owner may install a water meter and thereby measure
Tenant's water consumption for all purposes. Tenant shall pay Owner for the cost
of the meter and the cost of the installation, thereof and throughout the
duration of Tenant's occupancy Tenant shall keep said meter and installation
equipment in good working order and repair at Tenant's own cost and expense in
default of which Owner may cause such meter and equipment to be replaced or
repaired and collect the cost thereof from Tenant, as additional rent. Tenant
agrees to pay for water consumed, as shown on said meter as and when bills are
rendered, and on default in making such payment Owner may pay such charges and
collect the same from Tenant, as additional rent. Tenant covenants and agrees to
pay, as additional rent, the sewer rent, charge or any other tax, rent, levy or
charge which now or hereafter is assessed, imposed or a lien upon the demised
premises or the realty of which they are part pursuant to law, order or
regulation made or issued in connection with the use, consumption, maintenance
or supply of water, water system or sewage or sewage connection or system. If
the building or the demised premises or any part thereof is supplied with water
through a meter through which water is also supplied to other premises Tenant
shall pay to Owner, as additional rent, its pro rata share, as and when billed,
of the total meter charges as Tenant's portion. Independently of and in addition
to any of the remedies reserved to Owner hereinabove or elsewhere in this lease,
Owner may sue for and collect any monies to be paid by Tenant or paid by Owner
for any of the reasons or purposes hereinabove set forth.
Sprinklers: 30. Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York Fire
Insurance Exchange or any bureau, department or official of the federal, state
or city government recommend or require the installation of a sprinkler system
or that any changes, modifications, alterations, or additional sprinkler heads
or other equipment be made or supplied in an existing sprinkler system by reason
of Tenant's business, or the location of partitions, trade fixtures, or other
contents of the demised premises, or for any other reason, or if any such
sprinkler system installations, modifications, alterations, additional
sprinklers heads or other such equipment, become necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate set by any said Exchange or by any fire
insurance company, Tenant shall, at Tenant's expense, promptly make such
sprinkler system installations, changes, modifications, alterations, and supply
additional sprinkler heads or other equipment as required whether the work
involved shall be structural or non-structural in nature. Tenant shall pay to
Owner as additional rent its pro rata share, as and when billed, during the
terms of this lease, as Tenant's portion of the contract price for sprinkler
supervisory, alarm and maintenance service.
Elevators, Heat, Cleaning: 31. As long as Tenant is not in default under any of
the covenants of this lease beyond the applicable grace period provided in this
lease for the curing of such defaults, Owner shall clean the public halls and
public portions of the building which are used in common by all tenants. Tenant
<PAGE>
shall, at Tenant's expense, keep the demised premises, including the windows,
clean and in order, to the reasonable satisfaction of Owner, and for that
purpose shall employ the person or persons, or corporation approved by Owner.
Tenant shall pay to Owner the cost of removal of any of Tenant's refuse or
rubbish from the building. Bills for the same shall be rendered by Owner to
Tenant at such time as Owner may elect and shall be due and payable hereunder,
and the amount of such bills shall be deemed to be, and paid as, additional
rent. Tenant shall independently contract for the removal of such rubbish and
refuse. Under such circumstances, however, the removal of such refuse and
rubbish by others shall be subject to such rules and regulations as, in the
judgment of Owner, are necessary for the proper operation of the building. Owner
reserves the right to stop service of the heating, elevator, plumbing and
electric systems, when necessary, by reason of accident, or emergency, or for
repairs, alterations, replacements or improvements, in the judgment of Owner
desirable or necessary to be made, until said repairs, alterations, replacements
or improvements shall have been completed. If the building of which the demised
premises are a part supplies manually operated elevator service, Owner may
proceed diligently with alterations necessary to substitute automatic control
elevator service without in any way affecting the obligations of Tenant
hereunder.
Security: 32. Tenant, [ ] with Owner the sum of $22,951.00 as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease, as and when required in accordance with paragraph
68 of the rider attached to this lease, it is agreed that in the event Tenant
defaults in respect of any of the terms, provisions and conditions of this
lease, including, but not limited to, the payment of rent and additional rent,
Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the reletting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to Owner.
In the event of a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right to transfer
the security to the vendee on lessee and Owner shall thereupon be released by
Tenant from all liability for the return of such security; and Tenant agrees to
look to the new Owner solely for the return of said security, and it is agreed
that the provisions hereof shall apply to every transfer or assignment made of
the security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Captions: 33. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
Definitions: 34. The term "Owner" as used in this lease means only the owner of
the fee or of the leasehold of the building, or the mortgagee in possession, for
the time being of the land and building (or the owner of a lease of the building
or of the land and building) of which the demised premises form a part, so that
in the event of any sale or sales of said land and building or of said lease, or
in the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental rate whether so expressed or expressed in monthly
installments, and "additional rent." "Additional rent" means all sums in which
shall be due to Owner from Tenant under this lease, in addition to the annual
rental rate. The term "business days" are used in this lease, shall exclude
Saturdays, Sundays, and all days observed by the State or Federal Government as
legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
<PAGE>
Engineers contract with respect to HVAC service. Whether it is expressly
provided in this lease that consent shall not be unreasonably withheld, such
consent shall not be unreasonably delayed.
Adjacent Excavation-Shoring: 35. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem necessary to preserve the wall or the building of which
demised premises form a part from injury or damage and to support the same by
proper foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
Rules and Regulations: 36. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations annexed hereto and such other and further reasonable Rules
and Regulations as Owner or Owner's agents may from time to time adopt. Notice
of any additional rules or regulations shall be given in such manner as Owner
may elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
Glass: 37. Tenant shall replace, at the expense of the Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Tenant shall insure, and keep insured, at Tenant's expense,
all plate and other glass in the demised premises for and in the name of the
Owner.
Estoppel Certificate: 38. Tenant, at any time, and from time to time, upon at
least 10 days' prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by Owner, a
statement certifying that this Lease is unmodified in full force and effect (or,
if there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by owner under this Lease, and, if so, specifying each such default and
stating such other matters as may reasonably be requested.
Directory Board Listing: 39. If, at the request of and as accommodation to
Tenant, Owner shall place upon the directory board in the lobby of the building,
one or more names of the persons other than Tenant, such directory board listing
shall not be construed as the consent by Owner to an assignment or subletting by
Tenant to such person or persons.
Successors and Assigns: 40. The covenants, conditions and agreements contained
in this lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns.
A rider consisting of 32 pages is attached hereto and made part hereof.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
OWNER/LANDLORD:
Witness for Owner: HEARTLAND RENTAL PROPERTIES PARTERSHIP (CORP. SEAL)
By: Heartland Rental Properties, Inc.
________________________ By: /s/ Adam Wolkoff [L.S.]
-------------------------------------------
Adam Wolkoff, Vice-President
Witness for Tenant: TENANT:
________________________ MAGNA-LAB, INC. (CORP. SEAL)
By: /s/ Lawrence A. Minkoff [L.S.]
-------------------------------------------
President
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this ___________ day of ___________, 19__, before me personally came to
me known, who being by me duly sworn, did depose and say that he resides in that
he is the ________________ of ____________________________________________ the
corporation described in and which executed the foregoing instrument, as TENANT;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
----------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this __________ day of __________, 19__, before me personally came
___________ to be known and known to me to be the individual described in and
who, as TENANT, executed the foregoing instrument and acknowledged to me that
_________________________ he executed the same.
----------------------------------
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE IN
ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingrees or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by Tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand trucks, except hose equipped with rubber tires and
sideguards. If said premises are situated on the ground floor of the building,
Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in
front of said premises clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors of halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odor, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
<PAGE>
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same with0out any liability and may change the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination if his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building all persons who
do not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Notwithstanding the foregoing, Owner
shall not be required to allow Tenant or any person to enter or remain in the
building, except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays
from 8:00 a.m. to 1:00 p.m. Tenant shall not have a claim against Owner by
reason of Owner excluding from the building any person who does not present such
pass.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, or hazardous
fluid, material, chemical or substance, or cause or permit any odors of cooking
or other processes, or any unusual or other objectionable odors to permeate in
or emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs or
interferes with other Tenants in the beneficial use of their premises.
<PAGE>
Address
Premises
================================================================================
TO
================================================================================
STANDARD FORM OF
(SEAL) LOFT (SEAL)
LEASE
The Real Estate Board of New York, Inc.
(C) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
================================================================================
Dated 19
Rent Per Year
Rent Per Month
Term
From
To
Drawn by_____________________________________________________________________
Checked by___________________________________________________________________
Entered by___________________________________________________________________
Approved by__________________________________________________________________
================================================================================
<PAGE>
RIDER ANNEXED TO AND MADE PART OF THE LEASE, ("Lease"), dated the 4th day of
April, 1996, between HEARTLAND RENTAL PROPERTIES PARTNERSHIP, as Landlord/
Owner, and MAGNA-LAB, INC., as Tenant.
41. RENT:
A. During the full term of this Lease Tenant covenants to and shall pay
Landlord annual base rent ("Base Rent") at the annual base rates as set forth
below, in equal monthly installments in advance on the first day of each month
during said term, without any demand therefor and without any setoff or
deduction whatsoever, as follows:
(i) For the Lease Year (for the purposes hereof,"Lease Year" shall be defined
as twelve (12) consecutive calendar months, the first Lease Year
commencing with the month during which the term of this Lease commences)
April 1, 1996 through March 31, 1997, Base Rent shall be one hundred
thirty-seven thousand seven hundred three and 25/100 ($137,703.25)
Dollars, payable eleven thousand four hundred seventy-five and 27/100
($11,475.27) Dollars monthly.
(ii) For the Lease Year April 1, 1997 through March 31, 1998, Base Rent shall
be one hundred thirty-seven thousand seven hundred three and 25/100
($137,703.25) Dollars, payable eleven thousand four hundred seventy-five
and 27/100 ($11,475.27) Dollars monthly.
(iii) For the Lease Year April 1, 1998 through March 31, 1999, Base Rent shall
be one hundred forty-three thousand two hundred eleven and 38/100
($143,211.38) Dollars, payable eleven thousand nine hundred thirty-four
and 28/100 ($11,934.28) Dollars, monthly.
(iv) For the Lease Year April 1, 1999 through March 31, 2000, Base Rent shall
be one hundred forty-eight thousand nine hundred thirty-nine and 84/100
($148,939.84) Dollars, payable twelve thousand four hundred eleven and
65/100 ($12,411.65) Dollars monthly.
(v) For the Lease Year April 1, 2000 through March 31, 2001, Base Rent shall
be one hundred fifty-four thousand eight hundred ninety-seven and 43/100
($154,897.43) Dollars, payable twelve thousand nine hundred eight and
12/100 ($12,908.12) Dollars monthly.
<PAGE>
(vi) For the Lease Year April 1, 2001 through March 31, 2002, Base Rent shall
be one hundred sixty-one thousand ninety-three and 33/100 ($161,093-33)
Dollars, payable thirteen thousand four hundred twenty-four and 44/100
($13,424.44) Dollars monthly.
(vii) For the Lease Year April 1, 2002 through March 31, 2003, Base Rent shall
be one hundred sixty-seven thousand five hundred thirty-seven and 06/100
($167,537.06) Dollars, payable thirteen thousand nine hundred sixty-one
and 42/100 ($13,961.42) Dollars monthly.
B. Tenant, without any requirement of prior notice to Tenant, agrees to pay
a late payment and administrative charge of five (5%) percent of the total
monthly rental due, including any and all additions to Base Rent, if the Base
Rent is not paid when due and such nonpayment continues beyond the tenth (10th)
day of the month, provided, however, that for the first instance during the term
of this Lease that Base Rent is not paid when due and such nonpayment continues
beyond the tenth (10th) day of the month, Landlord may pursue all remedies
available for nonpayment of Base Rent but no late payment and administrative
charge shall be due. Such late payment and administrative charge shall be due as
additional rent, shall be in addition to all of Landlord's other rights and
remedies hereunder in the event of Tenant's default, and shall be payable with
the rent to which it pertains. Tenant further agrees that the late payment and
administrative charge imposed is fair and reasonable, complies with all laws,
regulations and statutes, and constitutes an agreement between Landlord and
Tenant as to the estimated compensation for costs and administrative expenses
incurred by Landlord due to the late payment of rent to Landlord by Tenant.
Tenant further agrees that the late payment and administrative charge assessed
pursuant to this Lease is not interest, and the late payment and administrative
charge does not constitute a lender or borrower/creditor relationship between
Landlord and Tenant. Acceptance of such late payment and administrative charge
by Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder. Furthermore, in the event any check
delivered to Landlord in payment of any amount due under this Lease is returned
uncollected, for non-sufficient funds, or for any like reason, in addition to
any and all remedies available to Landlord, Tenant agrees to pay Landlord, as
additional rent, the sum of $20.00 to compensate Landlord for the additional
administrative cost and expense incurred by Landlord by reason of such check. In
the event Tenant shall be served with a demand for the payment of any past due
amount under this Lease, any payments tendered thereafter to cure any default by
Tenant shall be made only by cashier's or certified check.
C. Except as may otherwise be specifically set forth in this Lease, Tenant
is to be fully responsible, liable and is to pay for all taxes, fees,
assessments, expenses, insurance, repairs, both interior and exterior,
nonstructural, and any other charges for the demised premises.
D. For the purposes of this Lease, Tenant's Share shall be six (6-.)
percent, which is the ratio of the number of square feet demised herein
(approximately 16,172) to the number of square feet in the buildings 100-250
Executive Drive (approximately 280,000).
<PAGE>
42. Real Estate Taxes:
A. In addition to Tenant's obligation to pay Base Rent, during each and
every year during the term of this Lease, and for so long as Tenant's occupancy
of the premises continues, Tenant agrees to pay and shall pay, as additional
rent, Tenant's Share of any and all increases in Real Estate Taxes (as defined
below) and increased assessments above those for the Base Tax Year (as defined
below) imposed on 100-250 Executive Drive or, if Real Estate Taxes are not
separately assessed for or imposed upon the buildings 100-250 Executive Drive,
the tax lot (s) of which the premises are or become a part, as the case may be.
In the event Real Estate Taxes are assessed or imposed upon the tax lot(s) of
which the premises are or become a part, Landlord may estimate the portion of
the Real Estate Taxes associated with 100-250 Executive Drive. Landlord's
estimate shall be sufficient evidence for payment of Real Estate Taxes
hereunder. Any increase (s) in Real Estate Taxes due to an increase in the
assessed valuation of the land or building caused by Tenant's use and occupation
of the premises shall be borne entirely by Tenant.
Tenant shall be responsible for payment of Tenant's Share of Real Estate
Taxes, as additional rent hereunder, on a semiannual basis, forty-five (45) days
prior to the date Landlord is required to make said payments to the taxing
authority, without penalty.
If Landlord decides at any time and from time to time during the term, at
its sole option, Tenant shall make monthly Real Estate Tax payments, along with
the monthly Base Rent due, in accordance with the procedure as set forth in
paragraph 45. The parties agree their intent is that Tenant shall have made Real
Estate Tax payments to Landlord, totaling Tenant's Share as in this Lease
provided, prior to the date said Real Estate Tax payments are due to the taxing
authority.
Tenant shall also be responsible for payment of Tenant's Share of all Real
Estate Taxes levied during the term of this Lease even if the Real Estate Taxes
are billed after the termination date of this Lease. Tenant's obligations
hereunder shall survive the termination of this Lease. Partial Lease Years shall
be prorated.
Landlord shall be entitled to all remedies available for nonpayment of Base
Rent in the event Tenant fails to make any payment(s) as in this paragraph 42
provided. In addition to all remedies available to Landlord, in the event Tenant
fails to timely make any Real Estate Tax payment(s) and such nonpayment
continues for ten (10) days, Landlord shall be entitled to a late payment and
administrative charge of five (5%) percent on said sum due but not timely paid.
The late payment and administrative charge shall be payable as additional rent
along with the additional rent to which it pertains.
B. "Real Estate Taxes" shall mean the sum of all taxes, real estate and
real property taxes, assessments, special assessments, school taxes, town and/or
county taxes, assessed upon, or with respect to the buildings and improvements
known as 100-250 Executive Drive and the land, and any rights or interests
appurtenant to either, or if taxes are not separately assessed upon 100-250
Executive Drive, the tax lot (s) of which the premises are or become a part,
<PAGE>
and/or that portion of the taxes associated with 100-250 Executive Drive in the
event Landlord estimates the taxes associated with 100-250 Executive Drive,
imposed by Federal, State or local governmental authority, or any other taxing
authority having jurisdiction thereover. Real Estate Taxes shall also include
all fees and expenses associated with the institution, prosecution, conduct and
maintenance of any negotiations, protests, certiorari, settlements, action or
proceedings with respect to Real Estate Taxes or assessments, and any tax
attributable to improvements of whatever kind and to whom belonging, situated or
installed in or upon the premises, whether or not affixed to the realty. If at
any time during the term of this Lease the methods of taxation prevailing at the
commencement of the term hereof shall be altered so that in lieu of, as an
addition or supplemental to, or as a substitute for the whole or any part of the
taxes, assessments, levies, impositions or charges now levied, assessed or
imposed on real estate and the improvements thereon, there shall be levied,
assessed or imposed (i) a tax, assessment, levy, imposition or charge wholly or
partially as capital levy or otherwise on the rents received therefrom, or (ii)
a tax assessment, levy, imposition or charge measured by or based in whole or in
part upon the demised premises and imposed upon Landlord, or (iii) a license fee
or charge measured by the rents payable by Tenant to Landlord, then all such
taxes, assessments, levies, impositions or charges, or the part thereof so
measured or based, shall be deemed to be included within the term "Real Estate
be deemed to be included within the term "Real Estate Taxes" for the purposes
hereof.
C. For the purposes hereof, the period December 1, 1995 through November
30, 1996 shall be the Base Tax Year. If Real Estate Taxes in the Base Tax Year
are affected by any application or proceeding brought by or on behalf of
Landlord for reduction in the assessment or the amount of Real Estate Taxes
payable for 100-250 Executive Drive, as set forth above, and if, as a result of
such application or proceeding the assessment or Real Estate Taxes in the Base
Tax Year shall be decreased, Landlord may promptly bill Tenant for any
additional rent for any period reflecting such decrease in Real Estate Taxes in
the Base Tax Year.
D. Landlord shall have the sole, absolute and unrestricted right, but not
the obligation, at any time and from time to time to contest, dispute or protest
any Real Estate Taxes, assessment or tentative assessment against or affecting
the buildings 100-250 Executive Drive, or the tax lot(s) of which the premises
are or become a part whether by means of negotiation, agreement, legal
proceedings or otherwise. In the event Landlord shall institute any contest,
dispute or protest it shall have the sole, absolute and unrestricted right to
settle any negotiations, contests, proceedings or actions upon whatever terms
Landlord may in its sole discretion determine.
E. Real Estate Taxes for the building in which the premises are located for
the Base Tax Year are $446,151.08.
43. Insurance:
At all times during the term hereof and for so long as Tenant occupies the
premises, or any part thereof, Tenant shall, at its sole cost and expense,
provide and keep in full force and effect, for the benefit of Landlord, naming
Landlord (and the partners and spouses of any Landlord which is a partnership or
the officers and directors of any corporate partner thereof individually), and
any mortgagee(s), as an additional named insured thereunder a comprehensive
policy of liability insurance against any liability for injury to person(s)
<PAGE>
and/or property and death of any persons, occurring in, at, upon or about the
premises, or any part thereof, or any appurtenances thereto. The limits of
liability thereunder shall not be less than $1,000,000 combined single limit
bodily injury and/or property damage and death per occurrence and $2,000,000
aggregate limit and a $2,000,000 umbrella liability policy, or a combined single
limit of $3,000,000 per occurrence for bodily injury and/or property damage and
death. Each such policy shall be written by insurance companies licensed and
admitted to do business in the State of New York, with a current Best Insurance
Rating of A or greater, and a financial size category of class 10, or greater.
Tenant shall furnish Landlord with a certificate of such insurance prior to
occupancy of the premises and, thereafter, at least thirty (30) days prior to
the expiration of any such policy. A copy of each paid up policy, appropriately
authenticated by the insurer, evidencing such insurance and containing the
provisions specified therein, shall be delivered to Landlord within thirty (30)
days of the commencement of this Lease. Landlord may at any time, and from time
to time, inspect and/or copy any and all insurance policies required to procured
by Tenant under this Lease. Failure to maintain and provide said insurance
policies shall be a default under this Lease.
Each policy evidencing the insurance to be carried by Tenant under this
Lease shall contain a clause that such policy and the coverage evidenced thereby
shall be primary with respect to any policies carried by Landlord, and that any
coverage carried by Landlord shall be excess insurance.
Tenant's insurance policy(s) shall include a waiver by the insurer of all
rights of subrogation against Landlord, its directors, partners, officer,
employees, or representatives, which arises or might arise by reason of any
payments under such policy or by reason of any act or omission of Landlord, its
directors, partners, officers, employees, or representatives.
Tenant shall also maintain in full force and effect during the term of this
Lease and so long as Tenant occupies the premises, for the benefit of the
Landlord, a boiler and. machinery policy for all machinery and equipment at the
premises and plate glass insurance for all glass at the premises. Tenant shall
also maintain insurance for the full replacement value of its inventory, trade
fixtures and other contents of the premises. Tenant shall provide Landlord with
a copy of said polices or a certificate of insurance evidencing that such
policies are in effect.
All polices of insurance carried by Tenant hereunder shall contain a
clause that the insurer may not cancel or refuse to renew the policy, or change
in any material way the nature or extent of the coverage, except upon at least
thirty (30) days prior written notice to Landlord and/or any designees of
Landlord. In addition, all policies shall be written to the effect that a
default by Tenant thereunder, or any failure by Tenant to abide by the terms of
the policy shall not void Landlord's coverage thereunder.
Landlord shall have the right, but not the obligation, at any time and from
time to time, and without notice, to procure said policies, or pay for such
premiums, as in this paragraph 43 provided, should Tenant fail to procure,
maintain, and/or pay for the insurance required by this Lease, at the times and
for the duration's specified in this Lease, provided, however, that payment by
Landlord of any such premiums or the carrying by Landlord of any such policy
shall not be deemed to waive or release the default of Tenant with respect
thereto, or the right of Landlord to take such action as may be permissible
hereunder as in the case of default in the payment of Base Rent. Tenant shall
reimburse Landlord for all costs and expenses incurred, together with interest
thereon, as additional rent, with the next monthly installment of Base Rent due.
<PAGE>
Said reimbursement shall be without prejudice to any other right or remedies of
Landlord under this Lease. Landlord shall be entitled to all remedies available
for nonpayment of Base Rent should Tenant fail to make the payments as in this
paragraph provided.
Landlord shall have the right from time to time, on not less than 30 days'
notice, to require Tenant to increase the amount and/or type of coverage
required to be maintained under this Lease, provided, however, that unless the
same required by reason of Tenant's use and occupancy of the premises, or
Tenant's business at the premises, the amount and/or type of coverage required
shall be as is commercially reasonable for commercial/industrial/office
properties in Nassau and Suffolk county, New York and is required of other
tenants in the building in which the premises are located.
44. Common Area Costs:
Landlord shall carry property damage insurance, liability insurance, and
umbrella liability insurance covering the building (s) in which the premises are
located. Landlord shall also plow the parking lot after two (2") inches of
snowfall and maintain the lawn and shrubbery (including the lawn sprinkler
system) surrounding 100-250 Executive Drive. Landlord shall also sweep, maintain
and repair the parking and parking lot lighting, including without limitation,
replacement of bulbs and electrical costs. The foregoing, as well as the
responsibilities as set forth in Article 29 and 30 of this Lease, shall be
defined as Common Area Costs.
In addition to Tenant's obligation to pay Base Rent, during the term of
this Lease, and for as long as Tenant occupies the premises, Tenant agrees to
and shall pay, as additional rent, Tenant's Share for all Common Area Costs.
Landlord's estimate as to the share of these costs applicable to 100-250
Executive Drive shall be sufficient evidence for Tenant's payment hereunder.
Tenant shall pay Landlord, as additional rent, within 10 days of being billed
for the same, or, at Landlord's sole option at any time and from time to time,
in accordance with the procedure set forth in paragraph 45, whether or not the
same is billed after the expiration or sooner termination of the term of this
Lease. Landlord shall be entitled to all remedies available for nonpayment of
Base Rent, including a late payment and administrative charge of five (5%)
percent of the total amount due in each instance, on all sums due but not timely
paid, should Tenant fail to make the payments as in this paragraph provided. The
late payment and administrative charge shall be due as additional rent and shall
be payable with the additional rent to which it pertains.
Common Area Costs for the building in which the premises are located for
the period January 1, 1994 through December 31, 1994 were $.235 per square foot
of building area.
45. Additional Rent Payments:
Notwithstanding anything in this Lease, during each and every Lease Year,
Tenant shall be responsible for payment to Landlord, as additional rent, at
Landlord's sole option at any time and from time to time, along with each
monthly installment of Base Rent due hereunder, of an amount equal to one
twelfth (1/12) of the Real Estate Taxes and Common Area Costs due under this
Lease, on account of the Real Estate Taxes and Common Area Costs payment due to
<PAGE>
Landlord for the then current Lease Year. Tenant's payments shall be based upon
Landlord's estimate of these payments for the premises for the current Lease
Year. Such payments shall be due as additional rent. At the end of each Lease
Year, Landlord shall determine the actual amount due from Tenant for Real Estate
Taxes and Common Area Costs in accordance with the terms of this Lease for each
Lease Year, and Tenant shall, within ten (10) days of being billed for the same
(whether or not the same is billed after the expiration or sooner termination of
the term of this Lease), pay to Landlord any amount actually due to Landlord,
but not paid. For each Lease Year after the first Lease Year, Tenant's estimated
payment shall be based upon, but shall not be less than, the actual payments for
the prior Lease Year, unless a higher amount is required by Landlord. It is
understood that all payments due hereunder are deemed to be additional rent and
Landlord shall be entitled to all remedies available in the event of nonpayment
of Base Rent should Tenant fail to make payments as in this paragraph provided.
It is specifically understood that, in accordance with the provisions of
this paragraph 45, Landlord has exercised its option to collect Real Estate
Taxes and Common Area Costs on a monthly basis, along with each payment of
monthly Base Rent. Tenant's monthly payments for Real Estate Taxes and Common
Area Costs shall continue until Tenant receives notice to the contrary from
Landlord.
46. Broker:
Tenant warrants and represents to Landlord that there was no broker
instrumental in consummating this Lease other than PLISKIN REALTY GROUP, INC.
and that no conversations or negotiations were had with any other broker
concerning this Lease or the premises. Tenant acknowledges that Landlord is
relying upon this representation by Tenant and Landlord would not have entered
into this Lease without such representation. Tenant agrees to indemnify and hold
Landlord harmless against any commissions, costs, claims, judgments or other
expenses, including attorney's fees, for a brokerage commission arising out of
any conversations or negotiations had by Tenant with any other broker. Any
payments due to Landlord hereunder shall be due as additional rent. The
warranties and representations contained in this paragraph shall survive the
termination of this Lease.
47. Holdover:
Notwithstanding anything to the contrary, in the event Tenant does not
vacate the premises upon the expiration date of the Lease, or upon the
expiration of any option, then and in the event or events, and only with the
written permission of Landlord, Tenant shall remain as a month to month Tenant a
monthly rental which is two times the monthly rental paid the last month of the
term, a able as aforesaid the last month of the term, payable as aforesaid.
48. Signs:
Without Landlord's prior written consent, Tenant shall not place or install
any sign on the roof nor any exterior wall the building (including without
limitation, both the interior and exterior surfaces of windows and doors) nor on
any part the land except that Tenant may install and maintain, at its own cost
and expense, including payments for permits and the signs, one flat faced sign
on each of the front, east side a rear of the building respectively (three (3)
<PAGE>
in total), subject to the approval of Landlord as to dimensions, content,
material, location and design. In this regard, Tenant's signs shall conform to
the type of sign which shall be uniformly required by Landlord for all tenants
in the buildings known as 100-250 Executive Drive. Tenant agrees that the signs
shall not be installed on the premises or the building until all governmental
approvals and permits are first obtained, including payment for the same, and
copies thereof delivered to Landlord together with evidence of payment for any
fees pertaining to Tenant's signs. Tenant shall procure appropriate Workmen's
Compensation and liability insurance policies covering the installation and
maintenance of any signs, and all such policies or certificates of such policies
shall be delivered to Landlord prior to the commencement of any work and shall
provide that such policies shall not be canceled, except upon ten (10) days'
written notice to Landlord. In the event Landlord or Landlord's representative
shall deem it necessary to remove such sign or signs in order to make any
repairs, alterations or improvements in and upon the premises, or the building,
Landlord shall have the right to do so, provided the same be removed and
replaced at Landlord's expense, whenever the said repairs, alterations or
improvements shall have been completed. At the expiration or sooner termination
of this Lease, unless notified to the contrary by Landlord, Tenant shall, at its
sole cost and expense, remove its signs from the building and repair, replace
and restore the building and the premises to the condition existing prior to the
placement of the signs.
49. Repairs:
Notwithstanding anything to the contrary, Tenant shall, at all times,
during the term of this Lease, and for so long as Tenant's occupancy continues,
and at its own cost and expense make all repairs, replacements, restorations and
renewals as needed including, without limitation by their inclusion, repainting,
replacing of damaged floor, broken glass, walls and wall covering, keeping
exterior windows and doors water tight, and keeping all overhead doors,
mechanical apparatus, plumbing (see subparagraph (A) below), lighting,
electrical (see subparagraph (B) below), and other utility systems in good
operating condition, to put, keep, replace and maintain the premises and all
portions thereof and all equipment, appurtenances and improvements thereon and
therein in thorough repair and good, safe, clean and substantial order and
condition.
(A) With regard to the plumbing lines outside the premises but which
service the premises (the "Plumbing Lines"), Tenant shall, at its sole cost and
expense, be responsible for and shall make all repairs: (i) necessitated by the
willful, grossly negligent and/or negligent acts of omission or commission of
Tenant, its employees, officers, agents, invitees, licensees, servants,
contractors, and the like; or (ii) the cost of which do not exceed $l,000.00
per Lease Year. In the event a Plumbing Line repair which is not necessitated by
(i) above and the cost of which exceeds $1,000.00, or the amount of the repair
which, when added to other Plumbing Line repairs during the then current Lease
Year not necessitated by (i) above, shall exceed $1,000.00, Tenant shall be
<PAGE>
responsible for the first $1,000.00 of said Plumbing Line repair(s) not
necessitated by (i) above during the then current Lease Year, or such amount
when added to prior Plumbing Line repair(s) during the then current Lease Year
not necessitated by (i) above will total $1,000.00 and Landlord shall be
responsible for the amount of the Plumbing Line repair(s) not necessitated by
(i) above which exceed(s) $1,000.00, provided Tenant forwards to Landlord a
check in the amount of $1,000.00, or in such amount when added to prior Plumbing
Line repair(s) during the then current Lease Year not necessitated by (i) above
will total $1,000.00, along with a true, complete and correct estimate for the
repair which evidences a Plumbing Line repair not necessitated by (i) above the
cost of which exceeds $1,000.00, or when added to paid invoices for prior
repair(s) during the then current Lease Year not necessitated by (i) above
exceeds $1,000.00, with a request to make a Plumbing Line repair. Landlord shall
then have the option of authorizing the Plumbing Line repair to be done by
Tenant's contractor, or otherwise repairing the Plumbing Line, in either
instance at Landlord's expense. Notwithstanding anything in this Lease, it is
specifically understood and agreed that: (i) there shall be no allowance to
Tenant for a diminution of rental value and absolutely no liability on part of
Landlord by reason of inconvenience, annoyance, injury or damage to business,
machinery and/or equipment arising from or by any of Landlord's repairs, or
failure to make repairs hereunder; (ii) Tenant shall not be entitled to any
setoff or reduction of rent by reason of any failure of Landlord to comply with
its obligation hereunder; (iii) Landlord shall have no responsibility hereunder
for repairs to any of Tenant's machinery or equipment, and/or any other item
related to Tenant's business; and (iv) the foregoing applies to Plumbing Line
repairs only; other repairs shall be governed by the other provisions of this
Lease and not this specific subparagraph (A).
(B) With regard to the electrical system servicing the premises only,
Tenant shall, at its sole cost and expense, be responsible for and shall make
all repairs: (i) necessitated by the willful, grossly negligent and/or negligent
acts of omission or commission of Tenant, its employees, officers, agents,
invitees, licensees, servants, contractors, and the like; or (ii) the cost of
which do not exceed $1,000.00 per Lease Year. In the event an electrical system
repair which is not necessitated by (i) above and the cost of which exceeds
$1,000.00, or the amount of the electrical system repair which, when added to
other electrical system repairs during the then current Lease Year not
necessitated by (i) above, shall exceed $1,000.00, Tenant shall be responsible
for the first $1,000.00 of said electrical system repair(s) not necessitated by
(i) above during the then current Lease Year, or such amount when added to prior
electrical system repair(s) during the then current Lease Year not necessitated
by (i) above will total $1,000.00 and Landlord shall be responsible for the
amount of the electrical system repair(s) not necessitated by (i) above which
exceed(s) $1,000.00, provided Tenant forwards to Landlord a check in the amount
of $1,000.00, or in such amount when added to prior electrical system repair(s)
during the then current Lease Year not necessitated by (i) above will total
$1,000.00, along with a true, complete and correct estimate for the repair which
evidences an electrical system repair not necessitated by (i) above the cost of
which exceeds $1,000.00, or when added to paid invoices for prior electrical
system repair(s) during the then current Lease Year not necessitated by (i)
above exceeds $1,000.00, with a request to make an electrical system repair.
Landlord shall then have the option of authorizing the electrical system repair
to be done by Tenant's contractor, or otherwise repairing the electrical system,
in either instance at Landlord's expense. Notwithstanding anything in this
Lease, it is specifically understood and agreed that: (i) there shall be no
allowance to Tenant for a diminution of rental value and absolutely no liability
on part of Landlord by reason of inconvenience, annoyance, injury or damage to
business, machinery and/or equipment arising from or by any of Landlord's
repairs, or failure to make repairs hereunder; (ii) Tenant shall not be entitled
to any setoff or reduction of rent by reason of any failure of Landlord to
comply with its obligation hereunder; (iii) Landlord shall have no
responsibility hereunder for repairs to any of Tenant's machinery or equipment,
lights, light fixtures, and/or any other item related to Tenant's business, or
any repairs to the heating, ventilating and air conditioning system or other
mechanical system servicing the premises; and (iv) the foregoing applies to
electric system repairs only; other repairs shall be governed by the other
provisions of this Lease and not this specific subparagraph (B)
<PAGE>
Tenant shall not, without Landlord's prior written approval which approval may
be withheld for any reason notwithstanding anything to the contrary in paragraph
54, make any penetrations to, or add additional loads to, or place any
machinery, item or thing on, the roof.
During the first year only of the term of this Lease Landlord shall make
repairs to the roof not necessitated by the negligent acts of omission or
commission of Tenant, its employees, agents, invitees, licensees, contractors
and the like. Thereafter, during the remainder of the term of this Lease, and
for as long as Tenant occupies the premises, Tenant shall, at its sole cost and
expense, be responsible for and shall make all roof repairs: (i) necessitated by
the willful, grossly negligent and/or negligent acts of omission or commission
of Tenant, its employees, officers, agents, invitees, licensees, servants,
contractors, and the like; or (ii) the cost of which do not exceed $1,000.00 per
Lease Year. In the event during the remainder of the term of this Lease a repair
which is not necessitated by (i) above and the cost of which exceeds $1,000.00,
or the amount of the repair which, when added to other repairs during the then
current Lease Year not necessitated by (i) above, shall exceed $1,000.00, Tenant
shall be responsible for the first $1,000.00 of said repair(s) not necessitated
by (i) above during the then current Lease Year, or such amount when added to
prior repair(s) during the then current Lease Year not necessitated by (i) above
will total $1,000.00 and Landlord shall be responsible for the amount of the
repair(s) not necessitated by (i) above which exceed(s) $1,000.00, provided
Tenant forwards to Landlord a check in the amount of $1,000.00, or in such
amount when added to prior repair(s) during the then current Lease Year not
necessitated by (i) above will total $1,000.00, along with a true, complete and
correct estimate for the repair which evidences a roof repair not necessitated
by (i) above the cost of which exceeds $1,000.00, or when added to paid invoices
for prior repair(s) during the then current Lease Year not necessitated by (i)
above exceeds $1,000.00, with a request to make a roof repair. Landlord shall
then have the option of authorizing the repair to be done by Tenant's
contractor, or otherwise repairing the roof, in either instance at Landlord's
expense. Notwithstanding anything in this Lease, it is specifically understood
and agreed that: (i) there shall be no allowance to Tenant for a diminution of
rental value and absolutely no liability on part of Landlord by reason of
inconvenience, annoyance, injury or damage to business, machinery and/or
equipment arising from or by any of Landlord's repairs, or failure to make
repairs hereunder; (ii) Tenant shall not be entitled to any setoff or reduction
of rent by reason of any failure of Landlord to comply with its obligation
hereunder; (iii) Landlord shall have no responsibility hereunder for repairs to
any of Tenant Is machinery or equipment, and/or any other item related to
Tenant's business; and (iv) the foregoing applies to roof repairs only; other
repairs shall be governed by the other provisions of this Lease and not this
specific subparagraph.
Landlord agrees that the heating/air conditioning system shall be in
working order on the commencement date of this Lease. In addition to all of the
foregoing Tenant repair, replacement and restoration obligations, Tenant has the
full responsibility of maintaining, repairing, replacing and restoring the
heating/air conditioning systems. Tenant shall purchase, at its expense, a full
service maintenance contract acceptable in form and content to-Landlord for the
life of this Lease, which contract shall provide for replacement of all parts
and the cost of labor and preventative maintenance to be done on at least a
quarterly basis for the heating and air conditioning system. Tenant shall
deliver a copy of said maintenance contract to Landlord within ten (10) days of
occupancy of the premises. In the event Tenant fails to obtain said maintenance
<PAGE>
contract, Landlord may, but shall not be obligated to and without relieving
Tenant of its obligation to do so, obtain said contract on behalf of Tenant. The
total cost thereof shall be payable by Tenant with the next monthly installment
of Base Rent and shall be payable as additional rent. Landlord shall be entitled
to all remedies available in the event of nonpayment of Base Rent in the event
Tenant fails to make the payments as in this paragraph provided.
Tenant's responsibility to return the premises in accordance with Article
"22", is supplemented to the extent that damage to the premises (including, but
not limited to, walls, floors, ceilings) resulting from Tenant's use shall not
be considers ordinary wear and tear and Tenant shall be responsible for repair
of such damage.
50. Utilities:
Tenant, at its sole cost and expense, shall provide its own heat, light,
power, fuels, water and all other utilities a services required for the demised
premises. Tenant shall pay promptly, as and when due, the utility companies
directly for any and all costs in connection therewith and shall indemnify
Landlord on account thereof. This indemnification shall survive the expiration
or sooner termination of this Lease.
51. Use:
A. Add the following language to paragraph "2" of the Lease:
"... subject to, in accordance with and provided such fully complies
with all rules, regulations, laws, ordinances, statutes and
requirements (including, but not limited to, zoning regulations
governing and/or effecting the premises and the certificate of
occupancy for the building, if any), of all governmental authorities
and the Fire Insurance Rating Organization and the Board of Fire
Insurance Underwriters, and any similar bodies having jurisdiction
thereof, and the covenants and restrictions attached hereto, and for
no other purpose."
B. Tenant may not conduct any dangerous, hazardous, noxious or offensive
use at the premises. Tenant shall first obtain all governmental permits and
licenses as may be required for Tenant's use and occupancy of the premises, and
Tenant, at Tenant's sole cost and expense, at all times shall promptly comply
with all present and future laws, ordinances, orders, regulations and insurance
company requirements affecting the premises and their cleanliness, safety,
occupation and use. Tenant's responsibility to comply shall include changes to
the premises, including structural changes and repairs. Tenant shall not do or
permit anything to be done in or about the premises, or bring or keep anything
in the premises that will in any way increase the normal premium rates or cause
suspension or termination of the fire or other insurance upon the building.
Should Tenant's occupation of the premises jeopardize the Owner's insurance
coverage, create additional risks or cause an increase in Landlord's insurance
premiums, Tenant shall be solely responsible for all costs associated therewith,
including prompt payment, as additional rent with the with the next monthly
installment of Base Rent due, of all increased premiums, including the premiums
for contents insurance of any other occupants affected thereby. Tenant shall not
perform any act or carry on any practice(s) that may injure the building or be a
nuisance or menace to tenants of adjoining premises. Tenant shall not permit
open storage on the premises detrimental to the appearance of the garden-type
<PAGE>
industrial development, and shall require loading and unloading, and parking of
cars for employees, customers, and visitors, in connection with Tenant's
business, to be done in the designated areas on the premises and not on any
street .
C. Within five (5) days of execution of this Lease, Tenant shall also
execute and deliver to Landlord the following items:
(i) a letter, on Tenant's business stationery, for t Town of Islip
Building Department, indicating the nature of Tenant's business and the
utilization the demised premises in square foot terms (for example: how
many square foot will be used for warehouse, plant and/or office purposes.)
This letter should-be addressed to Landlord.
(ii) a letter, on Tenant's business stationery, for the Suffolk County
Department of Health Services, responsive to the questions set forth on the
specimen letter attached hereto as Exhibit "E".
(iii) a completed application, on the form submitted by Landlord, for
the Long Island Lighting Company, for service to the demised premises.
If required, Landlord shall reasonably assist Tenant, without cost to Landlord,
in the preparation of these items.
D. Tenant shall, at its sole cost and expense, install and maintain fire
extinguishers and sand pails if recommended by the Board of Fire Underwriters.
E. As an addition to paragraph 11411, Tenant will keep the exterior front
and rear of the demised premises, including the parking lot and loading adjacent
to the premises, in a neat and clean condition.
F. Tenant represents that throughout the term of this Leas Tenant shall
have no more than 45 employees working at premises.
52. Attorney's Fees:
In the event that Landlord institutes:
(a) summary or other proceedings to recover possession of the premises
(including if Tenant remains in the premises after the expiration date of
the term of this Lease) an is Successful (as hereafter defined); or
(b) a lawsuit to recover rent, additional rent or other payments due
under the Lease and is Successful; or
(c) a lawsuit to enforce or to recover damage for the break of any of
the terms of the Lease and is Successful; or
(d) a lawsuit to determine the obligations of Landlord Tenant under
the Lease and is Successful; or
<PAGE>
(e) any arbitration or mediation and is Successful; or
(f) any appearance by Landlord or its representatives at a of (a)-(e);
or
(g) should Tenant desire to amend, modify or change the Lease premises
or in any other situation where Landlord needs the services of an-attorney;
it is specifically agreed that Landlord shall recover from, or be paid by
Tenant, in addition to all items which Landlord may be entitled to recover in
law or in equity, whether or not Landlord does recover such items, reasonable
attorney's fees, and the costs and disbursements of said proceeding or otherwise
as set forth in (a) - (g) above. Said payments shall be due as additional rent,
and Landlord's petition and/or pleadings may make demand for payment of
attorney's fees as an amount currently due and owing to Landlord as of the date
of the petition and/or pleadings, without the necessity of any prior or further
demand therefor or invoice for the same.
For the purposes hereof, Landlord shall be Successful in the event at any
time Landlord obtains a judgment, order or recovers, or Tenant agrees to or is
ordered to pay, or comply with, the whole or any part of the relief demanded in
Landlord's petition, complaint, pleadings or other moving papers, or there is a
settlement with Tenant, whether at, during or prior to any trial or hearing, by
stipulation, order or otherwise, whereby Landlord obtains recovers, or Tenant
agrees to pay or comply with the whole or any part of the relief demanded in
Landlord's petition, complaint, pleading or other moving papers.
In the event Landlord shall recover possession of the premise in any
summary proceeding, or otherwise, Tenant shall remain liable to Landlord under
the Lease, and in addition to all other remedies available to Landlord at law,
in equity or under this Lease, Landlord may seek damages for failure to pa rent
and additional rent under the Lease, or for failure to abide by the terms and
conditions of the Lease.
53. Assignment and Subletting:
A. Notwithstanding anything to the contrary in this Lease, without
Landlord's prior written consent, and subject t this paragraph 53, neither
Tenant, nor Tenant's legal representatives or successors in interest by
operation law or otherwise (except as set forth in paragraph "C" this paragraph
53) shall assign or otherwise transfer the Lease, mortgage, pledge or otherwise
encumber this Leas or any part of Tenant's right, title or interest therein With
the prior written consent of Landlord, and subject this paragraph 53, Tenant may
sublet the whole of the premises or permit the whole premises to be used or
occupied by others (subject to paragraph "E" and paragraph "C" of this paragraph
53) . Subject to obtaining Landlord, consent as provided herein, Tenant may
sublet less than the entire premises, provided at no time shall there be more
than two (2) occupants in total (including Magna-Lab, Inc.) at the premises.
B. (1) In the event of a subletting pursuant to this paragraph 53, and the
rental income under such sublease exceeds the rental payable by Tenant under
this Lease, such rent differential shall be for the account of Landlord, and
Tenant covenants to pay Landlord such differential, as additional rent, in equal
monthly installments, together with the rental payable under this Lease.
Landlord shall be entitled to pursue all remedies which may be available for
nonpayment of Base Rent should Tenant fail to make payment as required by this
paragraph.
<PAGE>
(2) Anything to the contrary notwithstanding in this Lease, should Tenant
desire to assign this Lease or to sublet the premises, Tenant shall,prior to the
effective date thereof (the "Effective Date"), deliver to Landlord executed
counterparts of any such agreement and of all ancillary agreements with the
proposed assignee or subtenant, as applicable. Landlord shall then have ALL THE
FOLLOWING RIGHTS, any of which Landlord may exercise by written notice to Tenant
given within thirty (30) days after Landlord receives the foregoing documents:
(a) with respect to a proposed assignment of this Lease, the right to
terminate this Lease on the Effective Date as if it were the expiration or
termination date of this Lease.
(b) with respect to a proposed subletting of the premises, the right
to terminate this Lease on the Effective Date as if it were the expiration
or termination date of this Lease.
(3) If Landlord exercises any of its options under paragraph 53 (B) (2),
Landlord may then Lease the premises, or any portion thereof, to Tenant Is
proposed assignee or subtenant, as the case may be, without liability whatsoever
to Tenant.
C. Subparagraph "All and "B" of this paragraph 53 to the contrary
notwithstanding, Tenant shall have the right t assign this Lease or sublet the
entire premises without Landlord's consent provided that the assignee or subless
is a corporation which is a wholly owned subsidiary of Tenant succeeding to the
entire business carried on by Tenant, provided the following conditions are
complied
(1) The assignment or subletting must be, respectively, of all of
Tenant's leasehold interest and of the entire premises and in the case of
assignment, shall also transfer to the assignee all of Tenant' s rights in
and interest under this Lease including the security, ifany,deposited
hereunder.
(2) At the time of such assignment or subletting this Lease must be in
full force and effect without any breach or default thereunder on the part
of Tenant continuing beyond the period provided for curing same.
(3) The assignment or subletting must be solely for purposes and uses
substantially similar to the purpose and uses permitted by this Lease.
(4) The assignee (or sublessee, if the sublease is for a term less
than the then remaining term of this Lease) shall assume, by written
recordable instrument, in form and content satisfactory to Landlord, the
due performance of all of Tenant's obligations under the Lease, including
any accrued obligations at the time of the assignment or subletting.
(5) A copy of the assignment or sublease and the original assumption
agreement (both in form and content satisfactory to Landlord) fully
executed and acknowledged by the assignee together (if a corporation)with a
certified copy of a properly executed corporate resolution authorizing such
assumption agreement, shall be delivered to Landlord ten (10) days prior to
the effective date of such assignment or subletting.
<PAGE>
(6) Such assignment and/or subletting shall be upon and subject to all
the provisions, terms, covenants and conditions of this Lease and Tenant
(and any assignee(s) and sublessee(s)) shall continue to be and remain
liable thereunder.
(7) Tenant shall reimburse Landlord for Landlord's reasonable
attorney's fees for examination of and/or preparation of any documents in
connection with such assignment.
(8) Subject to the foregoing, Tenant may not effect transaction the
result of which is that this El becomes an asset of a person, firm or
corporate having no bona fide and ongoing business relationship to Tenant.
Paragraph 53:
(1) the transfer of more than thirty (30%) percent of any class of capital
stock of any corporate tenant or subtenant, or the transfer of more than thirty
(30%) percent of the total interest in any other person which is a tenant or
subtenant, however accomplished, whether by merger, consolidation, in a single
transaction or in a series of related or unrelated transactions, shall be deemed
an assignment of this Lease, or of such sublease, as the case may be, provided,
however, that the foregoing shall not be applicable to any corporate tenant, the
shares of which are publicly traded on a nationally recognized stock exchange;
(2) any increase in the amount of issued and/or outstanding shares of
capital stock of any corporate Tenant and/or the creation of one or more
additional classes of capital stock of any corporate Tenant, whether by merger,
or consolidation, in a single transaction or a related series of transactions,
with the result that the beneficial and record ownership in and to such tenant
shall no longer be identically held in the same proportion by the beneficial and
record owners of the capital stock of such corporate Tenant as of the date
Tenant executed this Lease shall be deemed an assignment, except for a transfer
on or as a result of the death of a shareholder and further provided that the
foregoing shall not be applicable to any corporate tenant, the shares of which
are publicly traded on a nationally recognized stock exchange;
(3) an agreement by any other person, directly or indirectly, to assume
Tenant's obligations under this Lease shall be deemed an assignment;
(4) a transfer by operation of law, merger, consolidation or otherwise, of
Tenant's interest in this Lease shall be deemed an assignment; any person to
whom Tenant's interest under this Lease passes by operation of law or otherwise,
shall be bound by the provisions of this paragraph; and
(5) each modification, amendment or extension or any sublease to which
Landlord has previously consented shall be deemed a new sublease.
<PAGE>
Tenant agrees to furnish to Landlord upon demand at any time such
information and assurances as Landlord may reasonably request that neither
Tenant, nor any previously permitted subtenant, has violated the provisions of
this paragraph. Upon request, Tenant shall deliver to Landlord a statement,
certified true and correct, showing the names of all existing shareholders of
record and their respective ownership interests as of that date.
E. In the event Landlord shall not exercise its right of recapture as set
forth in (B) above, in determining whether to grant consent to Tenant's sublet
or assignment request, Landlord may consider any reasonable factor. Landlord and
Tenant agree that lack of any one of the following factors, or any other
reasonable factor,will be conclusively deemed reasonable grounds for denying
Tenant's request:
(1) financial strength of the proposed subtenant/assignee must be at least
equal to that of the existing Tenant;
(2) business reputation of the proposed subtenant/assignee must be in
accordance with generally acceptable commercial standards;
(3) use of the premises by the proposed subtenant/assignee must be
substantially similar to the use permitted by this Lease;
(4) managerial and operational skills of the proposed subtenant/assignee
must be the same as those of the existing Tenant;
(5) use of the premises by the proposed subtenant/assignee will not
violate or create any potential violation of any laws;
(6) use of the premises will not violate any other agreements affecting
the premises, Landlord or other Tenants; and
(7) proposed subtenant/assignee must not presently be tenant or occupant
of the building(s) of which the premises are a part, or of the
Heartland Business Center. Landlord may withhold its consent hereunder
should Tenant in any way attempt or intend to use this Lease as an
asset, for the purpose of subletting the sole discretion may
determine.
F. If Landlord does not deny Tenant's request, such consent shall be given
subject to and provided Tenant strictly complies with items (1) - (8) of
subsection "C" of this paragraph 53.
54. Consents:
Subject to paragraph 53 (E), wherever consents are required, such consents
shall not be unreasonably withheld, provided, however, that in the event
Landlord's consent is not given Tenant, in no event, shall be entitled to make,
nor shall Tenant make, any claim for, and Tenant hereby expressly waives any
claim for money damages; nor shall Tenant claim any money damages by way of
<PAGE>
setoff, counterclaim or defense, based upon any claim or assertion by Tenant
that Landlord has unreasonably withheld any consent; but Tenant's sole and
exclusive remedy shall be an action or proceeding to enforce any such provision,
or for specific performance, injunction or declamatory judgment
Financial Statements:-
Upon request by Landlord, Tenant agrees that it will furnish to Landlord,
and to prospective mortgagees of the property, such financial statements as such
prospective mortgagee (s) may request. The foregoing shall not require Tenant to
prepare new statements in response to such request; rather, Tenant shall provide
the most recent statement currently available and thereafter, when prepared, the
new financial statement shall be furnished. Tenant also agrees not to take any
action which may impair Landlord's ability to mortgage the building of which the
premises form a part.
56. Indemnification:
Tenant agrees to and hereby does indemnify and save Landlord and Landlord's
agents harmless from and against any and all suits, actions, damages, costs,
judgments, expenses, claims liabilities and demands, including reasonable
attorney's fee (except such as result from the sole negligence of Landlord)
for, or in connection with, any accident, loss of life, injury or damage
whatsoever caused to any person or property arising directly or indirectly, from
or out of any occurrence, the business conducted or the services provided in the
premises or any part thereof, or occurring in, upon, at, on or about the
premises, or any part thereof, or on the sidewalks adjoining the same, or in any
parking area, loading area or any common area of or surrounding the premises, or
arising directly or indirectly, or occasioned wholly or in part by or from any
act or omission of Tenant or any concessionaire or subtenant, their respective
licensees, servants, agents, employees or contractors, and from and against any
and all damages, cost expenses, judgments, and liabilities incurred in
connection with any such claim or proceeding brought thereon, including
attorney's fees. This indemnification by Tenant shall also include any costs,
expenses and damages which Landlord does or may incur in enforcing this
indemnification. The indemnification provided for in this paragraph shall
survive the termination of this lease.
Landlord's Liability:
It is specifically understood and agreed that there shall be no personal
liability on Landlord in respect to any of the covenants, conditions or
provisions of this Lease. In the event of a breach or default by Landlord of any
of its obligations under this Lease, Tenant shall look solely to the equity of
Landlord in the demised premises for the satisfaction of Tenant's remedies and
Tenant shall have no right of lien, levy, execution or other enforcement
proceedings against any other property or assets of Landlord or the principals
thereof.
<PAGE>
58. Condemnation:
A. If twenty (20%) percent or more of the demised premises shall be taken
for any public or quasi-public use under an statute or by right of
eminent domain, or by private purchase in lieu thereof, then Landlord
and Tenant shall each have the right to terminate this Lease on thirty
(30 days written notice to the other given sixty (60) days after the
date of such taking.
B. If any part of the premises shall be so taken and this Lease shall not
terminate or be terminated under the provisions of paragraph "A"
hereof, then the annual Base Rent shall be equitably apportioned
according to the floor space so taken and Landlord shall make all
necessary repairs or alterations to the premises so as to constitute
that portion of the building and other improvements on the premises
not taken a complete architectural unit and/or as nearly similar in
character as practicable to what they were before the taking.
C. All compensation awarded or paid upon such a total or partial taking
of the premises shall belong to and be the property of Landlord
without any participation by Tenant provided, however, that nothing
contained herein shall be construed to preclude Tenant from
prosecuting any claim directly against the condemning authority in
such condemnation proceedings for loss of business, and/or
depreciation to, damage to and/or cost of removal of, and/or for the
value of stock and/or trade fixtures, furniture and other personal
property belonging to tenant; provided, however that no such claim
shall diminish or otherwise adversely affect Landlord's award(s) or
the holder(s) of any and all mortgages affecting the premises. In no
event shall Tenant make any claim for the value of the unexpired term
of this Lease.
59. Building Operation:
A. Landlord shall not be responsible or liable to Tenant for any loss or
damage that may be occasioned by the acts or omissions of persons
occupying any space adjacent to or adjoining the premises, or any part
thereof, or for any loss or damage resulting to Tenant or its property
from water, gas, steam, fire, or the bursting , stoppage or leaking of
sewer pipes, provided that such loss or damage is not occasioned by
the negligence of Landlord.
B. Tenant shall permit Landlord or its designees to erect, use, maintain
and repair pipes, cables, plumbing, vents and wires, in, to and
through the building and/or the premises as and to the extent that
Landlord may now or hereafter deem to be necessary or appropriate for
the proper operation and maintenance of the building or any other
portion of the premises. All such work shall be done, so far as
practicable, in such manner as to avoid unreasonable interference with
Tenant's use of the premises but shall not be considered a
constructive eviction.
60. Pollution Indemnification:
Tenant agrees that no part of the premises will be used in any way for, and
Tenant shall not suffer, permit or allow the use of the premises or any part
thereof, either directly or indirectly, for treatment, preparation, generation,
<PAGE>
manufacture, use, refining, production, storage, maintenance, handling,
transfer, transporting processing,disposal, burial, dispersal, release, or
placement of any Hazardous Substance (as hereinafter defined), petroleum
products, pollutants or contaminants, and that Tenant shall not release, suffer
or permit the release of any Hazardous Substance, petroleum products, pollutants
or contaminants onto the premises or into the subsurface thereof or onto any
property whatsoever, including without limitation, surface water and ground
waters unless in compliance with all applicable law(s), permit(s), order (s) ,
or other valid governmental approval (s), whether now in effect or hereafter
enacted. Furthermore, Tenant shall not cause or permit to occur any violation of
any federal, state or local law, ordinance, regulation or order now or hereafter
enacted, related to environmental conditions on, under or about the premises, or
arising from Tenant's use or occupancy of the premises, including, but not
limited to, soil and ground water conditions. Tenant shall, at Tenant's own
expense, comply with all laws regulating the treatment, preparation, generation,
manufacture, use, refining, production, storage, maintenance, handling,
transfer, transporting processing, disposal, burial, dispersal, release, or
placement of any Hazardous Substance, petroleum products, pollutants or
contaminants. Furthermore, Tenant shall, at Tenant's own expense, make all
submissions to, provide all information required by, and comply with all
requirements of all governmental authorities under all present and future laws.
Tenant shall provide all information regarding the treatment, preparation,
generation, manufacture, use, refining, production, storage, maintenance,
handling, transfer, transporting processing, disposal, burial, dispersal,
release, or placement of any Hazardous Substance, petroleum products, pollutants
or contaminants that is requested by Landlord. Tenant agrees to provide Landlord
with an exact copy of any notice, directive, request, demand or any other
communication received by Tenant in connection with or relating to any matter or
thing covered by paragraph 60.
The term Hazardous Substance means, without limitation, any pollutant,
contaminant, toxic or hazardous waste, dangerous substance, potentially
dangerous substance, noxious substance, toxic substance, flammable, explosive,
combustible, radioactive material, urea formaldehyde foam insulation, asbestos,
PCB's, chemicals known to cause cancer or reproductive toxicity, or any
manufacture, preparation, production, generation, use, maintenance, treatment,
storage, transfer, handling or ownership of which is restricted, prohibited,
regulated, penalized by any and all federal, state, local, county, or municipal
statutes, laws, or orders now or at any time hereafter in effect, including but
not limited to, Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. 9601 et seq.), the Hazardous Materials Transportation
Transportation Act (49 U.S.C. 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. 6901 et seq.), the Federal Water Pollution Control Act
(33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. 7401 et seq.), the Toxic
Substances Control Act as amended(15 U.S.C. 2601 et seq.), the Occupational
Safety and Health Act (29 U.S.C. 651 et seq.), as these laws have been or may be
amended or supplemented, and any substances declared to be hazardous or toxic
under any law or regulation now or hereafter enacted or promulgated by any
governmental authority.
Failure of Tenant to abide by all of the foregoing obligations shall be a
default under this Lease which, if not cured within five (5) days of Landlord's
notice, or sooner if an emergency, dangerous, or hazardous condition exists in,
at, on, upon or about the premises, shall entitle Landlord to pursue all
remedies available in law, at equity and/or under the Lease.
<PAGE>
In addition, Tenant shall indemnify and save Landlord and its successors
and assigns-and their respective officers, directors, shareholders, partners,
agents and employees and the premises and the building of which the premises are
part, harmless against any and all claims, obligations, liabilities, violations,
penalties, fines, suits, governmental orders, causes of actions, judgments,
damages, costs and expenses, whether civil or criminal or both, of any and all
kind or nature which result from or are in any way connected with a breach or
default by Tenant of the foregoing agreement and/or which the Landlord may be
subject in connection with any Hazardous Substance resulting from or in
connection with the discharge, despoiler, release or escape of any Hazardous
Substance, smoke, vapors, soot, fumes, acids, alkalis, toxic or hazardous
chemicals, liquids or gases, volatile organics, waste materials or other
irritants, contaminants or pollutants or otherwise at the premises, or caused by
or resulting from the use and operation of the premises by Tenant, its
successors and assigns and/or by reason of Tenant's invitees, licensees,
employees, officers. agents, servants, etc. , in any case whether or not Tenant
has complied with its obligations pursuant to this agreement. This
indemnification and save harmless agreement shall also cover any and all liens
for hazardous waste clean up expenses in favor of the United States, New York
State, or any political subdivision thereof, including the County of Suffolk,
Town of Islip, and any governmental department of any of the foregoing.
All payments due from Tenant hereunder shall be due an payable as
additional rent within ten (10) days of presentation of a statement therefor by
Landlord.
This indemnification shall include, but not be limited to, reasonable legal
fees and other charges to which Landlord ma be put, including cleanup costs, in
defending against any action or proceeding in connection with the foregoing.
This indemnification and save harmless agreement shall survive the termination
of this lease.
61. SURFACE AND SUBSURFACE SAMPLING BY TENANT:
Tenant shall have the right, within twenty (20) days from the day of this
Lease, to conduct and complete surface and subsurface sampling of the soil at
the premises, or otherwise conduct a "Phase I" environmental survey of the
premises. Any such sampling and/or survey shall be at Tenant's sole cost and
expense. Said sampling and/or survey shall not be commenced by Tenant, or any of
its officers, agents, servants, employees or contractors prior written notice to
Landlord, which notice shall set forth the extent of the proposed sampling
and/or survey and by whom said sampling and/or survey shall be conducted and
which notice shall also provide Landlord with evidence that public liability
insurance as required by this Lease is in full force and effect, and that
Workman's Compensation, in statutory limits, is in full force and effect. Tenant
agrees that promptly after the completion of said sampling and/or survey, the
premises shall be returned to the condition that existed prior to the
commencement of said sampling and/or survey. Tenant shall indemnify and hold
Landlord harmless, in accordance with the indemnity provisions of this Lease, by
reason of said sampling and/or survey or in connection with any damage or injury
(including death) to persons or property which result from said sampling and/or
survey.
Tenant hereby agrees to provide Landlord with a true and complete copy of
the results of said sampling and/or survey. Tenant agrees not to disclose the
results of such sampling and/or survey to any person or entity without
<PAGE>
Landlord's prior written consent. In the event such sampling and/or survey by
Tenant discloses any toxic or hazardous substances in excess of legal limits,
Landlord shall have no obligation or responsibility to Tenant for any damages
whatsoever by reason thereof, and provided the same was not caused by Tenant's
use or occupancy of the premises, Tenant shall have the right to notify Landlord
of its desire to terminate this Lease by reason of the existence of such
hazardous or toxic substances in excess of legal limits by written notice to
Landlord received by not later than twenty (20) days from the date of this
Lease, which notice shall include a copy of the report of the results of the
sampling and/or survey and shall set forth a date not less than twenty (20) days
from the date of Tenant's notice by which Tenant desires to terminate this
Lease.
Notwithstanding any such notice from Tenant, this Lease shall remain in
full force and effect if, prior to the date set forth in Tenant's termination
notice, Landlord notifies Tenant of its desire to remediate the condition at the
premises, commences the remediation within such twenty (20) days period and
thereafter continues diligently to prosecute the completion of such work.
In the event Landlord desires to allow this Lease to terminate in response
to Tenant's twenty (20) days notice, Landlord shall so notify Tenant and,
provided Tenant has paid Landlord all amounts due under this Lease to the date
set forth in Tenant's termination notice, and removed any items placed in, on or
about the premises and returned the premises to Landlord in accordance with the
provisions of the Lease, this Lease shall terminate on the date set forth in
Tenant's termination notice as if such date was the date originally set forth
for the expiration of the term of this Lease and all obligations which were to
survive the expiration or termination of the term of the Lease shall survive the
termination of the Lease in accordance with this paragraph 61.
62. Garbage Removal:
Notwithstanding anything to the contrary, for only the first three (3)
months of the term of the Lease Landlord shall contract with a carting firm and
pay for the removal of rubbish from the demised premises resulting from Tenant's
ordinary business operation at the demised premises and shall not include the
removal of other than ordinary waste, and expressly excludes hazardous and/or
toxic waste. This payment by Landlord is given as a courtesy to Tenant and shall
not be considered as part of the consideration for the Lease. Thereafter, during
the term of the Lease and for as long as Tenant's occupancy of the premises
continues, Tenant shall be fully responsible for, including payment for the
same, removal of all garbage and rubbish from the premises and all garbage and
rubbish generated by or from the premises.
63. Jurisdiction and Law:
In any controversy involving Landlord and Tenant under this Lease, it is
hereby agreed that the courts of the State of New York, in and for the County of
Suffolk, be deemed the jurisdiction for purposes of any controversy involving
the Lease herein and the laws of the State of New York shall govern. Tenant
hereby acknowledges that it is authorized to do business in the State of New
York and is subject to and hereby submits to the jurisdiction of the courts of
the State of New York.
<PAGE>
64. Tenant's Authority:
A. Tenant warrants and represents that it is duly formed and in good
standing, and has corporate or partnership power and authority, as the case may
be, to enter into this Lease and has taken all corporate or partnership action,
as the case may be, necessary to carry out the transaction contemplated herein,
so that when executed, this Lease constitutes a valid and binding obligation
enforceable in accordance with its terms. Tenant represents that the execution
of this Lease has been authorized by resolution of the Board of Directors of any
proposed corporate Tenant hereunder, or if the proposed Tenant is a partnership,
the execution of this Lease has been consented to in writing by the partners
thereof. Prior to the execution of this Lease Tenant shall provide Landlord with
a certified copy of the corporate resolution(s), partnership consent, or other
proof in form acceptable to Landlord which shall authorize the execution of the
Lease at the time of execution and also evidence the authority of the signatory
to sign this Lease on behalf of and bind the Tenant.
B. If Tenant hereunder is a partnership:
(1) Tenant represents that it is a partnership comprised of the general
partners whose names and residence addresses are set forth in Schedule 1 annexed
hereto and made a part hereof. Tenant further represents that the foregoing
general partners are all the partners of said partnership and there are no other
partners at the present time. Tenant represents and agrees that such partners
are and shall for all purposes be jointly, severally and collectively liable for
the keeping, observing and performing of all of the terms, covenants,
conditions, provisions and agreements of this Lease.
(2) Tenant covenants that it will promptly notify Landlord by certified
mail of any change in, dissolution of, termination of, withdrawal from and/or
admission of any new partner into, the partnership. Tenant and each of the
existing partners thereof, further covenant that each newly admitted partner, by
virtue of admission into the partnership, shall and will assume the liabilities
and obligations of the partnership so that each newly admitted partner will
become liable under this Lease as though he had executed the same originally,
and Tenant further covenants that upon request of Landlord each present and
newly admitted partner will execute an agreement, in form and substance
reasonably satisfactory to counsel for Landlord, assuming joint, several and
collective liability for keeping, observing and performing all of the terms,
covenants, conditions, provisions and agreements of this Lease. Any present or
future partner of Tenant who is no longer a partner of Tenant at the time of any
default under this Leas shall, nevertheless, remain liable for the obligation of
Tenant under this Lease, as if any such partner has been a partner of Tenant on
the date of such default.
(3) Each partner consents in advance to, and agrees to bound by, any
modifications of this Lease that may hereafter be made and by any notices,
demands,requests or other communications that may hereafter given by Tenant or
by any of the partners comprising Tenant.
(4) All bills, statements, notices, demands, requests other communications
given or rendered to Tenant any of the partners comprising Tenant shall be deem
given or rendered to Tenant and to each of the partners comprising Tenant and
shall be binding upon Tenant and each of such partners.
<PAGE>
65. Work:
Landlord agrees to do the following work at the premises:
a. Install Landlord's building standard carpet on the floor of the
office area, in a color of Tenant's choosing;
b. Paint the walls of the office area using Landlord's building
standard paint in a color of Tenant's choosing;
c. Install new building standard dishwasher and kitchen cabinets in
kitchen;
d. Repair broken window;
e. Repair ceiling tiles; replace light bulbs in office area or,repair
fixtures in office area, where necessary; install six sodium vapor lights
to replace those which were removed from warehouse.
f. Repair broken floor tiles in non-carpeted areas; Landlord shall use
reasonable efforts to remove stains from floor tiles;
Except as set forth in the preceding paragraph of this paragraph 65, Tenant
acknowledges and agrees that Landlord has not offered to do, and shall not do or
have any obligation to do, any work, repairs, alterations, decorations
improvements, additions, changes, etc., at or to the premises to make the same
ready for Tenant's occupancy. Tenant further acknowledges that, prior into
entering into this Lease, Tenant has had a full and fair opportunity to inspect
the premises, or Tenant has expressly waived the right to do so. Tenant hereby
accepts the premises in "as-is" condition.
66. Certification by Tenant:
Tenant hereby acknowledges that, except as may otherwise be expressly set
forth in this Lease, Landlord has made no representations, and is unwilling to
make any representations, with regard to the premises, including the condition
thereof. Tenant acknowledges it has been given a full and fair opportunity to
inspect the premises or has waived the right to do so.
Tenant's occupancy of the premises shall be deemed a certification to
Landlord and the holder of any mortgage to which this Lease is, or shall
thereafter be, subject and subordinate, that the premises have been delivered to
Tenant in accordance with the terms of the Lease and that possession thereof has
been fully and completely accepted by Tenant, in "as is" condition, who is then
in possession of the same, and that the term of this Lease and the use of the
premises and the date for payment of rent hereunder has commenced. Tenant shall
confirm the term of this Lease, and that rental payments have commenced (or the
date upon which they shall commence) ,and the other terms and conditions of this
paragraph, in writing, within five'(5) days of Landlord's request. In the event
Tenant fails to confirm the items required within said five (5) day period,
Tenant shall be deemed to have certified these items in accordance with
Landlord's request.
<PAGE>
67. Exhibits:
A. Landlord and Tenant agree that all of their terms and conditions,
restrictions and covenants contained in the following:
Exhibit "A" - Location of premises within building
Exhibit "B" - Intentionally deleted prior to Lease execution
Exhibit "C" - Covenants and Restrictions
Exhibit "D" - Covenants and Restrictions
Exhibit "E" - Department of Health Letter
B. Said premises are leased subject to the same estates, interests, liens,
charges, encumbrances, mortgages, matters and defects in Landlord's title, if
any, and a easements, declarations, agreements, rights of the water utility
easements, and covenants and restrictions of record, including Declaration of
Property which is annexed hereto as Exhibit "C", dated December 29, 1983, and
Exhibit "D", dated September 1, 1985.
68. Security Deposit:
Tenant agrees to deposit the sum required by Article 32 of the Lease as follows:
a. Upon the execution hereof, the sum of $11,475.50;
b. Prior to the expiration of one hundred eighty days from the date
hereof, the sum of $11,475.50.
Tenant's failure to make any of the payments herein required shall entitle
Landlord to pursue all remedies available in event of non-payment of Base Rent,
including, without limitation an remedies provided in Article 32.
69. Miscellaneous:
A. The parties to this Indenture of Lease further agree the printed
form of Lease refers to a loft within the State of New York and that accordingly
whenever in Lease reference is made to any laws, rules or regulations of the
State of New York, such reference shall be deemed to also include and be laws,
rules and regulations of the governmental agencies having jurisdiction over the
demised premises.
B. Neither this Lease, nor any memorandum thereof, shall be recorded by
Tenant or any person or entity claiming under or through Tenant.
C. Landlord agrees to include the name of Tenant on the building directory.
D. In case of any conflict or inconsistency between any of the provisions
of this Rider, and the provisions of the within Lease, the provisions of this
Rider shall prevail and control.
E. All costs, charges and expenses which Tenant assumes, agrees or is
obligated to pay pursuant to this Lease shall be deemed additional rent, and in
the event of nonpayment, Landlord shall have all of the rights and remedies with
<PAGE>
respect thereto as is herein provided for in the case of nonpayment of Base
Rent.
F. If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
term, covenant or condition of this Lease shall be valid and enforced to the
fullest extent permitted by law.
IN WITNESS WHEREOF, Landlord/Owner and Tenant have respectively signed this
Lease as of the day and year first above written.
LANDLORD/OWNER: HEARTLAND RENTAL PROPERTIES PARTNERSHIP
By: Heartland Rental Properties, Inc.
By: /s/ Adam Wolkoff
----------------------------
Adam Wolkoff, Vice President
TENANT: MAGNA-LAB INC.
By: /s/ Lawrence A. Minkoff
---------------------------------
Lawrence A. Minkoff, President
DRAFT EXHIBIT 10.33
April 4, 1996
Magna-Lab Inc
250 Executive Drive, Unit Z
Edgewood. New York 11717
Re: Lease, dated April 4, 1996 by and between Magna-Lab Inc.
("Tenant") and Heartland Rental Properties Partnership
("Landlord"), for premises in the building known as 250
Executive Drive, Edgewood. New York ( the "Lease" ).
Gentlemen:
This Letter will confirm our supplemental agreement with regard to the
lease:
1. Notwithstanding the commencement date of April 1, 1996 as set forth
in the lease, for any period of occupancy prior to April 15, 1996, no base
rent shall be due.
2. The term of the lease shall end on April 14, 2003, instead of March
31, 2003, (unless such term shall sooner cease and expire)
3. Paragraph 41 (A) of the lease is amended by adding subparagraph
(viii) thereto as follows:
"For the period April 1, 2003 through April 14, 2003 Base Rent
shall be thirteen thousand nine hundred sixty one and 42/100
($13,961.42) dollars monthly."
4. At Tenant's sole cost and expense, Tenant may make the additions,
improvements and changes to the premises as set forth on Exhibit "A"
attached hereto, subject to compliance by Tenant with the terms and
conditions of the lease, except that Landlord's consent shall not otherwise
be required.
5. The lease, as modified by hereby, contains the entire understanding
and agreement between Landlord and Tenant; all prior agreements, both oral
and written, are merged herein and therein and are superseded hereby and
thereby.
6. The Lease, as amended herein, may only be modified by a writing
executed by the parties hereto.
7. The covenants, conditions and agreements of the Lease, as amended
herein, shall bind and inure to the benefit of Landlord and Tenant and
their respective heirs, distributees, executors, administrators,
successors, and
<PAGE>
except as otherwise provided in the Lease, their assigns.
8. Except as amended, charged or modified hereby, the Lease is, and
shall remain, in full force and effect in accordance with its terms, and
each every agreement, term, covenant, and condition thereof is hereby
ratified, confirmed and continued.
Sincerely,
HEARTLAND RENTAL PROPERTIES PARTNERSHIP
By: Heartland Rental Properties, Inc
By: /s/ Adam Wolkoff
----------------------------
Adam Wolkoff, Vice President
ABOVE AGREED AND CONSENTED TO:
MAGNA-LAB INC
By: /s/ Lawrence Minkoff
--------------------------------
Lawrence Minkoff President
<PAGE>
EXHIBIT A
Pre-Approved Tenants Work
1. Additional Bathroom in Warehouse
2. Move Wall in Presidents Office
3. Add Wall Separating Old Computer Room
4. Overhead Door Between R&D And Warehouse
5. Add 30X60 Window in Lobby to Brighten Hall.
Magna-Lab Inc,
EPS - Weighted average shares - February 29, 1996
<TABLE>
<CAPTION>
CURRENT QUARTER CURRENT YEAR TO DATE
months Total months Total for
# shares Dates outstanding outstanding months Ratio Amount outstanding year Ratio Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(a) 875,000 2/10/92-11/30/94 3 3 .3/3 875,000 12 12 .9/9 875,000
(b) 1,000,000 4/10/93-11/30/94 3 3 .3/3 1,000,000 12 12 .9/9 1,000,000
(c) 150,000 5/11/93-11/30/94 3 3 .3/3 150,000 12 12 .9/9 150,000
375,000 .7/20/95 3 3 .3/3 375,000 7.30 12 7.3/12 228,125
(d) 250,000 .8/14/95 3 3 .3/3 250,000 6.50 12 6.5/12 135,417
(e) 1,935,000 .1/3/96 2 3 .2/3 1,290,000 2.00 12 322,500
(f) 5,000 .1/18/96 1.5 3 .1.5/3 2,500 1.50 12 625
--------- ----------
4,590,000 3,942,500 2,711.667
Rounded 3,945,000 2,710,000
Net Loss $ 601,920 $2,895,000
Loss per share $0.15 $1.07
</TABLE>
(a) Excludes 1,000,000 forfeitable shares for loss periods
(b) Initial Public Offering Shares
(c) Overallotment shares
(d) Bridge conversion shares
(e) 1/3/96 Offering shares (1,850,000 + 60,000 + 25,000) = 1,935,000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-1-1995
<PERIOD-END> FEB-29-1996
<CASH> 3,047,000
<SECURITIES> 0
<RECEIVABLES> 62,000
<ALLOWANCES> 0
<INVENTORY> 199,000
<CURRENT-ASSETS> 3,783,000
<PP&E> 623,000
<DEPRECIATION> 272,000
<TOTAL-ASSETS> 4,136,000
<CURRENT-LIABILITIES> 1,947,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 2,183,000
<TOTAL-LIABILITY-AND-EQUITY> 4,136,000
<SALES> 730,000
<TOTAL-REVENUES> 730,000
<CGS> 612,000
<TOTAL-COSTS> 612,000
<OTHER-EXPENSES> 2,709,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323,000
<INCOME-PRETAX> (2,895,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,895,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,895,000)
<EPS-PRIMARY> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
