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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
NUTRACEUTIX, INC.
(Name of Small Business Issuer in its charter)
Delaware 91-1689591
- ------------------------------ ----------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8340 154th Avenue Northeast, Redmond, Washington 98052
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(Address of principal executive offices) (zip code)
Issuer's telephone number, (425) 883-9518
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- None - - None -
- ------------------------------ -------------------------------
- ------------------------------ -------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) BUSINESS DEVELOPMENT
Nutraceutix, Inc. (the "Company") was incorporated on October 12,
1994 in Delaware as Caddy Systems, Inc. ("CSI"). On April 6, 1995, (the
"Exchange Date") pursuant to an agreement between the Company and shareholders
of Bio Techniques Laboratories, Inc., a Washington corporation ("BTL"), the
Company issued 11,423,161 shares of common stock in exchange for the issued and
outstanding shares of common stock of BTL. The holders of approximately 1% of
BTL stock elected to exercise their dissenters rights under the laws of the
State of Washington and were paid the fair value of their stock. To date
approximately 96% of BTL stock has been exchanged and the holders of a remaining
3% of BTL stock have not yet tendered their shares.
On the Exchange Date, the Company's Certificate of Incorporation was
amended to change its name to "Nutraceutix, Inc.", to increase its authorized
capital to 30,000,000 shares of common stock, par value $0.001, and 5,000,000
shares of preferred stock, par value $0.01, issuable as authorized by the Board
of Directors and to effect a one-for-five reverse split of the Company's
previously outstanding shares to 1,740,688 shares of common stock.
The Company currently operates as Nutraceutix, Inc. dba Bio
Techniques Laboratories, Inc. Unless the context indicates otherwise, references
hereinafter to "the Company" includes both Nutraceutix, Inc. and Bio Techniques
Laboratories, Inc. The Company's principal place of business is 8340 154th
Avenue N.E., Redmond, Washington, 98052, and its telephone number at that
address is (425) 883-9518.
BTL was incorporated on May 11, 1983 as "Biotechnics, Inc.," and
conducted business under that name until October 29, 1984, when its name was
changed to "Bio Techniques Laboratories, Inc." Since its inception, BTL has been
a biotechnology company in the business of developing and producing
nutraceuticals, which are natural, nutritional, biologically active materials
formulated to provide specific health and productivity benefits to humans and
animals. BTL was initially capitalized with a private investment of $7 million,
which it used to construct a research and production facility, develop
experience in the research, production and sales of nutraceuticals and other
natural products, commence the development of nutraceuticals and obtain
intellectual property rights in many of these products. In 1987, BTL developed
its first nutraceutical, COBACTIN(R) microbial feed additive, a strain of the
bacteria Lactobacillus acidophilus, which promotes feed efficiency and the
natural growth of beef cattle in feedlots. In 1987, BTL received a $2.2 million
investment from Central Soya Corporation (now Consolidated Nutrition LC), which
was used to develop Lactobacillus acidophilus applications for swine and
poultry. In recent years BTL has begun to focus on the development, production
and sale of natural foods and nutritional food additives for human consumption.
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(b) BUSINESS OF THE COMPANY
GENERAL
Nutraceutix, Inc. is a developer and manufacturer of nutraceutical
based health supplements. Its branded products for the animal feed industry are
COBACTIN(R) microbial feed additives and BIOPOWER(R) silage inoculant. Its
branded human health supplement products are BIOPOWER(R) Health Supplements. The
Company also provides private label manufacturing of health supplements for
other health supplement product companies, "private label" and food ingredient
pre-mixes for food companies.
Nutraceuticals are biologically active materials, derived from plant,
microbial or animal sources, which are formulated to provide specific health and
productivity benefits for humans and animals including, but not limited to,
pharma foods, functional foods, fermented foods, phytochemicals, microbial feed
additives, probiotics, herbal products, vitamins and health supplements.
Prior to 1995, the Company focused solely on the manufacture and sale
of nutraceutical based products for the agricultural market. Since 1995, the
Company added nutraceutical based health supplements for the human health
market. In 1997, the Company installed a fully automated production line at its
encapsulating, tableting, bottling and labeling facility in Lafayette, Colorado
for the private label manufacture of health supplements and acquired a license
for the United States patent pertaining to the use of glucarate salts and their
derivatives for the nutritional support of the body's mechanism for ridding
itself of carcinogens. The Company has also acquired a license for formulas
which incorporate glucarate salts for lung, breast and prostate health.
Although many of the ingredients in the Company's products are
vitamins, minerals, herbs and other substances for which there is a long history
of human consumption, some of the Company's products contain innovative
ingredients such as the glucarate salt, Calcium D-glucarate. While the Company
believes all of its products to be safe when taken as directed there is little
long-term experience with human consumption of certain of these innovative
product ingredients in concentrated form. Accordingly, no assurance can be given
that the Company's products, even when used as directed, will have the effects
intended. Although the Company tests the formulation and production of its
products to ensure that they are safe when consumed as directed, they have not
sponsored clinical studies on the long-term effect of human consumption.
PRINCIPAL PRODUCTS AND SERVICES
CALCIUM D-GLUCARATE
In July of 1997, the Company and BioChemix, Inc. ("BioChemix") an
unaffiliated privately held company, signed a definitive agreement for the
exclusive licensing to Nutraceutix of certain patent rights pertaining to the
use of glucarate salts and their derivatives in a sustained release form
specifically for the nutritional support of one of the body's major mechanisms
for ridding itself of carcinogens, a process referred to as glucuronidation. The
Company and BioChemix have also signed an agreement for the exclusive licensing
of certain formulas which contain vitamins, minerals, herbal extracts and
antioxidant formulations which incorporate Calcium D-glucarate for
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lung, breast and prostate health. BioChemix is a technology transfer company
whose principals developed and patented the applications of glucarate salts at
the Science Park of the University of Texas, MD Anderson Cancer Center and these
principals are now at the AMC Cancer Center in Denver, Colorado.
Conjugation is one of the body's most important and natural
protective mechanisms for dealing with carcinogens. Conjugation with glucuronic
acid (i.e. glucuronidation) is a major conjugation pathway in the tissues of
vertebrates. The resulting conjugates can be readily excreted in the bile and
urine.
The conjugation of carcinogenic compounds with glucuronic acid is
referred to as glucuronidation. The reverse action is referred to as
de-glucuronidation and is mediated by the enzyme Beta glucuronidase. Glucarate
salts are potent inhibitors of Beta glucuronidase and the de-glucuronidation
reaction. An appropriate concentration of glucarate salts has been shown to
inhibit this reverse reaction, thus preventing the reactivation of conjugated
carcinogens due to de-glucuronidation. The inhibition of de-glucuronidation with
glucarate salts has been shown to significantly reduce cancer in animal models
exposed to chemical carcinogens. The specific glucarate salt to be developed
into a lung, breast and prostate health product is Calcium D-glucarate. There
have been no definitive clinical human trials proving the efficacy of Calcium
D-glucarate in cancer prevention in humans.
Glucuronic acid is found in low concentrations in humans and animals
which are natural constituents of certain fruits and vegetables, possibly
contributing to the well known association of fruit and vegetable intake with
reduced cancer risk. No toxic effects have been demonstrated with Calcium
D-glucarate. The FDA requires no extended approval for use as a nutritional
supplement.
The market for a new health supplements containing Calcium
D-glucarate is difficult to estimate. The Company is targeting individuals at
higher than average risk of developing lung, breast and prostate cancer. Within
the U.S. alone there are an estimated 40 million smokers, and an estimated equal
number of ex-smokers. The American Cancer Society estimates that in 1998,
175,000 Americans will die from lung cancer. Cigarette smoking and the use of
other tobacco products are major causes of cancers of the lung, oral cavity,
larynx and esophagus. These tobacco products are also contributing factors to
the development of cancers of the bladder, kidney and pancreas. In addition,
leukemia, breast and prostate cancers have been associated with the use of
tobacco products. Even though the users of tobacco products are at serious
cancer risk, there is no guarantee that these individuals will use glucarate
based products.
The Company believes that there is a market for Calcium D-glucarate
due to the concerns about cancer risks and recognition of the link between
smoking and lung cancer and women's concerns regarding breast cancer. Risk
factors for breast cancer such as family history, age of pregnancy and lifestyle
have been identified and are known in the general population; the Company
believes that women with these risk factors are potential consumers of these
products, but has no sales history with glucarate based products to substantiate
this belief.
To date, the marketing, sales and distribution of the Company's
health supplements containing Calcium D-glucarate for ex-smokers and for breast
health products has been the responsibility of Weider Nutrition International,
an unaffiliated public company. On May 13, 1998,
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the Company signed a sublicensing agreement with Rexall Showcase International,
a subsidiary of Rexall Sundown, an unaffiliated public company, for the
distribution of products containing glucarate for breast and prostate health
through network multi-level marketing channels. The Company anticipates adding
additional revenue and royalty generating agreements through future sublicenses.
The Company plans to provide Calcium D-glucarate on a selective
private label basis to other marketers of health supplements and directly to the
public via the Internet under the Company's BIOPOWER(TM) brand. As a nutritional
supplement, limited claims can be made as to results. The Company cannot
estimate the effect of these limitations on the sales potential of the product.
NUTRACEUTICAL BASED HEALTH SUPPLEMENTS FOR THE AGRICULTURAL MARKET
The Company has two primary agricultural product lines which it
manufactures and sells: (1) lactobacillus products which, independent field
trials demonstrate, enhance feed efficiency in feedlot cattle and (2) silage
inoculum which, independent field trials demonstrate preserves the nutritional
value of stored forages.
The Company's silage inoculants, which are offered on an original
equipment manufacturer ("O.E.M") basis and under the BIOPOWER(R) silage
inoculant brand, aid in the natural fermentation of cut forages for storage in
silos and bunkers, preserving nutrients by decreasing the occurrence of unwanted
spoilage organisms.
The Company's lactobacillus based microbial feed additive products
are marketed under Bio Techniques Laboratories in agriculture under the
following trademarks:
COBACTIN(R), COBACTIN(R) II, COBACTIN PLUS(R) microbial feed
additives for commercial feedlot cattle. These products have been
demonstrated in independent field trials to increase feed efficiency
in feedlot cattle.
COBACTIN(R), COBACTIN(R) II microbial feed additive for dairy cows
have been demonstrated in independent field trials to an increase
milk production.
COBACTIN(R) microbial feed additive for poultry has been demonstrated
in independent field trials to increase feed efficiency in poultry.
These COBACTIN products are the result of ten years of research by
Bio Techniques Laboratories, Inc. aimed at the development of
proprietary microbial feed supplements designed to enhance animal feed
efficiency. This product line is based on the premise that animal nutrition,
particularly in ruminant animals, requires the presence of positive bacteria in
the animal's digestive tract.
COBACTIN(R) microbial feed additive is a living Lactobacillus
acidophilus culture, preserved to provide a stable blend of genetically selected
lactic acid bacteria for feedlot and dairy cattle and poultry. Over the past ten
years, COBACTIN(R) for cattle has undergone over 22 independent university and
research institute field tests to determine its efficacy in cattle. These field
trials have repeatedly shown that COBACTIN(R) microbial feed additive increases
feed efficiency. Comparable results have been demonstrated for dairy cows and
poultry.
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The Company received two patents on the bacterial strain BT1389(TM)
of Lactobacillus acidophilus used in COBACTIN(R) II microbial feed additive. The
Company formulated COBACTIN(R) PLUS, which the Company believes offers numerous
product stabilization advantages. COBACTIN(R) PLUS is composed of BT1389(TM)
lactobacillus strain, with a stabilizer designed for extended shelf life.
COBACTIN PLUS(R) accounts for the majority of the Company's animal health sales.
The products use has been historically limited to large cattle feedlots and
large dairies which blend their own feed and have the equipment and expertise to
deliver COBACTIN into the feed daily. Even though COBACTIN has been shown
effective in poultry, difficulties with the daily blending of the product has
curtailed sales in the poultry industry.
In the cattle feedlot market, the Company has two primary
competitors, Biotal and Nutrition Physiology.
NUTRACEUTICAL BASED HEALTH SUPPLEMENTS FOR THE HUMAN HEALTH MARKET
Specific nutraceuticals have been shown to affect bodily functions in
targeted ways, such as by reducing tension (St. John's Wort) or by lowering
cholesterol (Calcium D-glucarate, soy extracts) and assisting in sleep
(Valerian). The active ingredients in nutraceuticals may include complex
mixtures of organic molecules, small molecules, oligosaccharides, lactic acid
bacteria, fungi, minerals and other microbial secondary metabolites.
Lactobacillus acidophilus cultures are classic nutraceuticals which have long
been components of yogurt and fermented food. Published literature has shown
lactic acid bacteria to exert positive gastrointestinal health benefits beyond
their nutritional value. The Company has developed a proprietary tableting
technology for the delivery of lactic acid bacteria in a health supplement form.
The Company believes that the market for nutraceuticals will continue
to grow because of an ever increasing, longer-lived aging population. Medical
challenges associated with aging such as chronic diseases, allergy,
inflammation, cancer, and thrombotic diseases, will most likely cause an even
greater emphasis on health care delivery. The development and identification of
new nutraceutical products and markets may require combining interdisciplinary
technologies, including plant science, microbiology, biochemistry and nutrition.
Among the non-proprietary health supplement products manufactured by the Company
are capsules, tablets and pre-mixes containing multi-vitamins and single
vitamins, such as Vitamin C and Vitamin E, herbs such as Ginseng, Ginkgo,
antioxidants, Echinacea, St. John's Wort and enzymes and positive lactic acid
bacteria.
MANUFACTURING
Animal Health Products.
The Company manufactures microbial products for several companies on
a private label and O.E.M. basis at its fermentation plant located at its
corporate headquarters in Redmond, Washington as well as its own COBACTIN and
BIOPOWEr branded products. These products include inoculum, feed and food
additives and microbial based supplements. The Company has over 12 years of
experience in microbial fermentation, and holds patents relating on a
proprietary strain of Lactobacillus acidophilus and preservation technologies
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Private Label Heath Supplement Manufacturing.
The Company manufactures capsules, tablets, powdered drink mixes and
microbial products for more than twenty companies which market these products
under their own brand names. Many of these are non-proprietary products.
The Company also manufactures products which incorporate its
proprietary technology. This would include health supplements which incorporate
Calcium D-glucarate, Lactobacillus acidophilus strains developed by the Company
or Lactobacillus acidophilus products manufactured employing the Company's
proprietary LIVEBAC(R) caplet process.
The LIVEBAC(R) process is a tableting technology which results in
extended shelf-life of tablets or caplets containing lactic acid bacteria.
Lactic acid bacteria such as Lactobacillus acidophilus must be alive to produce
a positive health effect. Caplets or tablets of Lactobacillus acidophilus made
using the LIVEBAC(R) process display a greater than 12 month viability and
shelf-life.
The Company manufactures private label health supplements at its
encapsulating, tableting, bottling and labeling facility in Lafayette, Colorado.
The Company has several substantial competitors in the private label
manufacture of health supplements. These competitors include: Montana Naturals,
Chemins, and Pacific Nutritional.
The Company has several substantial competitors in the manufacture of
lactic acid bacteria for inclusion in silage inoculum and feed additives. These
competitors include Chris Hansen, Rhone-Poulenc and Lallemand.
MARKETING, SALES AND DISTRIBUTION
Animal Health Products. The Company relies on independent sales
representatives to sell and service customers of its animal health products. The
Company also markets and sells O.E.M. and private label silage inoculum directly
to branded companies in agriculture. In June of 1998, the Company hired a sales
manager for agricultural products.
Human Health Products. The Company has three marketing/customer
service personnel dedicated to selling the Company's services and proprietary
products and technologies to branded companies in the health supplement
industry. Customers such as Weider Nutrition International markets the Company's
ingredients such as Calcium D-glucarate and LIVEBAC(R) Lactobacillus acidophilus
in their private label products to health food and mass merchant retail outlets.
The Company began the sale of its own branded health supplements
exclusively via the Internet under the BIOPOWER(R) health supplement brand. The
Company does not view the Internet as a substantial market today, and provides
these products primarily as a service to shareholders and employees as a source
of information pertaining to customer preferences.
The Company's primary businesses, health supplements and animal feed
additive manufacture, have a seasonality generally reflective in lower third
quarter product orders due to seasonal low retail health supplement sales and
reduced cattle in feedlots.
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STATUS OF PUBLICLY ANNOUNCED NEW PRODUCTS
Health supplements incorporating Calcium D-glucarate are being
exclusively marketed to the retail consumer by Weider Nutrition International,
Inc. Weider is marketing a Breast Health formula under the SCHIFF(TM) label to
health food stores and Ex-Smokers formula under their NUSTART(TM) label to the
mass merchants. These products were first shipped to Weider's warehouse in
April.
The Company plans to ship glucarate based products to Rexall Showcase
in July, 1998.
EFFECT OF UNFAVORABLE PUBLICITY
The Company believes the nutritional supplement market is affected by
national media attention regarding the consumption of nutritional supplements.
There can be no assurance that future scientific research or publicity will be
favorable to the nutritional supplement market of any particular product, or
consistent with earlier research or publicity. Future reports of research that
are perceived as less favorable or that question such earlier research could
have a material adverse effect on the Company. Because of the Company's
dependence upon consumer perceptions, adverse publicity associated with illness
or other adverse effects resulting from the consumption of the Company's
products or any similar products distributed by other companies could have a
material adverse impact on the Company. Such adverse publicity could arise even
if the adverse effects associated with such products resulted from failure to
consume such products as directed. In addition, the Company may not be able to
counter the effects of negative publicity concerning the efficacy of its
products.
DEPENDENCE ON NEW PRODUCTS
The Company believes its ability to grow in its existing markets is
partially dependent upon its ability to introduce new and innovative products
into such markets. Although the Company seeks to introduce additional products
each year in its existing markets, the success of new products is subject to a
number of conditions, including developing products that will appeal to
customers and comply with existing regulations at the time of introduction.
There can be no assurance that the Company's efforts to develop innovative new
products will be successful, that customers will accept new products, or that
the Company will obtain regulatory approvals of such new products, if required.
In addition, no assurance can be given that new products currently experiencing
strong popularity and rapid growth will maintain their sales over time.
COMPETITION
The animal and human nutritional supplement industries are highly
competitive. The Company is a relatively new entry into the human health
supplement market. Numerous companies compete directly in the development,
manufacture and marketing of nutritional supplements. Increased competition
could have a material adverse effect on the Company, as competition may have far
greater financial and other resources available to them and possess extensive
manufacturing, distribution and marketing capabilities far greater than those of
the Company.
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To secure a competitive advantage, the Company relies on certain
patents and trade secrets to protect its proprietary technology. The Company has
two patents relating to microbial products, two patents relating to the
application and/or delivery of microbials and a license to sell health
supplement products using a patent on the use of Calcium D-glucarate.
Although all employees sign confidentiality agreements, there is no
guarantee either that trade secrets won't be shared with competitors or that the
Company could enforce these agreements. Such disclosures, if made, could
negatively affect the Company's competitiveness.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS
The Company obtains all its raw materials for the manufacture of its
products from other sources. The Company generally does not have contracts with
any entities or persons committing such suppliers to provide the materials
required for the production of its products, with the exception of the glucarate
salt, Calcium D-glucarate. There can be no assurance that suppliers will provide
the raw materials needed by the Company in the quantities requested or at a
price the Company is willing to pay. Because the Company does not control the
actual production of these raw materials, it is also subject to delays caused by
interruption in production of materials based on conditions not wholly within
its control. The inability of the Company to obtain adequate supplies of raw
materials for its products at favorable prices, or at all, as a result of any of
the foregoing factors or otherwise, could have a material adverse effect on the
Company.
The Company has an agreement with BioChemix for the supply of Calcium
D-glucarate. Management expects BioChemix to be able to supply sufficient
glucarate for the health supplement market. However, Nutraceutix has no direct
control over BioChemix and any interruption in supply of glucarate could
adversely effect the revenues of the Company.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company was dependent on seven (7) companies for approximately
67% of its 1997 revenues. The Company's largest customers, Odwalla, Inc. and Bio
Sales, Inc. accounted for approximately 12% and 11% respectively, of net sales
in fiscal 1997 and 25% and 11% respectively, of net sales in fiscal 1996. The
Company has five other major customers, each of which produced sales of between
5% and 10% of the Company's net sales in fiscal 1997 and, collectively,
accounted for approximately 44% of net sales in fiscal 1997.
The loss of Odwalla or Bio Sales as a customer, the loss of a
significant number of other major customerS, or a significant reduction in
purchase volume or financial difficulty of such customers, for any reason, could
have a material adverse effect on the Company's results of operations and its
financial condition. There can be no assurance that Odwalla and or Bio Sales
will continue as major customers of the Company .
INTELLECTUAL PROPERTY
The Company currently holds two U.S. and one Canadian patent
pertaining to COBACTIN(R) feed additives, two U.S. patents related to the
dispensing of microbial cultures and one licensed patent pertaining to Calcium
D-glucarate. These patents are listed below.
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<TABLE>
U.S. Patents Issued
<S> <C>
U.S. NO. 5,179,020 ANTIBIOTIC RESISTANT STRAIN OF LACTOBACILLUS ACIDOPHILUS
Issue Date: January 12, 1993
Strain: Bio Techniques No. BT1389
ATCC No. 55221
Inventor: R. E. Herman, D. R. Ware and J. E. Clarke
Expiration: September 19, 2011
U.S. NO. 5,256,425 ANTIBIOTIC RESISTANT STRAIN OF LACTOBACILLUS ACIDOPHILUS
Issue Date: October 26, 1993
Strain: Bio Techniques No. BT1389
ATCC No. 55221
Inventor: R. E. Herman, D. R. Ware and J. E. Clarke
Expiration: September 19, 2011
U.S. NO. 5,139,792 METHOD AND SYSTEM FOR DISPENSING LIVE BACTERIA INTO
ANIMAL FEED AND DRINKING WATER
Issue Date: August 18, 1992
Inventors: D. R. Ware, R. E. Herman and L.A. Walter
Expiration: September 9, 2010
U.S. NO. 5,358,145 DISPENSER FOR DELIVERING MICRO-INGREDIENTS FROM CARTRIDGES
Issue Date: October 25, 1994
Inventor: S. H. Smith, et al
Expiration: September 19, 2011
Foreign Patents Issued
CANADIAN NO. 1,298,799 STRAINS OF LACTOBACILLUS ACIDOPHILUS
Issue Date: April 14, 1992
Inventors: Manfredi, Eugene T., U.S.A.
Miller, Robert E., U.S.A.
Licensed to Nutraceutix, Inc. by BioChemix, Inc.
U.S. NO. 4,845,123 REDUCTION IN VIVO OF THE INAPPROPRIATE LEVELS OF
ENDOGENOUS AND ENVIRONMENTAL - DERIVED COMPOUNDS BY
SUSTAINED-RELEASE INHIBITORS OF B-GLUCURONIDASE.
Issue Date: July 4, 1989
Inventors: Zbigniew Walaszek, Malgorzata Hgnausek-Walaszek, Thomas
E. Webb and John P. Milton, all of Columbus, Ohio
</TABLE>
If challenged as to validity, there is no guarantee that the patents
will prove valid. In addition, the costs of defending a patent could
substantially affect the operating performance of the Company. While the Company
has patent protection insurance for the glucarate patent, the policy has a
$125,000 deductible of $500,000 in coverage, and there is no guarantee that this
amount would cover defense costs.
The Company relies on common law trademark rights to protect its
unregistered trademarks. Common law trademark rights do not provide the Company
with the same level of protection as afforded by a United States federal
registration of a trademark. In addition, common law trademark rights are
limited to the geographic area in which the trademark is actually used, while a
United States federal registration of a trademark enables the registrant to stop
the unauthorized use of the
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trademark by any third party anywhere in the United States even if the
registrant has never used the trademark in the geographic area wherein the
unauthorized use is being made (provided, however, that an unauthorized third
party user has not, prior to the registration date, perfected its common law
rights in the trademark in that geographic area). The Company also intends to
register its trademarks in certain foreign jurisdictions where the Company's
products are sold. However, the protection available in such jurisdictions may
not be as extensive as the protection available to the Company in the United
States.
As of June 15, 1998, the Company has approximately six federal
trademark registrations and approximately two trademark applications pending
with the United States Patent and Trademark Office. The Company's policy is to
pursue registrations for all of the trademarks associated with its key products.
Following is a list of the Company's registered and pending trademarks.
<TABLE>
<CAPTION>
Trademark Name Country Reg. Number Expiration
- -------------- ------- ----------- ----------
<S> <C> <C> <C>
COBACTIN PLUS US 1,801,374 October 26, 2003
COBACTIN II US 1,711,123 September 1, 2002
COBACTIN US 1,402,806 July 29, 2006
COBACTIN Benelux 419,823 April 15, 1996
COBACTIN Canada 334,740 November 27, 2002
COBACTIN France 1,352,178 April 24, 1996
COBACTIN UK 1,480,950 February 3, 2000
COBACTIN UK 1,264,735 April 15, 2007
BIO TECHNIQUES Benelux 510,287 September 1, 2002
BIO TECHNIQUES France 92,407,893 February 27, 2002
BIO TECHNIQUES UK 1,492,393 February 28, 1999
BIO TECHNIQUES US 1,730,602 November 10, 2002
BIO TECHNIQUES US 1,392,081 May 6, 2006
BIO POWER US 1,375,452 December 17, 2005
BIO POWER Benelux 418,571 April 15, 1996
BIO POWER Canada 332,557 October 2, 2002
BIO POWER France 1,352,556 April 28, 1996
BIO POWER UK B1,264,642 April 14, 2007
BIO POWER US 75/407,909 Pending
LIVE-BAC US 1,405,455 August 19, 2006
NUTRACEUTIX US 74/621,937 Pending
BT1386 US 75/364,594 Pending
</TABLE>
The Company currently has three royalty agreements. One is with
Forage Products Limited Partnership, the financier of the original research for
the development of BIOPOWER(R) silage inoculant, pursuant to which the Company
pays royalties equal to 6% of net sales of BIOPOWER(R) silage inoculant to the
original partners until the earlier of acquisition of the Company, a public
offering of the Company's stock or payment of royalties of $3,300,00 aggregate.
Through December 31, 1997, the company has paid or incurred to Forage Product
Limited Partnership approximately $98,000 in royalties. The other royalty
agreement is with the former partners of Feed Additives Limited Partnership and
Feed Additives Joint Venture, the financier of the original research for the
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development of COBACTIN(R) microbial feed additive, pursuant to which the
Company pays royalties equal to 4% of net sales of COBACTIN(R) for beef and
dairy applications to the original partners through December 31, 2010. During
1997 and 1996, combined royalty payments for Forage and Feed Additives amounted
to $48,799 and $13,805, respectively. The Company pays 2% royalty on sales of
Cobactin(R) to the poultry market sales. To date, there have been no sales of
Cobactin(R) to the poultry market. The Company pays a 5.25% royalty on the net
revenue received from the use of certain formulas developed by BioChemix for the
delivery of glucarate in health supplements for breast, prostate and lung
health. Royalty expense for 1997 and 1996 was $7,000 and $0 respectively.
GOVERNMENTAL REGULATIONS
Many of the Company's products are either G.R.A.S. (Generally
Regarded As Safe) listed by the FDA or do not currently require extended
regulatory approval. Recent legislation has resulted in a regulatory environment
which sets what the Company considers to be reasonable limitations and
guidelines on health claims and labeling for natural products. Thus the Company
believes that current and reasonably foreseeable governmental regulation will
have minimal impact on its business.
Statements of the Company and its customers regarding dietary
supplement products are subject to regulation by the FTC under the Federal Trade
Commission Act, which prohibits unfair or deceptive trade practices, including
false or misleading advertising. The FTC in recent years has brought a number of
actions challenging claims by companies.
The Company manufactures products for customers which they distribute
under their own or other trademarks. Such private label customers are subject to
governmental regulations in connection with their purchase, marketing,
distribution and sale of such products, and the Company is subject to such
regulations in connection with the manufacture of such products and its delivery
of services to such customers. However, the Company's private label customers
are independent companies, and their labeling, marketing and distribution of
such products is beyond the Company's control. Nevertheless, the failure of
these customers to comply with applicable laws or regulations could have a
material adverse effect of the Company.
In the future, the Company may be subject to additional laws or
regulations administered by the FDA or other federal, state or foreign
regulatory authorities, the repeal of laws or regulations which the Company
considers favorable, such as the DSHEA, or more stringent interpretations of
current laws or regulations. The Company is unable to predict the nature of such
future laws, regulations, interpretations or application, nor can it predict
what effect additional governmental regulations or administrative orders, when
and if promulgated, would have on its business in the future. They could,
however, require the reformulation of certain products to meet new standards,
the recall or discontinuance of certain products not able to be reformulated,
imposition of additional record keeping requirements, or expanded documentation
of the properties of certain products, expanded or different labeling and
scientific substantiation. Any or all of such requirements could have a material
adverse effect on the company's results of operations and financial condition.
RESEARCH & DEVELOPMENT
In 1997 and 1996, the Company spent $78,776 (approximately 2% of sales)
and $152,195 (approximately 4% of sales) respectively, on product research and
development. For the three months ended March 31, 1998 and 1997, research and
development expense was $36,140 and $15,079, respectively. Management
anticipates spending approximately the same percentage of sales on research and
development in 1998. The Company funds these activities internally.
12
<PAGE> 13
Microbial Product Development: The Company has conducted research
into the interaction of resident bacteria with health and the preservation and
delivery of live lactic acid bacteria in health supplements. This research has
also resulted in development of the LIVEBAC(R) Process for tableting lactic acid
bacteria. The LIVEBAC(R) Process has been shown to yield a tablet with a
shelf-life of one year. Shelf-life of lactic acid bacteria in supplement form
has historically been problematic. The Company is continuing research to extend
one year shelf life of lactic acid bacteria and develop new applications. There
is no assurance that this research and development effort will result in
marketable products or services.
Health Supplement Development: The Company develops products
requested by customers, and/or develops new product concepts which it licenses
to customers. The Company also actively seeks and reviews new nutraceutical
materials and delivery technologies developed by independent researchers. There
is no assurance that this research and development effort will result in
marketable products or services.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company believes that it is in full compliance with all relevant
environmental laws. Due to the nature of the Company's operations, to date, the
cost of complying with environmental laws does not have a significant effect on
the Company's operations.
EMPLOYEES
As of June 15,1998, the Company employs 42 full time employees,
consisting of three executives, 26 production personnel, three sales and
marketing personnel, four quality control personnel and six administrative
personnel. None of the Company's employees are represented by labor unions. The
Company believes its relationship with employees is good.
The Company believes that its success depends to a significant extent
on the management and other skills of William St. John, its President and
Chairman; Steven Moger, the Vice President of Operations; and Patricia St. John,
the Vice President of Administration, as well as its ability to retain or
attract other skilled personnel. The loss or unavailability of the services of
Mr. or Mrs. St. John or Mr. Moger could have a material adverse effect on the
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the accompanying notes
appearing subsequently under the caption "Financial Statements." The following
discussion and analysis contains forward-looking statements, which involve risks
and uncertainties in the forward-looking statements. The Company's actual
results may differ significantly from the results, expectations and plans
discussed in the forward-looking statements.
13
<PAGE> 14
In the past two years (1997 and 1996), the Company's growth has come
primarily from the private label manufacture of human health supplements and
supply of ingredients (nutraceutical based health supplements) for inclusion in
health supplements and foods. Prior to its strategic decision in 1995 to enter
the human health supplement industry, the Company operated solely in the animal
health industry. As a result, revenues grew to $4,306,768 in 1997 compared to
$3,731,630 in 1996. This pattern of growth closely correlates to increases in
the Company's health supplement manufacturing capacity and its development of
proprietary health supplement technologies. Accompanying this increased product
diversification, the Company's animal health products business has remained
constant, contributing approximately $1.5 million in sales annually.
In 1995, the Company acquired the assets of Integrity Products, in
Longmont, Colorado. By purchasing the assets of Integrity Products, a "cottage"
private label manufacturer of health supplements, Nutraceutix acquired some
manual manufacturing equipment, with which it established a full-scale health
supplement manufacturing facility. The Company relocated this equipment, along
with some newly purchased automated manufacturing equipment, to a new site in
Lafayette, Colorado in December 1995. The operation produced only nominal
revenues in 1995. Operations for private label manufacturing began in 1996 after
assembling a staff experienced in the health supplement industry, and having
begun efforts to supply microbials and other ingredients to manufacturers of
health supplements and natural foods.
In addition to private label manufacturing, the Company also
benefitted from its development of LIVEBAC(R) probiotic caplets and Calcium
D-glucarate, two new proprietary technologies. During the second half of 1996
and first half of 1997, the Company conducted extensive experimentation to
develop the trademarked LIVEBAC(R) process for the tableting of live
Lactobacillus acidophilus bacteria and other lactic acid bacteria with extended
shelf-life. Lactobacillus acidophilus is a live bacterial culture, which is a
standard health food supplement for maintaining gastrointestinal health. By
mid-1997, the Company had perfected a process for producing a tableted
Lactobacillus acidophilus with a one-year shelf-life. The Company began
production of Lactobacillus acidophilus using the LIVEBAC(R) process for several
companies in the fourth quarter of 1997.
Despite the revenue increase, the Company experienced a net loss of
$83,861 in 1996, compared to a net loss of $363,727 in 1995. The losses were
primarily the result of the high cost of sales from the Company's then heavy
reliance on temporary labor for what was then largely a manual process of
assembling and packaging health supplements. During 1996 and 1997, while
building a customer base and establishing its expertise in health supplement
manufacturing, the Company had very limited access to working capital that,
adversely affected product margins and rate of expansion. The Company funded the
bulk of its diversification into health supplement manufacturing through cash
flow from operations and an asset-backed credit line, on which the Company was
then paying a 23% annual interest rate, which also adversely affected its
financial results.
In an effort to contain anticipated losses in 1997, the Company
decreased its general and administrative costs to $974,552 from $1,110,921 in
1996; lowered its marketing expenses to $609,121 from $671,706 in 1996; and
decreased its research and development expenses to $78,776 in 1997 from $152,195
in 1996, through staff and expense reductions. In October 1997, the Company
secured a conventional bank line of credit at an interest rate of two plus
prime.
14
<PAGE> 15
Also contributing to increased revenues was the Company's acquisition
of a license for the patented health supplement material, Calcium D-glucarate in
July 1997. In September of 1997, the Company signed an agreement with Weider
Nutrition International for their exclusive marketing of glucarate based
products in retail stores. The specific terms of the agreement provides for
royalties, obligations of all parties, and the terms and conditions for
continuation into years 2002 and 2003 and beyond. As a result of this agreement,
the Company benefitted from guaranteed royalties in 1997, amounting to
approximately $130,000 and $100,000 for the first quarter of 1998. In 1997, the
Company received no manufacturing revenues from glucarate products because the
product formulation and packaging were not yet completed. In 1998, the Company
received $18,650 in revenues for the manufacturing of health supplements
containing Calcium D-glucarate.
Despite increasing diversity in revenue streams, gross profit margin
decreased to 42% in 1997 as compared to 52% in 1996, primarily due to limited
production capacity. In March 1997, the Company began upgrading its health
supplement facility with fully automated equipment, financed through an
equipment leasing arrangement. The upgraded facility became fully operational in
the fourth quarter of 1997. Limited production capacity and increases in the
Company's depreciation and amortization, interest and general expenses, resulted
in a loss of $59,901 in 1997, compared to a loss of $83,861 in 1996.
Total revenues increased in the first quarter of 1998 to $1,417,856
compared to $990,222 in the first quarter of 1997 primarily from private label
manufacturing and royalties from sublicense agreements. Net income for the first
quarter ended March 31, 1998 was $100,494 compared to $20,288 in the first
quarter of 1997.
Because of delays by Weider Nutrition International in preparing
labels and packaging, 1998 first quarter results include only one small shipment
of glucarate products. Shipments of glucarate based products began in April of
1998, which was accompanied by an advertising campaign in Weider Publications.
While the Company can make no guarantee that demand for glucarate products will
continue to increase, the Company expects continued growth in the sale of its
glucarate based products as the public awareness increases.
The Company's cost of sales increased in the first quarter of 1998 to
$768,624 from $500,728 in the first quarter of 1997, reflecting an increase in
personnel. General and administrative expenses increased in the first quarter of
1998 to $322,149 compared to $268,028 in the first quarter of 1997, reflecting
adjustments to payroll between departments. Research and development expenses
for the first quarter of 1998 increased to $36,140 from $15,079 in 1997,
resulting from further development of glucarate.
In May of 1998 the Company signed an exclusive distribution agreement
with Rexall Showcase, under which the Company will manufacture glucarate
products for the multilevel marketing of Rexall Showcase. The specific terms of
the agreement provide for product costs and obligations of both parties and the
terms and conditions for continuation of this exclusive agreement beyond the
first year. Nutraceutix will also manufacture other non-glucarate products for
Rexall Showcase. Rexall Showcase International is a subsidiary of Rexall
Sundown.
While the Company believes that the aforementioned factors will
result in increased revenues in 1998 compared to 1997, there is no assurance
that any or all of the factors will benefit the
15
<PAGE> 16
Company. The Company believes that its profitability will continue to be
affected by expenses associated with the further expansion of its manufacturing
capability in 1998. The Company also believes that its profitability will be
affected by increases in administrative expense associated with the filing of
its Form 10-SB with the Securities and Exchange Commission, as well as the
incumbent reporting requirements that accompany the filing, and the development
of new proprietary technologies and products. The Company intends to continue
its strategy of developing proprietary products and expanding its manufacturing
capacity through 1999.
QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997
Total revenues increased in the first quarter of 1998 to $1,417,856
from $990,222 in the first quarter of 1997. This increase in revenues resulted
primarily from the Company private label and OEM manufacturing sales.
Cost of Sales also increased in the first quarter of 1998 to $768,624
from $500,728 in the first quarter of 1997, an increase of $267,896. This
resulted from the increase in private label manufacturing sales.
Gross profit increased in the first quarter of 1998 to $649,232 from
$489,494 in the first quarter of 1997, an increase of $159,738. This resulted
from the increase in sales.
General and Administrative expenses increased in the first quarter of
1998 to $322,149 from $268,028 in the first quarter of 1997, an increase of
$54,121. This resulted from added personnel to support the current increase and
planning for future increases in revenues.
Research and Development expenses in the first quarter of 1998
increased to $36,140 from $15,079 in the first quarter of 1997. This was a
result of increased research in the human health area.
Net income for the first quarter ended March 31, 1998 was $100,494,
an increase of $80,206 as compared to net increase of $20,288 for the first
quarter of 1997 because of the factors cited above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Total revenues increased in 1997 to $4,306,768 from $3,731,630 in
1996. This increase in revenues resulted primarily from the Company private
label and OEM manufacturing sales.
Cost of Sales also increased in 1997 to $2,493,731 from $1,797,754 in
1996, an increase of $695,977. This increase resulted from the expansion of the
Company's private label manufacturing plant.
Gross profit decreased in 1997 to $1,813,037 from $1,933,876 in 1996.
This decrease was due to the increased cost of sales due to the expansion of the
Company's private label manufacturing plant.
General and Administrative expenses decreased in 1997 to $974,552
from $1,110,921 in 1996, a decrease of $136,369. This decrease reflects more
overhead being allocated to cost of sales as the percentage of production
capacity increased.
16
<PAGE> 17
Marketing and selling expenses decreased in 1997 to $609,121 from
$671,706 in 1996, a decrease of $62,585. This was a result of diversification
into the human health market and implementation of some changes in the Company's
distribution and representation.
Research and development expenses decreased in 1997 to $78,776 from
$152,195, a decrease of $73,419. This was a result of a decrease in the
microbial research staff.
Depreciation and Amortization expense increased in 1997 to $281,327
from $234,586 in 1996, an increase of $46,741. This increase was a result of new
equipment purchased for the Colorado manufacturing facility.
Interest expense increased in 1997 to $217,447 from $109,817 in 1996,
an increase of $107,630. This increase was caused by leased equipment for
expansion on the Colorado facility and increased line of credit interest
expense.
Net loss for the year ended December 31, 1997 was $59,901, a decrease
of $23,960 as compared to a net loss of $83,861 for 1996 because of the factors
cited above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Total revenues increased in 1996 to $3,731,630 from $2,737,766 in
1995. This increase in revenues resulted primarily from the Company private
label and OEM manufacturing sales.
Cost of Sales also increased in 1996 to $1,783,949 from $883,293 in
1995, an increase of $900,656. This increase resulted from the expansion of the
Company's private label manufacturing plant.
Gross Profit increased in 1996 to $1,933,876 from $1,854,473 in 1995.
This resulted primarily from increased sales from private label manufacturing.
General and Administrative expenses increased in 1996 to $1,110,921
from $772,513 in 1995, an increase of $338,408. This increase reflects increased
staff to handle the increase in business and expected future business.
Marketing and selling expenses decreased in 1996 to $685,511 from
$1,264,104 in 1995, a decrease of $578,593. This was a result of diversification
into the human health market and implementation of some changes in the Company's
distribution and representation. The largest contribution to this decrease was a
change in distribution of the Company's agricultural products.
Research and Development expenses increased to $152,195 in 1996 from
$151,038 in 1995, an increase of $1,157, no significant change.
Depreciation expense increased in 1996 to $234,586 from $179,000 in
1995, an increase of $55,586. This increase was a result of new equipment
purchased for the Colorado manufacturing facility.
17
<PAGE> 18
Net interest expense increased to $109,817 in 1996 from $51,576 in
1995, an increase of $58,241. This increase caused by leased equipment for
expansion of the Colorado facility.
Net loss for the year ended December 31, 1996 was $83,861, a decrease
of $279,866 as compared to a net loss of $363,727 for 1995. The decrease was
attributable primarily to increased sales of the Company in the human health
market and the significant decrease in marketing and selling expenses.
(LOSS) PER SHARE
Net loss per share in 1997 was ($.004), while net loss per share in
1996 was ($.006). It should be noted that these figures were somewhat impacted
by the issuance of additional shares in connection with the Company's offering
of common stock in 1997, resulting in more outstanding shares in 1997 than in
1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased $68,546 at December 31, 1997 to $132,988 from $64,432
at December 31, 1996 at December 31, 1996. In 1997, the bank line of credit
increased to $600,000 and the Company received equity financing of $228,889. The
Company also received an advance royalty payment of $300,000 in 1997.
In May of 1998, the Company received $500,000 in equipment lease
financing to purchase additional production equipment and, in June 1998,
received an additional $200,000 increase in its bank financing to fund its
anticipated expansion. The Company's available credit line with the bank now
totals $800,000 and is renewable yearly in September. There is no guarantee that
it will be renewed by the bank with terms acceptable to the Company.
The Company believes that it has adequate cash resources to fund
current operations. There can be no assurance, however, that the Company's
actual capital needs will not exceed anticipated levels, or that the Company
will generate sufficient revenues to fund its operations in the absence of other
sources. To finance its growth plan in human health, the Company is considering
a number of alternatives, including additional equity financing and research and
development partnerships. There can be no assurance that any such transactions
will be available at terms acceptable to the Company or that the Company will
have sufficient working capital to fund its growth plan in human health markets.
YEAR 2000 IMPACT STATEMENT
The Company is not aware of any potential problems resulting from the
year 2000 with any of its computer, manufacturing systems, major vendors or
suppliers.
POTENTIAL SALES AND EARNING VOLATILITY
The Company's sales and earnings continue to be subject to potential
volatility based upon, among other things: (i) the adverse effect of
distributors' or the Company's failure, and allegations of their failure, to
comply with applicable regulations, which have in the past and could again in
the future result in the removal of certain products from sale in certain
countries, either temporarily or
18
<PAGE> 19
permanently; (ii) the negative impact of changes in or interpretations or
regulations that may limit or restrict the sale of certain of the Company's
products, the expansion of its operations into new markets and the introduction
of its products into each such market; (iii) the inability of the Company to
introduce new products or the introduction of more products by the Company's
competitors; (iv) general conditions in the nutritional supplement industry; and
(v) consumer perceptions of the Company's products and operations. In
particular, because the Company's products are ingested by consumers, the
Company is highly dependent upon consumers' perception of the safety and quality
of its products. As a result, substantial negative publicity concerning one or
more of the Company's products or other nutritional supplements similar to the
Company's products could adversely affect the Company results of operations or
financial condition.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's corporate headquarters, including administrative
offices, production and research and development facilities are located
approximately fifteen miles northeast of Seattle at 8340 154th Avenue Northeast,
Redmond, Washington 98052. The location, consisting of 15,893 square feet, is
leased through November 30, 2003. The production facility includes equipment for
fermentation, formulation, packaging and storage. The Company leases an
additional 1,440 square feet for off-site storage and product blending, located
approximately one-half mile from the corporate headquarters at 14822 NE 95th
Street, Redmond, Washington leased through July 31, 2000.
The Company's tableting and encapsulating facility is located
approximately 25 miles from Denver at 1400 and 1420 Overlook Drive, Lafayette,
Colorado 80026, consisting of two leased, stand alone buildings, the main
building is divided into two areas, 6,400 sq. ft. of which is leased through
January, 1999 with an option to renew through January, 2001; and 8,000 sq. ft.
of which is leased through November, 1998 with an option to renew through
November, 2000 for a total of 14,400 square feet. The main building contains
machinery for the blending and finishing of raw materials into tablets or
capsules, with minimal office space. The second building, an area of 7,200
square feet is leased through January 1999, with an option to renew through
January, 2001, and is warehouse space for raw material storage.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of June 15, 1998, the Company had issued and outstanding
15,850,812 shares of its Common Stock. The following table sets forth, as of
June 15, 1998, certain information regarding beneficial ownership of the Common
Stock by those persons known by the Company to be beneficially holding more than
five percent of the Company's common stock.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
TITLE NAME & ADDRESS AMOUNT & NATURE PERCENT
OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER OF CLASS
-------- ------------------- ------------------- --------
<S> <C> <C> <C>
Common William St. John 1,350,982(1,2) 8.52
President/Director
8340 154th Avenue N.E.
Redmond, WA 98052
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Common Patricia A. St. John 1,350,982(1,2) 8.52
V.P. of Administration
Secretary/Treasurer
8340 154th Avenue N.E.
Redmond, WA 98052
Common Consolidated Nutrition LC 1,920,000(3) 12.11
P.O. Box 2048
Omaha, NE 68103-2048
</TABLE>
(1) For purposes of the table, a person is considered to "beneficially own"
any shares with respect to which he/she directly or indirectly has or shares
voting or investment power or of which he or she has the right to acquire the
beneficial ownership within 60 days. Unless otherwise indicated and subject to
applicable community property law, voting power and investment power are
exercised solely by the person named above or shared with members of his or her
household.
(2) William St. John and Patricia St. John are husband and wife. All shares
held by each of them have been deemed to be beneficially owned by each of them.
Excludes a stock option to purchase an additional 20,00 shares vesting though
December 31, 2001 owned by William St. John and a stock option to purchase an
additional 40,000 shares vesting through December 31, 2001 owned by Patricia St.
John.
(3) Consolidated Nutrition, LC is a Subsidiary of Archer Daniels Midland
Corporation. The Common Stock of the Company owned by Consolidated Nutrition LC
(Successor to Central Soya Company, Inc. and Premier Agra) pursuant to the
Exchange of shares with BTL (see "Business-Company History") is subject to a
voting agreement originally entered into between Central Soya Company, Inc. and
BTL pursuant to which, in the Elections of Directors (i) Consolidated Nutrition
LC is obligated to vote in favor for the candidates nominated by the then
current directors, (ii) Consolidated Nutrition LC is precluded from voting its
shares for the removal of any then current directors, and (iii) the Company is
not obligated to nominate for election to its Board of Directors one nominee
designated by Consolidated Nutrition LC See "Part 1, Item 8 Description of
Securities."
The following table sets forth, as of June 15, 1998, certain
information regarding beneficial ownership of the Common Stock by (i) the
Company's directors who beneficially own shares of the Common Stock, (ii) the
executive officers who beneficially own shares of the common stock and (iii) all
of the Company's directors and executive officers as a group.
(b) SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
TITLE NAME & ADDRESS AMOUNT & NATURE PERCENT
OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER OF CLASS
-------- ------------------- ------------------- ---------
<S> <C> <C> <C>
Common William St. John 1,350,982(1,2,4) 8.52
President/Director
8340 154th Avenue N.E.
Redmond, WA 98052
Common Patricia A. St. John 1,350,982(1,2,4) 8.52
V.P. of Administration
Secretary/Treasurer
8340 154th Avenue N.E.
Redmond, WA 98052
Common Steven H. Moger 333,899(1,3,4) 2.11
V.P. of Operations
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
8340 154th Avenue N.E.
Redmond, WA 98052
Common Herbert L. Lucas 613,824(1) 3.87
Director
12011 San Vicente Blvd., #708
Los Angeles, CA 90049
Common Gilbert S. Omenn, M.D. Ph.D. 238,225(1) 1.50
Director
University of Michigan
6008 Flemming, Administration Building
Ann Arbor, MI 48109-1340
Common Carl W. Schafer 225,000(1) 1.42
Director
66 Witherspoon St., Box 1100
Princeton, N.J. 08542
Common Daniel B. Ward 198,000(1) 1.25
Director
P.O. Box 356
Medina, WA 98039
Common All Directors and Executive 2,959,930 18.67
Officers as a group (7 persons)
</TABLE>
- ----------
(1) For purposes of the table, a person is considered to "beneficially own" any
shares with respect to which he/she directly or indirectly has or shares voting
or investment power or of which he or she has the right to acquire the
beneficial ownership within 60 days. Unless otherwise indicated and subject to
applicable community property law, voting power and investment power are
exercised solely by the person named above or shared with members of his or her
household.
(2) William St. John and Patricia St. John are husband and wife. All shares held
by each of them have been deemed to be beneficially owned by each of them.
Excludes a stock option to purchase an additional 20,00 shares vesting though
December 31, 2001 owned by William St. John and a stock option to purchase an
additional 40,000 shares vesting through December 31, 2001 owned by Patricia St.
John.
(3) Excludes a stock option to purchase an additional 50,000 shares vesting
through December 31, 2001.
(4) Executive Officers as a group have additional non-vested stock options to
purchase up to an additional 110,000 shares through December 31, 2001.
(c) CHANGES IN CONTROL
Not Applicable
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a) EXECUTIVE OFFICERS AND DIRECTORS.
All directors hold office for three years, with staggered terms. The
Company pays each of its non-employee directors $1,000 each fiscal quarter in
compensation for their services as directors. Directors are reimbursed for
expenses actually incurred in attending meetings of the Board of Directors and
its committees. Non-employee directors are eligible to receive options under the
Company's Stock Option Plan, which is described below.
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<PAGE> 22
The executive officers will serve as officers of Nutraceutix, Inc.
until May 1999 or until their respective successors shall have been elected. The
directors and executive officers of the Company and their ages as of the date of
this document are as follows:
William D. St. John, age 47, President, Chairman of the Board since
1995 and President and Chairman of the Board of BTL for the past 15 years. Mr.
St. John was CEO for Ecova, Inc., a leader in Bioremediation. He was a Manager
of Northwest Bio-engineering, which developed proprietary enzymatic systems for
the conversion of organic waste streams into animal feed and fertilizers. He was
previously employed as a consultant to Tempa, Inc., an Alaska-based manufacturer
of animal feed concentrates, and as a scientist for both the Department of
Fisheries/Food Science, University of Washington and the Food and Drug
Administration. Mr. St. John was Division Director of Pro- Tec, Inc., a sporting
goods manufacturer. Mr. St. John received his B.S. from Seattle University in
1973, and M.S. in Micro/Molecular Biology from Ohio State University in 1975.
Patricia A. St. John, age 46, Vice President of Administration,
Secretary, Treasurer. Patricia St. John has served in various management
positions of BTL for the past 12 years, including the last ten years as Director
of Corporate Relations. In December of 1997, Mrs. St. John was promoted to Vice
President of Administration. From 1986 to 1988 Mrs. St. John was the Director of
Corporate Relations for Ecova, Inc. a leader in bio-remediation. Prior to these
positions, Mrs. St. John held administrative positions with the May's Drug Store
chain. She is the wife of William D. St. John.
Steven H. Moger, age 34, Vice President of Operations, has served in
various financial management positions for BTL for the past 11 years. For the
past four years Mr. Moger has served as the Controller/General Manager of the
Company. In December of 1997 Mr. Moger was promoted to Vice President of
Operations/General Manager. Mr. Moger received his B.A. in Accounting from
Western Washington University in 1986 and obtained his CPA in 1989.
Herbert L. Lucas, age 71, Director has served as a member of the
Board of Directors since 1995 and of BTL since 1983. Mr. Lucas was with
Carnation International, a multinational food processing company, from 1963 to
1981 rising to the position of President and Director. From l957 to 1963, Mr.
Lucas was with Fry Consultants, Chicago. Mr. Lucas serves on the board of
several corporations and non-profit institutions, including the Wellington Trust
Company, Boston; The J. Paul Getty Trust, Los Angeles; and the Winrock
International Institute for Agricultural Development, Morrilton, Arkansas. Mr.
Lucas received his B.A. from Princeton University in 1950 and M.B.A. from the
Harvard University School of Business Administration in 1952.
Gilbert S. Omenn, age 56, Director has served as a member of the
Board of Directors since 1995 and of BTL since 1984. He is Executive Vice
President for Medical Affairs of the University of Michigan and Chief Executive
Officer of the University of Michigan Health System. Until 1997, he was the
principal investigator of Carotene and Retinol Efficacy Trial (CARET) to prevent
lung cancer at the Fred Hutchinson Cancer Research Center and Director of the
Center for Health Promotion in Older Adults at the University of Washington. He
chaired the presidential/congressional Commission on Risk Assessment and Risk
Management, and served on the National Commission on the Environment. He is a
member of the Institute of Medicine of the National Academy of Sciences, is a
director of Rohm & Haas and Amgen and has chaired the NAS/NRC/IOM Committee on
Science, Engineering and Public Policy. From 1977 to 1981, Dr. Omenn was
Associate Director of the Office of Science and Technology Policy, and Associate
22
<PAGE> 23
Director, Office of Management and Budget, in the Executive Office of the
President. He received his A.B. from Princeton University in 1961, M.D. from
Harvard Medical School in 1965, and Ph.D. in genetics from the University of
Washington in 1972.
Carl W. Schafer, age 62, Director, has served as a member of the
Board of Directors since 1995 and of BTL since 1985. He is President of the
Atlantic Foundation since 1990 and from 1987 to 1990 was a principal of
Rockefeller & Co., Inc. Prior thereto, he was the Financial Vice President,
Treasurer and Chief Financial Officer of Princeton University. Mr. Schafer was
also chairman of the Investment Advisory Committee of the Howard Hughes Medical
Institute from 1985 to 1992. Mr. Schafer joined Princeton in 1969 after serving
as a principal staff assistant to the Committee on Appropriations, U.S. House of
Representatives. From 1961 through 1968 he held increasingly responsible
positions with the U.S. Bureau of the Budget. Mr. Schafer serves as a director
and/or trustee of a number of corporations and foundations including Frontier
Oil Corporation, the Paine Webber and Guardian groups of mutual funds, Evans
Systems, Inc., Harbor Branch Institution, Electronic Clearing House, Inc.,
Roadway Express, Inc. and Base Ten Systems, Inc. Mr. Schafer is a Phi Beta Kappa
graduate in economics of the University of Rochester, 1958.
Daniel B. Ward, age 70, Director, has served as a member of the Board
of Directors since 1995 and of BTL since 1983. Since 1977 he has had his own
financial consulting firm which specializes in mergers and acquisitions. From
1976 to 1977, Mr. Ward was Vice President of Finance for Norfin, Inc., a
business machine manufacturer. From 1972 to 1975 he was Regional Director of the
Small Business Administration and from 1966 to 1972 was Director of the
Washington State Department of Commerce and Economic Development. Mr. Ward
received his B.A. from Princeton University in 1950.
The Board of Directors has established a Compensation and an Audit
Committee. The Compensation Committee establishes salaries, incentives and other
forms of compensation for directors, officers and other employees for the
Company, administers the Company's various incentive compensation and benefit
plans and recommends policies relating to such incentive compensation and
benefit plans. The Audit Committee reviews the need for internal auditing
procedures and the adequacy of internal controls and meets periodically with
management and independent auditors.
(b) OTHER SIGNIFICANT EMPLOYEES
Leslie A. Walter has been Production Manager for the Company since
1984. Before joining the Company, Mr. Walter was Operations Manager for Vivolac
Cultures/Moseley Laboratories, a dairy inoculum producer. At Moseley
Laboratories he held positions as Technical Director, Research Microbiologist
and Operations Manager. Mr. Walter received his B.S. degree in 1964 and M.S.
degree in 1968 in Dairy Microbiology from Oregon State University.
Mary Blunck has serves as Manager of the Colorado tableting and
encapsulating facility since 1997. Prior to Nutraceutix, Ms. Blunck was Manager
of Quality Control at 4-Health, Inc. from 1995 to 1996. From 1989 to 1993, Ms.
Blunck was Plant manager for Celestial Seasonings, Inc. From 1976 to 1979, Ms.
Blunck attended the University of Nebraska at Kearney. Areas of study include
mathematics, business administration and chemistry.
23
<PAGE> 24
(c) FAMILY RELATIONSHIPS
William D. St. John and Patricia A. St. John are husband and wife.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Not applicable.
ITEM 6. EXECUTIVE COMPENSATION.
(a) GENERAL
The following table shows all the cash compensation paid by the
Company as well as certain other compensation paid during the fiscal years
indicated, to the President and others who received total annual salary and
bonus in excess of $100,000 for such period in all capacities in which they
served. No Executive Officer other than William St. John received total annual
salary and bonus in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
OTHER
NAME AND ANNUAL RESTRICTED
PRINCIPAL COMPEN- STOCK OPTIONS
POSITION YEAR SALARY($) BONUS($) SATION($) AWARDS($) SARS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
St. John, 1998 20,000(3)
William D. 1997 119,000 8,000(2) 62,411(1) -0- -0-
President 1996 119,000 8,000(2) 51,757(1) -0- -0-
1995 119,000 -0- 17,475(1) -0- 148,000(4)
</TABLE>
1 Mr. St. John received a commission on the Company's gross sales, as
follows:
.65% on all sales
Additional 2% over $150,000
2 Premium paid by the Company for key man whole life insurance and term
insurance.
3 Stock option granted in 1997 and 1998 for a term of ten years with a
vesting schedule of three years.
4 These options were actually issued in varying amounts at various times
between 1988 and 1995. However, they were all assigned new issue dates
of April 6, 1995, concurrent with adoption of the BTL Exchange described
in Part I, Item 1 herein.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Option Plan") was adopted by
the Board of Directors and stockholders in 1995. An aggregate of 3,000,000
shares of the Company's Common Stock are reserved for issuance under the Option
Plan. The Option Plan is administered by a committee of the Board of Directors,
(the "Administrator").
The purpose of the Option Plan is to attract and retain the best
available personnel for positions of substantial responsibility in the Company,
to provide additional incentive to the
24
<PAGE> 25
employees and consultants of the Company and to promote the success of the
Company's business. The Option Plan provides for the granting to employees
(including officers and employee directors) of "qualified stock options" and to
non-employee directors, consultants and advisors of "non-qualified stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and for the granting to employees and consultants of
non-statutory stock options.
The fair market value shall be determined by the Company's Board of
Directors in its discretion; provided, however, that where there is a public
market for the Common Stock the fair market value per share of Common Stock
shall not be less than the closing price in the over-the-counter market. Payment
of the exercise price may be made in cash, check or other consideration
determined by the Administrator. (See Note L of Notes to Financial Statements).
If the Company consolidates or merges with or into another
corporation, then each option may be assumed or an equivalent option substituted
by the successor corporation, unless the Administrator determines, in the
exercise of its sole discretion, that each option will accelerate in connection
with such transaction, in which case each option will be exercisable for 30 days
from notice of such acceleration. The Administrator has the authority to amend
or terminate the Option Plan as long as such action does not adversely affect
any outstanding option and provided that stockholder approval may be required to
the extent necessary for the Option Plan to be qualified under Rule 16b-3 of the
Securities Exchange Act of 1934 and certain provisions of the Code.
EMPLOYMENT CONTRACTS
The Company has a three year employment contract with its President,
William St. John, which commenced on April 1, 1998, and which is renewable for
an additional three-year period unless either party gives 180 days notice to the
other. The employment agreement provides for a base annual salary of $150,000
plus participation in the Company's medical and Stock Option Plan.
The Company has no employment contracts with any other employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except for the Company's employment agreement with Mr. St. John (see
Part I, Item 6), the Company has not engaged in "Related Transactions" within
the meaning of Item 404 of Regulation S-B during the last two years.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has authorized 30,000,000 shares of common stock, par
value $0.001. Each outstanding share of common stock is entitled to one vote,
either in person or by proxy, on all matters that may be voted upon by the
owners thereof at meetings of the stockholders.
The holders of Common Stock (i) have equal ratable rights to
dividends from funds legally available therefore, when, and if declared by the
Board of Directors of the Company; (ii) are entitle
25
<PAGE> 26
to Share ratably in all of the assets of the Company available for distribution
to holders of Common Stock upon liquidation, dissolution or winding up of the
affairs of the Company; (iii) do not have preemptive, subscription or conversion
rights, or redemption or sinking fund provisions applicable thereto; and (iv)
are entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of stockholders.
The Common Stock of the Company owned by Consolidated Nutrition LC
(successor to Central Soya Company, Inc.) pursuant to the BTL Exchange is
subject to a voting agreement originally entered into between Central Soya
Company, Inc. and BTL pursuant to which, in all elections of Directors (i)
Consolidated Nutrition LC is obligated to vote its shares for the candidates
nominated by the then-current directors, (ii) Consolidated Nutrition LC is
precluded from voting its shares for the removal of any then-current directors,
and (iii) the Company is not obligated to nominate for election to its Board of
Directors one nominee designated by Consolidated Nutrition LC.
PREFERRED STOCK
The Company has authorized 5,000,000 shares of preferred stock, par
value $0.01, with such rights and preferences as may be determined by the Board
of Directors. The Board of Directors of the Company has not declared any voting,
dividend, preemption or other rights or privileges of its preferred stock. No
preferred stock of Nutraceutix, Inc. is currently issued or outstanding.
26
<PAGE> 27
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
(a) MARKET INFORMATION
The Company's Common Stock, $.001 par value, is traded in the
over-the-counter market (OTC Bulletin Board Symbol: "NUTX").
The following table sets forth the range of high ask and low bid
prices for the Company's Common Stock on a quarterly basis for the past two full
years, as reported by the National Quotation Bureau (which reflect inter-dealer
prices, without retain mark-up, mark-down, or commission and may not necessarily
represent actual transactions). The foregoing and following information should
not be taken as an indication of the existence of an established public trading
market for the Company's Common Stock.
COMMON STOCK
<TABLE>
<CAPTION>
High Ask Low Bid
Period - Fiscal year 1996
<S> <C> <C>
First Quarter ending March 31, 1996 6 1/2 3
Second Quarter ending June 30, 1996 5 1/4 3 1/8
Third Quarter ending September 30, 1996 4 3/4 1 5/8
Fourth Quarter ending December 31, 1996 2 11/16
Period - Fiscal year 1997
First Quarter ending March 31, 1997 1 7/16 1/2
Second Quarter ending June 30, 1997 1 3/16 5/32
Third Quarter ending September 30, 1997 1 1/2 11/16
Fourth Quarter ending December 31, 1997 1 1/8 1/2
Period - Fiscal year 1998
First Quarter ending March 31, 1998 1 11/32 21/32
Second Quarter ending June 30, 1998 1 9/32 1/2
</TABLE>
(b) HOLDERS
The approximate number of record holders of the Company's Common
Stock as of June 15, 1998 was 1,469 inclusive of those brokerage firms and/or
clearing houses holding the Company's common shares for their clientele (with
each such brokerage house and/or clearing house being considered as one holder).
The aggregate number of shares of Common Stock outstanding as of June 15, 1998
was 15,850,812 shares.
27
<PAGE> 28
(c) DIVIDENDS
The Company has not paid or declared any dividends upon its Common
Stock since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
Except as described below, the Company is not presently a party to
any material litigation not in the regular course of its business, nor to the
Company's knowledge is such litigation threatened.
In February 1996, Bio Universal, Inc. ("Bio Universal") commenced an
action against BTL in the 251st District Court, Randall County, Texas, Case No.
42,377-C. The action arises out of a 1993 agreement between BTL and Bio
Universal pursuant to which Bio Universal was marketing and distributing BTL's
products. The Company believed that Bio Universal failed to perform its
obligations under that agreement. BioUniversal and BTL thus mutually agreed to
terminate the agreement. In this action Bio Universal alleges that it has been
damaged in that BTL (i) failed to pay Bio Universal money owed to Bio Universal,
(ii) wrongfully terminated the marketing and distribution agreement, (iii)
tortuously interfered with Bio Universal's customer contracts, (iv) slandered
and disparaged Bio Universal and (v) breached the marketing and distribution
agreement. Bio Universal is seeking compensatory and punitive damages in
unspecified amounts, exculpation from money owed BTL, termination of collateral
agreements and reimbursement of fees and costs associated with the litigation.
Discovery has yet to be completed and, accordingly, the Company's
counsel is unable to determine the outcome of the suit. The Company intends to
vigorously defend itself against this suit, and, in the opinion of management,
any defense, settlement, or judgment costs are, at this time, not expected to
have a material financial impact on the Company.
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has had no changes in or disagreements with accountants
on accounting or financial disclosure which fall within the scope of Item 304 of
Regulation S-B.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following unregistered securities of the Company have been issued
in the period from June 15, 1995 through June 15, 1998:
<TABLE>
<CAPTION>
(a) (b) (c) (d)
Underwriter
Date, Amount, Title or Target Class Price Exemption
- ------------------- --------------- ----- ---------
<S> <C> <C> <C> <C>
9/27/95 12,000 Common Bill St. John $3,000 Exercise Section 4(2)
Stock Option of the 1933 Act
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C>
10/23/95 479,363 Common Four unaffiliated Cancellation of Rule 504
persons $47,052 debt
12/19/95 23,274 Common Ronald T. Hirasawa License Fee for Section 4(2)
exclusive license of
TOUGH(TM) sports products
1/4/96 - 283,002 Common Seven unaffiliated Aggregate $460,000 Rule 504
7/18/96 persons
1/16/96 10,000 Common One non-affiliate Loan Fee Section 4(2)
8/1/96 & 6,666 Common One non-affiliate $6,333 Section 4(2)
12/19/96
1/8/97 40,000 Common One non-affiliate Promissory Note Section 4(2)
Extension
3/19/97 100,000 Common One non-affiliate Consulting Fee Rule 504
6/11/97 - 300,000 Common Three unaffiliated Aggregate $150,000 Rule 504
7/7/97 persons
6/28/97 5,000 Common Former employee $1,250.00 Stock Section 4(2)
Option Exercise
7/9/97 130,000 Common One non-affiliate Cancel debt of $40,000 Rule 504
9/5/97 200,000 Common Two unaffiliated Aggregate $100,000 Section 4(2)
persons
9/9/97 & 177,507 Common Two unaffiliated $44,377 Stock Section 4(2)
11/14/97 persons Option Exercise
9/12/97 4,000 Common One non-affiliate Services rendered Section 4(2)
9/12/97 35,500 Common BioChemix, Inc. Pre-paid Royalties Section 4(2)
12/5/97 377,500 Common Two unaffiliated Cancel debt of Rule 504
persons $145,000 and
services rendered
1/23/98 100,000 Common Five unaffiliated $25,000 Aggregate Section 4(2)
persons
4/3/98 & 46,831 Common One non-affiliate Legal Services Rule 504
6/11/98
6/2/98 200,000 Common Two unaffiliated Aggregate $150,000 Rule 504
persons
</TABLE>
On August 13, 1996, the Company entered into an investment banking agreement
with M.H. Meyerson & Co., Inc. ("Meyerson"), a registered broker-dealer,
pursuant to which Meyerson undertook to provide investment banking services for
the Company. Shortly thereafter, and before Meyerson rendered any of the
services to be provided by it, the Company sent Meyerson a letter
29
<PAGE> 30
canceling the agreement. The Meyerson agreement provided that the Company was to
issue to Meyerson warrants to purchase up to 600,000 shares of the Company's
common stock at a price of $3.00 per share; however, the warrants were never
issued by the Company. The Company believes that its cancellation letter to
Meyerson effectively terminated the Meyerson agreement, and that there is no
obligation to issue any warrants to Meyerson.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and Bylaws of Nutraceutix, Inc.
contain provisions limiting or eliminating the liability of directors of
Nutraceutix, Inc. to Nutraceutix, Inc. or its shareholders to the fullest extent
permitted by the General Corporation Law of Delaware and indemnifying officers
and directors of Nutraceutix, Inc. to the fullest extent permitted by the
General Corporation Law of Delaware.
The Articles of Incorporation and Bylaws of Bio Techniques
Laboratories, Inc. contain provisions limiting or eliminating the liability of
directors of Bio Techniques Laboratories, Inc. to Bio Techniques Laboratories,
Inc. or its shareholders to the fullest extent permitted by the Washington
Business Corporation Act and indemnifying officers and directors of Bio
Techniques Laboratories, Inc. to the fullest extent permitted by the Washington
Business Corporation Act.
30
<PAGE> 31
PART F/S
31
<PAGE> 32
PART III
<TABLE>
<CAPTION>
ITEM 1. INDEX TO EXHIBITS
<S> <C>
Exhibit 3.1 Certificate of Incorporation and Amendment thereto
Exhibit 3.2 First Amended and Restated Bylaws
Exhibit 10.1 Central Soya Company Licensing Voting Agreement
Exhibit 10.2 Building Lease - 8340 154th Avenue NE, Redmond, WA
(Corporate headquarters/manufacturing facility)
Exhibit 10.3 Building Lease - 14810 NE 95th St., Redmond, WA
Exhibit 10.4 Building Lease - 1420 Overlook Drive, Lafayette, CO
(Tableting, encapsulating, bottling plant)
Exhibit 10.5 Building Lease - 1420 Overlook Drive,
Lafayette, CO (Remainder of building for
additional tableting, encapsulating, bottling and
warehouse)
Exhibit 10.6 Building Lease - 1400 Overlook Drive, Lafayette, CO
(Warehouse)
Exhibit 10.7 Employment Agreement with William D. St. John
Exhibit 10.8 Stock Option Plan
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS
The exhibits listed in the Index to Exhibits above follow,
commencing with page E-1.
32
<PAGE> 33
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
NUTRACEUTIX, INC.
--------------------------------------
(Registrant)
Date: July/23/98 By: /s/ WILLIAM D. ST. JOHN
----------------------------------
William D. St. John, President
33
<PAGE> 34
Financial Statements and Report of
Independent Certified Public Accountants
NUTRACEUTIX, INC.
December 31, 1997 and
March 31, 1998 (unaudited)
<PAGE> 35
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEETS 4
STATEMENTS OF OPERATIONS 5
STATEMENT OF STOCKHOLDERS' EQUITY 6
STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
<PAGE> 36
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Nutraceutix, Inc.
We have audited the accompanying balance sheet of Nutraceutix, Inc. (a Delaware
Corporation) as of December 31, 1997 and the related statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1997 and
1996. 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 Nutraceutix, Inc. as of
December 31, 1997 and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Seattle, Washington
February 20, 1998
3
<PAGE> 37
Nutraceutix, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
<S> <C> <C>
(unaudited)
CURRENT ASSETS
Cash $ 132,978 $ 172,398
Accounts receivable (notes A1, E and M) 544,172 599,222
Inventories (notes A2, B and E) 643,851 760,478
Prepaid expenses 128,509 123,413
------------ ------------
Total current assets 1,449,510 1,655,511
EQUIPMENT AND FURNITURE - net (notes A3, C, E, F and G) 497,811 678,366
OTHER ASSETS - net (notes A4, D and I) 1,046,193 1,010,458
------------ ------------
$ 2,993,514 $ 3,344,335
============ ============
LIABILITIES
CURRENT LIABILITIES
Line of credit (note E) $ 488,000 $ 548,000
Current maturities of long-term obligations 115,187 106,791
Current maturities of capital lease obligations 132,570 156,258
Accounts payable 407,390 484,723
Advance royalties (note I) 170,167 137,282
Accrued liabilities 95,038 97,500
------------ ------------
Total current liabilities 1,408,352 1,530,554
LONG-TERM OBLIGATIONS, less current maturities (note F) 99,701 81,323
CAPITAL LEASE OBLIGATIONS,
less current maturities (note G) 166,941 288,444
COMMITMENTS AND CONTINGENCY (notes G, J and K) -- --
STOCKHOLDERS' EQUITY
Preferred stock authorized,
5,000,000 shares $.01 par value -- --
Common stock authorized,
30,000,000 shares $.001 par value 15,501 15,601
Additional contributed capital 10,624,992 10,649,892
Accumulated deficit (9,321,973) (9,221,479)
------------ ------------
Total stockholders' equity 1,318,520 1,444,014
------------ ------------
$ 2,993,514 $ 3,344,335
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 38
Nutraceutix, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
--------------------------------- ---------------------------------
1997 1996 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Net revenues $ 4,306,768 $ 3,731,630 $ 1,417,856 $ 990,222
Cost of revenues 2,493,731 1,797,754 768,624 500,728
----------- ----------- ----------- -----------
Gross profit 1,813,037 1,933,876 649,232 489,494
Operating expenses
Marketing and selling 609,121 671,706 151,954 139,641
Research and development (note A5)
78,776 152,195 36,140 15,079
General and administrative 974,552 1,110,921 322,149 268,028
----------- ----------- ----------- -----------
Operating profit (loss) 150,588 (946) 138,989 66,746
----------- ----------- ----------- -----------
Other income (expense)
Interest expense (217,447) (109,817) (38,895) (46,492)
Other 6,958 26,902 400 34
----------- ----------- ----------- -----------
(210,489) (82,915) (38,495) (46,458)
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) (note H)
$ (59,901) $ (83,861) $ 100,494 $ 20,288
=========== =========== =========== ===========
Net earnings (loss)
per share (note A7) $ (0.004) $ (0.006) $ 0.007 $ 0.001
=========== =========== =========== ===========
Net earnings per share
assuming dilution $ 0.007 $ 0.001
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 39
Nutraceutix, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997 and
three months ended March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Common stock Additional
----------------------------- contributed Accumulated
shares amount capital deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 13,831,806 $ 13,832 $ 9,867,278 $ (9,178,211) $ 702,899
Additional expenses incurred as part of
reverse acquisition -- -- (88,829) -- (88,829)
Issuance of common stock with attached
stock warrants under subscription
agreements 3,002 3 39,997 -- 40,000
Exercise of stock warrants, net of
expenses of $117,790 280,000 280 301,930 -- 302,210
Issuance of common stock for payments of
finance charges 16,666 16 7,317 -- 7,333
Net loss for the year -- -- -- (83,861) (83,861)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 14,131,474 14,131 10,127,693 (9,262,072) 879,752
Issuance of common stock through 504
offering, net of expenses of $66,738
300,000 300 82,962 -- 83,262
Exercise of stock options 182,507 183 45,444 -- 45,627
Issuance of common stock
to extend loan payment 40,000 40 10,760 -- 10,800
Issuance of common stock through
subscription agreements 200,000 200 99,800 -- 100,000
Issuance of common stock for services at
fair value 104,000 104 43,876 -- 43,980
Issuance of common stock
to satisfy loans 507,500 508 184,492 -- 185,000
Issuance of common stock
to prepay royalties 35,500 35 29,965 -- 30,000
Net loss for the year -- -- -- (59,901) (59,901)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 15,500,981 15,501 10,624,992 (9,321,973) 1,318,520
Exercise of stock options (unaudited)
100,000 100 24,900 -- 25,000
Net earnings for the
3 months (unaudited) -- -- -- 100,494 100,494
------------ ------------ ------------ ------------ ------------
Balance at
March 31, 1998 (unaudited) 15,600,981 $ 15,601 $ 10,649,892 $ (9,221,479) $ 1,444,014
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 40
Nutraceutix, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, Three months ended March 31,
1997 1996 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Cash (unaudited) (unaudited)
Cash flows from operating activities:
Net earnings (loss) $ (59,901) $ (83,861) $ 100,494 $ 20,288
Adjustments to reconcile net
earnings (loss) to net cash provided by (used in)
operating activities
Depreciation and amortization 281,327 234,586 70,688 67,014
Issuance of common stock for finance charges and
consulting services 54,780 7,333 -- 26,300
Capitalized start-up costs -- (124,739) -- --
Changes in assets and liabilities
Accounts receivable (153,363) (190,639) (55,050) (92,603)
Inventories (164,633) (284,026) (116,627) 13,288
Prepaid expenses (40,434) 83,615 5,096 (38,530)
Accounts payable (171,601) 80,003 77,333 27,334
Accrued liabilities and
deferred revenues 171,858 (111,370) (30,423) (5,471)
------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities (81,967) (389,098) 51,511 17,620
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of equipment (39,553) (61,794) (20,115) (12,054)
Patent expenditures (6,392) (13,671) -- --
------------ ------------ ------------ ------------
Net cash used in
investing activities (45,945) (75,465) (20,115) (12,054)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Payments on long-term and capital lease obligations
(362,042) (251,770) (76,976) (93,015)
Proceeds from long-term obligations 231,285 230,000 -- 50,000
Net borrowings on line of credit 98,326 289,674 60,000 --
Net proceeds from issuance of common stock 228,889 253,381 25,000 --
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 196,458 521,285 8,024 (43,015)
------------ ------------ ------------ ------------
Net increase in cash 68,546 56,722 39,420 (37,449)
Cash at beginning of year 64,432 7,710 132,978 64,432
------------ ------------ ------------ ------------
Cash at end of year $ 132,978 $ 64,432 $ 172,398 $ 26,983
============ ============ ============ ============
Cash paid during the year for:
Interest $ 217,447 $ 109,817 $ 38,895 $ 46,492
============ ============ ============ ============
Noncash investing and financing activities:
Purchase of equipment under
capital lease obligations $ 166,987 $ 170,249 $ 195,517 $ 159,420
Issuance of common stock to satisfy loans $ 185,000 $ -- $ -- $ --
Issuance of common stock
to prepay royalties $ 30,000 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 41
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nutraceutix, Inc. (the Company) dba Bio Techniques Laboratories, Inc., is a
manufacturer of branded and private label nutritional supplements for human
health, animal and food applications. The Company is also engaged in the
research and development of microbial, nutritional and plant based products.
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. Accounts Receivable
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
2. Inventories
Inventories are stated at the lower of cost or market; cost is determined
using the first-in, first-out method.
3. Equipment and Furniture
Equipment and furniture are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over the lives
of the respective leases or the service lives of the improvements, whichever
is shorter. Leased property under capital leases is amortized over the
service lives of the assets as the leases substantially transfer ownership
and have bargain purchase options. The straight-line method of depreciation
is followed for substantially all assets for financial reporting purposes,
but accelerated methods are used for tax purposes.
4. Other Assets
Other assets are capitalized technical and product rights, patents and
trademarks, and start-up costs. Technical and product rights and patents and
trademarks are stated at cost and amortized to operations over their
estimated useful lives or statutory lives, whichever is shorter. The Company
deferred start-up costs on their manufacturing facility during the start-up
phase and is amortizing the deferral over five years.
8
<PAGE> 42
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. Research and Development Costs
All expenditures for research and development are expensed in the year
incurred.
6. Income Taxes
The Company provides for income taxes based on income reported for financial
reporting purposes. Certain charges to earnings differ as to timing from
those deducted for tax purposes; these relate primarily to accelerated
depreciation and amortization and net operating loss carryforwards.
7. Earnings (Loss) Per Share
Loss per share is based on the weighted average number of shares outstanding
during each period. The weighted average number of common shares outstanding
was 14,606,304 and 14,046,070 for the years ended December 31, 1997 and
1996, respectively. The computation for loss per share assuming dilution for
the years ended December 31, 1997 and 1996 was anti-dilutive; therefore, is
not included.
The weighted number of common shares outstanding was 14,952,267 and
14,108,124 for the three months ended March 31, 1998 and 1997, respectively.
The number of common shares added to the weighted number of common shares
for the three months ended March 31, 1998 and 1997, assuming outstanding
stock options were excised, were 472,326 and 392,259, respectively. Options
to purchase 1,127,598 shares of common stock at $0.87 and $0.93 a share,
respectively, were not included in the computation of diluted EPS as the
options' exercise price was greater than the average market price of the
common shares.
8. Use of Estimates
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
9. Interim Statements
In the opinion of management, the unaudited interim financial statements as
of March 31, 1998 and for the three months ended March 31, 1998 and 1997
include all adjustments, consisting only of those of an normal recurring
9
<PAGE> 43
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
nature, necessary to present fairly the Company's financial position as of
March 31, 1998 and the results of its operations and cash flows for the
three months ended March 31, 1998 and 1997. The results of operations for
the three months ended March 31, 1998 and 1997 are not necessarily
indicative of the results to be expected for the full year.
10. Reclassifications
Certain reclassifications have been made to the 1996 presentation to conform
to the 1997 presentation.
11. Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131), which supersedes Statement of
Financial Accounting Standards No.14. SFAS 131 uses a management approach to
report financial and descriptive information about a Company's operating
segments. Operating segments are revenue-producing components of the
enterprise for which separate financial information is produced internally
for the Company's management. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. Management is currently assessing the
impact of this Standard.
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
<S> <C> <C>
(unaudited)
Raw materials $ 240,560 $ 336,529
Work in progress 345,231 362,848
Finished goods 58,060 61,101
------------ ------------
$ 643,851 $ 760,478
============ ============
</TABLE>
10
<PAGE> 44
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE C - EQUIPMENT AND FURNITURE
Equipment and furniture consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
<S> <C> <C>
(unaudited)
Furniture and fixtures $ 84,950 $ 90,691
Machinery and equipment 981,368 980,467
Leasehold improvements 6,134 13,711
Capital leases 558,770 750,033
------------ ------------
1,631,222 1,834,902
Less accumulated depreciation
and amortization 1,133,411 1,156,536
------------ ------------
$ 497,811 $ 678,366
============ ============
</TABLE>
NOTE D - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
<S> <C> <C>
(unaudited)
Technical and product rights $ 2,237,444 $ 2,237,444
Patents and trademarks 260,089 263,631
Start-up costs 124,739 122,660
------------ ------------
2,622,272 2,623,735
Less accumulated amortization 1,576,079 1,613,277
------------ ------------
$ 1,046,193 $ 1,010,458
============ ============
</TABLE>
NOTE E - LINE OF CREDIT
At December 31, 1997 and March 31, 1998, the Company has a line of credit
secured by accounts receivable, inventory and equipment which expires
September 1998. Under the terms of the line of credit, the Company can
borrow up to $600,000 at 10.75%. At December 31, 1997, the Company complied
with all covenants.
11
<PAGE> 45
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
<S> <C> <C>
(unaudited)
Note payable to a third party; with monthly installments of $6,643,
including interest at 12.3%; collateralized by equipment; due in 2000 $ 160,142 $ 146,971
Notes payable to a related party; with monthly payments of $477, including
interest at 10%; unsecured; due in 1999
11,360 8,221
Notes payable to third parties; no stated interest rate; unsecured; due on
demand 20,000 20,000
Notes payable to third parties; interest ranges from 8% to 13.8%;
unsecured; due in 1998 23,386 11,690
Other -- 1,232
------------ ------------
214,888 188,114
Less current maturities 115,187 106,791
------------ ------------
$ 99,701 $ 81,323
============ ============
</TABLE>
Aggregate maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1998 $ 115,187
1999 72,310
2000 27,391
----------
$ 214,888
==========
</TABLE>
NOTE G - LEASE OBLIGATIONS
1. Capital Leases
The Company conducts a substantial portion of its operations utilizing
leased equipment. The following is a schedule by years of the present value
of the minimum payments under capital leases:
12
<PAGE> 46
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE G - LEASE OBLIGATIONS - Continued
<TABLE>
<CAPTION>
Year ending December 31, March 31,
----------- ------------ ------------
<S> <C> <C>
(unaudited)
1998 $ 177,050 $ --
1999 98,774 230,055
2000 61,353 161,717
2001 55,485 129,041
2002 9,701 109,429
2003 -- 13,869
------------ ------------
Future minimum lease payments 402,363 644,111
Less amount representing interest 102,852 199,409
------------ ------------
Present value of minimum lease payments $ 299,511 $ 444,702
============ ============
Current maturities $ 132,570 $ 156,258
Long-term maturities 166,941 288,444
------------ ------------
$ 299,511 $ 444,702
============ ============
</TABLE>
At December 31, 1997, the net capitalized leased property was approximately
$404,000. At March 31, 1998, the amount was approximately $621,000.
2. Operating Leases
The Company leases manufacturing and office facilities under operating
agreements that expire through November 2004 at December 31, 1997 and March
31, 1998. Some of the operating leases provide that the Company pay taxes,
maintenance, insurance and other occupancy expense applicable to leased
premises. Aggregate minimum rental payments on operating leases are as
follows:
<TABLE>
<CAPTION>
Year ending December 31, March 31,
----------- ------------ ------------
<S> <C> <C>
(unaudited)
1998 $ 335,898 $ --
1999 227,345 533,086
2000 227,070 533,086
2001 219,300 502,475
2002 18,275 310,164
2003 -- 304,212
Thereafter -- 507,020
------------ ------------
Future minimum lease payments $ 1,027,888 $ 2,690,043
============ ============
</TABLE>
13
<PAGE> 47
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE G - LEASE OBLIGATIONS - Continued
Rent expense was approximately $357,000 and $191,000 for the years ended
December 31, 1997 and 1996, respectively. For the three months ended March
31, 1998 and 1997, rent expense was approximately $99,000 and $76,000,
respectively.
NOTE H - INCOME TAXES
At December 31, 1997, an operating loss carryforward of approximately
$7,400,000 expiring through 2012 is available to offset future taxable
income for financial and tax reporting purposes. Investment tax credits and
research and experimentation tax credits of $37,000 and $126,000
respectively, expiring in 1998 through 2004 are also available. If ownership
changes should occur, there may be certain limitations on the use of these
carryforwards.
Deferred tax assets and liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Current
Book expenses deductible for tax
purposes in future periods $ 7,701
Less valuation allowance (7,701)
-----------
$ --
===========
Long-term
Net operating loss carry-forwards $ 2,514,362
Depreciation and amortization (263,896)
Other 13,648
Other tax credits 162,509
Less valuation allowance (2,426,623)
-----------
$ --
===========
</TABLE>
The Company has established a valuation allowance of $2,426,623 as of
December 31, 1997, due to the uncertainty of future utilization. The
valuation allowance was increased by $28,029 during the year ended December
31, 1997.
NOTE I - TECHNICAL RIGHTS AND ROYALTY AGREEMENTS
Under two technical and product rights, acquired in 1985 and 1988 from two
limited partnerships which have now been dissolved, the Company has full and
exclusive rights, title and interest to use and market products
14
<PAGE> 48
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE I - TECHNICAL RIGHTS AND ROYALTY AGREEMENTS - Continued
developed from the forage (Forage) and feed additives (Feed) agreements.
Under the terms of the Forage agreement, the Company is required to make
annual royalty payments to the former partners of the Forage partnership on
sales of Forage products. The Company can end royalty payments upon (1) an
acquisition of the Company, (2) a public offering by the Company, or (3)
total royalties of $3,300,000. The Company has paid or incurred
approximately $98,000 of royalties through December 31, 1997. Under the Feed
agreement, the Company is required to make royalty payments to the former
partners of the Feed partnership on sales of Feed additives until December
31, 2010. During 1997 and 1996, combined royalty payments for Forage and
Feed additives amounted to $48,799 and $13,805, respectively.
In June 1997, the Company obtained exclusive rights to use D-glucarate salts
for the nutritional support of the detoxification of toxins and carcinogens
for the promotion of lung, breast and prostate health (Patented Materials),
pursuant to three license agreements entered with BioChemix. Under the
license agreements, the Company is required to use BioChemix as the
exclusive supplier to the Company of the Patented Products which are derived
from the Patented Materials. In June 1997, the Company also obtained
exclusive rights to license three nutritional products (Licensed Products),
pursuant to three development agreements entered with BioChemix. Under the
development agreements, the Company is required to pay royalty payments on
sales of the Licensed Products. The sublicense and development agreements do
not expire as long as the Company continues to sell the Patented Materials.
On September 5, 1997, the Company entered into a royalty and exclusive
sublicense agreement with Weider Nutritional International, Inc. (Weider) to
sublicense the Licensed Products, which are the subject of the agreement
with BioChemix. Under the agreement, which expires November 2000, Weider has
exclusive rights to sell the License Products through retail channels. In
consideration, the Company is to receive advance and annual royalty payments
on sales of Licensed Products based on a sliding royalty rate with set
guarantees for each of the next three years until November 2000.
NOTE J - RETIREMENT PLAN
The Company has a defined contribution 401(k) retirement plan (the Plan)
which covers substantially all employees. The Company's contribution must
come from retained earnings or current net income and cannot exceed 15% of
the compensation paid to plan participants. As the Company has yet to
accumulate retained earnings, no contribution was made by the Company during
1997 and 1996.
15
<PAGE> 49
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE J - RETIREMENT PLAN - Continued
On January 1, 1998 the Company amended its Plan. Under the amended Plan, the
Company will match 25%, up to 4%, of eligible employee contributions.
Additionally, the Company is no longer required to have accumulated retained
earnings.
NOTE K - CONTINGENCY
In 1993, the Company entered into a ten-year, renewable marketing and
distribution agreement with Bio Universal, Inc. for the purpose of marketing
and distributing the Company's Cobactin and BioPower. In November 1995, the
Company ended the relationship with Bio Universal and began to sell these
products directly to third party customers. Bio Universal has filed suit
against the Company for unspecified damages related to the termination of
this agreement. Discovery has yet to be completed and, accordingly, the
Company's counsel is unable to determine the outcome of the suit. The
Company intends to vigorously defend itself against this suit, and, in the
opinion of management, any defense, settlement, or judgment costs are, at
this time, not expected to have a material financial impact on the Company.
NOTE L - STOCK OPTION PLAN
Under the terms of the Company's 1995 Stock Option Plan, officers,
directors, employees and others related to the Company may be granted
incentive stock options or nonqualified stock options to purchase up to an
authorized 3,000,000 shares of common stock. The options are generally
granted at exercise prices equal to the market value of the Company's common
stock on the date of the grant. The options generally vest over three years
and expire ten years from date of grant.
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). It applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its plans and does
not recognize compensation expense for its stock-based compensation plans
for other than for restricted stock. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for awards
under these plans consistent with the methodology prescribed by SFAS 123,
the Company's net loss would increase to the pro forma amounts indicated
below:
16
<PAGE> 50
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE L - STOCK OPTION PLAN - Continued
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net loss
As reported $ 59,901 $ 83,861
Pro forma $ 95,397 $ 131,256
Net loss per share $ 0.007 $ 0.009
</TABLE>
These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1995. The fair value of these options was estimated at the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Expected volatility 40.0% 190.0%
Expected dividend yield -- --
Risk-free interest rate 6.0% 6.5%
Expected life 7.5 years 9.5 years
</TABLE>
The weighted-average fair value of options granted in 1997 and 1996 for
which exercise price approximates the market price on the grant date was
$0.23 and $0.78 and the weighted-average exercise price was $0.42 and $0.78.
The weighted-average fair value of options granted in 1996 for which the
exercise price exceeds market at grant date was $0.78 and the
weighted-average exercise price was $0.80. There were no options granted in
1997 for which the exercise price exceeded market at grant date.
A summary of the status of the Company's fixed stock option plan as of
December 31, 1997 and 1996, and changes during the year ending on those
dates is presented below:
<TABLE>
<CAPTION>
Stock Options Weighted-Average
Description Outstanding Exercise Price
----------- ------------- ----------------
<S> <C> <C>
Balance, January 1, 1996 1,459,100 $0.88
Granted 81,200 0.79
Exercised - -
Canceled (12,300) 0.36
---------
Balance, December 31, 1996 1,528,000 0.88
Granted 230,500 0.42
Exercised (5,000) 0.25
Canceled (378,300) 1.54
---------
Balance, December 31, 1997 1,375,200 $0.62
========= ====
</TABLE>
17
<PAGE> 51
Nutraceutix, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and March 31, 1998 (unaudited)
NOTE L - STOCK OPTION PLAN - Continued
The following table summarizes information concerning currently outstanding
and exercisable incentive stock options:
Options Outstanding
<TABLE>
<CAPTION>
Weighted-Average
Remaining
Range of Number Contractual Life Weighted-Average
Exercised Prices Outstanding (Years) Exercised Price
---------------- ----------- ---------------- ---------------
<S> <C> <C> <C>
$0.25 - $0.78 671,300 6.13 $0.28
0.80 - 2.00 703,900 5.61 0.94
</TABLE>
Options Exercisable
<TABLE>
<CAPTION>
Range of Weighted-Average
Exercise Prices Number Exercisable Exercise Price
--------------- ------------------ ----------------
<S> <C> <C>
$0.25 - $0.78 551,484 $0.27
0.80 - 2.00 681,333 1.24
</TABLE>
Additionally, under a non-qualified stock option plan, options to purchase
322,000 shares were outstanding and exercisable at December 31, 1997 and
1996. There were no such options granted or canceled in 1997 and 1996.
NOTE M - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
In 1997, the Company had sales to two customers totaling approximately
$978,000. The two customers accounted for 12% and 11% of net sales. In 1996,
sales to two customers totaled approximately $1,355,000, accounting for 25%
and 11% of net sales.
18
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
Caddy Systems Inc.
FIRST: The name of this corporation is Caddy Systems Inc.
SECOND: Its registered office in the state of Delaware is to be located at
Three Christina Centre, 201 N. Walnut Street, Wilmington DE 19801, New Castle
County. The registered agent in charge thereof is The Company Corporation,
address "same as above".
THIRD: The nature of the business and, the objects and purposes proposed to be
transacted, promoted and carried on, are to do any or all the things herein
mentioned as fully and to the same extent as natural persons might or could do,
and in any part of the world, via:
The purpose of the corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The amount of the total authorized capital stock of this corporation is
divided into 20,000,000 shares of stock at $.001 par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Vanessa Foster, Three Christina Centre, 201 N. Walnut Street, Wilmington
DE 19801
SIXTH: The Directors shall have the power to make and to alter or amend the
By-Laws; to fix the amount to be reserved as working capital, and to authorize
and cause to be executed, mortgages and liens without limit as to the amount,
upon the property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the Directors shall have
the authority to dispose, in any manner, of the whole property of this
corporation.
The By-Laws shall determine whether and to what extent the accounts and books
of this corporation, or any of them shall be open to the inspection of the
stockholders; and no stockholder shall have any right of inspecting any account,
or book or document of this Corporation, except as conferred by the law or the
By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings and keep
the books, documents, and papers of the Corporation outside the State of
Delaware, at such places as may be from time to time designated by the By-Laws
or by resolution of the stockholders or directors, except as otherwise required
by the laws of Delaware.
It is the intention that the objects, purposes and powers specified in the
Third paragraph hereof shall, except where otherwise specified in said
paragraph, be nowise limited or restricted by reference to or inference from the
terms of any other clause or paragraph in this certificate of incorporation,
that the objects, purposes and powers specified in he Third paragraph and in
each of the clauses or paragraphs of this charter shall be regarded as
independent objects, purposes and powers.
SEVENTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a director's duty of loyalty to the
corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends or unlawful stock purchase or
redemption by the corporation; or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of
the State of Delaware, do make, file and record this Certificate and do certify
that the facts herein are true; and I have accordingly hereunto set my hand.
DATED: October 12, 1994 /s/ VANESSA FOSTER
------------------
<PAGE> 2
State of Delaware
Office of the Secretary of State
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "CADDY SYSTEMS INC.", CHANGING ITS NAME FROM "CADDY SYSTEMS INC." TO
"NUTRACEUTIX, INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF APRIL, A.D.
1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
[SEAL] --------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CADDY SYSTEMS INC.
Under Section 242 of the
Corporation Law of the State of Delaware
CADDY SYSTEMS INC. (the "Corporation"),a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation, by written consent
filed with the minutes of the Board, adopted the following resolutions proposing
and declaring advisable the following amendments to the Certificate of
Incorporation of said Corporation:
1. That Article FIRST of the Certificate of Incorporation be amended
and, as amended, read as follows:
FIRST: The name of the Corporation is NUTRACEUTIX, INC.
2. That a reverse stock split of the Corporation's outstanding common
stock be effected on a one to five basis such that each five shares of the
Corporation's 8,703,440 shares of common stock outstanding be converted into
one share of the Corporation's common stock and that Article FOURTH of the
Certificate of Incorporation be amended and, as amended, read as follows:
FOURTH: The Corporation shall be authorized to issue the
following shares:
CLASS Number of Shares Par Value
----- ---------------- ---------
Common 30,000,000 $.001
Preferred 5,000,000 $.01
The Preferred Stock and the Common Stock may be issued in such
classes or series, and may have such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, or restrictions thereof,
as shall be stated and expressed in the Certificate of Incorporation or of any
amendment thereto, or in the resolution or resolutions providing for the issue
of such stock adopted
- 1 -
<PAGE> 4
by the Board of Directors pursuant to the authority which is expressly
vested in it by the provisions hereof. Any of the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of any such class or series of stock may be made dependent
upon facts ascertainable outside the Certificate or Incorporation or of
any amendment thereto, or outside the resolution or resolutions providing
for the issue of such stock adopted by the Board of Directors pursuant to
the authority which is expressly vested in it by the provisions hereof,
provided that the manner in which such facts shall operate upon the
voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of such class or series of stock is clearly
and expressly set forth in this Certificate of Incorporation or in the
resolution of resolutions providing for the issue of such stock adopted
by the Board of Directors. Notwithstanding the foregoing, each share of
Common Stock shall be entitled to one vote on all matters requiring
approval by the holders of the Corporation's Common Stock. Fully paid
stock of this Corporation shall not be liable to any further call or
assessment. All shares of stock shall be voted together on all matters
except things pertaining to the rights of particular classes of stock.
The rights of any class of stock may not be changed without the consent
of a majority of the shares entitled to vote on such a change.
3. That two new articles article EIGHTH and Article NINTH
respectively, be added to the Certificate of Incorporation and, as amended,
read as follows:
EIGHTH: The Corporation elects not be governed by Section 203 of
the General Corporation Law of Delaware.
NINTH: The Corporation shall indemnify all persons whom it may
agree to indemnify to the fullest extent allowed by the General
Corporation Law of Delaware.
SECOND: That the aforesaid amendments were duly adopted by the
Corporation's shareholders in accordance with the applicable provisions of
Section 242 of the General Corporation Law of the State of Delaware.
THIRD: Prompt notice of the taking of this corporate action is being
given to all stockholders who did not consent in writing, in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Morris Diamond, its President, and
- 2 -
<PAGE> 5
attested by Shirley Diamond, its Secretary, this 30 day of March, 1995.
CADDY SYSTEMS INC.
By /s/ MORRIS DIAMOND
----------------------------------
Morris Diamond, President
ATTEST:
By /s/ SHIRLEY DIAMOND
-------------------------------------
Shirley Diamond, Secretary
- 3 -
<PAGE> 1
EXHIBIT 3-2
BYLAWS
OF
CADDY SYSTEMS, INC.
<PAGE> 2
AMENDMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section Effect of Amendment Date of Amendment
- ------- ------------------- -----------------
</TABLE>
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BYLAWS Page 1
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. OFFICES.....................................................................................1
SECTION 2. SHAREHOLDERS................................................................................1
2.1 Annual Meeting..............................................................................1
2.2 Special Meetings............................................................................1
2.3 Meetings by Telephone.......................................................................1
2.4 Place of Meeting............................................................................1
2.5 Notice of Meeting...........................................................................2
2.6 Waiver of Notice............................................................................2
2.7 Fixing of Record Date for Determining Shareholders..........................................2
2.8 Voting Record...............................................................................2
2.9 Quorum......................................................................................3
2.10 Manner of Acting............................................................................3
2.11 Proxies.....................................................................................3
2.12 Notification of Nominations.................................................................3
2.13 Proper Business for Shareholders' Meetings..................................................4
SECTION 3. BOARD OF DIRECTORS..........................................................................4
3.1 General Powers..............................................................................4
3.2 Number and Tenure...........................................................................4
3.3 Annual and Regular Meetings.................................................................5
3.4 Special Meetings............................................................................5
3.5 Meetings by Telephone.......................................................................5
3.6 Notice of Special Meetings..................................................................5
3.7 Waiver of Notice............................................................................6
3.8 Quorum......................................................................................6
3.9 Manner of Acting............................................................................7
3.10 Presumption of Assent.......................................................................7
3.11 Action by Board or Committees Without a Meeting.............................................7
3.12 Resignation.................................................................................7
3.13 Vacancies...................................................................................7
3.14 Executive and Other Committees..............................................................8
3.15 Compensation................................................................................9
SECTION 4. OFFICERS....................................................................................9
4.1 Number......................................................................................9
4.2 Election and Term of Office.................................................................9
4.3 Resignation.................................................................................9
4.4 Removal....................................................................................10
4.5 Vacancies..................................................................................10
4.6 Chairman of the Board......................................................................10
4.7 President..................................................................................10
</TABLE>
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BYLAWS Page ii
<PAGE> 4
<TABLE>
<S> <C> <C>
4.9 Vice President............................................................................10
4.9 Secretary ................................................................................11
4.10 Treasurer.................................................................................11
4.11 Salaries..................................................................................11
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS.....................................................11
5.1 Contracts.................................................................................11
5.2 Loans to the Corporation..................................................................11
5.3 Loans to Directors........................................................................12
5.4 Checks, Drafts, Etc.......................................................................12
5.5 Deposits..................................................................................12
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER................................................12
6.1 Issuance of Shares........................................................................12
6.2 Certificates for Shares...................................................................12
6.3 Stock Records.............................................................................12
6.4 Restriction on Transfer...................................................................13
6.5 Transfer of Shares........................................................................13
6.6 Lost or Destroyed Certificates............................................................13
SECTION 7. BOOKS AND RECORDS.........................................................................13
SECTION 8. ACCOUNTING YEAR...........................................................................14
SECTION 9. SEAL......................................................................................14
SECTION 10. INDEMNIFICATION...........................................................................14
10.1 Right to Indemnification..................................................................14
10.2 Right to Advancement of Expenses..........................................................14
10.3 Right of Indemnitee to Bring Suit.........................................................15
10.4 Nonexclusivity of Rights..................................................................15
10.5 Insurance, Contracts and Funding..........................................................16
10.6 Indemnification of Employees and Agents of the Corporation................................16
SECTION 11. AMENDMENTS................................................................................16
</TABLE>
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BYLAWS Page iii
<PAGE> 5
BYLAWS
OF
CADDY SYSTEMS, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at the
principal place of business or such other place as the Board of Directors
("Board") may designate. The corporation may have such other offices, either
within or without the State of Delaware, as the Board may designate or as the
business of the corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting
The annual meeting of the shareholders shall be held the third Monday of
May in each year at 10:00 a.m. for the purpose of electing Directors and
transacting such other business as may properly come before the meeting. If the
day fixed for the annual meeting is a legal holiday at the place of the meeting,
the meeting shall be held on the next succeeding business day. If the annual
meeting is not held on the date designated therefor, the Board shall cause the
meeting to be held as soon thereafter as may be convenient.
2.2 Special Meetings
A special meeting of shareholders may be called for any purpose,
pursuant to Section 2.13 hereof, by the Chairman of the Board, the President, a
majority of the Directors, or the holders of not less than forty percent of all
the outstanding shares of the corporation entitled to vote at the meeting.
2.3 Meetings by Telephone
Shareholders may participate in any meeting of the shareholders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each at the same time.
Participation by such means shall constitute presence in person at a meeting.
2.4 Place of Meeting
All meetings shall be held at the principal office of the corporation or
at such other place within or without the State of Delaware designated by the
Directors, by any persons entitled to call a meeting hereunder or in a waiver of
notice signed by all of the shareholders entitled to notice of the meeting.
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BYLAWS Page 1
<PAGE> 6
2.5 Notice of Meeting
The Chairman of the Board, the President, the Secretary, the Directors,
or shareholders calling an annual or special meeting of shareholders as provided
for herein shall cause to be delivered to each shareholder entitled to notice of
or to vote at the meeting either personally or by mail, not less than twenty nor
more than sixty days before the meeting, written notice stating the place, day
and hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. At any time, upon written request of
the holders of not less than forty percent of all of the outstanding shares of
the corporation entitled to vote at the meeting, it shall be the duty of the
Secretary to give notice of a special meeting of shareholders to be held on such
date and at such place and time as the Secretary may fix, not less than ten nor
more than thirty-five days after receipt of said request, and if the Secretary
shall neglect or refuse to issue such notice, the person making the request may
do so and may fix the date for such meeting. If such notice is mailed, it shall
be deemed delivered when deposited in the official government mail properly
addressed to the shareholder at his or her address as it appears on the stock
transfer books of the corporation with postage prepaid. If the notice is
telegraphed, it shall be deemed delivered when the content of the telegram is
delivered to the telegraph company.
2.6 Waiver of Notice
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Certificate of Incorporation or the Delaware
General Corporation Law, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
2.7 Fixing of Record Date for Determining Shareholders
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other purpose, the Board may fix in advance a date as
the record date for any such determination. Such record date shall be not more
than sixty days, and in case of a meeting of shareholders not less than thirty
days, prior to the date on which the Particular action requiring such
determination is to be taken. If no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting, or to receive
payment of a dividend, the date and hour on which the notice of meeting is
mailed or on which the resolution of the Board declaring such dividend is
adopted, as the case may be, shall be the record date and time for such
determination. Such a determination shall apply to any adjournment of the
meeting.
2.8 Voting Record
At least ten days before each meeting of shareholders, a complete record
of the shareholders entitled to vote at such meeting, or any adjournment
thereof, shall be made, arranged in alphabetical order, with the address of and
number of shares held by each shareholder. This record shall be kept on file
either at a place in the city where the meeting is
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BYLAWS Page 2
<PAGE> 7
to be held (which place shall be specified in the notice of the meeting), or at
the place where the meeting is to be held, for ten days prior to such meeting
and shall be kept open at such meeting for the inspection of any shareholder.
2.9 Quorum
A majority of the outstanding shares of the corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of the shareholders. If less than a majority of the outstanding shares entitled
to vote are represented at a meeting, a majority of the votes so represented may
adjourn the meeting from time to time without further notice. If a quorum is
present or represented at a reconvened meeting following such an adjournment,
any business may be transacted that might have been transacted at the meeting as
originally called. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
2.10 Manner of Acting
Except as may be otherwise provided in the Delaware General Corporation
Law, if a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders, unless the vote of a greater number is required by
these Bylaws or the Certificate of Incorporation.
2.11 Proxies
A shareholder may vote by proxy executed in writing by the shareholder
or by his or her attorney-in-fact. Such proxy shall be filed with the Secretary
of the corporation before or at the time of the meeting. A proxy shall become
invalid eleven months after the date of its execution, unless otherwise provided
in the proxy. A proxy with respect to a specified meeting shall entitle the
holder thereof to vote at any reconvened meeting following adjournment of such
meeting but shall not be valid after the final adjournment thereof.
2.12 Notification of Nominations
Nominations for the election of Directors may be made by or at the
direction of the Board of Directors. A shareholder may also nominate a person or
persons for election as Directors, but only if written notice of such
shareholder's intent to make such nominations is received by the Secretary of
the corporation, not later than (i) with respect to an election to be held at
the annual meeting of shareholders, ninety days in advance of the third Monday
in May, and (ii) with respect to an election to be held at any other meeting of
shareholders, the close of business on the tenth day following the date of the
first public disclosure, which may include any public filing by the corporation
with the Securities and Exchange Commission, of the Originally Scheduled Date of
such meeting. Each such notice shall set forth (a) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the shareholder is a holder of record
entitled to vote at such meeting; (c) a description of all arrangements or
understandings between the shareholder and
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<PAGE> 8
each nominee and any other person or persons (naming them) pursuant to which the
nomination is to be made; (d) such other information regarding each nominee as
would have been required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had each nominee been
nominated by the Board of Directors; and (e) the consent of each nominee to
serve as a Director if elected. The chairman of any meeting of shareholders to
elect Directors and the Board of Directors shall refuse to recognize the
nomination of any person not made in compliance with the foregoing procedure.
For purposes of these Bylaws, the "Originally Scheduled Date" of any meeting of
shareholders shall be the date such meeting is scheduled to occur in the notice
first given to shareholders regardless of whether such meeting is continued or
adjourned or whether any subsequent notice is given for such meeting or the
record date of such meeting is changed.
2.13 Proper Business for Shareholders' Meetings
At any annual or special meeting of the shareholders of the corporation,
only business properly brought before the meeting may be transacted. To be
properly brought before an annual meeting, business (i) must be specified in the
notice of the meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (ii) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before a meeting by a shareholder, written notice thereof must
have been received by the Secretary of the corporation, not later than (i) with
respect to an annual meeting, ninety days in advance of the third Monday in May,
and (ii) with respect to any other meeting, the close of business on the tenth
day following the date of the first public disclosure, which may include any
public filing by the corporation with the Securities and Exchange Commission, of
the Originally Scheduled Date of such meeting. Any such notice shall set forth
as to each matter the shareholder proposes to bring before the meeting (i) a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and the language of the
proposal, (ii) the name and address of the shareholder proposing such business,
(iii) a representation that the shareholder is a holder of record of stock of
the corporation entitled to vote at such meeting, and (iv) any material interest
of the shareholder in such business. No business shall be conducted at any
meeting of shareholders except in accordance with this paragraph, and the
chairman of any meeting of shareholders and the Board of Directors shall refuse
to permit any business to be brought before any meeting compliance with the
foregoing procedures.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation shall be managed under the
direction of, the Board, except as may be otherwise provided in these Bylaws,
the Certificate of Incorporation or the Delaware General Corporation Law.
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<PAGE> 9
3.2 Number and Tenure
The Board shall be composed of six Directors. The Board of Directors
shall be divided into three classes with said classes to be as equal in number
as possible as of the creation of the three classes of Directors. The terms of
each class of Directors as of their initial election or appointment shall be as
follows:
<TABLE>
<S> <C>
Class 1 1 year
Class 2 2 years
Class 3 3 years
</TABLE>
Thereafter, as each Director's term expires, his or her successor shall be
elected to a three year term. The number of Directors may be changed from time
to time by amendment to these Bylaws, but no decrease in the number of Directors
shall have the effect of shortening the term of any incumbent Director. Unless a
Director dies, resigns or is removed, he or she shall hold office until the next
annual meeting of shareholders or until his or her successor is elected,
whichever is later. Directors need not be shareholders of the corporation or
residents of the State of Delaware.
3.3 Annual and Regular Meetings
An annual Board meeting shall be held without notice immediately after
and at the same place as the annual meeting of shareholders. By resolution, the
Board, or any committee thereof, may specify the time and place either within or
without the State of Delaware for holding regular meetings thereof without
notice other than such resolution.
3.4 Special Meetings
Special meetings of the Board or any committee appointed by the Board
may be called by or at the request of the Chairman of the Board, the President,
the Secretary or, in the case of special Board meetings, any two Directors and,
in the case of any special meeting of any committee appointed by the Board, by
the chairman thereof. The person or persons authorized to call special meetings
may fix any place either within or without the State of Delaware as the place
for holding any special Board or committee meeting called by them.
3.5 Meetings by Telephone
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
3.6 Notice of Special Meetings
Notice of a special Board or committee meeting stating the place, day
and hour of the meeting shall be given to a Director in writing or orally by
telephone or in person. Neither the
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<PAGE> 10
business to be transacted at, nor the purpose of, any special meeting need be
specified the notice of such meeting.
3.6.1 Personal Delivery
If notice is given by personal delivery, the notice shall be
effective if delivered to a Director at least two days before the meeting.
3.6.2 Delivery by Mail
If notice is delivered by mail, the notice shall be deemed
effective if deposited in the official government mail properly addressed to a
Director at his or her address shown on the records of the corporation with
postage prepaid at least five days before the meeting.
3.6.3 Delivery by Telegraph
If notice is delivered by telegraph, the notice shall be
deemed effective if the content thereof is delivered to the telegraph company
for delivery to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.6.4 Oral Notice
If notice is delivered orally, by telephone or in person, the
notice shall be deemed effective if personally given to the Director at least
two days before the meeting.
3.7 Waiver of Notice
3.7.1 In Writing
Whenever any notice is required to be given to any Director
under the provisions of these Bylaws, the Certificate of Incorporation or the
Delaware General Corporate Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated herein, shall be deemed equivalent to the giving of such notice. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board or any committee appointed by the Board need be specified
in the waiver of notice of such meeting.
3.7.2 By Attendance
The attendance of a Director at a Board or committee meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
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<PAGE> 11
3.8 Quorum
A majority of the number of Directors fixed by or in the manner provided
in these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting, but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
3.9 Manner of Acting
Except as may be otherwise provided in the Delaware General Corporate
Laws, the act of the majority of the Directors present at a Board meeting at
which there is a quorum shall be the act of the Board, unless the vote of a
greater number is required by these Bylaws or the Certificate of Incorporation.
3.10 Presumption of Assent
A Director of the corporation present at a Board or committee meeting at
which action on any corporate matter is taken shall be presumed to have assented
to the action taken unless his or her dissent is entered in the minutes of the
meeting, or unless such Director files a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof, or
forwards such dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. A Director who voted in favor
of such action may not dissent.
3.11 Action by Board or Committees Without a Meeting
Any action which could be taken at a meeting of the Board or of any
committee appointed by the Board may be taken without a meeting if a written
consent setting forth the action so taken is signed by each of the Directors or
by each committee member. Any such written consent shall be inserted in the
minute book as if it were the minutes of a Board or a committee meeting.
3.12 Resignation
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board, or to the
registered office of the corporation, or by giving oral notice at any meeting of
the Directors or shareholders. Any such resignation shall take effect at the
time specified therein, or if the time is not specified, upon delivery thereof
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
3.13 Vacancies
In the case of any increase in the number of Directors, or of any
vacancy created by death or resignation, the additional Director or Directors
may be elected or, as the case may be, the vacancy or vacancies may be filled,
either (a) by the Board of Directors at any meeting, or
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<PAGE> 12
(b) by the shareholders entitled to vote, either at an annual meeting or at a
special meeting thereof called for the purposes by the affirmative vote of a
majority of the outstanding shares entitled to vote at such meeting.
3.14 Executive and Other Committees
3.14.1 Creation of Committees
The Board, by resolution adopted by the majority of the number of
Directors fixed by or in the manner provided in these Bylaws, may appoint
standing or temporary committees, including an Executive Committee, from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws and applicable
law.
3.14.2 Authority of Committees
Each committee shall have and may exercise all of the authority
of the Board, including the authority to authorize distributions and to issue
shares, to the extent provided in the resolution of the Board appointing the
Committee, except that no such committee shall have the authority to: (1)
approve or recommend to shareholders actions or proposals required by the
Delaware General Corporate Laws to be approved by shareholders, (2) fill
vacancies on the Board or any committee thereof, (3) amend these Bylaws, (4)
fix compensation of any Director for serving on the Board or on any committee,
(5) approve a plan of merger, consolidation or exchange of shares not requiring
shareholder approval, (6) appoint other committees of the Board or the members
thereof, or (7) amend the Certificate of Incorporation, except that the Board of
Directors may, by resolution, authorize such committee to fix the rights and
preferences of any of the corporation's preferred stock.
3.14.3 Quorum and Manner of Acting
A majority of the number of Directors composing any committee of
the Board, as established and fixed by resolution of the Board, shall constitute
a quorum for the transaction of business at any meeting of such committee but,
if less than a majority are present at a meeting, a majority of such Directors
present may adjourn the meeting from time to time without further notice. Except
as may be otherwise provided in the Delaware General Corporate Laws, the act of
a majority of the members of a committee present at a meeting at which a quorum
is present shall be the act of the committee.
3.14.4 Minutes of Meetings
All committees so appointed shall keep regular minutes of their
meetings and shall cause them to be recorded in books kept for that purpose.
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<PAGE> 13
3.14.5 Resignation
Any member of any committee may resign at any time by delivering
written notice thereof to the Chairman of the Board, the President, the
Secretary or the Board or the chairman of such committee, or by giving oral
notice at any such meeting of such committee. Any such resignation shall take
effect at the time specified therein or, if the time is not specified, upon
delivery thereof and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.14.6 Removal
The Board may remove from office any member of any committee
elected or appointed by it but only by the affirmative vote of a majority of the
number of Directors fixed by or in the manner provided in these Bylaws.
3.15 Compensation
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a Committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 Number
The officers of the corporation shall be a President, a Secretary and a
Treasurer, each of whom shall be elected by the Board. One or more Vice
Presidents and such other officers and assistant officers, including a Chairman
of the Board, may be elected or appointed by the Board, such officers and
assistant officers to hold office for such period, have such authority and
perform such duties as are provided in these Bylaws or as may be provided by
resolution of the Board. Any officer may be assigned by the Board any additional
title, that the Board deems appropriate. The Board may delegate to any officer
or agent the power to appoint any such subordinate officers or agents and to
prescribe their respective terms of office, authority and duties. Any two or
more offices may be held by the same person, except the offices of President and
Secretary may not be held by the same person unless all of the issued and
outstanding shares of the corporation are owned of record by one shareholder.
4.2 Election and Term of Office
The officers of the corporation shall be elected annually by the Board
at the Board meeting held after the annual meeting of the shareholders. If the
election of officers is not held at such meeting, such election shall be held
as soon thereafter as a Board meeting conveniently may be held. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until the next annual meeting of the Board or until his or her successor is
elected.
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<PAGE> 14
4.3 Resignation
Any officer may resign at any time by delivering written notice to the
Chairman of the Board, the President, a Vice President, the Secretary or the
Board, or by giving oral notice at any meeting of the Board. Any such
resignation shall take effect at the time specified therein or, if the time is
not specified, upon delivery thereof and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
4.4 Removal
Any officer or agent elected or appointed by the Board may be removed by
the Board whenever in its judgment the best interests of the corporation would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
4.5 Vacancies
A vacancy in any office because of death, resignation, removal,
disqualification, creation of a new office or any other cause may be filled by
the Board for the unexpired portion of the term or for a new term established by
the Board.
4.6 Chairman of the Board
If elected, the Chairman of the Board shall perform such duties as shall
be assigned to him or her by the Board from time to time and shall preside over
meetings of the Board and shareholders unless another officer is appointed or
designated by the Board as Chairman of such meeting.
4.7 President
The President shall be the chief executive officer of the corporation
unless some other officer is so designated by the Board, shall preside over
meetings of the Board and shareholders in the absence of a Chairman of the Board
and, subject to the Board's control, shall supervise and control all of the
assets, business and affairs of the corporation. The President may sign
certificates for shares of the corporation, deeds, mortgages, bonds, contracts
or other instruments, except when the signing and execution thereof have been
expressly delegated by the Board or by these Bylaws to some other officer or
agent of the corporation or are required by law to be otherwise signed or
executed by some other officer or in some other manner. In general, the
President shall perform all duties incident to the office of President and such
other duties as are prescribed by the Board from time to time.
4.8 Vice President
In the event of the death of the President or his or her inability to
act, the Vice President (or, if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President or,
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may
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<PAGE> 15
be limited by resolution of the Board, with all the powers of and subject to all
the restrictions upon the President. Any Vice President may sign, with the
Secretary or any Assistant Secretary, certificates for shares of the
corporation. Vice Presidents shall have, to the extent authorized by the
President or the Board, the same powers as the President to sign deeds,
mortgages, bonds, contracts, or other instruments. Vice Presidents shall perform
such other duties as from time to time may be assigned to them by the President
or by or at the direction of the Board.
4.9 Secretary
The Secretary shall: (a) keep the minutes of meetings of the
shareholders and the Board in one or more books provided for that purpose; (b)
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records and seal
of the corporation; (d) keep registers of the post office address of each
shareholder and Director; (e) sign, with the President or a Vice President,
certificates for shares of the corporation; (f) have general charge of the stock
transfer books of the corporation; (g) sign, with the President or other officer
authorized by the President or by the Board, deeds, mortgages, bonds, contracts
or other instruments; and (h) in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him or her by the President or by the Board. In the absence of the Secretary,
an Assistant Secretary may perform the duties of the Secretary.
4.10 Treasurer
If required by the Board, the Treasurer shall give bond for the faithful
discharge of his or her duties in such amount and with such surety or sureties
as the Board shall determine. The Treasurer shall have charge and custody of and
be responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws; and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by the Board. In the absence of the Treasurer, an
Assistant Treasurer may perform the duties of the Treasurer.
4.11 Salaries
The salaries of the officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No officer shall be prevented from receiving such salary by reason of
the fact that he or she is also a Director of the corporation.
- --------------------------------------------------------------------------------
BYLAWS Page 11
<PAGE> 16
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 Loans to the Corporation
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
5.3 Loans to Directors
The corporation may not lend money to or guarantee the obligation of a
Director unless approved by the holders of at least a majority of the votes
represented by the outstanding shares of all classes entitled to vote thereon,
excluding the votes of the benefited Director, or the Board determines that the
loan or guarantee benefits the corporation and either approves the specific loan
or guarantee or a general plan authorizing loans and guarantees.
5.4 Checks, Drafts, Etc.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, or agent or agents, of the corporation and
in such manner as is from time to time determined by resolution of the Board.
5.5 Deposits
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares
No shares of the corporation shall be issued unless authorized by the
Board, which authorization shall include the maximum number of shares to be
issued and the consideration to be received for each share.
- --------------------------------------------------------------------------------
BYLAWS Page 12
<PAGE> 17
6.2 Certificates for Shares
Certificates representing shares of the corporation shall be signed by
the President or a Vice President and by the Secretary or an Assistant Secretary
and shall include on their face written notice of any restrictions which may be
imposed on the transferability of such shares. All certificates shall be
consecutively numbered or otherwise identified.
6.3 Stock Records
The stock transfer books shall be kept at the registered office or
principal place of business of the corporation or at the office of the
corporation's transfer agent or registrar. The name and address of each person
to whom certificates for shares are issued, together with the class and number
of shares represented by each such certificate and the date of issue thereof,
shall be entered on the stock transfer books of the corporation. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
6.4 Restriction on Transfer
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws or has otherwise satisfied itself that
such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933 or any applicable state law, and no
interest therein may be sold, distributed, assigned, offered, pledged or
otherwise transferred unless (a) there is an effective registration
statement under such Act and applicable state securities laws covering
any such transaction involving said securities or (b) this corporation
receives an opinion of legal counsel for the holder of these securities
(concurred in by legal counsel for this corporation) stating that such
transaction is exempt from registration or this corporation otherwise
satisfies itself that such transaction is exempt from registration.
Neither the offering of the securities nor any offering materials have
been reviewed by any administrator under the Securities Act of 1933, or
any applicable state law."
6.5 Transfer of Shares
The transfer of shares of the corporation shall be made only on the
stock transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
- --------------------------------------------------------------------------------
BYLAWS Page 13
<PAGE> 18
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
6.6 Lost or Destroyed Certificates
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its shareholders
and Board and such other records as may be necessary or advisable.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year,
provided that if a at any time selected for purposes accounting year shall be
the year different accounting year is of federal income taxes, the so selected.
SECTION 9. SEAL
The seal of the corporation shall consist of the name of the
corporation, the state of its incorporation and the year of its incorporation.
SECTION 10. INDEMNIFICATION
10.1 Right to Indemnification
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved (including, without limitation, as a witness)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding") by reason of the fact that he or she
is or was a director or officer of the corporation or, was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as such a director, officer, employee or agent or in any other
capacity while serving as such a director, officer, employee or agent, shall be
indemnified and held harmless by the corporation to the full extent authorized
by the Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
such law permitted the corporation to provide prior to such amendment) against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith, provided,
however, that no indemnification shall be provided to any such indemnitee if the
corporation is prohibited by the nonexclusive
- --------------------------------------------------------------------------------
BYLAWS Page 14
<PAGE> 19
provisions of the Delaware General Corporation Law or other applicable law as
then in effect from paying such indemnification; and provided, further, that
except as provided in Section 10.3 hereof with respect to proceedings to enforce
rights to indemnification, the corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof initiated by such indemnitee
only if a proceeding (or part thereof) was authorized or ratified by the Board
of Directors of the corporation.
10.2 Right to Advancement of Expenses
The right to indemnification conferred in Section 10.1 shall include the
right to be paid by the corporation the expenses (including attorney's fees)
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a director of officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the corporation of an undertaking (hereafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is not further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section 10.2 or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Section 10.1 and Section 10.2 shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
10.3 Right of Indemnitee to Bring Suit
If a claim under Section 10.1 or Section 10.2 hereof is not paid in
full by the corporation within sixty days after a written claim has been
received by the corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part, in
any such suit or in a suit brought by the corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
brought by the corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the corporation shall be entitled to recover such
expenses upon a final adjudication that the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has
- --------------------------------------------------------------------------------
BYLAWS Page 15
<PAGE> 20
not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Section 10 or otherwise shall be on the
corporation.
10.4 Nonexclusivity of Rights
The right to indemnification and the advancement of expenses conferred
in this Section 10 shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.
10.5 Insurance, Contracts and Funding
The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law. The corporation may enter into
contracts with any director, officer, employee or agent of the corporation in
furtherance of the provisions of this Section 10 and may create a trust fund,
grant a security interest or use other means (including, without limitation, a
letter of credit) to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Section 10.
10.6 Indemnification of Employees and Agents of the Corporation
The corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee and agent of the corporation to the fullest extent of
the provisions of this Section 10 with respect to the indemnification and
advancement of expenses of directors and officers of the corporation.
SECTION 11. AMENDMENTS
Except as herein otherwise expressly provided, these Bylaws may be
altered or repealed, in any particular, and new Bylaws not inconsistent with any
provision of the Certificate of Incorporation or any provision of law may be
adopted, either by the affirmative vote of the holders of record of a majority
in number of the shares present in person or by proxy and entitled to vote at an
annual meeting of shareholders, or at a special meeting thereof, the notice of
which special meeting shall include the form of the proposed alteration or
repeal or of the proposed new Bylaws, or a summary thereof; or by the
affirmative vote of a majority of the Directors present at any meeting at which
a quorum is present, provided, in the latter case, that the notice of such
meeting shall include the form of the proposed alteration or repeal or of the
proposed new Bylaws, or a summary thereof.
- --------------------------------------------------------------------------------
BYLAWS Page 16
<PAGE> 1
EXHIBIT 10.1
VOTING AGREEMENT
This Agreement, dated as of May 8, 1987, is made and entered into by and
between Bio Techniques Laboratories, Inc. ("BTL") and Central Soya Company, Inc.
("CSY").
Whereas, BTL and CSY desire to make provision for the voting of capital
stock of BTL for the election of Directors,
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and in the Joint Development and Marketing Agreement between the parties
of even date herewith, BTL and CSY agree as follows:
1. Election of Directors. In the election of Directors of BTL, CSY shall
vote all shares of capital stock of BTL owned by it, or as to which it has
voting power, for candidates nominated by the then-current Directors of BTL. CSY
shall not vote its shares for the removal of any such Directors.
2. Election of CSY Nominee. BTL shall cause its Board of Directors to
appoint to the Board of Directors of BTL one nominee designated by CSY, which
nominee must be reasonably acceptable to the current Directors of BTL. BTL
further agrees to cause its Board of Directors to nominate the CSY designee in
all future elections of BTL Directors, provided that the Funding to be furnished
to BTL by CSY pursuant to the Joint Development and Marketing Agreement has not
been terminated by CSY before at least $2,400,000 in Aggregate Funding has been
paid.
3. Legend. CSY agrees that all certificates representing capital stock
of BTL issued to CSY shall be endorsed with the following legend:
"Shares represented by this certificate as subject to terms, conditions
and restrictions contained in a Voting Agreement, a copy of which is on
file with the Secretary of the Corporation."
4. Specific Enforcement. The parties intend and agree that the
provisions of this agreement shall be specifically enforceable.
5. Qualified Nominees. Notwithstanding Sections 1 and 2 hereof, CSY
shall not be obligated to vote for the election of any nominee of the BTL Board,
and BTL shall not be obligated to nominate any designee of CSY, if such person
is disqualified for service as a Director by reason of having committed acts of
gross negligence or malfeasance in office.
<PAGE> 2
6. Successors. This Agreement shall be binding upon the parties hereto
and their respective successors and assigns.
7. Term. This Agreement shall terminate on the earlier of _____________,
1997 or the date on which the warrants and options held by CSY for the purchase
of BTL capital stock expire unexercised.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Washington.
CENTRAL SOYA COMPANY, INC. BIO TECHNIQUES LABORATORIES, INC.
By: /s/ DAVID H. SWANSON By: /s/ WILLIAM D. ST. JOHN
---------------------------- -------------------------------------
David H. Swanson
Title: President & CEO Title: President
------------------------ ----------------------------------
P.0. Box 1400 15555 N.E. 33rd
Fort Wayne, IN 46801-1400 Redmond, WA 98052
-2-
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDMENT TO LEASE RENEWAL
TIAA Realty Inc., a Delaware corporation, Landlord and Nutraceutix, Inc.
Tenant, being parties to that certain Lease dated March 8, 1991 for premises
located at 8340 154th Avenue NE, Redmond, WA 98052 Building L, Units 8340
hereby express their mutual desire and intent to extend the terms of the Lease
and amend the following clauses as of this 29th day of May 1998.
1. TERM OF LEASE; Commencement December 1, 1998
Expiration November 30, 2003 Number of months sixty (60)
BASE MONTHLY RENT: $17,851.00
RENT ADJUSTMENT: (initial)
Step Increase; If this provision is initialed, the
step adjustment provisions of Section 4.b apply as
follows:
Effective Dates New Base Monthly Rent
December 1, 2001 $19,995.00
TOTAL SECURITY DEPOSIT $19,995.00*, AND
NON-REFUNDABLE CLEANING FEE $0.00
* of which $16,528.72 has been previously deposited with Landlord.
All other terms and conditions of the above described Lease shall remain in
full force and effect except as noted on Exhibit D.
Landlord: TIAA REALTY INC., a Delaware corporation
------------------------------------------------
By: Teachers Insurance and Annuity Association of America, a New
York Corporation, its authorized representative.
By: /s/ James Garofalo
------------------------------------------------
James Garofalo
Its: Assistant Secretary
------------------------------------------------
Tenant: Nutraceutix, Inc.
------------------------------------------------
By: /s/ William D. St. John
------------------------------------------------
William D. St. John
[SEAL] Title: President
------------------------------------------------
<PAGE> 2
EXHIBIT D
PREMISES CONDITION
BLDG/UNIT: L/8340
QUANTITY AND/OR SIZE
HEIGHT, LENGTH, ETC.
ITEM:
STANDARD IMPROVEMENTS ONLY
- ------
XX "AS IS" CONDITION PLUS THOSE IMPROVEMENTS SHOWN BELOW
- ------
PARTITIONS: NA
CEILINGS: NA
DOORS: NA
FLOOR COVERING: Building standard carpet in office portion of premises.
PLUMBING: NA
LIGHTS: NA
SWITCHES: NA
WALL ELECTRICAL OUTLETS: NA
TELEPHONE OUTLETS: NA
AIR CONDITIONING OR VENT FAN: NA
AIR CONDITIONING HOOK UP: NA
WATER HEATER: NA
PAINTING: Building standard paint throughout office portion of premises.
SIGNAGE: NA
OTHER: NA
INITIAL
Lessor: ______
Lessee: ______
<PAGE> 3
STATE OF NEW YORK )
)ss.
COUNTY OF NEW YORK )
I certify that I know or have satisfactory evidence that James Garofalo
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute
the instrument and acknowledge it as the Assistant Secretary of Teachers
Insurance & Annuity Association to be the free and voluntary act of such party
for the uses and purposes mentioned in the instrument.
Dated: 7-17-98 /s/ DEBORAH A. REESE
------------------------------------
(Signature)
Deborah A. Reese
------------------------------------
[SEAL] (Print Name)
Notary Public, in and for the State
of NY, residing at Queens
My Commission Expires 1-20-00
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that William D. St.
John is the person who appeared before me, and said person acknowledged that
he/she signed this instrument, on oath stated that he/she was authorized to
execute the instrument and acknowledge it as the President of Nutraceutix, Inc.
to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
Dated: 6-3-98 /s/ LAURA L. SHAFFER
------------------------------------
(Signature)
Laura L. Shaffer
------------------------------------
[SEAL] (Print Name)
Notary Public, in and for the State
of Washington, residing at Renson
My Commission Expires 10-6-2001
<PAGE> 4
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is entered into between PACIFIC BELLEVUE DEVELOPMENTS,
a joint venture comprised of Continental Pacific, Inc. and First City
Investments, Inc., (hereinafter referred to as "Landlord"), and BIO TECHNIQUES
LABORATORIES, INC., (hereinafter referred to as "Tenant").
RECITALS:
WHEREAS, Landlord and Tenant have heretofore entered into a Lease Agreement
dated March 8, 1991, (hereinafter called the "Lease"), wherein Landlord leased
to Tenant a portion of that certain parcel of real property legally described
on Exhibit A, attached hereto, commonly known as Westpark Building L, 8340
154th Avenue N.E., Redmond, Washington, 98052.
AND WHEREAS, Landlord and Tenant desire to execute this Memorandum of Lease in
order to provide a document for recording purposes evidencing the Lease between
Landlord and Tenant.
NOW, THEREFORE, Landlord and Tenant state and acknowledge as follows:
1. Lease. Landlord hereby leases to Tenant pursuant to that certain Lease
dated March 8, 1991, a portion of that certain parcel of real property
legally described on Exhibit A, attached hereto and incorporated herein
by reference, commonly known as Westpark Building L, 8340 154th Avenue
N.E., Redmond, Washington, 98052. This Memorandum of Lease is prepared to
evidence the existence of said Lease, but is not intended as a
modification of said Lease. Said Lease is and remains in full force and
effect. This document is prepared only to identify and acknowledge the
existence and term of the Lease and to identify the real property
involved, and is not to be construed as the Lease between Landlord and
Tenant, nor as a summary of all of the terms and conditions of the Lease.
2. Lease Term. The term of the Lease commences on June 1, 1991, and unless
sooner terminated pursuant to the provisions of the Lease, terminates on
November 30, 1996.
Dated: March 8, 1991
TENANT:
BIO TECHNIQUES LABORATORIES, INC.
By: /s/ WILLIAM D. ST. JOHN
--------------------------------------
Title: Bio Techniques President
-----------------------------------
Landlord Initials: _____
1 Tenant Initials: _____
<PAGE> 5
LANDLORD:
PACIFIC BELLEVUE DEVELOPMENTS
By: Continental Pacific, Inc.
By: /s/ STEPHEN W. WILSON
-------------------------------
STEPHEN W. WILSON
Title: VICE PRESIDENT
----------------------------
By: First City Investments, Inc.
By: /s/ IRENE J. LEONARD
-------------------------------
IRENE J. LEONARD
Title: VICE PRESIDENT
----------------------------
By: /s/ DANIEL W. PEPLINSKI
-------------------------------
DANIEL W. PEPLINSKI
Title: SENIOR CONTROLLER
----------------------------
Landlord Initials: _______
Tenant Initials: _________
2
<PAGE> 6
EXHIBIT "A"
LEGAL DESCRIPTION
WESTPARK BUILDING "L"
Lot 4 of City of Redmond Short Plat Number SS-85-11R, recorded under Recording
Number 8912190943, said Short Plat being a revision of short plat recorded
under Recording Number 8512260700, said short plat being a subdivision of the
east half of the southwest quarter of Section 2, Township 25 north, Range 5
east, Willamette Meridian, in King County, Washington;
Except those portions of said lots conveyed to the City of Redmond by deed
recorded under Recording Number 8810070396 and 8907120649.
Landlord Initials: ______
Tenant Initials: ______
3
<PAGE> 7
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that William D. St. John is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the instrument
and acknowledged it as the President of BIO TECHNIQUES LABORATORIES, INC., to
be the free and voluntary act of such corporation for the uses and purposes
mentioned in the instrument.
Dated: March 12, 1991
/s/ JONNA S. VALENTINE
- ----------------------
Notary Public in and for the State of Washington, [SEAL]
Residing at: Redmond
My Appointment Expires: 8/26/91
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Stephen W. Wilson is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute said
instrument as Vice President of CONTINENTAL PACIFIC, INC., Joint Venturer, on
behalf of PACIFIC BELLEVUE DEVELOPMENTS, a joint venture, and acknowledged said
instrument as the Vice President of CONTINENTAL PACIFIC, INC., Joint Venturer,
to be the free and voluntary act of such corporation and joint venture for the
uses and purposes mentioned in said instrument.
Dated: March 15, 1991
/s/ JONNA S. VALENTINE
- ----------------------
Notary Public in and for the State of Washington, [SEAL]
Residing at: Redmond
My Appointment Expires: 8/26/91
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Irene J. Leonard and
Daniel W. Peplinski are the persons who appeared before me, and said persons
acknowledged that they signed this instrument, on oath stated that they were
authorized to
Landlord Initials: ______
Tenant Initials: ______
4
<PAGE> 8
execute said instrument as Vice President and Senior Controller, respectively
of FIRST CITY INVESTMENTS, INC., Joint Venturer, on behalf of PACIFIC BELLEVUE
DEVELOPMENTS, a joint venture, and acknowledged said instrument as the Vice
President and Senior Controller, respectively, of FIRST CITY INVESTMENTS, INC.,
Joint Venturer, to be the free and voluntary act of such corporation and joint
venture for the uses and purposes
mentioned in said instrument.
Dated: March 25, 1991
/s/ Illegible
- ----------------------
Notary Public in and for the State of Washington,
Residing at: Seattle
My Appointment Expires: 4/30/92
Landlord Initials: ______
Tenant Initials: ______
5
<PAGE> 9
INDUSTRIAL LEASE
1. PARTIES
This Lease, dated March 8, 1991, for reference purposes only, is made by
and between PACIFIC BELLEVUE DEVELOPMENTS, a joint venture comprised of
Continental Pacific, Inc. and First City Investments, Inc., ("Landlord"), and
BIO TECHNIQUES LABORATORIES, INC., ("Tenant").
2. PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
upon the terms and conditions set forth herein, that certain premises (the
"Premises") delineated on the site and space plans attached hereto as Exhibit
A, together with the right to use all appurtenances thereunto. The Premises are
located in a building commonly known as Westpark Building L ("Building") on that
certain real property legally described on Exhibit B, attached hereto (the "Real
Property").
For purposes of this Lease, it is agreed that the Premises will contain
15,893 rentable square feet, constituting thirty-one and seven-tenths percent
(31.7%) of the total rentable square feet of the Building (herein "Tenant's
Square Foot Percentage"), and that the Building contains or will contain upon
completion 50,144 rentable square feet. The Premises are measured using "drip
line" and consist of 9,405 square feet on the first floor and 6,488 square feet
on the second floor.
3. TERM
3(A) Lease Term. The term of this Lease (the "Lease Term") consists of
the Initial Term as defined in Paragraph 3(B) below and any Extended Terms
which may be provided for by an Addendum attached hereto.
3(B) Initial Term. The Initial Term of this Lease (the "Initial Term")
shall be for sixty-six (66) months, commencing on the 1st day of June, 1991,
(the "Commencement Date") and ending at midnight of the 30th day of November,
1996, unless terminated as provided elsewhere in this Lease.
4. POSSESSION
4(A) Possession. Except as provided in Paragraph 4(B) below, Tenant shall
be entitled to possession of the Premises on the Commencement Date.
4(B) Delayed Possession. Notwithstanding the Commencement Date set forth
in Paragraph 3(B) above, if the Landlord, for any reason whatsoever, cannot
deliver possession of the Premises to Tenant on that date, for all purposes, the
Commencement date shall be extended until Landlord delivers possession of the
Premises to Tenant. In such event, this Lease shall not be void or voidable, and
the Landlord shall not be liable to Tenant for any resulting loss or damage. In
such event, the ending date of the Initial Term as set forth in Paragraph 3(B)
above shall not be extended. If the Tenant, for any reason whatsoever, delays
occupancy, the Commencement Date shall not be extended. If the Premises are not
substantially complete by July 1, 1991, due to Landlord delays, then Landlord
shall provide Tenant with one day of rental abatement for each day after July 1,
1991 that occupancy is delayed. All punch list items are to be completed in a
reasonable time period.
5. MINIMUM RENT
Except as set forth below, Tenant agrees to pay to Landlord at c/o Morris
Piha Management Group, Inc., P.O. Box 7389, Bellevue, Washington, 98008-1389,
or to such
Landlord Initials: _____
Tenant Initials: _____
6
<PAGE> 10
other parties or at such other place as Landlord may hereafter designate in
writing to Tenant, as Minimum Rent ("Minimum Rent"), without offset or
deduction, the sum of SIXTEEN THOUSAND FIVE HUNDRED TWENTY-EIGHT AND 72/100
DOLLARS ($16,528.72) per month, in lawful money of the United States of
America. Commencing June 1, 1994, the amount of monthly Minimum Rent due
hereunder shall increase by eight percent (8%) to SEVENTEEN THOUSAND EIGHT
HUNDRED FIFTY-ONE AND 02/100 DOLLARS ($17,852.02). Except as provided below,
Tenant shall pay the monthly Minimum Rent in advance on the first day of each
and every month during the Lease Term. If the Initial Term commences on any day
other than the first day of the month, the Minimum Rent for the first partial
month of the Initial Term shall be payable in advance on
the first day of the Initial Term, and shall be prorated in proportion to the
number of days of such month which are included in the Initial Term. As partial
consideration for the execution of this Lease, Tenant has paid to Landlord the
sum or THIRTY-THREE THOUSAND FIFTY-SEVEN AND 44/100 DOLLARS ($33,057.44). Said
sum shall be credited toward the payment of the Minimum Rent for the first and
second months of the Initial Term. If the Tenant fails to comply fully with and
perform all of the terms of this Lease, said sum shall automatically be
converted into an additional security deposit to be disposed of in accordance
with the terms of Paragraph 6. Notwithstanding the above, the amount of monthly
Minimum Rent for the third through the seventh months of the Initial Term shall
be abated.
6. SECURITY DEPOSIT
Tenant has deposited with Landlord the sum of SIXTEEN THOUSAND FIVE
HUNDRED TWENTY-EIGHT AND 72/100 DOLLARS ($16,528.72) ("Security Deposit") as
security for Tenant's faithful performance of its obligations under this Lease.
If Tenant defaults in any material obligation under this Lease, including, but
not limited to, the payment of rent or other charges, Landlord may (but shall
not be required to) use, apply or retain all or any part of the Security Deposit
for the payment of any rent or any other charge in default, or for the payment
of any such sum which Landlord may spend or become obligated to spend by reason
of Tenant's default. If any portion of the Security Deposit is so used or
applied, Tenant shall, within fifteen (15) days after written demand therefore,
deposit with Landlord cash in an amount sufficient to restore the Security
Deposit to its original amount. Landlord shall not be required to keep the
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on the Security Deposit. If Tenant fully and faithfully
performs all of Tenant's obligations under this Lease, the Security Deposit or
any balance thereof shall be returned to Tenant (or, at Landlord's option, to
the last assignee of Tenant's interest hereunder) at the expiration of the Lease
Term within fifteen (15) days after Tenant has vacated the Premises. If
Landlord's interest in this Lease is terminated, Landlord shall transfer said
deposit to Landlord's successor in interested.
7. COMMON AREAS
7(A) Areas. Landlord shall make available such areas and facilities for
the common use of all tenants of the Building (including, but not limited to,
parking areas, driveways, truckways, delivery passages, truck-loading areas,
access and egress roads, walkways and landscaped and planted areas) as Landlord
shall deem appropriate ("Common Areas"). The roof and exterior walls of the
Building and the utility systems up to the boundaries of the Premises are
Common Areas. Landlord or its agents shall operate, manage, equip, light,
repair, replace and maintain the Common Areas for their intended purposes in
such manner as Landlord shall reasonably, in its sole discretion, determine.
Landlord may, from time to time, change the size, location, nature and use of
any Common Area and make installations therein and move and remove the same,
provided that Tenant's access to the Premises and parking are not materially
altered. All reasonable expenses in connection with the Common Areas are
Operating Expenses for the purposes of Paragraph 8 below.
7(B) Rights. Tenant and its employees, agents and invitees shall have
the non-exclusive right (in common with other tenants of the Building and
Landlord) to use the
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Common Areas, subject to any reasonable Rules pursuant to Paragraph 20.
Landlord's Rules may include the designation of specific areas in which cars
owned by Tenant, its employees and agents must be parked. Landlord may, at any
time, temporarily close any Common Areas for reasonable periods of time due to
construction, maintenance, repair or changes to any part of the Building or
Real Property, with prior notice to Tenant.
7(C) Parking. Tenant shall be entitled to use, on a non-reserved basis, a
prorated share of available parking. Tenant's prorated share shall be
determined by comparing the rentable square feet of the Premises to the
rentable square feet in the Building and any other adjacent buildings that will
be using the available parking. Tenant shall not at any time unreasonably
interfere with the rights of Landlord or of other tenants of the Building or
other adjacent buildings or invitees of the same to use any of the parking
areas.
8. ADDITIONAL RENT
8(A) Additional Rent. In addition to the Minimum Rent, Tenant shall pay
to Landlord Tenant's prorata share of the Operating Expenses as "Additional
Rent" as required by Paragraph 8(E) below. Tenant's prorata share of the
Operating Expenses shall be that portion of the Operating Expenses that bears
the same relationship to the total Operating Expenses as the rentable square
feet of the Premises bears to the total rentable square feet contained or to be
contained in the Building.
8(B) Lease Year. For the purpose of determining the Additional Rent
pursuant to this Paragraph 8, "Lease Year" shall be defined as each calendar
year during the Lease Term; provided, however, that the first Lease Year shall
commence on the Commencement Date and continue for the remaining portion of
that calendar year, and the final Lease Year shall be that portion of the final
calendar year prior to the termination of this Lease.
8(C) Operating Expenses. For the purposes of determining the Additional
Rent to be paid by Tenant for each Lease Year pursuant to this Paragraph 8,
"Operating Expenses" shall be defined as any and all reasonable costs of
management, operation, maintenance and repair of the Building, and the Common
Areas and the Real Property applicable to that Lease Year, except as specified
below. Operating Expenses shall include, by way of illustration, but not
limitation: real property taxes, real property assessments with interest payable
over the maximum permissible period, personal property taxes on Common Area
Improvements, all costs of utilities (including sewer, garbage, water and
electricity) provided by Landlord and not charged separately to a specific
Tenant pursuant to the terms of Paragraph 18 below, all premiums for special
form property insurance, liability insurance, and any other insurance Landlord
may reasonably deem to be necessary or appropriate, any elevator maintenance or
repair, all maintenance and repair reasonably required to be performed by
Landlord pursuant to Paragraphs 7 and 12 or undertaken by Landlord in the
exercise of its reasonable discretion, accounting and legal fees incurred in the
management of the Building (with the exception of those fees attributable to
another tenant by virtue of a direct tenant-related cause of action), any
reasonable management fees paid by Landlord to independent managers or a fee for
Landlord's management equal to five percent (5%) of the sum of the Minimum Rent
and Additional Rent charged by Landlord for all premises in the Building, the
cost of all capital improvements required by governmental agencies following
completion of the Building and not to be paid by Tenant pursuant to Paragraph
10, amortized over the useful life thereof, the cost of all capital improvements
which reduce Operating Expenses, and all labor, supplies, materials and
equipment required to perform any work the cost of which is an Operating
Expense. Any reasonable alteration or improvement or repair that costs more than
$20,000 shall be deemed to be a capital improvement. The cost of all capital
improvements and any sales tax thereon shall be financed, if possible. If it is
financed, Operating Expenses shall include only the aggregate amount of
financing payments incurred for the applicable Lease year. If it is not
financed, the cost, any sales tax and interest paid thereon shall be amortized
over the useful life of the capital improvement. In such event, Operating
Expenses shall include only the amortized amounts applicable to that Lease Year.
Operating Expenses shall not include: depreciation of the Building or
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equipment located therein, Landlord's Building purchase or original construction
loan payments, real estate brokers' commissions, utilities, maintenance or
repairs charged separately to a specific tenant pursuant to Paragraphs 12 and
18; and the cost of repairs reimbursed by insurance, executive salaries if not
directly related to managing the Building, marketing and advertising fees and
penalties due to the violation of law by Landlord or other tenants. Operating
Expenses paid or incurred by Landlord in connection with any calendar period
that is longer than the applicable Lease Year shall be prorated. Landlord will
not arbitrarily raise the insurance coverage limits to unreasonable amounts, and
will make its best efforts to keep the Operating Expenses as economical as
possible without compromising the maintenance and quality of the project. Annual
percentage increases in Tenant's Operating Expenses shall not exceed the
corresponding annual percentage increase in the Consumer Price Index, for all
Operating Expenses except taxes and insurance.
8(D) Statements. Landlord shall endeavor to give to Tenant, on or before
the first day of March of each year during the Lease Term: (1) an Estimated
Additional Rent Statement setting forth any estimated Additional Rent, if any,
for the 12-month period immediately following the period covered by the last
Estimated Additional Rent Statement; and (2) a statement ("Additional Rent
Statement") of the Operating Expenses and Additional Rent, if any, payable
and/or paid by Tenant for the prior Lease Year. Failure of Landlord to give
Tenant an Estimated Additional Rent Statement or Additional Rent Statement by
the first day of March shall not constitute a waiver by Landlord of its right
to receive such Additional Rent.
8(E) Payments. Tenant shall pay to the Landlord, concurrently with each
Minimum Rent payment, an Estimated Monthly Additional Rent Payment. The amount
of the Estimated Monthly Additional Rent Payment shall be the amount of the
monthly payment set forth in the last Estimated Additional Rent Statement
received by Tenant.
Except as specified below, if the total of the Estimated Monthly
Additional Rent Payments, if any, paid by Tenant for a Lease Year is more or
less than the Additional Rent payable by Tenant for that Lease Year, as shown
on the applicable Additional Rent Statement, any excess shall be credited
toward the Estimated Monthly Additional Rent Payments next coming due and any
deficiency shall be paid by Tenant to Landlord within thirty (30) days after
Tenant receives the Additional Rent Statement. Even though the Lease Term has
expired and Tenant has vacated the Premises, when Landlord makes the final
determination of the Additional Rent for the final Lease Year, Tenant shall
immediately pay to Landlord any amounts due, and Landlord shall immediately
refund any overpayment made by Tenant.
8(F) Documentation of Additional Rent. Tenant shall have the right to
review Landlord's books and records regarding Additional Rent by appointment
and at the location where such records are normally kept. Landlord will provide
Tenant with copies of such records upon Tenant's request after such review, and
at Tenant's sole cost and expense. Tenant shall have the right to have any
arithmetic errors in the calculation of its Additional Rent corrected. However,
Tenant shall not delay the payment of, or offset against, any amounts due to
Landlord from Tenant under the terms of this Lease because of Tenant's request
for review, a pending review or a pending correction of arithmetic errors
pursuant to this Paragraph.
9. USE
Tenant covenants that at all times during the Lease Term and such further
time as Tenant occupies the Premises or any part thereof:
9(A) Permitted Uses. Tenant shall use the Premises for administration,
research and development, manufacturing, warehouse and related uses and for no
other purpose without the prior written consent of Landlord, which consent
shall not be unreasonably withheld.
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9(B) Restricted Uses. Tenant shall comply with any and all reasonable
Rules created by Landlord pursuant to Paragraph 20 relating to restrictions on
the use of the Premises, Building or Real Property.
10. COMPLIANCE WITH LAW
Tenant shall not use or permit the Premises, the Building or the Real
Property to be used in any way which will be in violation of any applicable law,
ordinance, rule or regulation of any governmental entity. Tenant shall, at its
sole cost and expense, promptly comply with all such laws, ordinances, rules and
regulations relating to the condition, use or occupancy of the Premises,
excluding only: (1) making structural changes which are not related to or
affected by Tenant's improvements or acts or the nature of Tenant's business; or
(2) any alteration of the Premises required to comply with any such laws,
ordinances, rules and regulations now in force. Notwithstanding the terms of
Paragraph 11, Landlord's consent shall not be required for any alteration of the
Premises required by this Paragraph, but Tenant shall comply with all other
terms of Paragraph 11 in making such alterations. The final judgment of any
court of competent jurisdiction or an admission by Tenant, in any action against
Tenant, whether Landlord is a party to the action or not, that Tenant has
violated any such law, ordinance, rule or regulation shall conclusively
establish a default under this Paragraph 10. Any default under this Paragraph 10
shall be a material default under this Lease.
11. ALTERATIONS AND ADDITIONS
Tenant shall not make or permit any alteration, addition or improvement to
or of any part of the Premises in excess of $5,000 without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Tenant shall pay any and all reasonable costs incurred by Landlord in
reviewing and evaluating any request for the consent required by this Paragraph.
Any alteration, addition or improvement consented to by Landlord shall be made
in a good and workmanlike manner at Tenant's sole cost and expense and shall
comply with all applicable laws, codes, ordinances, rules and regulations.
Tenant shall obtain Landlord's prior written approval of any contractor or
entity selected by Tenant to perform the work, which approval shall not be
unreasonably withheld or delayed. All alterations, additions or improvements per
the original tenant improvement plans attached hereto as Exhibit A that Landlord
provides (including, but not limited to, wall and window covering, paneling and
built-in cabinet work, but excepting moveable furniture and trade fixtures)
shall at once become a part of the realty, belong to the Landlord and shall be
surrendered with the Premises unless Landlord demands their removal as set forth
below. Upon the expiration or sooner termination of the Lease Term, Tenant
shall, at Tenant's sole cost and expense, with all due diligence, remove any
alterations, additions or improvements made by Tenant and designated by Landlord
to be removed; provided Landlord gives Tenant not less than thirty (30) days
advance written notice. Tenant shall, at its sole cost and expense, repair any
damage to the Premises caused by such removal. Removal of tenant improvements
shall not include those improvements made by Landlord in behalf of Tenant.
Landlord acknowledges that Tenant will be placing and installing numerous
pieces of equipment and fixtures in the Premises which will remain the property
of the Tenant. Tenant also agrees to repair any damage, at its sole cost and
expense, caused by the removal of such equipment and fixtures.
12. REPAIRS
12(A) Acceptance. By taking possession of the Premises, Tenant shall be
deemed to have accepted the Premises as being in good and sanitary order,
condition and repair, subject to completion of punchlist items, if any.
12(B) Landlord's Obligations. Landlord shall maintain and repair: the
Common Areas, the roof, the footings, floor slab, structural elements of the
exterior walls of the
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covenant shall not waive, release or discharge the assignee or sublessee from
its liability for performance of the Tenant's obligations under this Lease.
14(B) Costs. Tenant shall reimburse Landlord for all reasonable attorneys'
fees and other costs incurred by Landlord in connection with the review of and
preparation of documents incident to any request by Tenant for Landlord's
consent, whether or not Landlord gives its consent.
14(C) Rents. Notwithstanding the above, Tenant acknowledges that Landlord
will not consent to any assignment of this Lease or any sublease of all or any
portion of the Premises at a Minimum and Additional Rent less than that then
being paid by Tenant to Landlord under this Lease. If Landlord consents to any
assignment or sublease in which the value of the consideration to be received by
Tenant for such assignment or sublease exceeds the balance of the Minimum and
Additional Rent to be paid by Tenant to Landlord during the rest of the Lease
Term, forty percent (40%) of such excess shall be paid to Landlord. The value of
the consideration to be received by Tenant shall be reasonably determined by
Landlord and Tenant. Landlord shall have the right to review the assignment or
sublease for the purpose of determining the value of such consideration. In
making its determination, Landlord shall deduct from the total consideration to
be received any leasing commissions, rental paid by Tenant during any period
during which the Premises were vacant, the unamortized portion of Tenant's
contribution to over-standard tenant improvements, if any, and any other
reasonable out-of-pocket expenses of Tenant incurred in connection with such
subleasing or assignment. Any amounts to be paid by Tenant to Landlord pursuant
to the terms of this Paragraph 14 shall be paid as and when received by Tenant,
but not later than the date this Lease terminates.
14(D) Included Transfers. If Tenant is a corporation, any transfer of this
Lease by merger, consolidation, reorganization or dissolution shall constitute
a transfer for the purposes of this Paragraph 14. If Tenant is a corporation,
any change in the ownership of, or power to vote a percentage of Tenant's
now-outstanding stock which results in a change of controlling persons, or any
transfer of all or substantially all of the assets of Tenant shall constitute a
transfer for the purposes of this Paragraph. If Tenant is a partnership, any
partial or total withdrawal of any of the present general partners, and any
transfer by a general partner of all or part of his partnership interest, shall
constitute a transfer for the purposes of this Paragraph.
14(E) Permitted Transfers. Notwithstanding anything in this Paragraph 14
to the contrary, Tenant may assign this Lease or sublet the Premises to a
partnership in which the Tenant is a general partner or to a corporation in
which Tenant owns not less than 51% of the equity interest. No such assignment
or subletting shall relieve the Tenant or any guarantor hereof from any
liability under this Lease. If the Tenant later ceases to be a general partner
of such an assignee or subtenant or ceases to own at least 51% equity interest
in such corporate assignee or subtenant, such change shall constitute a
transfer which requires Landlord's consent.
14(F) Judicially-Imposed Assignment. If the non-assignment provisions of
this Paragraph 14 are deemed to be unenforceable in any bankruptcy proceeding,
Landlord and Tenant agree that a showing of adequate assurance of future
performance by a prospective assignee of this Lease must include, without
limitation, clear and convincing evidence that: (i) Landlord will receive the
full benefit of each and every term of its bargain in this Lease, except for
the nonassignment and related termination clauses, but including Paragraph
14(C); (ii) the Premises will continue to be used solely for the permitted use
set forth in Paragraph 9(A); (iii) a judicially-imposed assignment will not
cause an acceleration or increase in the interest rate, or fees in connection
with, any indebtedness of Landlord secured by Landlord's interest in the Real
Property or this Lease; and (iv) the prospective assignee has the means,
expertise and experience to operate the business to be conducted upon the
Premises in a first-class manner.
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15. HOLD HARMLESS
Tenant agrees to indemnify and hold Landlord and its agents harmless from
any and all claims arising from, in connection with or related to: Tenant's use
of the Premises, the Building or the Real Property; the conduct of Tenant's
business; or any activity, work or other thing done or permitted by the Tenant
on the premises, in the Building or on the Real Property, whether or not such
claims are due in whole or in part to Tenant's negligence, unless other
insurances are involved. Tenant further agrees to indemnify and hold Landlord
harmless from any and all claims arising from, in connection with, or related
to any default by Tenant in the performance of its obligations under this
Lease, or any act, omission or neglect of the Tenant, its agents or invitees.
Tenant further agrees to indemnify and hold Landlord harmless from all costs
(including, but not limited to, reasonable attorneys' fees) incurred by
Landlord in connection with its defense against any claim made against the
Landlord as to which Tenant has indemnified Landlord pursuant to this Paragraph
15. Tenant shall give prompt notice to Landlord of any casualty or accident in
the Premises. Upon notice by Landlord, Tenant, at Tenant's expense,shall defend
Landlord in any action or proceeding brought against Landlord by reason of any
such claim. Landlord shall likewise hold Tenant harmless from any and all
claims due to Landlord's negligence.
Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of, and waives and releases all claims for, any damages to
person or property sustained by Tenant or any person claiming through Tenant,
which damages result from any accident or occurrence in or upon the Premises,
the Building, or the Real Property from any cause whatsoever (except where
caused by the negligence of Landlord, its agents or invitees). Such claims
shall include, but not be limited to, claims resulting from: (a) any equipment
or appurtenances, including the HVAC system becoming out of repair; (b) injury
done or occasioned by wind; (c) any defect in or failure of plumbing, heating
or air conditioning equipment, electric wiring or insulation thereof; (d) any
defect in or failure of gas, water and steam pipes, stairs, railings or walks;
(e) broken glass; (f) the backing up of any sewer pipe or downspout; (g) the
bursting, leaking or running of any HVAC system, tank, tub, washstand, water
closet, waste pipe, drain or any other pipe or tank in, upon or about the
Premises, the Building or the Real Property; (h) the escape of steam or hot
water; (i) water, snow or ice being upon or coming through the roof, skylight,
trapdoor, stairs, doorways, show windows, walks or any other place upon or near
the Premises, the Building or the Real Property; (j) the failing of any
fixture, plaster, tile or stucco; or (k) any act, omission or negligence of
co-tenants, licensees or any other persons or occupants of said Building.
16. SUBROGATION
As long as their respective insurers so permit, Landlord and Tenant
hereby mutually waive any and all of their respective rights of recovery
against each other or against any other tenant or occupant of the Building, or
against any of their officers, agents or invitees, for any loss to person(s) or
property, which loss is insured by fire, extended coverage or other property
insurance policies existing for the benefit of the respective parties to the
extent of the insurance proceeds received therefor. Each party shall apply to
its insurers to obtain said waiver. Each party shall obtain any special
endorsements, if required by its insurer, to evidence compliance with the
aforementioned waiver.
17. INSURANCE
17(A) Liability Insurance. During the Lease Term, Tenant shall, at
Tenant's expense, obtain and maintain a commercial general liability insurance
policy (or its equivalent) insuring, as named insureds, Tenant, and as
additional insureds, the Landlord and Landlord's lender, as their interest may
appear. The minimum combined single limit of said insurance shall not be less
than $1,000,000 for injury or death, for any one accident and for property
damage. Landlord may increase or decrease the required limit as it deems
reasonably necessary based upon periodic insurance reviews. The insurance
required by this Paragraph shall be on an occurrence basis. If Tenant is unable
to obtain said insurance on
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an occurrence basis, it may be on a claims-made basis, provided that, in
addition, Tenant, at Tenant's expense, obtains an Owner's Protective Policy,
issued in the name of Landlord only, which is on an occurrence basis for the
limits required by this Paragraph 17. Any such policy shall be written as a
primary policy (unless there are other insurances involved) not contributing
with and not in excess of coverage which Landlord may carry.
17(B) Personal Property Insurance. During the Lease Term, Tenant shall, at
Tenant's expense, obtain and maintain a special form policy of property
insurance (or the equivalent) covering all of Tenant's personal property,
including, but not limited to, Tenant's furniture, fixtures, equipment and
inventory, in the amount of its full replacement cost.
17(C) General Terms. Tenant shall obtain the insurance required by
Paragraph 17(A) from companies reasonably acceptable to Landlord. Before
occupying the Premises, Tenant shall deliver to Landlord a copy of the insurance
policies required by Paragraph 17(A), or certificates evidencing the existence
and amount of such insurance. If required, Tenant shall deliver a copy of the
original policy or certificate to Landlord's lender. Not later than ten (10)
days before the expiration of any such policy, the Tenant shall deliver to
Landlord evidence that the insurance required by Paragraph 17(A) has been
continued. The policies shall not be cancelable or subject to reduction of
coverage until after using its best efforts to provide thirty (30) days prior
notice to Landlord and Landlord's lender, if any. If Tenant fails to maintain
the required insurance, Landlord may, but is not required to, procure the same
at Tenant's expense.
18. SERVICES AND UTILITIES
18(A) Installation and Option to Supply. Landlord agrees that it will
supply the Premises with facilities for: the delivery to and distribution
within the Premises of water, electricity, telephones and other common
utilities, and the removal of sewage. Landlord is not obligated to supply
facilities to make gas available to the Premises. Landlord may cause as many
utility services to be separately metered to the Premises as Landlord
reasonably deems necessary.
18(B) Payment. Tenant shall pay for all water, gas, heat, light, power,
sanitary and storm sewer charges, telephone service and all other services and
utilities supplied to the Premises, together with any taxes thereon. If any such
services are not separately metered to the Premises, the cost of such services
shall be included in Operating Expenses and Tenant shall pay its prorata share
thereof pursuant to Paragraph 8. The interruption or impairment of any utility
services caused or necessitated by repairs, improvements or hazards or
occurrences beyond Landlord's control shall not give Tenant any claim for
damages against Landlord or any right to abate its Minimum Rent or Additional
Rent or any other obligations hereunder. Landlord shall not be liable under any
circumstances for a loss of or injury to Tenant's property or business, however
occurring, in connection with or incidental to failure of any utilities, unless
such failure is a result of the negligence of Landlord, its employees, agents or
invitees.
19. PERSONAL PROPERTY TAXES
Tenant shall pay, before delinquency, any and all taxes levied or assessed
and payable during the Lease Term upon all of Tenant's equipment, furniture,
fixtures, and any other personal property located in the Premises. If any of the
same are assessed and taxed with the Building or Real Property, Tenant shall pay
to Landlord its share of such taxes prior to delinquency after receipt of a
written statement setting forth the amount of such taxes that Landlord has
determined are applicable to Tenant's property.
20. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with all recorded covenants,
conditions and restrictions affecting the Premises, all reasonable rules and
regulations and all rules and
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regulations that the Landlord may reasonably, from time to time, make to
facilitate the reasonable operation of the Building or the complex in which it
is located or to comply with the requirements of any governmental entity or
insurance company (collectively called "Rules"). Landlord reserves the right to
modify the Rules from time to time, with written notice to Tenant of such
modification. The Rules and any modifications shall be binding upon the Tenant
upon delivery of a copy of them to Tenant. Landlord shall not be responsible
to Tenant for the failure of any other tenants or occupants to comply with the
Rules. Landlord may not make any rules or regulations that prohibit Tenant from
conducting Tenants normal course of business.
21. HOLDING OVER
If Tenant remains in possession of the Premises or any part thereof after
the expiration of the Lease Term with the express written consent of Landlord
(which consent may be granted, or reasonably withheld or conditioned in the
sole discretion of Landlord), such occupancy shall be a tenancy from month to
month at a Minimum Rent in an amount equal to 120% of the last monthly Minimum
Rent, plus all Additional Rent and other charges payable hereunder, and upon all
the terms hereof applicable to a month to month tenancy.
22. ENTRY BY LANDLORD
Landlord reserves the right to enter the Premises to inspect the same, to
show the Premises to prospective purchasers or tenants, to perform any
alterations, improvements, repairs or maintenance, to provide any services that
Landlord may reasonably deem necessary or desirable, and to do any other act
permitted under this Lease. All such entries shall be made at reasonable times
and with twenty-four (24) hours' prior notice to Tenant, and shall be made
during business hours, unless otherwise permitted by Tenant, or in case of
emergency. Landlord may erect scaffolding and any other structures reasonably
required by the nature of any work being performed by Landlord. Landlord shall,
at all times, retain a key with which to unlock all of the doors in the
Premises, (excluding Tenant's vaults, safes and files). No entry by Landlord
shall be construed or deemed to be a forcible or unlawful entry into, or a
detainer of, the Premises, or an eviction of Tenant from all or any portion of
the Premises.
23. RECONSTRUCTION
Except as provided below, if the Premises are damaged by fire or other
cause covered by Landlord's property insurance, Landlord agrees to repair the
same, and this Lease shall remain in full force and effect, except that Tenant
shall be entitled to a proportionate reduction of the Minimum Rent and
Additional Rent from the date of damage until the repairs are completed. The
proportionate reduction shall be based upon the extent to which such damage
materially interferes with the business carried on by the Tenant in the
Premises.
Landlord shall have the option either to repair and rebuild the Premises
or to terminate this Lease as provided herein if the Premises or any other
portion of the Building are damaged: (a) as a result of any cause not covered
by Landlord's insurance; (b) and insurance proceeds are insufficient to fully
pay for repair or restoration; (c) to the extent of more than twenty-five
percent (25%) of the then complete replacement cost thereof; (d) such that the
repair or restoration thereof, in Landlord's opinion, cannot be completed
within six (6) months of the damage; or (e) during the last twelve (12) months
of the Lease Term. Landlord shall exercise its option to terminate this Lease
by giving to Tenant, at any time within sixty (60) days after the damage,
written notice of its election to terminate this Lease as of a date specified
in the notice. The termination date specified shall not be less than thirty
(30) nor more than sixty (60) days after the date of the notice. If Landlord
fails to give notice within said sixty (60) days, it shall be deemed to have
elected to repair or restore the damage. If Landlord terminates this Lease as
provided, this Lease shall automatically terminate on the date specified in
Landlord's notice. Neither party shall have
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any further liability to the other, except for obligations which were accrued
and unpaid as of the date of damage, and except that Landlord shall return the
security deposit to Tenant.
This Lease shall remain in full force and effect if Landlord elects to
repair the damage, or until the termination date specified in the notice of
termination, as applicable, except that the Minimum Rent shall be
proportionately abated from the date of damage until the repairs are completed,
or until the specified termination date, as applicable. Such proportionate
abatement shall be based upon the extent to which the damage materially
interferes with the business carried on by the tenant, in the mutual judgment
of both Landlord and Tenant, in the Premises.
Landlord shall not be required to repair or replace any leasehold
improvements, fixtures or other personal property of Tenant, all of which shall
be repaired or replaced promptly by Tenant.
24. EMINENT DOMAIN
If any portion of the Premises is taken or appropriated by any public or
quasi-public authority under the power of eminent domain, or is purchased by
the condemnor in lieu thereof, either party shall have the right to terminate
this Lease upon thirty (30) days' written notice given to the other party with
said termination being the date that possession is surrendered to the
condemnor. If neither party elects to terminate, the Minimum Rent and Additional
Rent thereafter to be paid shall be equitably reduced. If any part of the
Building or Real Property other than the Premises is so taken or appropriated,
or is purchased by the condemnor in lieu thereof, Landlord shall have the
right, at its option, to terminate this Lease upon thirty (30) days' written
notice to Tenant given within sixty (60) days after the date that possession is
surrendered to the condemnor. Tenant shall be entitled to receive all portions
of any condemnation award or settlement which are attributable to Tenant's
moving costs or the unamortized portion of any tenant improvements that were
paid for by Tenant other than through payments in any form, including rent, to
the Landlord. Landlord shall be entitled to receive all other portions of any
condemnation award or settlement.
25. TENANT'S DEFAULT
The occurrence of any one or more of the following events shall
constitute default under this Lease by Tenant:
25(A) Abandonment. Tenant's abandoning the Premises, and the Tenant
is delinquent in its rental obligations.
25(B) Unauthorized Conveyance. Any action by Tenant that violates the
terms of Paragraph 14.
25(C) Fifteen-Day Cure Period. Tenant's failure to cure any of the
following within fifteen (15) days after receiving written notice thereof:
(i) Tenant's failure to make any payment required to be
made by Tenant as and when due;
(ii) Any change in Tenant's use of the Premises in violation
of Paragraph 9(A);
(iii) Any alteration, addition or improvement of or to the
Premises without Landlord's prior written consent, as so required per Paragraph
11;
(iv) Tenant's failure to procure or maintain the insurance
required under Paragraph 17;
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Tenant Initials: ______
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(v) Tenant's violation of any of the Rules; or
(vi) Tenant's failure to deliver its statement as and when
required by Paragraph 28.
25(D) Thirty-Day Cure Period. Tenant's failure to observe or perform
any of the covenants, conditions or provisions of this Lease to be observed or
performed by the Tenant, other than those described above, for a period of
thirty (30) days after written notice thereof is received by Tenant; provided
that if the nature of Tenant's default is such that more than thirty (30) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant's commences such cure within the thirty (30) day period and
diligently prosecutes the cure to completion.
25(E) Financial Distress. The making by Tenant or any guarantor
hereof of any general assignment or general arrangement for the benefit of
creditors; the filing by or against Tenant or any guarantor of a petition to
have Tenant or such guarantor adjudged a bankrupt, or a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant or any guarantor, the same is
dismissed or stayed within sixty (60) days); the appointment of a trustee or a
receiver to take possession of all or any part of Tenant's or any guarantor's
assets or of Tenant's interest in this Lease, where possession is not restored
to Tenant or the guarantor within thirty (30) days; or the entry of final
judgment against Tenant or any guarantor if such judgment is not satisfied or
otherwise discharged within thirty (30) days. Tenant shall immediately notify
Landlord upon the occurrence of any event described in this Paragraph 25(E)
before the running of any of the time periods provided herein.
26. REMEDIES IN DEFAULT
At any time after Tenant defaults under the terms of this Lease,
Landlord may:
26(A) Terminate Possession. Terminate Tenant's right to possession of
the Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. In
addition, Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord because of Tenant's default, including, but not limited
to: the cost of recovering possession of the Premises; expenses of reletting
(including all costs of making renovations and/or alterations for reletting);
reasonable attorneys' fees and costs; all costs incurred by Landlord in
connection with any receivership to protect the Premises or Landlord's interest
under this Lease; the value at the time of award of the amount by which the
unpaid rent (including late charges and interest as provided below) payable by
Tenant exceeds the amount of rental loss that could reasonably be avoided; and
the portion of any leasing commission applicable to the unexpired term of this
Lease. Tenant agrees that Landlord shall not be required to, but may, at its
option, make any reasonable renovations or alterations to the Premises in
connection with reletting to mitigate damages it may suffer.
26(B) Maintain Possession. Maintain Tenant's right to possession, in
which case this Lease shall continue in effect. In such event, Landlord shall
be entitled to enforce all of the Landlord's rights and remedies under this
Lease, including the right to receive Minimum and Additional Rent and any other
amounts as they may become due; or
26(C) Other Remedies. Pursue any other remedy now or hereafter
available to Landlord under the laws or judicial decisions of the State in
which the Premises are located. All remedies provided in this Lease are
cumulative.
26(D) Late Charges and Interest. If Tenant fails to pay when due and
payable any Minimum Rent, Additional Rent, or any other sum due hereunder, such
unpaid amount shall bear interest at the rate of twelve percent (12%) per annum
(but not more than the maximum rate permitted by law) from the due date until
paid. In addition, Tenant
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acknowledges that the late payment by Tenant of any monthly installment of
Minimum Rent, Additional Rent or of any other sums due to Landlord from Tenant
hereunder will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amount of such costs being extremely
difficult and impractical to ascertain. Such costs include, but are not limited
to, processing and accounting expenses and late charges which may be imposed
upon Landlord by the terms of any mortgage or deed of trust encumbering the
Premises. Therefore, if any sum due from Tenant is not received by Landlord
within ten (10) days after it is due, Tenant shall pay to Landlord a late
charge equal to three percent (3%) of such payment or $100, whichever is
greater. If any such sum is not received by Landlord within twenty (20) days
after it is due, the amount of the late charge to be paid by Tenant shall be
increased to five percent (5%) of such payment or $175, whichever is greater.
Landlord and Tenant agree that these late charges represent a reasonable
estimate of the costs that Landlord will incur by reason of Tenant's late
payment.
26(E) Financial Distress. If any of the events described in Paragraph
25(E) occurs, if Landlord chooses not to exercise, or by law is unable to
exercise, its rights to terminate this Lease, then, in addition to any other
rights of Landlord hereunder or by law: (i) Landlord shall not be obligated to
provide Tenant with any services unless Landlord has received compensation in
advance for such services; and (ii) neither Tenant, as debtor in possession,
nor any trustee or other person (herein called the "Assuming Tenant") shall be
entitled to assume this Lease unless, on or before the date of such assumption,
the Assuming Tenant: (a) cures or provides adequate assurance that it will
promptly cure, any existing default under this Lease; (b) compensates, or
provides adequate assurance that it will promptly compensate, Landlord for any
pecuniary loss (including, but not limited to, attorneys' fees and costs)
resulting from such default; and (c) provides adequate assurance of future
performance under this Lease. For the purposes of this Paragraph, the parties
agree that any cure or compensation shall be effected solely by the
establishment of an escrow fund for the amount at issue or by bonding. Any sums
paid by Tenant to Landlord within ninety (90) days of any filing by or against
Tenant of a petition to have Tenant declared a bankrupt shall be applied to the
expenses most recently incurred by Landlord.
27. DEFAULT BY LANDLORD
Landlord shall be in default if Landlord fails to perform its obligations
within a reasonable time, but in no event later than thirty (30) days after
written notice from Tenant specifying said default has been received by
Landlord; provided that if the nature of Landlord's obligation is such that
more than thirty (30) days are required for performance, Landlord shall not be
in default if Landlord commences performance within the thirty (30) day period
and diligently prosecutes the cure to completion. Notwithstanding the above,
Landlord will act expeditiously after notice from Tenant of the need to make
repairs pursuant to Paragraph 12(B), if such emergency repair is required to
terminate a major interruption of or threat to Tenant's business. Tenant shall
not have the right to terminate this Lease as a result of Landlord's default or
to perform maintenance or repairs and deduct the cost from amounts payable by
Tenant to Landlord. In the event of such Landlord default, Tenant shall have
all rights and remedies allowed by law. As a material part of the consideration
to Landlord, Tenant hereby agrees that the execution of any judgment obtained
by Tenant against Landlord for damages due to Landlord's default under this
Lease shall be limited to Landlord's interest in the Real Property. A copy of
any notice of default sent to Landlord by Tenant shall be sent to Landlord's
lender, provided that the lender has requested copies of such notices and has
provided Tenant with the address to which they shall be sent. Landlord's lender
shall have the same right as Landlord to cure Landlord's default.
28. TENANT'S STATEMENT
Upon not less than ten (10) days' prior written notice from Landlord,
Tenant shall execute, acknowledge and deliver to Landlord a written statement
certifying certain facts, including, but not limited to: (a) that this Lease is
unmodified and in full force and effect
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Tenant Initials: ____________
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(or, if modified, stating the nature of such modification and certifying that
this Lease as so modified is in full force and effect); (b) the date to which
the Minimum Rent and other charges are paid; and (c) that there are not, to
Tenant's knowledge, any uncured defaults on the part of the Landlord (or
specifying such defaults if any are claimed). The statement shall be in any form
that Landlord provides to Tenant. Any such statement may be relied upon by any
prospective purchase or encumbrancer of all or any portion of the Real Property.
(Typical per Exhibit C attached.)
29. SIGNS
Tenant shall not place any signs or symbols in the windows or on the doors
of the Premises or upon any part of the Building without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Any signs or symbols shall be in conformity with other signs on the
Premises and the Building, Landlord's Rules and all applicable laws, ordinances
and regulations. Tenant shall maintain any such sign or symbol in good condition
and repair at its sole cost and expense. Tenant shall remove such sign or symbol
at its sole and expense upon termination of the Lease Term, and shall repair all
damage caused by the removal. If Tenant fails to remove any sign or symbol
and/or repair any damage caused by its removal, Landlord may have the same
removed and/or repaired at Tenant's expense.
30. GENERAL PROVISIONS
30(A) EXHIBITS AND ADDENDUMS. Any Exhibits and Addendums attached to this
Lease are a part hereof and are fully incorporated in this Lease by this
reference.
30(B) NON-WAIVER OF DEFAULT. Landlord's waiver of any term, covenant or
condition of this Lease shall not be deemed to be a waiver of any other term,
covenant or condition or any subsequent default under the same or any other
term, covenant or condition. Landlord's acceptance of any sum due shall not be
deemed to be a waiver of any preceding default by Tenant, other than the
failure of Tenant to pay the particular sum so accepted, regardless of
Landlord's knowledge of such preceding default at the time it accepts the sum.
30(C) JOINT OBLIGATION. If there is more than one Tenant, the obligations
of the Tenants under this Lease shall be joint and several.
30(D) PARAGRAPH TITLES. The paragraph titles of this Lease are not a part
of this Lease and shall have no effect upon its construction or interpretation.
30(E) TIME. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
30(F) SUCCESSORS AND ASSIGNS. The covenants and conditions of this Lease,
subject to the provisions of Paragraph 14 above, apply to and bind the heirs,
successors, executors, administrators and assigns of the parties hereto.
30(G) RECORDATION. Neither Landlord nor Tenant shall record this Lease,
but a short-form Memorandum may be recorded at the request of either party.
30(H) QUIET POSSESSION. Provided Tenant pays all sums due under this
Lease and observes and performs all of the other covenants, conditions and
provisions to be observed and performed by Tenant, Tenant shall have quiet
possession of the Premises for the entire Lease Term, against any adverse
claims of Landlord or any party claiming under Landlord, subject to all the
provisions of this Lease.
30(I) PRIOR AGREEMENTS. This Lease contains the full agreement of the
parties with respect to any matter covered or mentioned in this Lease. No prior
agreements or understandings pertaining to any such matters shall be effective
for any purpose. This Lease
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may be amended or supplemented only by an agreement, in writing, signed by the
parties or their respective successors in interest.
30(J) Inability to Perform. Except s provided in Paragraphs 23 and 24,
this Lease and Tenant's obligations hereunder, including Tenant's obligation to
make payments, shall not be affected or impaired because the Landlord is unable
to fulfill any of its obligations, or is delayed in doing so, if such inability
or delay is caused by reason of weather, strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Landlord.
30(K) Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision, and all other provisions shall remain in full force and effect.
30(L) Cumulative Remedies. No remedy or election hereunder shall be
deemed to be exclusive, but shall, wherever possible, be cumulative with all
other remedies at law or in equity.
30(M) Choice of Law. This Lease shall be governed by the laws of the
state in which the Real Property is located.
30(N) Attorneys' Fees. In the event any action or proceeding is brought
by either party against the other arising out of or in connection with this
Lease, the prevailing party shall be entitled to recover its cost, including,
but not limited to, reasonable attorneys' and accountants' fees, incurred in
such action or proceeding, including any appeal.
30(O) Sale of Premises by Landlord. If Landlord sells the Premises,
Landlord shall be entirely relieved of all liability under any and all of its
covenants and obligations contained in or derived from this Lease arising out
of any act, event or omission occurring after the consummation of such sale. The
purchaser at such sale, or any subsequent sale, of the Premises shall be
deemed, without any further agreement, to have assumed and agreed to carry out
any and all of the covenants and obligations of the Landlord under this Lease.
30(P) Notices. All notices or demands which are required or permitted to
be given by either party to the other hereunder shall be in writing. Except as
otherwise provided in any Addendum, all notices and demands to the Tenant shall
be either personally delivered or sent by United States Mail, registered or
certified, postage prepaid, addressed to the Tenant at the Premises, or at the
address set forth below, or to such other place as Tenant may, from time to
time, designate in a notice to the Landlord. Except as provided in any
Addendum, all notices and demands to the Landlord shall be either personally
delivered or sent by United States Mail, registered or certified, postage
prepaid, addressed to the Landlord at the address set forth below, or to such
other person or place as the Landlord may, from time to time, designate in a
notice to the Tenant. Any notices sent by United States Mail as provided above
shall be deemed to have been received three (3) days after deposit into the
mail.
TO LANDLORD AT: c/o Continental Pacific, Inc.
14595 Bel-Red Road, Suite 100
Bellevue, Washington 98007
TO TENANT AT: Bio Techniques Laboratories, Inc.
8340 154th Avenue N.E.
Redmond, Washington 98052
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30(Q) Subordination. At Landlord's option, this Lease shall be subject
to and subordinate to the lien of any existing or future mortgages or deeds of
trust in any amount or amounts whatsoever, now or hereafter place on or against
the Real Property, and to any extensions, renewals or replacements thereof,
without the necessity of the execution and delivery of any further instruments
on the part of Tenant to effectuate such subordination. Upon Landlord's request,
Tenant will execute and deliver such further instruments as may be appropriate
to evidence such subordination of this Lease. As long as Tenant is not in
default under this Lease, said subordination shall not disturb Tenant's right to
possession of the Premises.
30(R) Attornment. In the event of foreclosure or the exercise of the
power of sale under any mortgage or deed of trust made by the Landlord covering
the Premises, or in the event of any sale in lieu thereof, the Tenant shall
attorn to the purchaser upon any such foreclosure or sale and recognize such
purchaser as the Landlord under this Lease; provided said purchaser expressly
agrees, in writing, that, so long as Tenant is not in default under the Lease,
the Tenant's possession and occupancy of the Premises shall not be disturbed and
said purchaser will thereafter perform all of the obligations of the Landlord
under this Lease.
31. BROKERS
Tenant warrants that it has had no dealing with any real estate broker or
agent in connection with the negotiation of the Lease, except for John Cox of
Kidder, Mathews & Segner, Inc., and it knows of no other real estate broker or
agent who is entitled to a commission in connection with this Lease.
32. CAPACITY OF PARTIES
32(A) Tenant's Capacity. Tenant is a Washington corporation, and the
person(s) who have signed this Lease on behalf of said Tenant are authorized to
do so and their signatures are the only signatures required.
32(B) Landlord's Capacity. Landlord is a joint venture comprised of
CONTINENTAL PACIFIC, INC. and FIRST CITY INVESTMENTS, INC., and the person(s)
who have executed this Lease on behalf of the Landlord are authorized to do so
and their signatures are the only signatures required.
33. OPTION TO EXTEND LEASE TERM
33(A) Option. Tenant shall have the option to extend the term of this
Lease for a maximum of one five-year term (herein called an "Extended Term");
provided that Tenant gives Landlord written notice of its election to exercise
said option not more than 210 days and not less than one hundred twenty (120)
days before the end of the original Lease Term. In the event the Premises or any
portion of the Building is damaged or destroyed, and Landlord elects not to
reconstruct or repair pursuant to Paragraph 23 above, any option to renew shall
be automatically terminated.
33(B) Extended Term. The Extended Term shall commence immediately upon
the end of the original Lease Term and shall terminate at midnight on the day
before the fifth anniversary of its commencement.
33(C) Rental and Terms. The Minimum Rent to be paid by Tenant during
the Extended Term shall be the fair market rental rate (herein called the "Fair
Market Rate"), on the first day of the Extended Term. Fair Market Rate means the
Minimum Rent which would be paid in an arms-length transaction for a five-year
lease of comparable space in a comparable building of comparable quality in a
comparable location, taking into account the terms and conditions of the lease
form Landlord is then using, including any periodic automatic increases in
Minimum Rent. The Fair Market Rate shall be agreed upon by
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Tenant and Landlord. All other terms and conditions of this Lease shall
continue in full force and effect during said Extended Term.
33(D) Arbitration. Notwithstanding the above, if the Tenant and Landlord
disagree on any Fair Market Rate, and do not resolve said disagreement within
twenty (20) days of the date on which Landlord receives Tenant's written notice
of Tenant's election to extend the term of this Lease, said Fair Market Rate
shall be set by arbitration pursuant to this Paragraph 33(D). Either party
hereto may request that the Fair Market Rate be set by arbitration by giving
written notice to the other party of their election to seek an arbitration.
Each party shall select an arbitrator and notify the other party of the
arbitrator's identity within ten (10) days after the date of the notice
electing an arbitration. If either party fails to appoint an arbitrator within
said 10-day period, the arbitrator appointed shall appoint an arbitrator to
represent the party who did not select an arbitrator. The two arbitrators so
selected shall together select a third arbitrator. All arbitrators shall be
currently licensed members in good standing of the American Institute of Real
Estate Appraiser, shall be on the City of Redmond list of approved appraisers
and shall have substantial experience appraising office buildings. The three
arbitrators shall set the Fair Market Rate. Notwithstanding the above, the
Minimum Rent during the Extended Term shall not be less than the Minimum Rent
being paid for the month immediately prior to the commencement of the Extended
Term. The arbitrators shall allocate the expense of an arbitration to the
parties, or either or them, in such manner as the arbitrators, in their
discretion, determine to be equitable. Any decision of a majority of the
arbitrators shall be binding upon the parties.
If the arbitrators have not determined the Fair Market Rate by the end of
the original Lease Term, Tenant shall pay Minimum Rent at the rate in effect
during the month immediately prior to the commencement of the Extended Term
until the arbitrators determine said rate. Within ten (10) days after the
arbitrators have set the rate, the difference, if any, between the Minimum Rent
actually paid by Tenant pending the determination and the Minimum Rent accrued
during said period at the rate so determined shall be paid by the Tenant to the
Landlord.
33(E) Personal Option. The option set forth in this Paragraph 33 is
personal to the Tenant and may not be exercised by any successor, assignee or
sublessee of Tenant or any person or entity other than Tenant.
33(F) Tenant.
(i) Notwithstanding the above, Tenant shall not have the right to
exercise any option contained in this Paragraph during any period in which
Tenant has received written notification from Landlord that Tenant is in
material default under this Lease until said default is cured. That Tenant not
be in material default under this Lease is a condition precedent to the valid
exercise of any of the options. Any waiver by Landlord of its right to
terminate this Lease due to any default by Tenant shall not be deemed a waiver
of said condition precedent. The period of time within which Tenant may
exercise any option shall not be extended or enlarged because of Tenant's
inability to exercise the option because of the provisions of this Paragraph.
(ii) All rights of Tenant under the provisions of the option
granted in this Paragraph shall terminate, notwithstanding Tenant's due and
timely exercise of the option, if, after such exercise, but before the
beginning of the Extended Term: (a) Tenant fails to pay to Landlord any
monetary obligation of Tenant for a period of ten (10) days after written
notice thereof by Landlord to Tenant; (b) Tenant fails to cure any nonmonetary
default within the cure period set forth in Paragraph 25(C) of the Lease; or (c)
Tenant vacates the Premises.
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34. HAZARDOUS MATERIALS
Tenant shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances or materials. Tenant shall not allow the storage or use of
such substances or materials in any manner not sanctioned by law or by the
highest standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the project any such
materials or substances except to use in the ordinary course of Tenant's
business, and then only after written notice is given to Landlord of the
identity of such substances or materials. Without limitation, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901, et seq., any applicable state or local laws
and the regulations adopted under these acts. If any lender or governmental
agency shall ever require testing to ascertain whether or not there has been
any release or hazardous materials, then the reasonable costs thereof shall be
reimbursed by Tenant to Landlord, upon demand, as additional charges if such
requirement applies to the Premises. In addition, Tenant shall execute
affidavits, representations an the like, from time to time at Landlord's
request, concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Premises. In all events, Tenant shall
indemnify Landlord in the manner elsewhere provided in this Lease from any
release of hazardous materials on the Premises occurring while Tenant is in
possession, or elsewhere if caused by Tenant or persons acting under Tenant.
The within covenants shall survive the expiration or earlier termination of the
Lease Term.
35. Notwithstanding anything set forth in Paragraph 34 above to the contrary,
Landlord acknowledges and consents to Tenant engaging in the research,
development, manufacture and marketing of products composed of proprietary
micro organisms (inocula) and biochemicals for commercial application using the
most recent advances in biotechnology in concert with expertise in microbial
ecology and fermentation technology. Landlord further consents to Tenant
engaging in the research, development, manufacture and marketing of products
such as yeast products, enzymes, rumen stimulants and natural extracts.
36. RENTAL AGREEMENTS
Tenant shall not enter into, consent to or allow any sublease, license,
concession or other agreement for use, occupancy or utilization of space
(collectively, "Rental Agreement") in the Premises which provides for rental or
other payment for such use, occupancy or utilization based in whole or in part
on the net income or profits derived by any person from the property leased,
used, occupied or utilized (other than an amount based on a fixed percentage of
receipts or sales). Any such Rental Agreements shall be absolutely void and
ineffective as a conveyance of any right or utilization of any part of the
Premises. Tenant further covenants and agrees that it shall, on and after the
date hereof, include in each Rental Agreement a provision (the "No-Profit
Clause") that neither lessee nor any other person having an interest in the
possession, use, occupancy or utilization based in whole or in part on the net
income or profits derived by any person from the property leased, used,
occupied or utilized (other than an amount based on a fixed percentage or
percentages of receipts or sales), and that any such purported Rental Agreement
shall be absolutely void and ineffective as a conveyance of any right of
interest in the possession, use, occupancy or utilization of any part of the
Premises, and that if a Rental Agreement is entered into, neither the rental
payable thereunder nor the amount thereof passed on to any person or entity
shall have deducted therefrom any expenses or costs related in any way to the
leasing of such space; provided, however, that Tenant shall not be or be deemed
in default hereunder if a Rental Agreement heretofore executed by Tenant and a
sublessee at the Premises and heretofore approved in writing by Landlord does
not contain a No-Profit Clause, provided that the provisions of this Paragraph
are otherwise given effect. Tenant further agrees to use reasonable efforts to
enforce such provisions. A breach of the
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covenants and agreements of this Paragraph shall be a material breach of this
Lease.
37. TENANT IMPROVEMENTS
Landlord shall provide such tenant improvements as are agreed in
accordance with the Bio Techniques Laboratories, Inc. Tenant Improvement Work
Letter dated March 8, 1993, between Landlord and Tenant. Landlord shall pay the
cost of such tenant improvements up to an amount equal to $407,497.00. The cost
design and construction of such tenant improvements shall include, but not be
limited to, partitions, doors, door frames, hardware, paint, wall coverings,
base, floor coverings, installations of thermostats, telephone and electrical
outlets, light switches, window coverings, floor coverings, design fees,
management fees, all applicable permit fees and sales taxes. All tenant
improvements will meet or exceed the minimum standards as defined by the
Landlord.
The parties hereto have executed this Lease at the place and on the date
specified hereinabove.
TENANT:
BIO TECHNIQUES LABORATORIES, INC.
By: /s/ WILLIAM D. ST. JOHN
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Title: President
---------------------------------
Address: 15555 N.E. 33rd, Bio-Tech Road
Redmond, Washington 98052
LANDLORD:
PACIFIC BELLEVUE DEVELOPMENTS
By: Continental Pacific, Inc.
By: /s/ STEPHEN W. WILSON
------------------------------------
Title: Vice President
---------------------------------
By: First City Investments, Inc.
By: /s/ IRENE J. LEONARD
------------------------------------
Title: Vice President
---------------------------------
By: /s/ DANIEL W. PEPLINSKI
------------------------------------
Title: Senior Controller
---------------------------------
Address: 14595 Bel-Red Road, Suite 100
Bellevue, Washington 98007
NOTE: ALL SIGNATURES MUST BE NOTARIZED.
Landlord Initials: __
Tenant Initials: __
24
<PAGE> 27
EXHIBIT "A"
PAGE 1 OF 3
SPACE PLAN
[SPACE PLAN ILLUSTRATION]
Landlord Initials: _____
Tenant Initials: _____
25
<PAGE> 28
EXHIBIT "A"
PAGE 2 OF 3
SPACE PLAN
[SPACE PLAN ILLUSTRATION]
Landlord Initials: _____
Tenant Initials: _____
26
<PAGE> 29
EXHIBIT "A"
PAGE 3 OF 3
SITE PLAN
[SITE PLAN ILLUSTRATION]
Landlord Initials:
-----
Tenant Initials:
-----
27
<PAGE> 30
EXHIBIT "B"
LEGAL DESCRIPTION
WESTPARK BUILDING "L"
Lot 4 of City of Redmond Short Plat Number SS-85-11R, recorded under Recording
Number 8912190943, said Short Plat being a revision of short plat recorded
under Recording Number 8512260700, said short plat being a subdivision of the
east half of the southwest quarter of Section 2, Township 25 north, Range 5
east, Willamette Meridian, in King County, Washington;
Except those portions of said lots conveyed to the City of Redmond by deed
recorded under Recording Number 8810070396 and 8907120649.
Landlord Initials:
-----
Tenant Initials:
-----
28
<PAGE> 31
EXHIBIT "C"
TENANT ESTOPPEL CERTIFICATE
(Example Only)
Date:
To:
From: Tenant Name:
Tenant Street Address:
Redmond, Washington 98052
Re: Building Name:
Redmond, Washington (the "Property")
Gentlemen:
The undersigned, as Tenant under a lease of certain premises, executed by
______________________, ("Landlord"), dated ___________________ , (the "Lease"),
does hereby state, declare, represent and warrant to _______________ , knowing
that ___________________ is relying thereon, as follows:
1. The copy of the Lease attached hereto is a true and correct copy of the
Lease and the Lease is in full force and effect and has not been amended,
supplemented or changed since the date of the Lease, except as follows (if
none, so state): ______________________________________________________ .
The tenant has taken possession under the Lease and the term of the Lease,
the renewal options under the Lease, the basic monthly rental and the total
square footage of the premises are as stated in the Lease (and Addendum[s]
as stated above, if any).
2. All of Landlord's obligations to provide improvements and facilities
pursuant to the Lease have been completed in accordance with applicable
plans and specifications and within the time periods set forth in the
Lease.
3. No default on the part of the undersigned exists under the Lease in the
performance of the terms, covenants and conditions of the Lease required to
be performed on the part of the undersigned.
4. To the best of Tenant's knowledge, no default on the part of Landlord
exists under the Lease in the performance of the terms, covenants and
conditions of the Lease required to be performed on the part of the
Landlord.
5. Tenant has no option or right to purchase the property of which the
premises are a part, or any part thereof.
6. No rentals are accrued and unpaid under the Lease.
7. No prepayments of rentals due under the Lease have been made and
$_______________ has been deposited with Landlord as a security deposit
under the Lease.
Landlord Initials:
-----
Tenant Initials:
-----
29
<PAGE> 32
TENANT ESTOPPEL CERTIFICATE
PAGE 2
8. The undersigned has no defense as to its obligations under the Lease and
claims no setoff or counterclaim against Landlord.
9. The undersigned has not received notice of any prior sale, transfer,
assignment, hypothecation, mortgage or pledge of Landlord's interest in
the Lease or the rents or other amounts payable thereunder.
10. The undersigned has not been, during the term of the Lease, and is not
presently involved as a debtor in any bankruptcy, insolvency or
reorganization proceeding.
11. CHECK IF APPLICABLE.
___ A. Tenant (i) is not presently engaged in, nor does it presently permit,
(ii) has not at any time in the past engaged in, nor permitted, and
(iii) has no knowledge that any third person or entity engaged in or
permitted: any operations or activities upon, or any use of occupancy
of the premises, or any portion thereof, for the purpose of or in any
way involving the handling, manufacturing, treatment, storage, use,
transportation, spillage, leakage, dumping, discharge or disposal
(whether legal or illegal, accidental or intentional) of any
hazardous substances, materials or wastes, or any wastes regulated
under any local, state or federal law (collectively, "Hazardous
Substances"), except as follows (if not, so state):
___ B. Tenant (i) is presently engaged in or presently permits, or (ii) in
the past has engaged in or permitted, use or occupancy of the
premises, or a portion thereof, for the purpose of, or involving, the
handling, manufacturing, treatment, storage, use, transportation,
spillage, leakage, dumping, discharge or disposal (whether legal or
illegal, accidental or intentional) of Hazardous Substances. Each
such event or continuing handling, manufacturing, treatment, storage,
use, transportation, spillage, leakage, dumping, discharge or
disposal (collectively, "Use") of Hazardous Substances, except for
accidental or unintentional Uses, has been in compliance with all
applicable laws, regulations and permits (as hereafter listed), and
the remediation of each accidental or unintentional use has been
conducted and completed pursuant to all applicable laws, regulations
and permits.
Please list all tenant permits covering the use, storage, handling or
remediation of Hazardous Substances:
<TABLE>
<CAPTION>
DATE OF ISSUANCE
DATE OF USE HAZARDOUS SUBSTANCE OF PERMIT NO.
- ----------- ------------------- ----------------
<S> <C> <C>
</TABLE>
(If continuous, so state.)
The undersigned understands and acknowledges that you are about to purchase the
Property of which the premises are a part and that you are relying upon the
representations and warranties contained herein in making such purchase.
Landlord Initials:
-----
Tenant Initials:
-------
30
<PAGE> 33
TENANT ESTOPPEL CERTIFICATE
PAGE 3
In the event Tenant shall fail to complete and return this Tenant Estoppel
Certificate within ten (10) days after receipt by Tenant, Tenant shall be
deemed to have certified that all of the provisions of this Tenant Estoppel
Certificate are accurate and that _________________________ is entitled to rely
upon such information as though this Tenant Estoppel Certificate was actually
completed and returned.
Very truly yours,
____________________________________
By:_________________________________
Title:______________________________
Date:_______________________________
Landlord Initials:_______
Tenant Initials:_________
31
<PAGE> 34
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that William D. St. John
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the President of BIO TECHNIQUES LABORATORIES,
INC., to be the free and voluntary act of such corporation for the uses and
purposes mentioned in the instrument.
Dated: March 12, 1991
------------------------------------------- [SEAL]
JONNA S. VALENTINE
- -------------------------------------------------
Notary Public in and for the State of Washington,
Residing at: Redmond
My Appointment Expires: 8/26/91
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Stephen W. Wilson
is the person who appeared before me, and said person acknowledged that he
signed this instrument, on oath stated that he was authorized to execute said
instrument as Vice President of CONTINENTAL PACIFIC, INC., Joint Venturer, on
behalf of PACIFIC BELLEVUE DEVELOPMENTS, a joint venture, and acknowledged said
instrument as the Vice President of CONTINENTAL PACIFIC, INC., Joint Venturer,
to be the free and voluntary act of said corporation and joint venture for the
uses and purposes mentioned in said instrument.
Dated: March 15, 1991
------------------------------------------- [SEAL]
JONNA S. VALENTINE
- -------------------------------------------------
Notary Public in and for the State of Washington,
Residing at: Redmond
My Appointment Expires: 8/26/91
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Irene J. Leonard and
Daniel W. Peplinski are the persons who appeared before me, and said persons
acknowledged that they signed this instrument, on oath stated that they were
authorized to
Landlord Initials:
-------
Tenant Initials:
---------
32
<PAGE> 35
execute said instrument as Vice President and Senior Controller, respectively,
of FIRST CITY INVESTMENTS, INC., Joint Venturer, on behalf of PACIFIC BELLEVUE
DEVELOPMENTS, a joint venture, and acknowledged said instrument as the Vice
President and Senior Controller, respectively, of FIRST CITY INVESTMENTS, INC.,
Joint Venturer, to be the free and voluntary act of said corporation and joint
venture for the uses and purposes mentioned in said instrument.
Dated: March 15, 1991
/s/ [SIG]
- -------------------------------
Notary Public in and for the State of Washington,
Residing at: ??????
My Appointment Expires: 4/30/92
Landlord Initials:
-----
Tenant Initials:
-------
33
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO LEASE
THIS AMENDMENT, dated this 10th day of July, 1997, between SFERS REAL ESTATE
CORP. A, a Delaware corporation ("Landlord") and Nutraceutix, Inc. dba Bio
Techniques Laboratories, Inc., a Delaware corporation ("Tenant"), for the
Premises located in the City of Redmond, County of King, State of Washington,
commonly known as 14810 NE 95th Street, Willows Business Center.
WITNESSETH:
WHEREAS, Landlord and Tenant, entered into that certain Lease date August
21, 1995; and
WHEREAS, Landlord and Tenant desire to amend the Lease as more fully set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Definitions. Unless otherwise specifically set forth herein, all capitalized
terms herein shall have the same meaning as set forth in the Lease.
2. Amendments.
The PREMISES as shown on the Reference Page is hereby amended to be
addressed 14822 NE 95th Street. (See Exhibit A for outline of premises,
attached hereto and incorporated herein by reference).
The PREMISES RENTABLE AREA as shown on the Reference Page is hereby
amended to approximately 1,879 square feet.
The TERM OF LEASE as shown on the Reference Page is hereby extended
for three (3) years commencing on August 1, 997 and ending July 31, 2000.
The MONTHLY INSTALLMENT OF RENT as shown on the Reference Page is
hereby amended to:
From: 08/01/97 To: 07/31/98 $1,036.00 NNN
From: 08/01/98 To: 07/31/99 $1,070.00 NNN
From: 08/01/99 To: 07/31/00 $1,110.00 NNN
The TENANT'S PROPORTIONATE SHARE as shown on the Reference Pages is
hereby amended to:
CAM/ESC: 1.14% TAX: 1.14% INS: 1.14%
(based on 1,879 Premises sf/164,202 Building sf)
3. Tenant Improvements. Provided the Lease is in full force and effect and
Tenant is not in default thereunder, Landlord hereby agrees to pay to Tenant
toward the cost of the Work an amount equal to the lessor of: (i) the actual
cost of the Work; or (ii) $3,000.00 (the "Allowance"). Landlord shall pay Tenant
the Allowance within thirty (30) days of completion of the work.
4. Incorporated. Except as modified herein, all other terms and conditions of
the Lease between the parties above described, as attached hereto, shall
continue in full force and effect.
<PAGE> 2
5. Limitation of Landlord's Liability. Redress for any claim against
Landlord under this Amendment or under the Lease shall only be made
against Landlord to the extent of Landlord's interest in the property to
which the Premises are a part. The obligations of Landlord under this
Amendment and the Lease shall not be personally binding on, nor shall any
resort be had to the private properties of, any of its trustees or board
of directors and officers, as the case may be, the general partners
thereof, or any beneficiaries, stockholders, employees, or agents of
Landlord, or its investment manager.
IN WITNESS WHEREOF, Landlord and Tenant have executed the Amendment as of
the day and year first written above.
LANDLORD: TENANT:
SFERS REAL ESTATE CORP. A, Nutraceutix, Inc.
a Delaware corporation dba Bio Techniques Laboratories, Inc.
a Delaware corporation
By: RREEF MANAGEMENT COMPANY, By: /s/ WILLIAM D. ST. JOHN
a California corporation ----------------------------------
William D. St. John
Its: President
By: /s/ DOUG BAILEY
------------------------------- Date: July 17, 1997
Doug Bailey --------------------------------
Its: District Manager
Date: July 21, 1997
----------------------------- [SEAL]
<PAGE> 3
EXHIBIT A
attached to and made a part of First Amendment to Lease
dated of July 10, 1997 between
SFERS REAL ESTATE CORP. A, as Landlord and
Nutraceutix, Inc., dba Bio Techniques Laboratories, Inc., as Tenant
for the Premises known as 14822 NE 95th Street
PREMISES
Exhibit A is intended only to show the general layout of the Premises as of the
beginning of the Term of this Lease. It does not in any way supersede any of
Landlord's rights set forth with respect to arrangements and/or locations of
public parts of the Building and changes in such arrangements and/or locations.
It is not to be scaled; any measurements or distances shown should be taken as
approximate.
LEGAL DESCRIPTION:
Willows Business Center, building 6 located at 14822 NE 95th Street, Redmond,
Washington, and situated on Lot 3, of the short plat of Lot 5, Willows
Industrial Center, (SS-81-11, King County, recording number 811029-0435)
Sections 2 & 3, Township 25 North, Range 5 East, W.M., King County, Washington.
SITE PLAN:
[SITE PLAN ILLUSTRATION]
<PAGE> 4
CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day of July 21, 1997, before me, the undersigned, a Notary Public
in and for the State of Washington, personally appeared Doug Bailey and
________________ , to be known to be the District Manager and _________________
of RREEF Mgmt. Co., a corporation, and acknowledged to me that they executed the
same of behalf of said corporation freely and voluntarily for the uses and
purposes therein mentioned.
Witness my hand and official seal the day and year in this certificate
first above written.
/s/ JANICE F. DAVIS
-------------------------------------
Notary Public in and for the
State of Washington
residing at Seattle
CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day of July 17, 1997, before me, the undersigned, a Notary Public
in and for the State of Washington, personally appeared William D. St. John, to
be known to be the President and _________________
of NUTRACEUTIX, a corporation, and acknowledged to me that they executed the
same of behalf of said corporation freely and voluntarily for the uses and
purposes therein mentioned.
Witness my hand and official seal the day and year in this certificate
first above written.
[SEAL] /s/ JENNIFER GASPERTH
-------------------------------------
Notary Public in and for the
State of Washington
residing at Redmond
INDIVIDUAL ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On this ___ day of _________________, 199__, before me, the undersigned, a
Notary Public in and for the State of __________________, personally appeared
___________________, to me known to be the person(s) named in the foregoing
document, and acknowledged to me that ____________________________ executed the
same freely and voluntarily for the uses and purposes therein mentioned.
Witness my hand and official seal the day and year in this certificate
first above written.
-------------------------------------
Notary Public in and for the
State of ____________________________
residing at _________________________
<PAGE> 5
5. Limitation of Landlord's Liability. Redress for any claim against Landlord
under this Amendment or under the Lease shall only be made against Landlord to
the extent of Landlord's interest in the property to which the Premises are a
part. The obligations of Landlord under this Amendment and the Lease shall not
be personally binding on, nor shall any resort be had to the private properties
of, any of its trustees or board of directors and officers, as the case may be,
the general partners thereof, or any beneficiaries, stockholders, employees,or
agents of Landlord, or its investment manager.
IN WITNESS WHEREOF, Landlord and Tenant have executed the Amendment as of
the day and year first written above.
LANDLORD: TENANT:
SFERS REAL ESTATE CORP. A, Nutraceutix, Inc.,
a Delaware corporation dba Bio Techniques Laboratories, Inc.,
a Delaware corporation
By: RREEF MANAGEMENT COMPANY, By: /s/ WILLIAM D. ST. JOHN
a California corporation -----------------------
William D. St. John [SEAL]
Its: President
By: /s/ DOUG BAILEY
------------------------- Date: July 17, 1997
Doug Bailey
Its: District Manager
Date: July 21, 1997
<PAGE> 6
WILLOWS BUSINESS CENTER LEASE
REFERENCE PAGE
BUILDING: WILLOWS BUSINESS CENTER
LANDLORD: SFERS REAL ESTATE CORP. A,
a Delaware corporation
LANDLORD'S ADDRESS: 14816 NE 95th Street, Redmond, WA 98052
LEASE REFERENCE DATE: August 21, 1995
TENANT: Nutraceutix, Inc., dba Bio Techniques
Laboratories, Inc.,
a Washington corporation
TENANT'S ADDRESS: 8340 154th Avenue NE
At Lease execution: Redmond, WA 98052
PREMISES: 14810 NE 95th Street, Building 6
(see Exhibit A for outline of premises,
attached hereto and incorporated herein
by reference)
PREMISES RENTABLE AREA: Approximately 1,538 square feet
USE: Research and development, manufacturing
and marketing of natural nutraceutical
products.
COMMENCEMENT DATE: September 1, 1995
TERMINATION DATE: August 31, 1997
TERM OF LEASE: Two (2) years, zero (0) months and zero
(0) days beginning on the Commencement
Date and ending on the Termination Date
(unless sooner terminated pursuant to
the Lease)
MONTHLY INSTALLMENT OR RENT: From: 09/01/95 To: 08/31/96 $785.00 NNN
From: 09/01/96 To: 08/31/97 $815.00 NNN
TENANT'S PROPORTIONATE SHARE: *CAM/ESC: 0.94% TAX: 0.94% INS: 0.94%
(based on 1,538 Premises sf/164,202
Building sf)
SECURITY DEPOSIT: $865.00
ASSIGNMENT/SUBLETTING FEE: $750.00
REAL ESTATE BROKER DUE COMMISSION: Cushman and Wakefield
The Reference Page information is incorporated into and made a part of the
Lease. In the event of any conflict between any Reference Page information and
the Lease, the Lease shall control. This Lease includes Exhibits A through E,
all of which are made a part of this Lease.
LANDLORD: TENANT:
SFERS REAL ESTATE CORP. A, Nutraceutix, Inc., dba Bio Techniques,
a Delaware corporation Inc., a Delaware Corporation
By: RREEF Management Company, By: /s/ WILLIAM D. ST. JOHN
a California corporation ------------------------------------
William D. St. John
By: Its: President
--------------------------------
Anne L. Johnston, R.P.A.
Its: District Manager Date: 8-23-95
Date: ----------------------------------
------------------------------
<PAGE> 7
LEASE
LANDLORD
SFERS REAL ESTATE CORP. A
TENANT
NUTRACEUTIX, INC.,
DBA
BIO TECHNIQUES LABORATORIES, INC.
<PAGE> 8
TABLE OF CONTENTS
Article Page
1. PREMISES AND TERM.................................................... 1
2. BASE RENT; SECURITY DEPOSIT.......................................... 1
3. USE.................................................................. 1
4. TAXES................................................................ 2
5. REPAIRS.............................................................. 2
6. ALTERATIONS.......................................................... 4
7. INSPECTIONS.......................................................... 4
8. UTILITIES............................................................ 4
9. ASSIGNMENT AND SUBLETTING............................................ 4
10. INDEMNIFICATION PROVISION............................................ 5
11. CASUALTY AND CONDEMNATION............................................ 5
12. LIABILITY............................................................ 6
13. HOLDING OVER......................................................... 7
14. QUIET ENJOYMENT...................................................... 7
15. EVENTS OF DEFAULTS................................................... 7
16. REMEDIES............................................................. 8
17. MORTGAGES............................................................ 9
18. MECHANIC'S AND OTHER LIENS........................................... 9
19. NOTICES.............................................................. 10
20. MISCELLANEOUS........................................................ 10
21. CORPORATE AUTHORITY.................................................. 11
22. LIMITATION OF LANDLORD'S LIABILITY................................... 11
EXHIBIT A - PREMISES, LEGAL DESCRIPTION
EXHIBIT B - INITIAL ALTERATIONS
EXHIBIT C - RULES AND REGULATIONS
EXHIBIT D - HVAC MAINTENANCE AND REPAIR
EXHIBIT E - SIGNAGE CRITERIA
<PAGE> 9
WILLOWS BUSINESS CENTER LEASE
REFERENCE PAGE
BUILDING: WILLOWS BUSINESS CENTER
LANDLORD: SFERS REAL ESTATE CORP. A,
a Delaware corporation
LANDLORD'S ADDRESS: 14816 NE 95th Street, Redmond, WA 98052
LEASE REFERENCE DATE: August 21, 1995
TENANT: Nutraceutix, Inc., dba Bio Techniques
Laboratories, Inc., a Washington
corporation
TENANT'S ADDRESS: 8340 154th Avenue NE
At Lease execution: Redmond, WA 98052
PREMISES: 14810 NE 95th Street, Building 6
(see Exhibit A for outline of premises,
attached hereto and incorporated herein
by reference)
PREMISES RENTABLE AREA: Approximately 1,538 square feet
USE: Research and development, manufacturing
and marketing of natural nutraceutical
products.
COMMENCEMENT DATE: September 1, 1995
TERMINATION DATE: August 31, 1997
TERM OF LEASE: Two (2) years, zero (0) months and
zero (0) days beginning on the
Commencement Date and ending on the
Termination Date (unless sooner
terminated pursuant to the Lease)
MONTHLY INSTALLMENT OF RENT: From: 09/01/95 To: 08/31/96 $785.00 NNN
From: 09/01/96 To: 08/31/97 $815.00 NNN
TENANT'S PROPORTIONATE SHARE: *CAM/ESC: 0.94% TAX: 0.94% INS: 0.94%
(based on 1,538 Premises sf/164,202
Building sf)
SECURITY DEPOSIT: $865.00
ASSIGNMENT/SUBLETTING FEE: $750.00
REAL ESTATE BROKER DUE COMMISSION: Cushman and Wakefield
The Reference Page information is incorporated into and made a part of the
Lease. In the event of any conflict between any Reference Page information and
the Lease, the Lease shall control. This Lease includes Exhibits A through E,
all of which are made a part of this Lease.
LANDLORD: TENANT:
SFER REAL ESTATE CORP. A, Nutraceutix, Inc., dba Bio Techniques
a Delaware corporation Laboratories, Inc., a Delaware Corporation
By: RREEF Management Company, By: /s/ WILLIAM D. ST. JOHN
a California corporation --------------------------------------
William D. St. John
By: --------------------------- Its: President
Anne L. Johnston, R.P.A.
Its: District Manager Date: 8-23-95
-------------------------------------
Date: ---------------------------
<PAGE> 10
LEASE AGREEMENT
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises set forth and described in the Reference Page. This Lease is solely a
lease of space in the Building and does not constitute a lease of any land. The
Reference Page, including all terms defined thereon, is hereby incorporated as
part of this Lease.
1. PREMISES AND TERM
1.1 To have and to hold the same for a term (the "Term") commencing on
the Commencement Date (the "Commencement Date") and ending on the Termination
Date (the "Termination Date") described in Reference Page attached herewith
unless sooner terminated pursuant hereto.
1.2 The site plan attached hereto shows the floor plan of the Premises
(the "Approved Plans"). The cost of any changes and/or additions requested by
Tenant after Landlord and Tenant have agreed on the Approved Plans, including
but not limited to the actual cost therefor, the cost of revisions in the plans
and specifications and the cost of any delays in construction, whether or not
such changes are finally agreed to, together with twenty percent (20%) of such
costs for Landlord's overhead and profits, shall be paid as additional rent by
Tenant upon Landlord's presentation of a bill therefor.
1.3 Taking of possession by Tenant shall be deemed to establish
conclusively that the Premises have been so completed and that the Premises are
in good and satisfactory condition, as of when possession was so taken (except
for such items Landlord is permitted to complete at a later date because of
weather conditions or other causes beyond Landlord's reasonable control, which
items shall be specified by Landlord to Tenant in writing). Tenant acknowledges
that no representations as to the repair of the Premises have been made by
Landlord, unless expressly set forth in this Lease.
2. BASE RENT; SECURITY DEPOSIT
Tenant agrees to pay to Landlord base rent for Premises for the entire Term at
the rate(s) shown in Reference Page, one such monthly installment shall be due
and payable without demand on or before the first day of each calendar month
during the Term, provided, that the rental payment for any fractional calendar
month shall be prorated. In addition, Tenant agrees to deposit with Landlord on
the date hereof the security deposit shown in Reference Page, which sum shall
be held by Landlord, without obligation for interest, as security for the full,
timely and faithful performance of Tenant's obligations under this Lease, it
being agreed that such deposit is not an advance rental deposit or measure of
Landlord's damages. Upon the occurrence of any event of default by Tenant,
Landlord may, for time to time, without prejudice to any other remedy, use such
fund to make good any arrears of rent or other payments due Landlord hereunder,
and any other damage, injury, expense or liability caused by Tenant's default;
and Tenant shall pay to Landlord on demand the amount so applied in order to
restore the security deposit to its original amount. Any remaining balance
shall be returned at such time after termination of this Lease when Landlord
shall have determined that all Tenant's obligations under this Lease have been
fulfilled.
3 USE
3.1 Research and development, manufacturing and marketing of natural
nutraceutical products. Tenant shall at its own costs and expense obtain any
and all licenses and permits necessary for any such use. The outside storage of
any property (including, without limitation, overnight parking of trucks and
other vehicles) is prohibited. Tenant shall comply with all governmental laws,
ordinances and regulations ("Laws") applicable to its use of the Premises and
its occupancy and shall promptly comply with all governmental orders and
direction for the correction, prevention and abatement of any violations or
nuisances in or upon, or in connection with, the Premises, all at Tenant's sole
expense. If as a result of any change in Laws, the Premises must be altered to
lawfully accommodate the use and occupancy thereof, such alterations shall be
made only with the consent of Landlord, but the entire cost thereof shall be
borne by Tenant; provided, that, the necessity of Landlord's consent shall in
no way create any liability against Landlord for the failure of the Tenant to
comply with such Laws. Tenant and its employees, customers and licensees shall
have the nonexclusive right to use in common with the other parties occupying
the Building, common parking areas, if any, (exclusive of any parking or work
load areas designated or to be designated by Landlord for the exclusive use of
Tenant or other tenants occupying or to be occupying other portions of the
Building), driveways and alleys adjacent to the Building. Landlord shall at all
times have the right to promulgate such reasonable rules and regulations as it
deems advisable for the safety, care and cleanliness of the Premises and for
the preservation of good order therein. Copies of rules and regulations,
changes, and amendments will be forwarded to Tenant. Tenant shall be
responsible for the compliance with such rules and regulations by Tenant's
agents, employees, and invitees. It is understood that the tenant uses
equipment or machinery that produces noise which may penetrate into neighboring
suites. Therefore, the hours of operation for said machinery will be between
5:00 pm and 8:00 am, unless otherwise determined by Landlord at its sole
discretion.
3.2 Tenant agrees that Tenant, its agents and contractors, licensees, or
invitees shall not handle, use, manufacture, store or dispose of any
flammables, explosives, radioactive materials, hazardous wastes or materials,
toxic wastes or materials, or other similar substances, petroleum products or
derivatives (collectively, "Hazardous
5/93 Willows 1
<PAGE> 11
Materials") on, under, or about the Premises, without Landlord's prior written
consent (which consent may be given or withheld in Landlord's sole discretion),
provided that Tenant may handle, store, use or dispose of products containing
small quantities of Hazardous Materials, which products are of a type
customarily found in offices and households (such as aerosol cans containing
insecticides, toner for copies, paints, paint remover, and the like), provided
further that Tenant shall handle, store, use and dispose of any such Hazardous
Materials in a safe and lawful manner and shall not allow such Hazardous
Materials to contaminate the premises or the environment.
3.3 Without limiting the above, Tenant shall reimburse, defend,
indemnify and hold Landlord harmless from and against any and all claims,
losses, liabilities, damages, costs and expenses, including without limitation,
loss of rental income, loss due to business interruption, and attorneys fees and
costs, arising out of or in any way connected with the use, manufacture,
storage, or disposal of Hazardous Materials by Tenant, its agents or contractors
on, under or about the Premises including, without limitation, the costs of any
required or necessary investigation, repair, cleanup or detoxification and the
preparation of any closure or other required plans in connection herewith,
whether voluntary or compelled by governmental authority. The indemnity
obligations of Tenant under this clause shall survive any termination of the
Lease.
3.4 Notwithstanding anything set forth in this Lease, Tenant shall only
be responsible for contamination of Hazardous Materials or any cleanup resulting
directly therefrom, resulting directly from matters occurring or Hazardous
Materials deposited (other than by contractors, agents or representatives
controlled by Landlord) during the Lease term, and any other period of time
during which Tenant is in actual or constructive occupancy of the Premises.
Tenant shall take reasonable precautions to prevent the contamination of the
Premise with Hazardous Materials by third parties.
3.5 It shall not be unreasonable for Landlord to withhold its consent to
any proposed Assignment or Sublease if (i) the proposed Assignee's or
Sublessee's anticipated use of the premises involves the generation, storage,
use, treatment or disposal of Hazardous Materials; (ii) the proposed Assignee or
Sublessee has been required by any prior landlord, lender, or governmental
authority to take remedial action in connection with Hazardous Materials
contaminating a property if the contamination resulted from such Assignee's or
Sublessee's actions or use of the property in question; or (iii) the proposed
Assignee or Sublessee is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal, or storage of a
hazardous material.
4. TAXES
Landlord agrees to pay all general and special taxes, assessments and
governmental charges of any kind and nature whatsoever ("Taxes") lawfully levied
against the Building and improvements. For any real estate tax year applicable
to the Term (or any renewal or extension of such Term), Tenant shall pay to
Landlord as additional rent Tenant's proportionate share of the amount of such
Taxes. Landlord may, at any time, deliver to Tenant its estimate (or revised
estimate) of such additional amounts payable under this Paragraph for each tax
year. On or before the first day of the next month and on or before the first
day of each month thereafter, Tenant shall pay to Landlord as additional rent
such amount as Landlord shall reasonably determine to be necessary to bring and
keep Tenant current. As soon as practicable after the close of each tax year,
Landlord shall deliver to Tenant a statement showing the total amount payable by
Tenant under this Paragraph. If the statement shows an amount due from Tenant
that is less than the estimated payments previously paid by Tenant, the excess
shall be credited against the next monthly installment of rent. If the statement
shows an amount due from Tenant that is more than the estimated payments
previously paid by Tenant, Tenant shall pay the deficiency to Landlord, as
additional rent, within thirty (30) days after delivery of the statement. Any
payment with respect to any partial tax year shall be prorated. In addition,
Tenant shall pay upon demand its proportionate share of any fees, expenses and
costs incurred by Landlord in protesting any assessments, levies or the tax
rate. If at any time during the Term the present method of taxation shall be
changed so that in lieu or in addition to the whole or any part of any taxes,
assessments or governmental charges levied, assessed or imposed on real estate
and the improvements thereon, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents received therefrom
and/or a franchise tax, assessment, levy or charge measured by or based, in
whole or in part, upon such rents for the present or any future building or
buildings on the Premises, then all such taxes, assessments, levies or charges,
or the part thereof so measured or based, shall be deemed to be included within
the Term "Taxes" for the purposes hereof.
5. REPAIRS
5.1 Tenant shall at its own cost and expense keep and maintain all parts
of the Premises and such portion of the Building and improvements with the
exclusive control of Tenant in good condition, promptly making all necessary
repairs and replacements, whether ordinary or extraordinary, with materials and
workmanship of the same character, kind and quality as the original. Tenant as
part of its obligations hereunder shall keep the Premises in a clean and
sanitary condition. Tenant will, as far as possible keep all such parts of the
Premises from deterioration due to ordinary wear and from falling temporarily
out of repair, and upon termination of this Lease in any way Tenant will yield
up the Premises to Landlord in good condition and repair, loss by fire or other
casualty covered by insurance to be maintained by Landlord pursuant to
subparagraph 10.1 hereof excepted (but not excepting any damage to glass).
Tenant shall, at its own cost and expense, enter into a regularly scheduled
preventative
5/93 Willows 2
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maintenance/service contract with a maintenance contractor approved by Landlord
for servicing all heating and air conditioning systems and equipment serving
the Premises (and a copy thereof shall be furnished to Landlord). Tenant shall,
at its own cost and expense, repair any damage to the Premises resulting from
and/or caused in whole or in part by the negligence or misconduct of Tenant,
its agents, employees, invitees or any other person entering upon the Premises
as a result of Tenant's business activities or caused by Tenant's default
hereunder.
5.2 Landlord shall at its expense maintain in good repair,
reasonable wear and tear and any casualty covered by insurance to be maintained
by Landlord pursuant to subparagraph 10.1 excepted, the foundation, roof and
walls of the Building. Tenant shall immediately give Landlord written notice of
any defect or need for repairs, after which Landlord shall have reasonable
opportunity to repair same or cure such defect. Landlord's liability with
respect to any defects, repairs or maintenance for which Landlord is responsible
under any of the provisions of this Lease shall be limited to the cost of such
repairs or maintenance or the curing of such defect. The term "walls" as used
herein shall not include windows, glass or plate glass, doors, special store
fronts or office entries.
5.3 As used in this Lease, the term "Operating Costs" shall mean
any and all expenses, costs and disbursements (other than Taxes) of any kind
and nature whatsoever incurred by Landlord in connection with the ownership,
leasing, management, maintenance, operation and repair of the Building
including without limitation, the cost of landscaping maintenance for the
grounds around the Building, maintaining and repairing parking areas, driveways,
paved areas, alleys, easements and railroad tracks, cleaning and janitorial
services for the common areas, property management fees, removing snow and ice,
common area utilities, maintaining and repairing electrical, sprinkler,
plumbing, heating, ventilation and air conditioning systems and fixtures for
common areas, decorating for common areas, roof repairs and maintenance,
exterior painting, insurance premiums for all insurance policies and
endorsements deemed by landlord to be reasonably necessary or desirable,
license, permit, and inspection fees, accounting and legal fees, and any sales,
use or services taxes incurred in connection therewith which Landlord shall pay
or become obligated to pay in respect of a calendar year (regardless of when
such Operating Costs were incurred), except the following (i) costs of capital
improvements; (ii) depreciation; and (iii) any cost or expenditure (or portion
thereof) for which Landlord is reimbursed, whether by insurance proceeds or
otherwise, except reimbursements by tenants for Operating Costs.
Notwithstanding anything contained herein to the contrary, depreciation of any
capital improvements made after the date of this Lease which are intended to
reduce Operating Costs or which are required under any Laws which were not
applicable to the Building at the time it was constructed, shall be included in
Operating Costs. The useful life of any such improvement shall be reasonably
determined by Landlord. In addition, interest on the undepreciated costs of any
such improvement (at the prevailing construction loan rate available to
Landlord on the date the cost of such improvement was incurred) shall also be
included in Operating Costs. In the event Landlord elects to self insure or
obtain insurance coverage in which the premium fluctuates in proportion to
losses incurred, then Landlord shall estimate the amount of premium that
Landlord would have been required to pay to obtain insurance coverage (or
insurance coverage without such provision) with a recognized carrier and such
estimated amount shall be deemed to be an Operating Cost. Landlord may, in a
reasonable manner, allocate insurance premiums for so-called "blanket"
insurance policies which insure other properties as well as the Building of
said allocated amount shall be deemed to be an Operating Cost.
5.4 Tenant shall pay upon demand to Landlord for any calendar year
falling partly or wholly within the Term as additional rent its proportionate
share of Operating Costs. Any payment to be made pursuant to this paragraph
with respect to any partial year shall be prorated. In the event during all or
any portion of any calendar year the Building is not fully rented and occupied,
Landlord may elect to make an appropriate adjustment in Operating Costs for
such year, employing sound accounting and management principles, to determine
Operating Costs that would have been paid or incurred by Landlord had the
Building been fully rented and occupied and the amount so determined shall be
deemed to have been Operating Costs for such year. Landlord may, at any time,
deliver to Tenant its estimate (or revised estimate) of such additional amounts
payable under this Paragraph for each calendar year. On or before the first day
of the next month and on or before the first day of each month thereafter,
Tenant shall pay to Landlord as additional rent such amount as Landlord shall
reasonably determine to be necessary to bring and keep Tenant current. As soon
as practicable after the close of each calendar year, Landlord shall deliver to
Tenant a statement showing the Operating Costs payable under subparagraph 5.3
above and Tenant's proportionate share thereof. If the statement shows an
amount due from Tenant that is less than the estimated payments previously paid
by Tenant, the excess shall be credited against the next monthly installment
of rent. If the statement shows an amount due from Tenant that is more than the
estimated payments previously paid by Tenant, Tenant shall pay the deficiency to
Landlord, as additional rent, within thirty (30) days after delivery of the
statement. Any payment with respect to any partial tax year shall be prorated.
5.5 Landlord may at Tenant's expense, enter into and keep in force
during the term of the Lease, a scheduled preventative maintenance/service
contract with a maintenance contractor approved by Landlord, for servicing all
heating and air conditioning systems and equipment within the Premises which
shall include a thorough inspection of all filters, belts, controls and all
functions of the operational equipment and replacement of the aforementioned
components if necessary, and Tenant shall pay Landlord upon demand, as
additional rent hereunder, the cost thereof. Refer to Exhibit D for
preventative maintenance specifications.
_______
Initial
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6. ALTERATIONS
Tenant shall not make any alterations, additions or improvements ("Alterations")
to the Premises without the prior written consent of Landlord, which consent may
in Landlord's sole discretion be withheld. Each request shall be accompanied by
plans detailing the proposed Alteration. In connection with any request,
Landlord may retain the services of an architect and/or engineer and Tenant
shall reimburse Landlord for the reasonable fees of such architect and/or
engineer. If Landlord shall consent to any Alterations, Tenant shall construct
the same in accordance with all Laws and shall, prior to construction, provide
such assurances to Landlord, (including but not limited to, waivers of lien,
surety company performance bonds and personal guarantees of individuals of
substance) as Landlord shall require to protect Landlord against any loss from
any mechanics', materialmen's or other liens. At the time of completion each
Alteration, Tenant shall deliver to Landlord a set of final "as-built" plans.
All Alterations and partitions erected by Tenant shall be and remain the
property of Tenant during the Term and Tenant shall, unless Landlord otherwise
elects at the time of termination, remove all Alterations and partitions erected
by Tenant (but not any improvements erected for the Tenant by Landlord at the
commencement of the Term) and restore the Premises to their original condition
by the date of termination of this Lease or upon earlier vacating of the
Premises. All shelves, bins, machinery and trade fixtures installed by Tenant
shall be removed by the date of termination of this Lease or upon earlier
vacating of the Premises; upon any such removal Tenant shall restore the
Premises to their original condition (including the removal of all fastening
bolts and the patching of the walls and floors where necessary). All such
removals and restoration shall be accomplished in a good workmanlike manner so
as not to damage the primary structure or structural qualities of the Building.
Tenant shall not install any signs upon the Building.
7. INSPECTIONS
Landlord and Landlord's agents and representatives shall have the right to enter
and inspect the Premises at any reasonable time: (i) to ascertain the condition
of the Premises; (ii) to determine whether Tenant is diligently fulfilling
Tenant's responsibilities under this Lease; (iii) to supply any service to be
provided by Landlord to Tenant hereunder; (iv) to make such repairs as may be
required or permitted to be made by Landlord under the terms of this Lease (and
may for that purpose, without abatement of rent, erect, use and maintain
scaffolding, pipes, conduits, and other necessary structures in, through or on
the Premises where reasonably required by the character of the work to be
performed, provided entrance to the Premises shall not be blocked thereby, and
further provided that the business of Tenant shall not be interfered with
unreasonably); (v) to show the Premises to prospective tenants, purchasers or
mortgages; and (vi) to do any other act or thing which Landlord deems reasonable
to preserve the Premises.
8. UTILITIES
Tenant shall pay for all water, gas, heat, light, power, telephone, sewer,
sprinkler system charges and other utilities and services used on or from the
Premises, including without limitation, Tenant's proportionate share as
determined by Landlord of the cost of any central station signaling system
installed in the Premises or the Building together with any taxes, penalties,
and surcharges or the like pertaining thereto and any maintenance charges for
utilities. Tenant shall furnish all electric light bulbs, tubes and ballasts,
battery packs for emergency lighting and fire extinguishers. If any such
services are not separately metered to Tenant, Tenant shall pay such proportion
of all charges jointly metered with other premises as determined by Landlord, in
its sole discretion, to be reasonable. Any such charges paid by Landlord and
assessed against Tenant shall be immediately payable to Landlord on demand and
shall be additional rent hereunder. Landlord shall in no event be liable for any
interruption or failure of utility service on or to the Premises.
9. ASSIGNMENT AND SUBLETTING
9.1 Tenant shall not have the right to assign or pledge this Lease or to
sublet the whole or any part of the Premises, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises by anyone other
than Tenant, without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion, and such restrictions shall be binding
upon any assignee or subtenant to which Landlord has consented. In the event
Tenant desires to sublet the Premises, or any portion thereof, or assign this
Lease, Tenant shall give written notice thereof to Landlord within a reasonable
time prior to the proposed commencement date of such subletting or assignment,
which notice shall set forth the name of the proposed subtenant or assignee the
relevant terms of any sublease and copies of financial reports and other
relevant financial information on the proposed subtenant or assignee. In no
event may Tenant sublease, nor will Landlord consent to any sublease of all or
any portion of the Premises if the rent is determined in whole or in part upon
the income of profits derived by the subleasee (other than a rent based upon a
fixed percentage or percentage of receipts or sales). Notwithstanding any
permitted assignment or subletting, Tenant shall at all times remain directly,
primarily and fully responsible and liable for the payment of the rent herein
specified and for compliance with all of its other obligations under this Lease.
Upon the occurrence of an event of default, if the Premises or any part thereof
are then assigned or sublet, Landlord, in addition to any other remedies herein
provided, or provided by law, may, at its option, collect directly from such
assignee or subtenant all rents due and becoming due to Tenant under such
assignment or sublease and
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apply such rent against any sums due to Landlord from Tenant hereunder, and no
such collection shall be construed to constitute a novation or release of Tenant
from the further performance of Tenant's obligations hereunder.
9.2 In addition to, but not in limitation of, Landlord's right to
approve of any subtenant or assignee, Landlord shall have the option, in its
sole discretion, in the event of any proposed subletting or assignment, to
terminate this Lease, or in the case of a proposed subletting of less than the
entire Premises, to recapture the portion of the Premises to be sublet, as of
the date the subletting or assignment is to be effective. The option shall be
exercised, if at all, by Landlord giving Tenant written notice thereof within
sixty (60) days following Landlord's receipt of Tenant's written notice as
required above. If this Lease shall be terminated with respect to the entire
Premises pursuant to this paragraph, the Term shall end on the date stated in
Tenant's notice as the effective date of the sublease or assignment as if that
date had been originally fixed in this Lease for the expiration of the Term. If
Landlord recaptures under this paragraph only a portion of the Premises, the
rent during the unexpired Term shall abate proportionately based on the rent per
square foot contained in this Lease. In the event that Tenant sublets, assigns
or otherwise transfers its interest in this Lease and at any time receives
periodic rent and/or other consideration which exceeds that which Tenant would
at that time be obligated to pay to Landlord, Tenant shall pay to Landlord fifty
percent (50%) of the gross increase in such rent and fifty percent (50%) of any
other consideration as received by Tenant. Tenant shall pay to Landlord on
demand, a reasonable service charge for the processing of the application for
consent and preparation of the consent and/or the assumption documents.
9.3 It shall not be unreasonable for Landlord to withhold its consent to
any proposed assignment or sublease if (i) the proposed assignee's or
sublessee's anticipated use of the Premises involves the generation, storage,
use, treatment or disposal of Hazardous Materials; (ii) the proposed assignee or
sublessee has been required by any prior landlord, lender, or governmental
authority to take remedial action in connection with Hazardous Materials
contaminating a property if the contamination resulted from such assignee's or
sublessee's actions or use of the property in question; or (iii) the proposed
assignee of sublessee is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal, or storage of
Hazardous Material.
10. INDEMNIFICATION PROVISION
Landlord shall not be liable and Tenant hereby waives all claims against
Landlord for any damage to any property or any injury to any person in or about
the Premises or the Building by or from any cause whatsoever, (including without
limiting the foregoing, rain or water leakage or any character from the roof,
windows, walls, basement, pipes, plumbing works or appliances, the Building not
being in good condition or repair, gas, fire, oil, electricity or theft); except
that Landlord will indemnify and hold Tenant harmless from such claims to the
extent caused by the negligent or willful act of Landlord, or its agents,
employees or contractors. Tenant shall defend, indemnify, and save Landlord
harmless from and against any and all claims, actions, lawsuits, damages,
liability, and expense (including, without limitation, attorney's fees) arising
from: (i) the act, neglect, fault, or omission to meet the standards imposed by
any duty with respect to the loss, damage, or injury by Tenant, its agents,
servants, employees, contractors, customers or invitees; (ii) the conduct or
management of any work or thing whatsoever done by the Tenant in or about the
Premises or from transactions of the Tenant concerning the Premises; (iii)
Tenant's failure to comply with any and all governmental laws, ordinances and
regulations applicable to the use of the Premises and its occupancy; or (iv) any
breach or default on the part of the Tenant in the performance of any covenant
or agreement on the part of the Tenant to be performed pursuant to the Lease.
The provisions of this Article shall survive the termination of this Lease with
respect to any claims or liability prior to such termination.
11. CASUALTY AND CONDEMNATION
11.1 Landlord shall maintain all insurance policies deemed by Landlord to
be reasonably necessary or desirable and relating in any manner to the
protection, preservation or operation of the Building, including standard fire
and extended coverage insurance covering the Building in an amount not less than
ninety percent (90%) of the replacement cost thereof or, at Landlord's option,
all risk coverage and, if Landlord so elects, earthquake, flood and wind
coverage. Subject to the provisions of subparagraph 10.2 below, such insurance
shall be for the sole benefit of Landlord and under its sole control. Tenant
shall not take out separate insurance concurrent in form or contributing in the
event of loss with that required to be maintained by Landlord hereunder. Tenant
shall maintain insurance on all Alterations erected by or on behalf of Tenant
in, on or about the Premises (but not any improvements erected for Tenant by
Landlord at the commencement of the Term) in an amount not less than ninety
percent (90%) of the replacement cost thereof. Such insurance shall be for the
sole benefit of Tenant and under its sole control provided that Tenant shall be
obligated to immediately commence the rebuilding of the improvements erected by
Tenant and to apply such proceeds in payment of the cost thereof.
11.2 If the Building should be damaged by any peril covered by the
insurance to be provided by Landlord under subparagraph 10.1, but only to such
extent that the Building can in Landlord's estimation be materially restored
within two hundred fifty (250) days after the date upon which Landlord is
notified by Tenant of such damage (except that Landlord may elect not to rebuild
if such damage occurs during the last year of the Term), this Lease shall not
terminate, and Landlord shall at its sole cost and expense thereupon proceed
with reasonable diligence to rebuild and repair the Building to substantially
the condition in which they existed prior to such damage,
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<PAGE> 15
except Landlord shall not be required to rebuild, repair, or replace any or part
of the partitions, fixtures, additions and other improvements which may have
been placed in, on or about the Premises by Tenant. For purposes hereof the
Building shall be deemed "materially restored" if it is in such condition as
would not prevent or materially interfere with Tenant's use of the Premises for
the purpose for which they were then being used. If the Premises are
untenantable in whole or in part following such damage, the rent payable
hereunder during the period in which the Premises are untenantable shall be
reduced to such extent as may be fair and reasonable. In the event that Landlord
should fail to complete such material restoration within the two hundred fifty
(250) days after the date upon which Landlord is notified by Tenant of such
damage, Tenant may at its option terminate this Lease within thirty (30) days
thereafter by delivering written notice of termination to Landlord as Tenant's
exclusive remedy, whereupon the Term shall end on the date of such notice as if
the date of such notice were the date originally fixed in the Lease for the
expiration of the Term; provided, however, that if construction is delayed
because of changes, deletions, or additions in construction requested by Tenant,
strikes, lockouts, casualties, acts of God, war, material or labor shortages,
governmental regulation or control or other causes beyond the reasonable control
of Landlord, the period for restoration, repair or rebuilding shall be extended
for the amount of time Landlord is so delayed. If the Building should be damaged
or destroyed and Landlord is not required to rebuilding pursuant to the
provisions of subparagraph 10.2, this Lease shall terminate upon notice to
Tenant, given within sixty (60) days after Landlord is notified by Tenant of
such damage, effective as of the date of such damage as if the date had been
originally fixed in the Lease for the expiration of the Term.
11.3 Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Premises or the Building requires that the insurance proceeds be applied to such
indebtedness, than Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such request is made by any such holder, whereupon the Lease shall end on
the date of such damage as if the date of such damage were the date originally
fixed in the Lease for the expiration of the Term.
11.4 Each of Landlord and Tenant hereby releases the other from any and
all liability or responsibility to the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property
caused by fire, extended coverage perils, vandalism or malicious mischief,
sprinkler leakage, or any other perils insured in policies of insurance covering
such property, even if such loss or damage shall have been caused by the fault
or negligence of the other party, or anyone for whom such party may be
responsible, including any other tenants or occupants of the remainder of the
Building; provided, however, that this release shall be applicable and in force
and effect only to the extent that such release shall be lawful at that time and
in any event only with respect to loss or damage occurring during such times as
the releasor's policies shall contain a clause or endorsement to the effect that
any such release shall not adversely affect or impair said policies or prejudice
the right of the releasor to recover thereunder and then only to the extent of
the insurance proceeds payable under such policies. Each of Landlord and Tenant
agrees that it will request its insurance carriers to include in its policies
such a clause or endorsement.
11.5 If the whole or any substantial part of the Premises or Building
should be taken for any public or quasi-public use under any Law or by right of
eminent domain, or by private purchase in lieu thereof (a "Condemnation") and
the taking would prevent or materially interfere with the use of Premises or the
Building for the purpose for which they are then being used, this Lease shall
terminate effective when the physical taking shall occur as if the date of such
taking were the date originally fixed in the Lease for the expiration of the
Term. If part of the Premises shall be Condemned, and this Lease in not
terminated as provided above, this Lease shall not terminate but the rent
payable hereunder during the unexpired portion of this Lease shall be reduced to
such extent as may be fair and reasonable. Landlord shall undertake to restore
the Premises to a condition suitable for Tenant's use, as near to the condition
thereof immediately prior to such taking as is reasonably feasible. In the event
of any such Condemnation, Landlord and Tenant shall each be entitled to receive
and retain such separate awards and/or portion of lump sum awards as may be
allocated to their respective interests in any condemnation proceedings;
provided, that Tenant shall not be entitled to receive any award for Tenant's
loss of its leasehold interest, the right to such award being hereby assigned by
Tenant to Landlord.
12. LIABILITY
12.1 Landlord shall not be liable to Tenant or Tenant's employees,
agents, patrons or visitors, or to any other person whomsoever for any injury to
persons or damage to property on or about the Premises, the Building resulting
from and/or caused in part or whole by the negligence or misconduct of Tenant,
its agents, employees, invitees or any other person entering upon the Premises,
or caused by the Building becoming out of repair, or caused by leakage of gas,
oil, water or steam or by electricity emanating from the Building, or due to any
cause whatsoever, and Tenant hereby covenants and agrees that it will at all
times indemnify and hold safe and harmless the Building and Landlord from any
loss, liability, claims, suits, costs, expenses, including attorney's fees and
damages, both real and alleged, arising out of any such damage or injury; except
injury to persons or damage to property the sole cause of which is the
negligence of Landlord or the failure of Landlord to repair any part of the
Premises which Landlord is obligated to repair and maintain hereunder within a
reasonable time after the receipt of written notice from Tenant of needed
repairs.
12.2 Tenant shall keep in force throughout the Term: (i) a Commercial
General Liability insurance policy or policies to protect Landlord, Landlord's
mortgagee and agent, if any, against any liability to the public or to any
invitee of Tenant or Landlord, Landlord's mortgagee or agent, incidental to the
use of or resulting from any accident
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occurring in or upon the Premises with a limit not less than One Million Dollars
($1,000,000) per occurrence and not less than Two Million Dollars ($2,000,000)
in the annual aggregate or such larger amount as Landlord may prudently require
from time to time covering bodily injury and property damage liability and One
Million Dollars ($1,000,000) products/completed operations aggregate; (ii)
Business Auto Liability covering owned, non-owned and hired vehicles with a
limit of not less than One Million Dollars ($1,000,000) per accident; (iii)
insurance protecting against liability under Worker's Compensation Laws with
limits at least as required by statute; (iv) Employers Liability with limits of
Five Hundred Thousand Dollars ($500,000) each accident, Five Hundred Thousand
Dollars ($500,000) disease policy limit, Five Hundred Thousand Dollars
($500,000) disease -- each employee; (v) All Risk or Special Form coverage
protecting Tenant against loss of or damage to Tenant's alterations, additions,
improvements, carpeting, floor coverings, paneling, decorations, fixtures,
inventory and other business personal property situated in or about the Premises
to the full replacement value of the property so insured; and (vi) Business
Interruption Insurance with limit of liability representing loss of at least
approximately six months of income.
12.3 Each of the aforesaid policies shall (i) be provided at Tenant's
expense; (ii) name the Landlord and building management company, if any, as
additional insured; (iii) be issued by an insurance company with a minimum
Best's rating of "A:VII" during the Term; and (iv) provide that said insurance
shall not be cancelled unless thirty (30) days prior written notice (ten (10)
days for non-payment of premium) shall have been given to Landlord; and said
policy or policies or certificates thereof shall be delivered to Landlord by
Tenant upon the Commencement Date and at least thirty (30) days prior to each
renewal of said insurance.
12.4 Whenever Tenant shall undertake any alterations, additions or
improvements in, to or about the Premises ("Work") the aforesaid insurance
protection must extend to and include injuries to persons and damage to property
arising in connection with such Work, without limitation including liability
under any applicable structural work act, and such other insurance as Landlord
shall require; the policies of or certificates evidencing such insurance must be
delivered to Landlord prior to the commencement of any such Work.
13. HOLDING OVER
Tenant will, at the termination of this Lease by lapse of time or otherwise,
yield up immediate possession to Landlord. If Tenant retains possession of the
Premises or any part thereof after such termination, then Landlord may, at its
option, serve written notice upon Tenant that such holding over constitutes any
one of (i) renewal of this Lease for one year, and from year to year thereafter,
or (ii) creation of month to month tenancy, upon the terms and conditions set
forth in this Lease, or (iii) creation of a tenancy at sufferance, in any case
upon the terms and conditions set forth in this Lease; provided, however, that
the monthly rental (or daily rental under clause (iii)) shall, in addition to
all other sums which are to be paid by Tenant hereunder, whether or not as
additional rent, be equal to double the total rental being paid monthly to
Landlord under this Lease immediately prior to such termination (prorated in the
case of clause (iii) on the basis of a 365 day year for each day Tenant remains
in possession). If no such notice is served, then a tenancy at sufferance shall
be deemed to be treated at the rent in the preceding sentence. Tenant shall also
pay to Landlord all damages sustained by Landlord resulting from retention of
possession by Tenant, including the loss of any proposed subsequent tenant for
any portion of the Premises. The provisions of this paragraph shall not
constitute a waiver by Landlord of any right of re-entry nor shall receipt of
any rent or any other act in apparent affirmance of tenancy operate as a waiver
of the right to terminate this Lease.
14. QUIET ENJOYMENT
Landlord covenants that it now has, or will acquire before Tenant takes
possession of the Premises, good title to the Premises. In the event this Lease
is a sublease, then Tenant agrees to take the Premises subject to the provisions
of the prior leases. Landlord represents and warrants that it has full right and
authority to enter into this Lease and that Tenant, upon paying the rental
herein set forth, and performing its other covenants and agreements herein set
forth shall peaceable and quietly have, hold and enjoy the Premises for the Term
without hindrance or molestation from Landlord, subject to the terms and
provisions of this Lease. Landlord agrees to make reasonable efforts to protect
Tenant from interference or disturbance by other tenants or third parties;
however, Landlord shall not be liable for any such interference or disturbance,
nor shall Tenant be released from any of the obligations of this Lease because
of such interference or disturbance.
15. EVENTS OF DEFAULT
The following events shall be deemed to be events of default by Tenant under
this Lease:
15.1 Tenant shall fail to pay when or before due any sum of money becoming
due to be paid to Landlord hereunder, whether such sum be any installment of the
rent herein reserved, any other amount treated as additional rent hereunder, or
any other payment or reimbursement to Landlord required herein, and such failure
shall continue for a period of three (3) days, from the date such payment was
due; or
15.2 Tenant shall fail to comply with any term, provision or covenant of
this Lease other than by failing to pay when or before due any sum of money
becoming due to be paid to Landlord hereunder, and shall not cure
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<PAGE> 17
such failure within twenty (20) days (forthwith, if the default involves a
hazardous condition) after written notice thereof to Tenant; or
15.3 Tenant shall fail to immediately vacate the Premises upon
termination of this Lease or upon termination of Tenant's right to possession
only; or
15.4 The leasehold interest of Tenant shall be levied upon under
execution or be attached by process of law or Tenant shall fail to contest
diligently the validity of any lien or claimed lien and give sufficient security
to Landlord to insure payment thereof or shall fail to satisfy any judgement
rendered thereon and have the same released, and such default shall continue
for ten (10) days after written notice thereof to Tenant.
16. REMEDIES
Upon the occurrence of any such events of default described in Paragraph 14
hereof or elsewhere in this Lease, Landlord shall have the option to pursue any
one or more of the following remedies without any notice or demand whatsoever.
16.1 Landlord may, at its election, terminate this Lease or terminate
Tenant's right to possession only, without terminating the Lease.
16.2 Upon any such termination of this Lease, or upon any termination of
Tenant's right to possession without termination of the Lease, Tenant shall
surrender possession and vacate the Premises immediately, and deliver possession
thereof to Landlord, and Tenant hereby grants to Landlord full and free license
to enter into and upon the Premises in such event and to repossess Landlord of
the Premises as of Landlord's former estate and to expel or remove Tenant and
any others who may be occupying or within the Premises and to remove any and all
property therefrom without being deemed in any manner guilty or trespass,
eviction or forcible entry or detainer and without incurring any liability for
any damage resulting therefrom, Tenant hereby waiving any right to claim damage
for such re-entry and expulsion, and without relinquishing Landlord's right to
rent or any other right given to Landlord hereunder or by operation of law.
16.3 Upon any termination of this Lease, Landlord shall be entitled to
recover as damages, all rent, including any amounts treated as additional rent
hereunder, and other sums due and payable by Tenant on the date of termination,
plus the sum of (i) an amount equal to the then present value of the rent,
including any amount treated as additional rent hereunder, and other sums
provided herein to be paid by Tenant for the residue of the stated Term, less
the fair rental value of the Premises for such residue (taking into account the
time and expense necessary to obtain a replacement tenant or tenants, including
expenses hereinafter described in subparagraph 15.4 relating to recovery of the
Premises, preparation for reletting and for reletting itself) which the parties
agree shall in no event exceed sixty percent (60%) of the then present value of
the rent for the period, and (ii) the cost of performing any other covenants
which would have otherwise been performed by Tenant.
16.4 Upon any termination of Tenant's right to possession only without
termination of the Lease, Landlord may at Landlord's option, inter into the
Premises, remove Tenant's signs and other evidence of tenancy, and take and hold
possession thereof as provided in subparagraph 15.2 above, without such entry
and possession terminating the Lease or releasing Tenant, in whole or in part,
from any obligation, including Tenant's obligation to pay the rent, including
any amounts treated as additional rent hereunder for the full Term. In any such
case Tenant shall pay forthwith to Landlord, if Landlord so elects, a sum equal
to the entire amount of the rent, including any amounts treated as additional
rent hereunder, for the residue of the stated Term plus any other sums provided
herein to be paid by Tenant for the remainder of the Term.
16.4.1 Landlord may, but need not, relet the Premises or any part
thereof for such rent and upon such terms as Landlord, in its sole discretion,
shall determine (including the right to relet the Premises for a greater or
lesser term than that remaining under this Lease, the right to relet the
Premises as part of a larger area, and the right to change the character or use
made of the Premises). If Landlord decides to relet the Premises or a duty to
relet is imposed upon Landlord by law, Landlord and Tenant agree that Landlord
shall only be required to use the same efforts Landlord then uses to lease other
properties Landlord owns or manages (or if the Premises are then managed for
Landlord, then Landlord will instruct such manager to use the same efforts such
manager then uses to lease other space or properties which it owns or managers);
provided, however, that Landlord (or its manager) shall not be required to give
any preference or priority to the showing or leasing of the Premises over any
other space that Landlord (or its manager) may be leasing or have available and
may place a suitable prospective tenant in any such available space regardless
of when such alternative space becomes available; provided, further, that
Landlord shall not be required to observe any instruction given by Tenant about
such reletting or accept any tenant offered by Tenant unless such offered tenant
has a creditworthiness acceptable to Landlord, leases the entire Premises,
agrees to use the Premises in a manner consistent with the Lease and leases the
Premises at the same rent, for no more than the current Term and on the same
other terms and conditions as in this Lease without the expenditure by Landlord
for tenant improvements or broker's commissions. In any such case, Landlord,
may, but shall not be required to, make repairs, alterations and additions in or
to the Premises and redecorate the same to the extent Landlord deems
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<PAGE> 18
necessary or desirable, and Tenant shall, upon demand, pay the cost thereof
together with Landlord's expenses of reletting, including, without limitation,
any broker's commission incurred by Landlord. If the consideration collected by
Landlord upon any reletting plus any sums previously collected from Tenant are
not sufficient to pay the full amount of all rent, including any amounts
treated as additional rent hereunder, and other sums reserved in this Lease for
the remaining Term, together with the cost of repairs, alterations, additions,
redecorating, and Landlord's expenses of reletting an the collection of the
rent accruing therefrom (including attorney's fees and broker's commissions),
Tenant shall pay to Landlord the amount of such deficiency upon demand and
Tenant agrees that Landlord may file suit from time to time to recover sums
falling due under this section.
16.5 Landlord may at Landlord's option, enter into and upon the Premises
if Landlord determines in its sole discretion that Tenant is not acting with a
commercially reasonable time to maintain, repair or replace anything for which
Tenant is responsible hereunder and correct the same, without being deemed in
any manner guilty of trespass, eviction or forcible entry and detainer and
without incurring any liability for any damage resulting therefrom and Tenant
agrees to reimburse Landlord, on demand, as additional rent, for any expense
which Landlord may incur in thus effecting compliance with Tenant's obligations
under this Lease.
16.6 Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of the Lease or of law, to which Tenant is
or may be entitled, may be handled, removed and stored, as the case may be, by
or at the direction of Landlord at the risk, costs and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Any such property of Tenant not retaken by Tenant from storage within
thirty (30) days after removal from the Premises shall, at Landlord's option,
be deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale
without further payment or credit by Landlord by Tenant.
16.6.1 In the event Tenant fails to pay any installment of rent,
including any amount treated as additional rent hereunder, or other sums
hereunder as and when such installment or other charge is due, Tenant shall pay
to Landlord on demand a late charge in an amount equal to five percent (5%) of
such installment or other charge overdue in any month and five percent (5%)
each month thereafter until paid in full to help defray the additional cost to
Landlord for processing such late payments, and such late charge shall be
additional rent hereunder and the failure to pay such late charge within ten
(10) days after demand therefor shall be an additional event of default
hereunder. The provision for such late charge shall be in addition to all of
Landlord's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord's remedies in any
manner.
16.6.2 Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided by law (all such remedies being cumulative), nor shall pursuit of any
remedy herein provided constitute a forfeiture or waiver of any rent due to
Landlord or of any damages accruing to Landlord. No act or thing done by
Landlord or its agents during the Term shall be deemed a termination of this
Lease or an acceptance of the surrender of the Premises, and no agreement to
terminate this Lease or accept a surrender of said Premises shall be valid
unless in writing signed by Landlord. No waiver by Landlord of any violation or
breach of any of the terms, provisions and covenants herein contained shall be
deemed or construed to constitute a waiver of any other violation or breach.
Landlord's acceptance of the payment of rental or other payments hereunder
after the occurrence of an event of default shall not be construed as a waiver
of such default, unless Landlord so notifies Tenant in writing. Forbearance by
Landlord in enforcing one or more of the remedies herein provided upon an event
of default shall not be deemed or construed to constitute a waiver of such
default or of Landlord's right to enforce any such remedies with respect to
such default or any subsequent default. If, on account of any breach or default
by Tenant, it shall become necessary or appropriate for Landlord to employ or
consult with an attorney concerning or to enforce or defend any of Landlord's
rights or remedies hereunder, Tenant agrees to pay any attorney's fees so
incurred.
17. MORTGAGES
Tenant accepts this Lease subject and subordinate to any mortgage(s) and/or
deed(s) of trust now or at any time hereafter constituting a lien or charge upon
the Premises or the Building, provided, however, that if the mortgagee, trustee,
or holder of any such mortgage or deed or trust elects to have Tenant's interest
in this Lease superior to any such instrument, then by notice to Tenant from
such mortgagee, trustee or holder, this Lease shall be deemed superior to such
lien, whether this Lease was executed before or after said mortgage or deed of
trust. Tenant shall at any time hereafter on demand execute any instruments,
releases or other documents which may be required by any mortgagee for the
purpose of evidencing the subjection and subordination of this Lease to the lien
of any such mortgage or for the purpose of evidencing the superiority of this
Lease to the lien of any such mortgage, as may be the case.
18. MECHANIC'S AND OTHER LIENS
Tenant agrees that it will pay or cause to be paid all sums legally due and
payable by it on account of any labor performed or materials furnished in
connection with any work performed on the Premises on which any lien is or
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can be validly and legally asserted against its leasehold interests in the
Premises and that it will save and hold Landlord harmless from any and all loss,
cost or expense based on or arising out of assorted claims or liens against the
leasehold estate or against the right, title and interest of the Landlord in the
Premises or under the terms of this Lease. If any such lien shall remain in
force and effect for twenty (20) days after written notice thereof from
Landlord to Tenant, Landlord shall have the right and privilege at Landlord's
option of paying and discharging the same or any portion thereof without
inquiry as to the validity thereof, and any amounts so paid, including expenses
and interest, shall be so much additional indebtedness hereunder due from
Tenant to Landlord and shall be repaid to Landlord immediately on rendition of
a bill therefor. Notwithstanding the foregoing, Tenant shall have the right to
contest any such lien in good faith and with all due diligence so long as such
contest, or action taken in connection therewith, protects the interest of
Landlord and Landlord's mortgagee in the Premises and Landlord and any such
mortgagee are, by the expiration of twenty (20) day period, furnished such
protection and indemnification against any loss, cost or expense related to any
such lien and the contest thereof as are satisfactory to Landlord and any such
mortgagee.
19. NOTICES
Any notice of document required or permitted to be delivered hereunder
shall be deemed to be delivered upon receipt if delivered personally or by
contract carrier or, whether actually received or not, when deposited in the
United States Mail, postage prepaid, Certified or Registered Mail, addressed to
the parties hereto at the respective addresses described in the Reference Page,
or at such other address as they have theretofore specified by written notice
delivered in accordance herewith. If and when included within the term
"Landlord" or "Tenant" as used in this instrument, there are more than once
person, firm or corporation, all shall jointly arrange amount themselves for
their joint execution of such a notice specifying some individual at some
specific address for the receipt of notices and payments. All parties included
within the terms "Landlord" and "Tenant", respectively, shall be bound by
notices given in accordance with the provisions of this paragraph to the same
effect as if each had received such notice.
20. MISCELLANEOUS
20.1 The terms, provisions and covenants and conditions contained in
this Lease shall apply to inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives
successors and permitted assigns, except as otherwise herein expressly
provided. Landlord shall have the right to assign any of its rights and
obligations under this Lease and Landlord's grantee or Landlord's successor, as
the case ma be, shall upon such assignment become Landlord hereunder, thereby
freeing and relieving the grantor or assignor, as the case may be, of all
covenants and obligations of Landlord hereunder.
20.2 Tenant shall at any time and from time to time within ten (10)
days after written request from Landlord execute and deliver to Landlord or any
prospective Landlord, mortgagee or prospective mortgagee a sworn and
acknowledged estoppel certificate, in form reasonably satisfactory to Landlord
and/or such mortgagee certifying and stating accurate statements required by
Landlord or such mortgagee. It is intended that any such statement delivered
pursuant to this subsection may be relied upon by any prospective purchaser or
mortgagee and their respective successors and assigns and Tenant shall be
liable for all loss, cost or expense resulting from the failure of any sale of
funding of any loan caused by any misstatement contained in such estoppel
certificate. If Tenant fails to deliver the same within such ten (10) day
period and such certificate as signed by Landlord or Landlord's beneficiary, as
the case may be, shall be fully binding on Tenant, if Tenant fails to deliver a
contrary certificate within five (5) days after receipt by Tenant of a copy of
the certificate executed by Landlord on behalf of Tenant.
20.3 All obligations of Tenant hereunder not fully performed as of
the expiration or earlier termination of the Term shall survive the expiration
or earlier termination of the Term, including without limitation, all payment
obligations with respect to Taxes, Operation Costs and the like and all
obligations concerning the condition of the Premises. Upon the expiration of
earlier termination of the Term, and prior to Tenant vacating the Premises,
Landlord and Tenant shall jointly inspect the Premises and Tenant shall pay to
Landlord any amount estimated by Landlord as necessary to put the Premises,
including without limitation heating and air conditioning systems and equipment
therein, in good condition and repair. Any work required to be done by Tenant
prior to its vacation of the Premises which has not been completed upon such
vacation, may be completed by Landlord at Tenant's expense. Tenant shall also,
prior to vacating Premises, pay to Landlord the amount, as estimated by
Landlord, of Tenant's obligation hereunder for Taxes and Operating Costs. All
such amounts hall be used and held by Landlord for payment of such obligations
of Tenant hereunder, with Tenant being liable for any additional costs therefor
upon payment of such obligations of Tenant hereunder, with Tenant being liable
for any additional costs therefor upon payment of such obligations of Tenant
hereunder, with Tenant being liable for any additional costs therefor upon
demand by Landlord or with any excess to be returned to Tenant after all such
obligations have been determined and satisfied.
20.4 Tenant's "proportionate share" as used in this Lease shall mean
a fraction, the numerator of which is the rentable area (other than any
designed parking and loading areas) contained in the Premises and the
denominator of which is the rentable area contained in the Building, in each
case as determined by Landlord.
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20.5 Each of the parties (i) represents and warrants to the other that it
has not dealt with any broker or finder in connection with this Lease, except
as described herein; and (ii) indemnifies and holds the other harmless from any
and all losses, liability, costs or expenses (including attorneys' fees)
incurred as a result of any breach of the foregoing warranty.
20.6 Neither party shall record this Lease or a memorandum hereof without
the prior written consent of the other party and the party seeking the
recording shall pay all charges and taxes incident thereto.
20.7 In no event shall Landlord's liability for any breach of any
contractual obligation of this Lease exceed the amount of rental then remaining
unpaid for the then current Term (exclusive of any renewal periods which have
not then actually commenced). This provision is not intended to be a measure or
agreed amount of Landlord's liability with respect to any particular breach,
and shall not be utilized by any court or otherwise for the purpose of
determining any liability of Landlord hereunder, except only as a maximum
amount not to be exceeded in any event.
21. CORPORATE AUTHORITY
If Tenant is a corporation, Tenant represents and warrants that this Lease and
the undersigned's execution of this Lease has been duly authorized and approved
by the corporation's Board of Directors. The undersigned officers and
representatives of the corporation executing this Lease on behalf of the
corporation represent and warrant that they are officers of the corporation
with authority to execute this Lease on behalf of the corporation.
22. LIMITATION OF LANDLORD'S LIABILITY
Redress for any claims against Landlord under this Lease shall only be made
against Landlord to the extent of Landlord's interest in the property to which
the leased Premises are a part. The obligation of Landlord under this Lease
shall not be personally binding on, nor shall any resort be had to the private
properties of, any of its trustees or board of directors and officers, as the
case may be, the general partners thereof or any beneficiaries, stockholders,
employees or agents of Landlord, or the investment manager.
The parties hereto have executed this Lease on the date specified immediately
below their respective signatures.
LANDLORD: TENANT:
SFERS REAL ESTATE CORP. A, Nutraceutix, Inc., dba Bio Techniques
a Delaware corporation Laboratories, Inc., a Delaware
Corporation
By: RREEF Management Company, By: /s/ WILLIAM D. ST. JOHN
a California corporation ----------------------------------
William D. St. John
By: Its: President
------------------------------
Anne L. Johnston, R.P.A.
Its: District Manager Date: 8-23-1995
--------------------------------
Date:
----------------------------
11
<PAGE> 21
EXHIBIT B
attached to and made a part of Lease bearing the
Lease Reference Date of August 21, 1995 between
SFERS REAL ESTATE CORP. A, as Landlord and
Nutraceutix, Inc., dba Bio Techniques Laboratories, Inc., as Tenant
for the Premises known as 14810 NE 95th Street
INITIAL ALTERATIONS
Notwithstanding anything to the contrary contained herein or any Exhibits
attached hereto, both parties agree that the premises are to be delivered to
Tenant in an "as-is" condition. Taking of possession by Tenant shall be deemed
to establish that the Premises are in good and satisfactory condition, as of
when possession was so taken, unless the Landlord is otherwise notified. Tenant
acknowledges that no representations as to the repair of the Premises have been
made by Landlord, unless expressly set forth in this Lease.
<PAGE> 22
EXHIBIT A
attached to and made a part of Lease bearing the
Lease Reference Date of August 21, 1995 between
SFERS REAL ESTATE CORP. A, as Landlord and
Nutraceutix, Inc., dba Bio Techniques Laboratories, Inc., as Tenant
for the Premises known as 14810 NE 95th Street
PREMISES
Exhibit A is intended only to show the general layout of the Premises as of the
beginning of the Term of this Lease. It does not in any way supersede any of
Landlord's rights set forth in Article 6 with respect to arrangements and/or
locations of public parts of the Center and changes in such arrangements and/or
locations. It is not to be scaled; any measurements or distances shown should
be taken as approximate.
Legal Description:
Willows Business Center, building 6 located at 14810 NE 95th Street, Redmond,
Washington, and situated on Lot 3, of the short plat of Lot 5, Willows
Industrial Center, (SS-81-11, King County, recording number 811029-0309)
Sections 2 & 3, Township 25 North, Range 5 East, W.M., King County, Washington
Site Plan:
[SITE PLAN ILLUSTRATION]
Building #6 Willows Business Center
Redmond, Washington
<PAGE> 23
EXHIBIT D
PREVENTATIVE MAINTENANCE
ROOF TOP PACKAGED A/C EQUIPMENT
Page 2 of 2
o Attach an amprobe meter on operating unit to record operating amperage on
all electrical supply legs to the unit. (Preferably on an elevated
cooling load day.)
o Leak check equipment for refrigerant leaks making sure to check previously
identified leak (marked) repairs for tightness. Write-up a service order
for repair of any new or reoccurring leaks detected.
o Enter conditions, repairs, and changes in the equipment history log.
QUARTERLY
(The following preventative maintenance items should be completed on a
quarterly basis.)
o Replace ventilation side air filter(s). Make sure that correct size and
fit is being used.
o Operationally observe the performance of the unit. Check to be sure the
condenser coils have not fouled-up since last cleaned, the unit doesn't
have excessive vibration, and all unit electrical component covers are in
place.
o Enter conditions, repairs and changes in the equipment history log.
<PAGE> 24
EXHIBIT E
attached to and made a part of Lease bearing the
Lease Reference Date of August 21, 1995 between
SPERS REAL ESTATE CORP. A, as Landlord and
Nutraceutix, Inc., dba Bio Techniques Laboratories, Inc., as Tenant
for the Premises known as 14810 NE 95th Street
SIGNAGE CRITERIA
All proposed tenant signage must be submitted for review and approval to:
The RREEF Funds
14816 NE 95th Street
Redmond, WA 98052
This signage criteria applies to all tenants.
Landlord provides a blank sign (12" x 47" off-white background with a teal
boarder, with a french cleave on the back of the sign) to Tenant.
Tenant contacts Laura Gates at Morup Signs (883-6337) and provides them with a
business card, and they will add the tenant logo on the sign.
The lettering on the sign will be black. The size of the lettering varies
depending on the length of the tenant name and tenant logo.
Morup Signs also provides the tenant directory strip in the street directory.
Tenant needs to specify how they would like their name to appear on the
directory.
If Landlord give Tenant a blank sign that has a previous tenant's name on it,
Morup Signs will repaint the sign and charge that portion to Landlord.
Cost of Directory is $25.00.
Cost of the Entrance Sign depends on logo, starting at $75.00 plus. This price
includes pick up and delivery of sign blank.
[LOGO PLACEMENT ON SIGNAGE]
<PAGE> 25
CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day of 23rd August, 1995, before me, the undersigned, a Notary
Public in and for the State of Washington, personally appeared William St. John
and ________________ , to be known to be the President and _________________ of
Natural Nutraceutix, a corporation, and acknowledged to me that they executed
the same of behalf of said corporation freely and voluntarily for the uses and
purposes therein mentioned.
Witness my hand and official seal the day and year in this certificate
first above written.
[SEAL] /s/ MALIVANH RANES
-------------------------------------
Notary Public in and for the
State of Washington
residing at Seattle
CORPORATE ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On this day of _________, 199__, before me, the undersigned, a Notary
Public in and for the State of _______________________, personally appeared
_______________________ and _______________________ , to be known to be the
_______________ and _______________ of _______________, a corporation, and
acknowledged to me that they executed the same of behalf of said corporation
freely and voluntarily for the uses and purposes therein mentioned.
Witness my hand and official seal the day and year in this certificate
first above written.
_____________________________________
Notary Public in and for the
State of ____________________________
residing at _________________________
INDIVIDUAL ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF )
On this ___ day of _________________, 199__, before me, the undersigned, a
Notary Public in and for the State of __________________, personally appeared
___________________, to me known to be the person(s) named in the foregoing
document, and acknowledged to me that ____________________________ executed the
same freely and voluntarily for the uses and purposes therein mentioned.
Witness my hand and official seal the day and year in this certificate
first above written.
_____________________________________
Notary Public in and for the
State of ____________________________
residing at _________________________
<PAGE> 1
Exhibit 10.4
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered effective the 1st day of
September, 1995, by and between JUDITH SCHELL (hereinafter "Owner") and
NUTRACEUTIX, INC., a Delaware corporation (hereinafter "Tenant"):
For and in consideration of the covenants, terms, conditions, agreements
and payments as set forth in this Lease Agreement, the parties hereto agree as
follows:
1.0 PROPERTY - LEASE PREMISES;
Owner hereby leases to Tenant upon the terms and conditions hereof the
real property consisting of approximately 8,000 square feet but in Owner's
building located at 1420 Overlook Drive, Lafayette, Colorado, as more
particularly described in Exhibit A attached hereto and by this reference made a
part hereof, which shall hereinafter be referred to as the "Premises."
2.0 TERM:
The term of this Lease shall commence at 12:01 A.M. on the 1st day of
the monthly following Owner's completion of the improvements set forth in
paragraph 7.0 below (Commencement Date) and unless terminated earlier as
provided for herein, shall end at 12:00 midnight 36 months after the
Commencement Date. Upon completion of the improvements, Owner and Tenant shall
jointly execute a certificate setting forth the Commencement Date for this
Lease.
3.0 RENT:
Tenant shall pay to Owner, at the address of Owner set forth below, the
following as rent for the Premises:
3.01 BASE RENT;
The base rental for the full term hereof shall be ONE HUNDRED
FIFTY THOUSAND and N0/100 DOLLARS ($150,000.00). Said rental shall be payable in
monthly installments (basic monthly rental) of FOUR THOUSAND ONE HUNDRED SIXTY
SIX and 67/100 DOLLARS ($4,166.67) in advance on the first day of each month
commencing on the Commencement Date and continuing monthly for the term hereof.
3.02 ADDITIONAL RENT:
3.02.01 REAL ESTATE TAXES;
Tenant agrees to pay to Owner, as additional rent, its
prorata share of the real estate and ad valorem taxes including
any and all special assessments which may be levied or assessed
by any lawful authority for each calendar year during the lease
term.
3.02.02 INSURANCE;
Tenant agrees to pay Owner, as additional rent, its
prorata share of the cost of insurance for fire and extended
perils coverage, public liability and property damage in
reasonable amounts as determined by Owner.
3.02.03 REPAIRS AND MAINTENANCE.
(a) Owner, at Owner's sole cost, agrees to maintain,
repair and replace, when necessary or appropriate, the
interior structural portions and the exterior of the
Premises, including, but not by way of limitation, the
roof; foundation; walls and floor of the Premises. Owner
shall further pay the cost of replacement of any
heating, air conditioning and ventilation units serving
the Premises.
<PAGE> 2
\
(b) Owner shall be responsible for repairs and
maintenance of the heating, air conditioning,
ventilator, electrical and plumbing facilities provided
such shall be done at the sole cost and expense of
Tenant. Owner shall further maintain and repair the
exterior and grounds of the Premises, including lawn
maintenance and snow and ice removal from sidewalks and
parking lots, all at the sole cost and expense of
Tenant.
(C) Except as provided hereinabove, Tenant shall be
responsible, at its sole cost and expense, for all other
repair and maintenance of the Premises. Tenant shall, at
the end of the term hereof, return the Premises to Owner
in substantially as good condition as when received
except for usual or ordinary wear and tear.
3.02.04 PRORATA SHARE:
Owner shall notify Tenant from time to time of the
amount which Owner estimates will be Tenant's monthly prorata
share of the taxes as provided in 3.02.01 above, insurance, as
provided in 3.02.02 above, and repairs and maintenance as
provided in 3.02.03(b) above for the calendar year or portion
thereof and Tenant shall pay to Owner such amount monthly in
advance on or before the first day of each month for the
calendar year, Owner shall submit to Tenant annually a statement
showing the taxes, insurance, repairs and maintenance to be paid
by Tenant during the preceding calendar year, the amount thereof
paid by Tenant during the preceding calendar year, and the
amount of the resulting balance due thereon, or overpayment
thereof, as the case may be. Any overpayment or underpayment
shall be considered by the Owner in setting the estimate of the
Tenants prorata share of said costs for the succeeding calendar
year.
"Tenant's prorata share" means that fraction, the
numerator of which is the gross leasable area of the demised
premises agreed to be 8,000 square feet and the denominator of
which is the gross leasable area of the Owner's building
(including the demised premises) which is agreed to be 14,400
square feet.
4.0 SECURITY DEPOSIT:
The Tenant shall tender upon the execution of this Lease and keep on
deposit with the Owner at all times during the term of this Lease, the sum of
FOUR THOUSAND ONE HUNDRED SIXTY SIX and 67/100 Dollars ($4,166.67) as security
for the payment by the Tenant of the rent and any other sums due under this
lease and for the faithful performance of all the terms, conditions and
covenants of this Lease. If at any time during the term of this Lease the Tenant
shall be in default in the performance of any provision of this Lease, the Owner
may (but shall not be required to) use any such deposit, or so much thereof as
necessary, in payment of any rent or any other sums due under this Lease in
default, in reimbursement of any expense incurred by the Owner and in payment of
the damages incurred by the Owner by reason of the Tenant's default, or at the
option of the Owner, the same my be retained by the
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<PAGE> 3
Owner as liquidated damages. In such event, the Tenant shall, on written demand
of the Owner, forthwith remit to the Owner a sufficient amount in cash to
restore such deposit to its original amount. If such deposit has not been
utilized as aforesaid, such deposit, or as much thereof as has not been utilized
for such purposes, shall be refunded to the Tenant, without interest, upon full
performance of this Lease by the Tenant. Owner shall have the right to commingle
such deposit with other funds of the Owner, Owner shall deliver the funds
deposited herein by the Tenant to any purchaser of the Owner's Interest in the
Premises in the event such interest be sold, and thereupon, the Owner shall be
discharged from further liability with respect to such deposit. Notwithstanding
the above provisions of this section, if claims of the Owner exceed the deposit
provided for therein, the Tenant shall remain liable for the balance of such
claim.
5.0 PERSONAL PROPERTY-TAXES:
Tenant shall be responsible and pay for any and all taxes and
assessments levied on Tenant's furniture, fixtures, equipment and items of a
similar nature located on the Premises.
6.0 UTILITIES;
Tenant shall be solely responsible for and promptly pay all charges for
heat, gas, electric, sewer service and any other utility service used or
consumed by Tenant on the leased Premises. In no event shall Owner be liable for
any interruption or failure in the supply of any such utility to the leased
Premises.
7.0 ALTERATION - CHANGES AND ADDITIONS RESPONSIBILITY:
7.01 The Owner agrees to provide the Tenant, at its sole expense, the
shell for the demised premises.
7.02 Tenant intends to make alterations to the Premises in accordance
with the plans and specifications to be delivered to Owner with in five (5) days
of the date hereof. Owner shall have five (5) days thereafter to approve such
plans and specifications in Owner's sole discretion. In the event Owner and
Tenant fail to mutually agree on said plans and specifications on or before
October 5, 1995 this Lease Agreement shall terminate and be of no further force
or effect. Owner further reserves the right to approve all contractors and
subcontractors chosen by Tenant to construct the improvements on the Premises.
Tenant agrees to use those subcontractors suggested by Owner so long as the
costs are competitive with other such subcontractors. Owner shall reimburse
Tenant within thirty (30) days of receipt of invoices a total amount not to
exceed $18,000 for improvements related to constructing approximately 1,200
square feet of office space and two restroom facilities on the Premises. The
Owner agrees to pay the cost of the alterations and other finish of the demised
premises as specified in the attached plans in excess of $18,000.00, provided
that such excess costs together with interest at the rate of 10.75% per annum on
the outstanding balance shall be reimbursed to the Owner by the Tenant in equal
monthly payments, as additional rent, during the remaining term of the lease.
7.03 Subject to Owner's prior written approval, Tenant may, during
the term of this Lease, at Tenant's sole expense make such other changes or
alterations as Tenant may desire. At the end of this Lease, all such fixtures,
equipment. additions and/or alterations (except trade fixtures installed by
Tenant) shall be and remain the property of Owner; provided, however, Owner
shall have the option to require Tenant to remove any or all such fixtures,
equipment, additions and/or alterations and restore the leased
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<PAGE> 4
Premises to the condition existing immediately prior to such change and/or
installation, normal wear and tear excepted, all at Tenant's cost and expense.
7.04 All work shall be done in a good and workmanlike manner and
shall consist of new materials unless agreed to otherwise by Owner. Any and all
repairs, changes and/or modifications thereto shall be the responsibility and at
the sole cost of Tenant. Owner may require adequate security from Tenant
assuring no mechanic's liens on account of work done on the Premises by Tenant.
8.0 SIGN APPROVAL: Tenant shall not install, paint, display, inscribe, place
or affix or otherwise attach, any sign, picture, advertisement, notice,
lettering or direction on the outside of the Premises for exterior view without
the written consent of the Owner, which consent shall not be unreasonably
withheld.
9.0 OBSERVANCE OF LAW: Tenant shall comply with all provisions of law,
including without limitation, federal, state, county and city laws, ordinances
and regulations and any other governmental, quasi-governmental or municipal
regulations which relate to the partitioning, equipment operation, alteration,
occupancy and use of the Premises, and the making of any repairs, replacements,
alterations, additions, changes, substitutions or improvements of or to the
Premises. Moreover, Tenant shall comply with all police, fire, and sanitary
regulations imposed by any federal, state, county or municipal authorities, or
made by insurance underwriters, and to observe and obey all governmental and
municipal regulations and other requirements governing the conduct of any
business conducted in the Premises.
10.0 WASTE AND NUISANCE: Tenant shall not commit, suffer or permit any waste
or damage or disfiguration or injury to the Premises or the fixtures and
equipment located therein or thereon, or permit or suffer any overloading of the
floors, sidewalks or paved areas on the Premises.
11.0 GLASS AND DOOR RESPONSIBILITY - TENANT:
All glass and doors on the leased Premises shall be the responsibility of the
Tenant. Any replacement or repair shall be promptly completed at the expense of
the Tenant.
12.0 USE OF PREMISES: Tenants shall use leased premise for processing,
manufacturing, blending, and packaging of health supplements, pharmaceuticals,
nutraceuticals, feed additives, natural materials, microbials, herbs and
phytochemicals, vitamins, organic and in-organic chemicals, amino acids, and
extracts of various origins. This list is not all inclusive in that the natural
products industry is rapidly developing new products, materials and processes.
Any other use requires owners written consent. Owners approval will not be
unreasonably ?????????????????.
13.0 INSURANCE:
13.01 RESPONSIBILITY OF TENANT:
Tenant shall procure, pay for and maintain comprehensive public
liability insurance and property damage insurance providing coverage from any
loss or damage occasioned by an accident or casualty, arising from use of the
Premises by Tenant, its employees, agents, guests and invitees in amounts not
less than One Million Dollars ($1,000,000) for bodily Injury and One Million
Dollars ($1,000,000) for property damage. Certificates of such insurance naming
Owner as an additional insured shall be delivered to Owner and shall provide
that said coverage shall not be changed, modified, reduced or cancelled except
upon thirty (30) days prior written notice to Owner.
13.02 RESPONSIBILITY OF OWNER:
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<PAGE> 5
Owner agrees to maintain throughout the term of this Lease Agreement,
one or more policies of fire and standard extended coverage insurance that shall
include the demised premises (excluding Tenant's leasehold improvements,
fixtures, equipment, merchandise and other personal property from time to time
located on the demised premises) providing protection against perils included
within the standard form of all-risk insurance policy issued by insurance
companies in the State of Colorado. Upon request, the Owner shall provide the
Tenant with a Certificate of Insurance as required herein.
14.0 DAMAGE TO LEASED PREMISES:
In the event the leased Premises and/or the improvements of which the
leased Premises are a part shall be totally destroyed by fire or other casualty
or so badly damaged that, in the opinion of the Owner, it is not feasible to
repair or rebuild same, Owner shall have the right to terminate this Lease upon
written notice to Tenant. If the leased Premises shall be partially untenantable
thereby, as determined by Owner, an appropriate reduction of the rent shall be
allowed for the unoccupied portion of the leased Premises until repair thereof
shall be substantially completed. If the leased Promises are rendered
untenantable thereby, except if caused by Tenant's negligence, Tenant may, at
its election, terminate this Lease as of the date of the damage. If Tenant
elects not to terminate the Lease, the rent shall abate in proportion to the
loss of use of the Premises by Tenant during such untenantability.
15.0 HAZARDOUS MATERIALS:
15.01 Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept, or used in or about the Premises by Tenant, its agents,
employees, contractors, or invitees, except for such hazardous material as is
necessary or useful to Tenant's business.
15.02 Any Hazardous Material permitted on the Premises as provided
herein and all containers therefor, shall be used, kept, stored, and disposed of
in a manner that complies with all federal, state, and local laws or regulations
applicable to any such Hazardous Material.
15.03 Tenant shall not discharge, leak, or emit, or permit to be
discharged, leaked, or emitted, any material into the atmosphere, ground, sewer
system, or any body of water, if such material (as determined by the Owner or
any governmental authority) does or my pollute or contaminate the same, or may
adversely affect (a) the health, welfare, or safety of persons, whether located
on the Premises or elsewhere; or (b) the condition, use, or enjoyment of the
Premises.
15.04 As used herein, the term "Hazardous Material" means:
15.04.01 Any "hazardous waste" as defined by the Resource
Conservation and Recovery Act of 1976, as amended from time to
time, and regulations promulgated thereunder; and
15.04.02 Any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations
promulgated thereunder; and
15.04.03 Any oil, petroleum products and their byproducts; and
15.04.04 Any substance which is or becomes regulated by any
federal, state, or local governmental authority.
15.05 Tenant agrees that it shall be fully liable for all costs and
expenses related to the use, storage, and disposal of Hazardous Material kept on
the Premises by the Tenant. Tenant shall defend,
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<PAGE> 6
indemnify, and hold harmless Owner and its agents from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs, or expenses
(including, without limitation, attorneys' and consultant fees, court costs, and
litigation expenses) of whatever kind or nature, known or unknown, contingent or
otherwise, arising out of or in any way related to:
15.05.01 The presence, disposal, release, or threatened release
of any such Hazardous Material which affects soil, water,
vegetation, buildings, personal property, persons, animals, or
otherwise;
15.05.02 Any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to
such Hazardous Material;
15.05.03 Any lawsuit brought or threatened, settlement reached,
or government order relating to such Hazardous Material; or
15.05.04 Any violation of any laws applicable thereto. The
provisions of this paragraph shall be in addition to any other
obligations and liabilities Tenant may have to Owner at law or
at equity and shall survive the transactions contemplated herein
and shall survive the termination of this Lease.
16.0 INSPECTION AND RIGHT OF ENTRY TO PREMISES:
Owner and its agents shall have the right to enter the Premises at all
reasonable times for the purpose of examining or inspecting the same, to supply
any services to be provided by Owner to Tenant hereunder, to show the same to
prospective purchasers or tenants and to make such alterations, repairs,
improvements or additions, whether structural or otherwise, to the Premises as
Owner may deem necessary or desirable. Owner may enter by means of a master key
without liability to Tenant except for any failure to exercise due care for
Tenant's property and without affecting this Lease. Owner shall use reasonable
efforts on any such entry not to unreasonably interrupt or interfere with
Tenant's use and occupancy of the Promises and Owner shall notify Tenant prior
to entry except in cases of an emergency.
17.0 DEFAULT - REMEDIES OF OWNER:
17.01 In an event of default in the terms hereof by Tenant and failure
of Tenant to cure such default within five (5) working days after written notice
of default from Owner, the Owner shall have the following rights and remedies,
in addition to all other remedies at law or equity, and none of the following,
whether or not exercised by the Owner, shall preclude the exercise of any other
right or remedy whether herein set forth or existing at law or equity:
17.01.01 Owner shall have the right to terminate this Lease by
giving the Tenant notice in writing, and upon the giving of such
notice, this Lease and the term hereof as well as all the right,
title and interest of the Tenant under this Lease shall wholly
cease and expire in the same manner and with the same force and
effect on the date specified in such notice as if such date were
the expiration dale of the term of this Lease, without the
necessity of re-entry or any other act on the Owner's part. Upon
termination, the Tenant shall quit and surrender to Owner the
Premises. If this Lease is so terminated by the Owner, the Owner
shall be entitled to recover from the Tenant as damages, in
addition to other costs, damages, charges or obligations under
this Lease, the worth at the time of such termination of the
excess, if any, of the amount of rent reserved in this Lease for
the
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<PAGE> 7
balance of the term of this Lease (which shall be calculated on
the then current rent under this Lease) in excess of the then
reasonable rental value of the Premises for the same period plus
all costs and expenses of Owner caused by the Tenant's default.
17.01.02 Owner may, without demand, or notice, re-enter and take
possession of the Premises or any part thereof, repossess the
same and expel the Tenant and those claiming through or under
the Tenant, and remove the effect of any and all such persons
(forcibly, if necessary) without being doomed guilty of any
manner of trespass and without prejudice to any remedies for
arrears of rent or preceding breach of covenants. Should the
Owner elect to re-enter as provided in this Section 17.01, or
should the Owner take possession pursuant to legal proceedings
or pursuant to any notice provided for by the law, the Owner
may, from time to time, without terminating this Lease, relet
the Premises or any part thereof for such other conditions as
the Owner may deem advisable, with the right to make alterations
and repairs to the Premises. No such re-entry or repossession of
the Premises by the Owner shall be construed as an election on
the Owner's part to terminate this Lease unless a written notice
of termination is given to the Tenant by the Owner. No such
re-entry or repossession of the Premises shall relieve the
Tenant of its liability and obligation under this Lease, all of
which shall survive such re-entry or repossession. Upon the
occurrence of such re-entry or repossession, Owner shall be
entitled to damages in the amount of the monthly rent, and any
other sums, which would be payable hereunder if such re-entry or
repossession had not occurred, less the net proceeds, if any, of
any reletting of the Promises after deducting all the Owner's
expenses in connection with such reletting including, but
without limitation, all repossession costs, brokerage
commissions, legal expenses, attorney's fees, expenses of
employees, alteration costs, and expenses of preparation for
such reletting. Tenant shall pay such liquidated damages to the
Owner on the days on which the rent or any other sum due
hereunder would have been payable if possession had not been
retaken. In no event shall the Tenant be entitled to receive any
excess, if any, of net rent collected by the Owner as a result
of such reletting over the sums payable by the Tenant to the
Owner hereunder.
17.01.03 No remedy herein or otherwise conferred upon or
reserved to Owner shall be considered exclusive of any other
remedy but shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law
or in equity or by Statute. Further, all powers and remedies
given by this Lease to Owner may be exercised, from time to
time, and as often as occasion may arise or as may be deemed
expedient. No delay or omission of Owner to exercise any right
or power arising from any default shall impair any such right or
power or shall be considered to be a waiver of such default or
acquiescence thereof. The acceptance of rental by Owner shall
not be deemed to be a waiver of any breach of any of the
covenants herein contained or of any of the rights of Owner to
any remedies herein given.
18.0 INDEMNIFICATION OF OWNER:
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<PAGE> 8
Tenant shall indemnify the Owner and save it harmless from and against
any and all loss (including loss of rentals payable by the Tenant in the event
of loss either directly or indirectly caused by commission or omission of
Tenant), claims, actions, damages, liability and expenses in connection with
loss of life, personal injury and damage to property arising from any occurrence
in, upon or at the Premises or any party thereof, or occasioned wholly or in
part by any act or omission of the Tenant, its agents, contractors, employees,
servants, licensees, or concessionaires or invitees or by anyone permitted to be
on the Premises by the Tenant. In case the Owner shall, without fault on its
part, be made a party to any litigation commenced by or against the Tenant, then
the Tenant shall protect and hold the Owner harmless and shall pay all costs,
expenses and reasonable attorneys' fees incurred or paid by the Owner in
connection with such litigation. All personal property on the Premises shall be
at the Tenant's sole risk, and Owner shall not be liable for any damage done to
or loss of such personal property, or for damage or loss suffered by Tenant.
19.0 ASSIGNMENT OR SUBLETTIING:
Tenant may not assign the Lease or sublet the leased Premises without
the consent of the Owner which consent shall not be unreasonably withheld.
20.0 QUIET ENJOYMENT:
Owner agrees to warrant and defend Tenant in the quiet enjoyment and
possession of the Premises during the term of this Lease so long as Tenant is
not in default hereunder.
21.0 CONDEMNATION:
If more than twenty percent (20%) of the structural portion of the
Premises shall be taken by eminent domain, or by conveyance in lieu thereof, and
if such taking interferes substantially with the Tenant's use of the Premises,
then his Lease, at the option of either party evidenced by notice to the other
given within thirty (30) days from the taking or conveyance, shall forthwith
cease and terminate entirely. In the event of such termination of this Lease,
then rental shall be due and payable to the actual date of such termination. If
less than twenty percent (20%) of the Rentable Area of the structural portion
upon which the Premises is located, shall be taken, or if more than twenty
percent (20%) of the Premises is taken and neither party terminates this Lease,
this Lease shall cease and terminate as to that portion of the Premises so taken
as of the date of taking, and the rental thereafter payable under this Lease
shall be abated prorata from the date of such taking in an amount by which that
portion of the structural portion of the Premises so taken shall bear to the
structural portion of the Premises prior to such taking. If any part of the
building or real property shall be taken by eminent domain, or by conveyance in
lieu thereof, and if such taking substantially interferes with the Owner's
ownership or use of the building, the Owner, at its option, may, upon thirty
(30) days" notice to the Tenant. terminate this Lease as of the such taking. In
any event, the Owner shall receive the entire award for the land and
improvements taken by condemnation.
22.0 SUBORDINATION:
This Lease shall be and is hereby made subordinate to any mortgage or
deed of trust which may now or hereafter encumber the building, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
need be required by any mortgagee. In confirmation of such subordination,
however, Tenant shall, at Owner's request, execute promptly any appropriate
certificate, subordination agreement or instrument that Owner may request.
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<PAGE> 9
23.0 OPTIONS:
23.01 Option to Extend:
Upon full and complete performance of all the terms, covenants
and conditions herein contained by Tenant and payment of all rental due under
the terms hereof, Tenant shall be given the option to extend this Lease for an
additional two (2) year term. In the event Tenant desires to exercise said
option, Tenant shall give written notice of such fact to Owner not less than one
hundred twenty (120) days nor more than one hundred eighty (180) days prior to
the expiration of the then current term of this Lease. Upon the Owners receipt
of the Tenant's notice of intent to exercise the option, the Parties shall,
within thirty (30) days, negotiate the rental rate for the additional period.
If, within the thirty (30) days the parties are unable to agree on a rental rate
for the additional period, this lease shall terminate upon its terms. If the
parties agree to a rental rate, this Lease Agreement shall be deemed to be
extended for the additional period.
24.0 GUARANTEE:
This Lease, and Tenant's performance hereunder, are personally
guaranteed by N/A individually.
25.0 INTEREST ON PAST DUE OBLIGATIONS:
Any amount due to Owner not paid when due shall bear interest at one and
one-half percent (1 1/2%) per month from due date until paid. Payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
26.0 LATE CHARGE:
The Owner shall have the right to collect from Tenant, in addition to
any amounts due above, a monthly collection service charge equal to five percent
(5%) of the payment for any payment due to Owner hereunder which is delinquent
ton days or longer.
27.0 MEMORANDUM OF LEASE - RECORDING;
The parties hereto agree this Lease shall not be recorded in the office
of the Clark and Recorder of the county in which the leased Premises are
located. In order to effect public recordation the parties hereto may, at the
time this Lease is executed, agree to execute a Memorandum of Lease
incorporating therein by reference the terms of this Lease, but deleting
therefrom any expressed statement or mention of the amount of rent herein
reserved, which instrument my be recorded by either party in the office of the
Clerk and Recorder of the court in which the leased Premises are located.
29.0 NOTICE:
All notices, demands, and requests which may or are required to be given
by either party to the other shall be in writing and shall be deemed to have
been properly given if served on Tenant or Owner by registered or certified
mail, postage prepaid, return receipt requested, addressed;
If to Tenant; NUTRACEUTIX, INC.
8340 154th Avenue, N.E.
Redmond, Washington 98052
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<PAGE> 10
If to Owner: Judith Schell
2100 South 120th Street
Lafayette, Colorado 80026
or at such other place as Tenant or Owner may from time to time designate in a
written notice to the other. Any notice given by mailing shall be effective as
of the second business day after mailing as shown by the receipt given therefor.
29.0 HOLDING OVER;
If after expiration of the term of this Lease, Tenant shall remain in
possession of the leased Premises and continue to pay rent without a written
agreement as to such possession, then Tenant shall be deemed a month-to-month
Tenant and the rental rate during such holdover tenancy shall be equivalent to
one hundred twenty five percent (125%) of the monthly rental paid for the last
month of tenancy under this Lease. No holding over by Tenant shall operate to
renew or extend this Lease without the written consent of Owner to such renewal
or extension having been first obtained,
30.0 MODIFICATION OR EXTENSIONS:
No modification or extension of this Lease shall be binding unless in
writing, signed by all parties hereto.
31.0 CONTROLLING LAW:
The Lease, and all terms hereof, shall be construed in accordance with
the laws of the State of Colorado.
32.0 BINDING UPON SUCCESSORS:
The covenants and agreements herein contained shall bind and inure to
the benefit of Owner and Tenant and their respective successors. This Lease
shall be signed by the parties in duplicate, each of which shall be a complete
and effective original Lease.
33.0 PARTIAL INVALIDITY,
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 and circumstances other than those to which it
has been held invalid or unenforceable, shall not be affected thereby, and each
term, covenant and condition of this Lease shall be valid and shall be enforced
to the fullest extent permitted by law.
34.0 FIRST RIGHT OF REFUSAL:
During the term of the Lease Tenant shall have a first right of refusal
to lease additional space in the building in which the Premises are located
exercisable by Tenant. in writing. within five (5) days after notice to Tenant
from Owner of the pending lease of such space.
35.0 EARLY OCCUPANCY:
Upon execution hereof and payment of the security deposit as provided in
paragraph 4.0 hereof, Tenant shall be entitled to occupy the Premises subject
to compliance with all the Terms and Conditions hereof with the exception that
in lieu of the Rent as set forth in Paragraph 3.0. Tenant shall pay rent of
$1,500 per month in advance effective September 18, 1995.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this lease as of the date
hereof,
OWNER:
/s/ Judith Schell
-------------------------------------------
TENANT:
NUTRACEUTIX, INC., A DELAWARE CORPORATION
BY: /s/ WILLIAM D. ST. JOHN
----------------------------------------
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<PAGE> 12
EXHIBIT A
[BUILDING MAP]
<PAGE> 13
CERTIFICATE OF COMMENCEMENT DATE
The undersigned hereby certify that the Commencement Date for that
certain Lease entered into between the parties on or about the 1st day of
September, 1995 for Premises consisting of approximately 8,000 square feet
located at 1420 Overlook Drive, Lafayette, Colorado is the 1st day of December,
1995.
OWNER:
/s/ Judith Schell
-------------------------------------------
TENANT:
NUTRACEUTIX, INC., A DELAWARE CORPORATION
BY: /s/ WILLIAM D. ST. JOHN
----------------------------------------
<PAGE> 1
Exhibit 10.5
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered effective the 1st day of
December, 1995, by and between JUDITH SCHELL (hereinafter "Owner") and
NUTRACEUTIX, INC., a Delaware corporation (hereinafter "Tenant"):
For and in consideration of the covenants, terms, conditions, agreements
and payments as set forth in this Lease Agreement, the parties hereto agree as
follows:
1.0 PROPERTY - LEASE PREMISES:
Owner hereby leases to Tenant upon the terms and conditions hereof the
real property consisting of approximately 6,400 square feet in Owner's building
located at 1420 Overlook Drive, Lafayette, Colorado, as more particularly
described in Exhibit A attached hereto and by this reference made a part hereof,
which shall hereinafter be referred to as the "Premises."
2.0 TERM:
The term of this Lease shall commence at 12:01 A.M., on the 1st day of
the monthly following Owner's completion of the improvements to the Premises as
set forth in Exhibit "B" and unless terminated earlier as provided for herein,
shall end at 12:00 midnight 36 months after the Commencement Date. Upon
completion of the improvements, Owner and Tenant shall jointly execute a
certificate setting forth the Commencement Date for this Lease.
3.0 RENT:
Tenant shall pay to Owner, at the address of Owner set forth below, the
following as rent for the Premises:
3.01 BASE RENT:
The base rental for the full term hereof shall be ONE HUNDRED FIFTEEN
THOUSAND TWO HUNDRED and NO/100 DOLLARS ($115,200.00) Said rental shall be
payable in monthly installments (basic monthly rental) of THREE THOUSAND TWO
HUNDRED and NO/100 DOLLARS ($3,200.00) in advance on the first day of each month
commencing on the Commencement Date and continuing monthly for the term hereof.
3.02 ADDITIONAL RENT:
3.02.01 REAL ESTATE TAXES:
Tenant agrees to pay to Owner, as additional rent, its
prorata share of the real estate and ad valorem taxes including
any and all special assessments which may be levied or assessed
by any lawful authority for each calendar year during the lease
term.
3.02.02 INSURANCE:
Tenant agrees to pay Owner, as additional rent, its
prorata share of the cost of insurance for fire and extended
perils coverage, public liability and property damage in
reasonable amounts as determined by Owner.
3.02.03 REPAIRS AND MAINTENANCE.
(a) Owner, at Owner's sole cost, agrees to maintain,
repair and replace, when necessary or appropriate, the
interior structural portions and the exterior of the
Premises, including, but not by way of limitation, the
roof; foundation; walls and floor of the Premises. Owner
shall further pay the cost of replacement of any
heating, air conditioning and ventilation units serving
the Premises.
(b) Owner shall be responsible for repairs and
maintenance of the heating, air conditioning,
ventilator, electrical and plumbing facilities provided
such shall be done at the sole cost and expense of
Tenant. Owner shall further maintain
<PAGE> 2
and repair the exterior and grounds of the Premises,
including lawn maintenance and snow and ice removal from
sidewalks and parking lots, all at the sole cost and
expense of Tenant.
(C) Except as provided hereinabove, Tenant shall be
responsible, at its sole cost and expense, for all other
repair and maintenance of the Premises. Tenant shall, at
the end of the term hereof, return the Premises to Owner
in substantially as good condition as when received
except for usual or ordinary wear and tear.
3.02.04 PRORATA SHARE:
Owner shall notify Tenant from time to time of the
amount which Owner estimates will be Tenant's monthly prorata
share of the taxes as provided In 3.02.01 above, insurance as
provided in 3.02.02 above, and repairs and maintenance as
provided in 3.02.03(b) above for the calendar year or portion
thereof and Tenant shall pay to Owner such amount monthly in
advance on or before the first day of each month for the
calendar year. Owner shall submit to Tenant annually a statement
showing the taxes, insurance, repairs and maintenance to be paid
by Tenant during the preceding calendar year, the amount thereof
paid by Tenant during the preceding calendar year, and the
amount of the resulting balance due thereon, or overpayment
thereof, as the case may be. Any overpayment or underpayment
shall be considered by the Owner in setting the estimate of the
Tenant's prorata share of said costs for the succeeding calendar
year.
"Tenant's prorata share" means that fraction, the
numerator of which is the gross leasable area of the demised
premises agreed to be 6,400 square feet and the denominator of
which is the gross leasable area of the Owner's building
(including the demised premises) which is agreed to be 14,400
square feet.
4.0 SECURITY DEPOSIT:
The Tenant shall tender upon the execution of this Lease and keep on
deposit with the Owner at all times during the term of this Lease, the sum of
THREE THOUSAND TWO HUNDRED and NO/100 Dollars ($3,200.00) as security for the
payment by the Tenant of the rent and any other sums due under this lease and
for the faithful performance of all the terms, conditions and covenants of this
Lease. If at any time during the term of this Lease the Tenant shall be in
default in the performance of any provision of this Lease, the Owner may (but
shall not be required to) use any such deposit, or so much thereof as necessary,
in payment of any rent or any other sums due under this Lease in default, in
reimbursement of any expense incurred by the Owner and in payment of the damages
incurred by the Owner by reason of the Tenant's default, or at the option of the
Owner, the same may be retained by the Owner as liquidated damages. In such
event, the Tenant shall, on written demand of the Owner, forthwith remit to the
Owner a sufficient amount in cash to restore such deposit to its original
amount. If such deposit has not been utilized as aforesaid, such deposit, or as
much thereof as has not been utilized for such purposes, shall be refunded to
the Tenant, without interest, upon full performance of this Lease by the Tenant.
Owner shall have the right to commingle such deposit with other funds of the
Owner, Owner shall deliver the funds deposited herein by the Tenant to any
purchaser of the Owner's interest in the Premises in the event such interest be
sold, and thereupon, the Owner shall be discharged from further liability with
respect to such deposit. Notwithstanding the above provisions of this section,
if claims of the Owner exceed the deposit provided for therein, the Tenant shall
remain liable for the balance of such claims.
<PAGE> 3
5.0 PERSONAL PROPERTY TAXES:
Tenant shall be responsible and pay for any and all taxes and
assessments levied on Tenant's furniture, fixtures, equipment and items of a
similar nature located on the Premises.
6.0 UTILITIES:
Tenant shall be solely responsible for and promptly pay all charges for
heat, gas, electric, sewer service and any other utility service used or
consumed by Tenant on the leased Premises. In no event shall Owner be liable for
any interruption or failure in the supply of any such utility to the leased
Premises.
7.0 ALTERATION - CHANGES AND ADDITIONS - RESPONSIBILITY:
7.01 The Owner agrees to provide the Tenant, at its sole expense, the
shell for the demised premises and those additional improvements as set forth in
Exhibit 2 attached hereto.
7.02 Subject to Owner's prior written approval, Tenant may, during the
term of this Lease, at Tenant's sole expense make such other changes or
alterations as Tenant may desire. At the end of this Lease, all such fixtures,
equipment, additions and/or alterations (except trade fixtures installed by
Tenant) shall be and remain the property of Owner; provided, however, Owner
shall have the option to require Tenant to remove any or all such fixtures,
equipment, additions and/or alterations and restore the leased Premises to the
condition existing immediately prior to such change and/or installation, normal
wear and tear excepted, all at Tenant's cost and expense.
7.03 All work shall be done in a good and workmanlike manner and shall
consist of new materials unless agreed to otherwise by Owner. Any and all
repairs, changes and/or modifications thereto shall be the responsibility and at
the sole cost of Tenant. Owner may require adequate security from Tenant
assuring no mechanic's liens an account of work done on the Premises by Tenant.
8.0 SIGN APPROVAL:
Tenant shall not install, paint, display, inscribe, place or affix, or
otherwise attach, any sign, picture, advertisement, notice, lettering or
direction on the outside of the Premises for exterior view without the written
consent of the Owner, which consent shall not be unreasonably withheld.
9.0 OBSERVANCE OF LAW:
Tenant shall comply with all provisions of law, including without
limitation, federal, state, county and city laws, ordinances and regulations and
any other governmental, quasi-governmental or municipal regulations which relate
to the partitioning, equipment operation, alteration, occupancy and use of the
Premises, and the making of any repairs, replacements, alterations, additions,
changes, substitutions or improvements of or to the Premises. Moreover, Tenant
shall comply with all police, fire, and sanitary regulations imposed by any
federal, state, county or municipal authorities, or made by insurance
underwriters, and to observe and obey all governmental and municipal regulations
and other requirements governing the conduct of any business conducted in the
Premises.
10.0 WASTE AND NUISANCE:
Tenant shall not commit, suffer or permit any waste or damage or
disfiguration or injury to the Premises or the fixtures and equipment located
therein or thereon, or permit or suffer any overloading of the floors, sidewalks
or paved areas on the Premises,
11.0 GLASS AND DOOR RESPONSIBILITY - TENANT.
All glass and doors on the leased Premises shall be the responsibility
of the Tenant. Any replacement or repair shall be promptly completed at the
expense of the Tenant.
12.0 USE OF PREMISES:
Tenants shall use leased premise for processing, manufacturing,
blending, and packaging of health supplements, pharmaceuticals, nutraceuticals,
feed additives, natural materials, microbials, herbs and phytochemicals,
vitamins, organic and in-organic chemicals, amino acids, and extracts of various
origins. This list is not all inclusive in that the natural products industry is
rapidly developing new products, materials and processes. Any other use requires
owners written consent Owners approval will not be unreasonably
<PAGE> 4
13.0 INSURANCE:
13.01 RESPONSIBILITY OF TENANT:
Tenant shall procure, pay for and maintain comprehensive public
liability insurance and property damage insurance providing coverage from any
loss or damage occasioned by an accident or casualty, arising from use of the
Premises by Tenant, its employees, agents, guests and invitees in amounts not
less than One Million Dollars ($1,000,000) for bodily injury and One Million
Dollars ($1,000,000) for property damage. Certificates of such insurance naming
Owner as an additional insured shall be delivered to Owner and shall provide
that said coverage shall not be changed, modified, reduced or cancelled except
upon thirty (30) days prior written notice to Owner.
13.02 RESPONSIBILITY OF OWNER:
Owner agrees to maintain throughout the term of this Lease
Agreement, one or more policies of fire and standard extended coverage insurance
that shall include the demised premises (excluding Tenant's leasehold
improvements, fixtures, equipment, merchandise and other personal property from
time to time located on the demised premises) providing protection against
perils included within the standard form of all-risk insurance policy issued by
insurance companies in the State of Colorado. Upon request, the Owner shall
provide the Tenant with a Certificate of Insurance as required herein.
14.0 DAMAGE TO LEASED PREMISES:
In the event the leased Premises and/or the improvements of which the
leased Premises are a part shall be totally destroyed by fire or other casualty
or so badly damaged that, in the opinion of the Owner, it is not feasible to
repair or rebuild same, Owner shall have the right to terminate this Lease upon
written notice to Tenant. If the leased Premises shall be partially untenantable
thereby, as determined by Owner, an appropriate reduction of the rent shall be
allowed for the unoccupied portion of the leased Premises until repair thereof
shall be substantially completed, If the leased Premises are rendered
untenantable thereby, except if caused by Tenant's negligence, Tenant may, at
its election, terminate this Lease as of the date of the damage. If Tenant
elects not to terminate the Lease, the rent shall abate in proportion to the
loss of use of the Premises by Tenant during such untenantability.
15.0 HAZARDOUS MATERIALS:
15.01 Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept, or used in or about the Premises by Tenant, its agents,
employees, contractors, or invitees, except for such hazardous material as is
necessary or useful to Tenant's business.
15.02 Any Hazardous Material permitted on the Premises as provided
herein and all containers therefor, shall be used, kept, stored, and disposed of
in a manner that complies with all federal, state, and local laws or regulations
applicable to any such Hazardous Material.
15.03 Tenant shall not discharge, leak, or emit, or permit to be
discharged, leaked, or emitted, any material into the atmosphere, ground, sewer
system, or any body of water, if such material (as determined by the Owner or
any governmental authority) does or may pollute or contaminate the same, or may
adversely affect (a) the health, welfare, or safety of persons, whether located
on the Premises or elsewhere; or (b) the condition, use, or enjoyment of the
Premises.
15.04 As used herein, the term "Hazardous Material" means:
15.04.01 Any "hazardous waste" as defined by the Resource
Conservation and Recovery Act of 1976, as amended from time to
time, and regulations promulgated thereunder; and
15.04.02 Any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations
promulgated thereunder; and
<PAGE> 5
15.04.03 Any oil, petroleum products and their byproducts; and
15.04.04 Any substance which is or becomes regulated by any
federal, state, or local governmental authority.
15.05 Tenant agrees that it shall be fully liable for all costs and
expenses related to the use, storage, and disposal of Hazardous Material kept on
the Premises by the Tenant. Tenant shall defend, indemnify, and hold harmless
Owner and its agents from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs, or expenses (including, without
limitation, attorneys' and consultant fees, court costs, and litigation
expenses) of whatever kind or nature, known or unknown, contingent or otherwise,
arising out of or in any way related to:
15.05.01 The presence, disposal, release, or threatened release
of any such Hazardous Material which affects soil, water,
vegetation, buildings, personal property, persons, animals, or
otherwise,
15.05.02 Any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to
such Hazardous Material;
15.05.03 Any brought or threatened, settlement reached, or
government order relating to such Hazardous Material; or
15.05.04 Any violation of any laws applicable thereto. The
provisions of this paragraph shall be in addition to any other
obligations and liabilities Tenant may have to Owner at law or
at equity and shall survive the transactions contemplated herein
and shall survive the termination of this Lease.
16.0 INSPECTION AND RIGHT OF ENTRY TO PREMISES:
Owner and its agents shall have the right to enter the Premises at all
reasonable times for the purpose of examining or inspecting the same, to supply
any services to be provided by Owner to Tenant hereunder, to show the same to
prospective purchasers or tenants and to make such alterations, repairs,
improvements or additions, whether structural or otherwise, to the Premises as
Owner may deem necessary or desirable. Owner may enter by means of a master key
without liability to Tenant except for any failure to exercise due care for
Tenant's property and without affecting this Lease. Owner shall use reasonable
efforts on any such entry not to unreasonably interrupt or interfere with
Tenant's use and occupancy of the Premises and Owner shall notify Tenant prior
to entry except in cases of an emergency,
17.0 DEFAULT - REMEDIES OF OWNER:
17.01 In an event of default in the terms hereof by Tenant and failure
of Tenant to cure such default within five (5) working days after written notice
of default from Owner, the Owner shall have the following rights and remedies,
in addition to all other remedies at law or equity, and none of the following,
whether or not exercised by the Owner, shall preclude the exercise of any other
right or remedy whether herein set forth or existing at law or equity:
17.01.01 Owner shall have the right to terminate this Lease by
giving the Tenant notice in writing, and upon the giving of such
notice, this Lease and the term hereof as well as all the right,
title and interest of the Tenant under this Lease shall wholly
cease and expire in the same manner and with the same force and
effect on the date specified in such notice as if such date were
the expiration date of the term of this Lease, without the
necessity of re-entry or any other act on the Owner's part. Upon
termination, the Tenant shall quit and surrender to Owner the
Premises. If this Lease is so terminated by the Owner, the Owner
shall be entitled to recover from the Tenant as damages, in
addition to other costs, damages, charges or obligations under
this Lease, the worth at the time of such termination of the
excess, if any, of the amount of rent reserved in this Lease for
the balance of the term of this Lease (which
<PAGE> 6
shall be calculated on the then current rent under this Lease)
in excess of the then reasonable rental value of the Premises
for the same period plus all costs and expenses of Owner caused
by the Tenant's default.
17.01.02 Owner may, without demand, or notice, re-enter and take
possession of the Premises or any part thereof, repossess the
same and expel the Tenant and those claiming through or under
the Tenant, and remove the effect of any and all such persons
(forcibly, if necessary) without being deemed guilty of any
manner of trespass and without prejudice to any remedies for
arrears of rent or preceding breach of covenants. Should the
Owner elect to re-enter as provided in this Section 17.01, or
should the Owner take possession pursuant to legal proceedings
or pursuant to any notice provided for by the law, the Owner
may, from time to time, without terminating this Lease, relet
the Premises or any part thereof for such other conditions as
the Owner may deem advisable, with the right to make alterations
and repairs to the Premises. No such re-entry or repossession of
the Premises by the Owner shall be construed as an election on
the Owner's part to terminate this Lease unless a written notice
of termination is given to the Tenant by the Owner. No such
re-entry or repossession of the Premises shall relieve the
Tenant of its liability and obligation under this Lease, all of
which shall survive such re-entry or repossession. Upon the
occurrence of such re-entry or repossession, Owner shall be
entitled to damages in the amount of the monthly rent, and any
other sums, which would be payable hereunder if such re-entry or
repossession had not occurred, less the net proceeds, if any, of
any reletting of the Premises after deducting all the Owner's
expenses in connection with such reletting, including, but
without limitation, all repossession costs, brokerage
commissions, legal expenses, attorney's fees, expenses of
employees, alteration costs, and expenses of preparation for
such reletting. Tenant shall pay such liquidated damages to the
Owner on the days on which the rent or any other sums due
hereunder would have been payable if possession had not been
retaken. In no event shall the Tenant be entitled to receive any
excess, if any, of net rent collected by the Owner as a result
of such reletting over the sums payable by the Tenant to the
Owner hereunder.
17.01.03 No remedy herein or otherwise conferred upon or
reserved to Owner shall be considered exclusive of any other
remedy but shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law
or in equity or by Statute. Further, all powers and remedies
given by this Lease to Owner may be exercised, from time to
time, and as often as occasion may arise or as may be deemed
expedient. No delay or omission of Owner to exercise any right
or power arising from any default shall impair any such right or
power or shall be considered to be a waiver of such default or
acquiescence thereof. The acceptance of rental by Owner shall
not be deemed to be a waiver of any breach of any of the
covenants herein contained or of any of the rights of Owner to
any remedies herein given.
18.0 INDEMNIFICATION OF OWNER.
Tenant shall indemnify the Owner and save it harmless from and against
any and all loss (including loss of rentals payable by the Tenant in the event
of loss either directly or indirectly caused by commission or omission of
Tenant), claims, actions, damages, liability and expenses in connection with
loss of life, personal injury and damage to property arising from any occurrence
in, upon or at the Premises or any party thereof, or occasioned wholly or in
part by any act or omission of the Tenant, its agents, contractors, employees,
servants, licensees, or concessionaires or invitees or by anyone permitted to be
on the Premises by the Tenant. In case the Owner shall, without fault on its
part, be made a party to any litigation commenced
<PAGE> 7
by or against the Tenant, then the Tenant shall protect and hold the Owner
harmless and shall pay all costs, expenses and reasonable attorneys' fees
incurred or paid by the Owner in connection with such litigation. All personal
property on the Premises shall be at the Tenant's sole risk, and Owner shall not
be liable for any damage done to or loss of such personal property, or for
damage or loss suffered by Tenant.
19.0 ASSIGNMENT OR SUBLETTING:
Tenant may not assign the Lease or sublet the leased Premises without
the consent of the Owner which consent shall not be unreasonably withheld.
20.0 QUIET ENJOYMENT:
Owner agrees to warrant and defend Tenant in the quiet enjoyment and
possession of the Premises during the term of this Lease so long as Tenant is
not in default hereunder.
21.0 CONDEMNATION:
If more than twenty percent (20%) of the structural portion of the
Premises shall be taken by eminent domain, or by conveyance in lieu thereof, and
if such taking interferes substantially with the Tenant's use of the Premises,
then his Lease, at the option of either party evidenced by notice to the other
given within thirty (30) days from the taking or conveyance, shall forthwith
cease and terminate entirely. In the event of such termination of this Lease,
then rental shall be due and payable to the actual date of such termination. If
less than twenty percent (20%) of the Rentable Area of the structural portion
upon which the Premises is located, shall be taken, or if more than twenty
percent (20%) of the Premises is taken and neither party terminates this Lease,
this Lease shall cease and terminate as to that portion of the Premises so taken
as of the date of taking, and the rental thereafter payable under this Lease
shall be abated prorata from the date of such taking in an amount by which that
portion of the structural portion of the Premises so taken shall bear to the
structural portion of the Premises prior to such taking. If any part of the
building or real property shall be taken by eminent domain, or by conveyance in
lieu thereof, and if such taking substantially interferes with the Owner's
ownership or use of the building, the Owner, at its option, may, upon thirty
(30) days' notice to the Tenant, terminate this Lease as of the such taking. In
any event, the Owner shall receive the entire award for the land and
improvements taken by condemnation.
22.0 SUBORDINATION:
This Lease shall be and is hereby made subordinate to any mortgage or
deed of trust which may now or hereafter encumber the building, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
need be required by any mortgagee. In confirmation of such subordination,
however, Tenant shall, at Owner's request, execute promptly any appropriate
certificate, subordination agreement or instrument that Owner may request
23.0 OPTIONS:
23.01 OPTION TO EXTEND:
Upon full and complete performance of all the terms, covenants
and conditions herein contained by Tenant and payment of all rental due under
the terms hereof, Tenant shall be given the option to extend this Lease for an
additional two (2) year term. In the event Tenant desires to exercise said
option, Tenant shall give written notice of such fact to Owner not less than one
hundred twenty (120) days nor more than one hundred eighty (180) days prior to
the expiration of the then current term of this Lease. Upon the Owners receipt
of the Tenants notice of intent to exercise the option, the parties shall,
within thirty (30) days, negotiate the rental rate for the additional period.
If, within the thirty (30) days, the parties are unable to agree on a rental
rate for the additional period, this lease shall terminate upon its terms. If
the parties agree to a rental rate, this Lease Agreement shall be deemed to be
extended for the additional period.
<PAGE> 8
24.0 GUARANTEE:
This Lease, and Tenant's performance hereunder, are personally
guaranteed by_____________________________________ individually.
25.0 INTEREST ON PAST DUE OBLIGATIONS:
Any amount due to Owner not paid when due shall bear interest at one and
one-half percent (1 1/2%) per month from due date until paid. Payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
26.0 LATE CHARGE:
The Owner shall have the right to collect from Tenant, in addition to
any amounts due above, a monthly collection service charge equal to five percent
(5%) of the payment for any payment due to Owner hereunder which is delinquent
ten days or longer.
27.0 MEMORANDUM OF LEASE - RECORDING:
The parties hereto agree this Lease shall not be recorded in the office
of the Clerk and Recorder of the county in which the leased Premises are
located. In order to effect public recordation, the parties hereto may, at the
time this Lease Is executed, agree to execute a Memorandum of Lease
incorporating therein by reference the terms of this Lease, but deleting
therefrom any expressed statement or mention of the amount of rent herein
reserved, which instrument may be recorded by either party in the office of the
Clerk and Recorder of the court in which the leased Premises are located.
28.0 NOTICE:
All notices, demands, and requests which may or are required to be given
by either party to the other shall be in writing and shall be deemed to have
been properly given if served on Tenant or Owner by registered or certified
mail, postage prepaid, return receipt requested, addressed:
If to Tenant: NUTRACEUTIX, INC.
8340 154th Avenue, N.E.
Redmond, Washington 98052
If to Owner: Judith Schell
2100 South 120th Street
Lafayette, Colorado 80026
or at such other place as Tenant or Owner may from time to time designate in a
written notice to the other. Any notice given by mailing shall be effective as
of the second business day after mailing as shown by the receipt given therefor.
29.0 HOLDING OVER:
If after expiration of the term of this Lease, Tenant shall remain in
possession of the leased Premises and continue to pay rent without a written
agreement as to such possession, then Tenant shall be deemed a month-to-month
Tenant and the rental rate during such holdover tenancy shall be equivalent to
one hundred twenty five percent (125%) of the monthly rental paid for the last
month of tenancy under this Lease. No holding over by Tenant shall operate to
renew or extend this Lease without the written consent of Owner to such renewal
or extension having been first obtained.
30.0 MODIFICATION OR EXTENSIONS:
No modification or extension of this Lease shall be binding unless in
writing, signed by all parties hereto.
31.0 CONTROLLING LAW:
The Lease, and all terms hereof, shall be construed in accordance with
the laws of the State of Colorado.
<PAGE> 9
32.0 BINDING UPON SUCCESSORS:
The covenants and agreements herein contained shall bind and inure to
the benefit of Owner and Tenant and their respective successors. This Lease
shall be signed by the parties in duplicate, each of which shall be a complete
and effective original Lease.
33.0 PARTIAL INVALIDITY:
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 and circumstances other than those to which it
has been held invalid or unenforceable, shall not be affected thereby, and each
term, covenant and condition of this Lease shall be valid and shall be enforced
to the fullest extent permitted by law.
34.0 FIRST RIGHT OF REFUSAL:
During the term of the Lease Tenant shall have a first right of refusal
to lease additional space in the building in which the Premises are located
exercisable by Tenant, in writing, within five (5) days after notice to Tenant
from Owner of the pending lease of such space.
35.0 EARLY OCCUPANCY:
Upon execution hereof and payment of the security deposit as provided in
paragraph 4.0 hereof, Tenant shall be entitled to occupy the Premises subject to
compliance with all the Terms and Conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
hereof.
OWNER:
/s/ JUDITH SCHELL
-------------------------------------------
JUDITH SCHELL
TENANT:
NUTRACEUTIX, INC., A DELAWARE CORPORATION
BY: /s/ WILLIAM D. ST. JOHN
----------------------------------------
<PAGE> 10
EXHIBIT A
[BUILDING MAP]
<PAGE> 11
EXHIBIT B
[BUILDING MAP]
<PAGE> 12
CERTIFICATE OF COMMENCEMENT DATE
The undersigned hereby certify that the Commencement Date for that
certain Lease entered into between the parties on or about the 1st day of
December, 1995 for Premises consisting of approximately 6,400 square feet
located at 1420 Overlook Drive, Lafayette, Colorado is the 1st day of February,
1996.
OWNER:
/s/ JUDITH SCHELL
-------------------------------------------
JUDITH SCHELL
TENANT:
NUTRACEUTIX, INC., a Delaware corporation
BY: /s/ WILLIAM D. ST. JOHN
----------------------------------------
<PAGE> 1
EXHIBIT 10.6
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered effective the 1st day of January,
1998, by and between JUDITH SCHELL (hereinafter "Owner") and NUTRACEUTIX, INC.,
a Delaware corporation (hereinafter "Tenant");
For and in consideration of the covenants, terms, conditions, agreements
and payments as set forth in this Lease Agreement, the parties hereto agree as
follows:
1.0 PROPERTY - LEASE PREMISES:
Owner hereby leases to Tenant upon the terms and conditions hereof the
real property consisting of approximately 7200 square feet in Owner's building
located at 1400 Overlook Drive, Lafayette, Colorado, as more particularly
described in Exhibit A attached hereto and by this reference made a part hereof,
which shall hereinafter be referred to as the "Premises".
2.0 TERM:
The term of this Lease shall commence at 12:01 A.M. January 1, 1998 and
unless terminated earlier as provided for herein shall end at 12:00 midnight
January 31, 1999.
3.0 RENT:
Tenant shall pay to Owner, at the address of Owner set forth below, the
following as rent for the Premises:
3.01 BASE RENT:
The base rental for the full term hereof shall be Forty Eight Thousand
Seven Hundred Fifty and 00/100 Dollars ($48,750.00). Said rental shall be
payable in monthly installments (basic monthly rental) of Three Thousand Seven
Hundred Fifty and 00/100 Dollars ($3,750.00) in advance on the first day of each
month commencing on January 1, 1998 and continuing monthly for the term hereof.
3.02 ADDITIONAL RENT:
3.02.01 REAL ESTATE TAXES:
Tenant agrees to pay to Owner, as additional rent, its
prorata share of the real estate and ad valorem taxes including
any and all special assessments which may be levied or assessed
by any lawful authority for each calendar year during the lease
term.
3.02.02 INSURANCE:
Tenant agrees to pay Owner, as additional rent, its
prorata share of the cost of insurance for fire and extended
perils coverage, public liability and property damage in
reasonable amounts as determined by Owner.
3.02.03 REPAIRS AND MAINTENANCE:
(a) Owner, at Owner's sole cost, agrees to maintain,
repair and replace, when necessary or appropriate, the interior
structural portions and the exterior of the Premises, including,
but not by way of limitation, the roof; foundation; walls and
floor of the Premises. Owner shall further pay the cost of
replacement of any heating, air conditioning and ventilation
units serving the Premises.
(b) Owner shall be responsible for repairs and
maintenance of the heating, air conditioning, ventilator,
electrical and plumbing facilities provided such shall be done
at the sole cost and expense of Tenant. Owner shall further
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maintain and repair the exterior and grounds of the Premises,
including lawn maintenance and snow and ice removal from
sidewalks and parking lots, an at the sole cost and expense of
Tenant.
(C) Except as provided hereinabove, Tenant shall be
responsible, at is sole cost and expense, for all other repair
and maintenance of the Premises. Tenant shall, at the end of the
term hereof, return the Premises to Owner in substantially as
good condition as when received except for usual or ordinary
wear and tear.
3.02.04 PRORATA SHARE:
Owner shall notify Tenant from time to time of the
amount which Owner estimates will be Tenant's monthly prorata
share of the taxes as provided in 3.02.01 above, insurance as
provided in 3.02.02 above, and repairs and maintenance as
provided in 3.02.03(b) above for the calendar year or portion
thereof and Tenant shall pay to Owner such amount monthly in
advance on or before the first day of each month for the
calendar year. Owner shall submit to Tenant annually a statement
showing the taxes, insurance, repairs and maintenance to be paid
by Tenant during the preceding calendar year, the amount thereof
paid by Tenant during the preceding calendar year, and the
amount of the resulting balance due thereon, or overpayment
thereof, as the case may be. Any overpayment or underpayment
shall be considered by the Owner in setting the estimate of the
Tenant's prorata share of said costs for the succeeding calendar
year.
"Tenant's prorata share" means that fraction, the
numerator of which is the gross leasable area of the demised
premises agreed to be 7200 square feet and denominator of which
is the gross leasable area of the Owner's building (including
the demised premises) which is agreed to be 14,400 square feet.
4.0 SECURITY DEPOSIT:
The Tenant shall tender upon the execution of this Lease and keep on
deposit with the Owner at all times during the term of this Lease, the sum of
Three Thousand Seven Hundred Fifty and no/100 Dollars ($3,750.00) as security
for the payments by the Tenant of the rent and any other sums due under this
lease and for the faithful performance of all the terms, conditions and
covenants of this Lease. If at any time during the term of this Lease the Tenant
shall be in default in the performance of any provision of this Lease, the Owner
may (but shall not be required to) use any such deposit, or so much thereof as
necessary, in payment of any rent or any other sums due under this Lease in
default, in reimbursement of any expense incurred by the Owner and in payment of
the damages incurred by the Owner by reason of the Tenant's default, or at the
option of the Owner, the same may be retained by the Owner as liquidated
damages. In such event, the Tenant shall on written demand of the Owner,
forthwith remit to the Owner a sufficient amount in cash to restore such deposit
to its original amount. If such deposit has not been utilized as aforesaid, such
deposit, or as much thereof as has not been utilized for such purposes, shall be
refunded to the Tenant upon full performance of this Lease by the Tenant. Owner
shall have the right to commingle such deposit with other funds of the Owner,
Owner shall deliver the funds deposited herein by the Tenant to any purchaser of
the Owner's interest in the Premises in the
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event such interest be sold, and thereupon, the Owner shall be discharged from
further liability With respect to such deposit. Notwithstanding the above
provisions of this section, if claims of the Owner exceed the deposit provided
for therein, the Tenant shall remain liable for the balance of such claims.
5.0 PERSONAL PROPERTY TAXES:
Tenant shall be responsible and pay for any and all taxes and
assessments levied on Tenant's furniture, fixtures, equipment and items of a
similar nature located on the Premises.
6.0 UTILITIES:
Tenant shall be solely responsible for and promptly pay all charges for
heat, gas, electric, sewer service and any other utility service used or
consumed by Tenant on the leased Premises. In no event shall Owner be liable for
any interruption or failure in the supply of any such utility to the leased
Premises.
7.0 ALTERATION - CHANGES AND ADDITIONS - RESPONSIBILITY:
7.01 The Owner agrees to provide the Tenant, at its sole expense, the
shell for the demised premises.
7.02 Subject to Owner's prior written approval, Tenant may, during
the term of this Lease, at Tenant's sole expense make such other changes or
alterations as Tenant may desire. At the end of this Lease, all such fixtures,
equipment, additions and/or alterations (except trade fixtures installed by
Tenant) shall be and remain the property of Owner; provided, however, Owner
shall have the option to require Tenant to remove any or all such fixtures,
equipment additions and/or alterations and restore the leased Premises to the
condition existing immediately prior to such change and/or installation, normal
wear and tear excepted, all at Tenant's cost and expense.
7.03 All work shall be done in a good and workmanlike manner and
shall consist of new materials unless agreed to otherwise by Owner. Any and all
repairs, changes and/or modifications thereto shall be the responsibility and at
the sole cost of Tenant. Owner may require adequate security from Tenant
assuring no mechanic's liens on account of work done on the Premises by Tenant.
8.0 SIGN APPROVAL:
Tenant shall not install, paint, display, inscribe, place or affix or
otherwise attach, any sign, picture, advertisement, notice, lettering or
direction on the outside of the Premises for exterior view without the written
consent of the Owner, which consent shall not be unreasonably withheld.
9.0 OBSERVANCE OF LAW:
Tenant shall comply with all provisions of law, including without
limitation, federal, state, county and city laws, ordinances and regulations and
any other governmental, quasi-governmental or municipal regulations which relate
to the partitioning, equipment operation, alteration, occupancy and use of the
Premises, and the making of any repairs, replacements, alterations, additions,
changes, substitutions or improvements of or to the Premises. Moreover, Tenant
shall comply with all police, fire, and sanitary regulations imposed by any
federal, state, county or municipal authorities, or made by insurance
underwriters, and to observe and obey all governmental and municipal regulations
and other requirements governing the conduct of any business conducted in the
Premises.
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10.0 WASTE AND NUISANCE:
Tenant shall not commit, suffer or permit any waste or damage or
disfiguration or injury to the Premises or the fixtures and equipment located
therein or thereon, or permit or suffer any overloading of the floors, sidewalks
or paved areas on the Premises,
11.0 GLASS AND DOOR RESPONSIBILITY - TENANT:
All glass and doors on the leased Premises shall be the responsibility
of the Tenant. Any replacement or repair shall be promptly completed at the
expense of the Tenant.
12.0 USE OF PREMISES:
Tenants shall use leased Premises for processing, manufacturing,
blending, and packaging of health supplements, pharmaceuticals, nutraceuticals,
feed additives, natural materials, microbials, herbs and phytochemicals,
vitamins, organic and in-organic chemicals, amino acids, and extracts of various
origins. This list is not all inclusive in that the natural products industry is
rapidly developing new products, materials and processes. Any other use requires
written consent. Owners approval will not be unreasonably withheld.
13.0 INSURANCE:
13.01 RESPONSIBILITY OF TENANT:
Tenant shall procure, pay for and maintain comprehensive public
liability insurance and property damage insurance providing coverage from any
loss or damage occasioned by an accident or casualty, arising from use of the
Premises by Tenant, its employees, agents, guests and invitees in amounts not
less than One Million Dollars ($1,000,000) for bodily injury and One Million
Dollars ($1,000,000) for property damage, Certificates of such insurance naming
Owner as an additional insured shall be delivered to Owner and shall provide
that said coverage shall not be changed, modified, reduced or canceled except
upon thirty (30) days prior written notice to Owner.
13.02 RESPONSIBILITY OF OWNER:
Owner agrees to maintain throughout the term of this Lease
Agreement, one or more policies of fire and standard extended coverage insurance
that shall include the demised premises (excluding Tenant's leasehold
improvements, fixtures, equipment, merchandise and other personal property from
time to time located on the demised premises) providing protection against
perils included within the standard form of all-risk insurance policy issued by
insurance companies in the State of Colorado. Upon request, the Owner shall
provide the Tenant with a Certificate of Insurance as required herein.
14.0 DAMAGE TO LEASED PREMISES;
In the event the leased Premises and/or the improvements of which the
leased Premises are a part shall be totally destroyed by fire or other casualty
or so badly damaged that, in the opinion of the Owner or Tenant, it is not
feasible to repair or rebuild same, Owner or Tenant shall have the right to
terminate this Lease upon written notice to the other. If the leased Premises
shall be partially untenantable thereby, as determined by Owner, and appropriate
reduction of the rent shall be allowed for the unoccupied portion of the leased
Premises until repair thereof shall be substantially completed. If the leased
Premises are Tendered untenantable thereby, except if caused by Tenant's
negligence, Tenant may, at its election, terminate this Lease as of the date of
the damage. If Tenant elects not to terminate the Lease, the rent shall abate in
proportion to the loss of use of the Premises by Tenant during such
untenantability.
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15.0 HAZARDOUS MATERIALS:
15.01 Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept, or used in or about the Premises by Tenant, its agents,
employees, contractors, or invitees, except for such
hazardous material as is necessary or useful to Tenant's business.
15.02 Any Hazardous Material permitted on the Premises as provided
herein and all containers therefor. shall be used, kept, stored, and disposed of
in a manner that complies with all federal state, and local laws or regulations
applicable to any such Hazardous Material.
15.03 Tenant shall not discharge, leak, or emit, or permit to be
discharged, leaked, or emitted, any material into the atmosphere, ground, sewer
system, or any body of water, if such material (as determined by the Owner or
any governmental authority) does or may pollute or contaminate the same, or may
adversely affect (a) the health, welfare, or safety of persons, whether located
on the Premises or elsewhere; or (b) the condition, use, or enjoyment of the
Premises.
15.04 As used herein, the term "Hazardous Material" means:
15.04.01 Any "hazardous waste" as defined by the Resource
Conservation and Recovery Act of 1976, as amended from time to
time, and regulations promulgated thereunder, and
15.04.02 Any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations
promulgated thereunder; and
15.04.03 Any oil, petroleum products and their byproducts; and
15.04.04 Any substance which is or becomes regulated by any
federal, state, or local governmental authority.
15.05 Tenant agrees that it shall be fully liable for all costs and
expenses related to the use, storage, and disposal of Hazardous Material kept on
the Premises by the Tenant. Tenant shall defend, indemnify, and hold harmless
Owner and its agents from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs, or expenses (including, without
limitation, attorneys' and consultant fees, court costs, and litigation
expenses) of whatever kind or nature, known or unknown, contingent or otherwise,
arising out of or in any way related to:
15.05.01 The presence, disposal, release, or threatened release
of any such Hazardous Material which affects sod, water,
vegetation, buildings, personal property, persons, animals, or
otherwise;
15.05.02 Any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to
such Hazardous Material;
15.05.03 Any lawsuit brought or threatened, settlement reached,
or government order relating to such Hazardous Material; or
15.05.04 Any violation of any laws applicable thereto. The
provisions of this paragraph shall be in addition to any other
obligations and liabilities Tenant may have to Owner at law or
at equity and shall survive the transactions contemplated herein
and shall survive the termination of this Lease.
16.0 INSPECTION AND RIGHT OF ENTRY TO PREMISES:
Owner and its agents shall have the right to enter the Premises at a1l
reasonable times for the purpose of examining or inspecting the same, to supply
any services to be provided by Owner to Tenant hereunder, to show the same to
prospective purchasers or tenants and to make such alterations, repairs,
improvements or additions, whether structural or otherwise, to the Premises
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as Owner may deem necessary or desirable. Owner may enter by means of a master
key without liability to Tenant except for any failure to exercise due care for
Tenant's property and without affecting this Lease. Owner shall use reasonable
efforts on any such entry not to unreasonably interrupt or interfere with
Tenant's use and occupancy of the Premises and Owner shall notify Tenant prior
to entry except in cases of an emergency.
17.0 DEFAULT - REMEDIES OF OWNER:
17.01 In an event of default in the terms hereof by Tenant and failure
of Tenant to cure such default within five (5) working days after written notice
of default from Owner, the Owner shall have the following rights and remedies,
in addition to all other remedies at law or equity, and none of the following,
whether or not exercised by the Owner, shall preclude the exercise of any other
right or remedy whether herein set forth or existing at law or equity:
17.01.01 Owner shall have the right to terminate this Lease by
giving the Tenant notice in writing, and upon the giving of such
notice, this Lease and the term hereof as well as all the right,
title and interest of the Tenant under this Lease shall wholly
cease and expire in the same manner and with the same force and
effect on the date specified in such notice as if such date were
the expiration date of the term of this Lease, without the
necessity of re-entry or any other act on the Owner's part. Upon
termination, the Tenant shall quit and surrender to Owner the
Premises. If this Lease is so terminated by the Owner, the Owner
shall be entitled to recover from the Tenant as damages, in
addition to other costs, damages, charges or obligations under
this Lease, the worth at the time of such termination of the
excess, if any, of the amount of rent reserved in this Lease for
the balance of the term of this Lease (which shall be calculated
on the then current rent under this Lease) in excess of the then
reasonable rental value of the Premises for the same period plus
all costs and expenses of Owner caused by the Tenant's default.
17.01.02 Owner may, without demand, or notice, re-enter and take
possession of the Premises or any part thereof, repossess the
same and expel the Tenant and those claiming through or under
the Tenant, and remove the effect of any and all such persons
(forcibly, if necessary) without being deemed guilty of any
manner of trespass and without prejudice to any remedies for
arrears of rent or preceding breach of covenants. Should the
Owner elect to re-enter as provided in this Section 17.01, or
should the Owner take possession pursuant to legal proceedings
or pursuant to any notice provided for by the law, the Owner
may, from time to time, without terminating this Lease, relet
the Premises or any part thereof for such other conditions as
the Owner may deem advisable, with the right to make alterations
and repairs to Premises. No such re-entry or repossession of the
Premises shall be construed as an election on the Owner's part
to terminate this Lease unless a written notice of termination
is given to the Tenant by the Owner. No such re-entry or
repossession of the Premises shall relieve the Tenant of its
liability and obligation under this Lease, all which shall
survive such re-entry or repossession. Upon the occurrence of
such re-entry or repossession, Owner shall be entitled to
damages in the amount of the monthly rent, and any other sums,
which would be payable hereunder if such re-entry or
repossession had not occurred, less the net proceeds, if any,
of reletting of the Premises after deducting all the Owner's
expenses in connection with such relating, including, but
without
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limitations, all repossession costs, brokerage commissions,
legal expenses, attorney's fees, expenses of employees,
alteration costs, and expenses of preparation for such
reletting. Tenant shall Pay such liquidated damages to the Owner
on the days on which the rent or any other sums due hereunder
would have been payable if possession had not been retaken. In
no event shall the Tenant be entitled to receive any excess, if
any, of net rent collected by the Owner as a result of such
reletting over the sums payable by the Tenant to the Owner
hereunder.
17.01.03 No remedy herein or otherwise conferred upon or
reserved to Owner shall be considered exclusive of any other
remedy but shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law
or in equity or by Statute. Further, all powers and remedies
given by this Lease to Owner may be exercised, from time to
time, and as often as occasion may arise or as may be deemed
expedient. No delay or omission of Owner to exercise any right
or power arising from any default shall impair any such right or
power or shall be considered to be a waiver of such default or
acquiescence thereof. The acceptance of rental by Owner shall
not be deemed to be a waiver of any breach of any of the
covenants herein contained or of any of the rights of Owner to
any remedies herein given.
18.0 INDEMNIFICATION OF OWNER:
Tenant shall indemnify the Owner and save it harmless from and against
any and all loss (including loss of rentals payable by the Tenant in the event
of loss either directly or indirectly caused by commission or omission of
Tenant), claims, actions, damages, liability and expenses in connection with
loss of life, personal injury and damage to property arising from any occurrence
in, upon or at the Premises or any party thereof, or occasioned wholly or in
part by any act or omission of the Tenant, its agents, contractors, employees,
servants, licensees, or concessionaires or invitees or by anyone permitted to be
on the Premises by the Tenant. In case the Owner shall, without fault on its
part, be made a party to any litigation commenced by or against the Tenant, then
the Tenant shall protect and hold the Owner harmless and shall pay all cost,
expenses and reasonable attorneys' fees incurred or paid by the Owner in
connection with such litigation. All personal property on the Premises shall be
at the Tenant's sole risk, and Owner shall not be liable for any damage done to
or loss of such personal property, or for damage or loss suffered by Tenant
19.0 ASSIGNMENT OR SUBLETTING:
Tenant may not assign the Lease or sublet the leased Premises without
the consent of the Owner which consent shall not be unreasonably withheld.
20.0 QUIET ENJOYMENT:
Owner agrees to warrant and defend Tenant in the quiet enjoyment and
possession of the Premises during the term of this Lease so long as Tenant is
not in default hereunder.
21.0 CONDEMNATION:
If more than twenty percent (20%) of the structural portion of the
Premises shall be taken by eminent domain, or by conveyance in lieu thereof, and
if such taking interferes substantially with the Tenant's use of the Premises,
then this Lease, at the option of either party evidenced by notice to the other
given within thirty (30) days from the taking or conveyance, shall forthwith
cease and terminate entirely. In the event of such termination of this Lease,
then rental shall be due and payable to the actual date of such termination. If
less that twenty percent (20%) of the
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Rentable Area of the structural portion upon which the Premises is located,
shall be taken, or if more than twenty percent (20%) of the Premises is taken
and neither party terminates this Lease, this lease shall cease and terminate as
to that portion of the Premises so taken as of the date of taking, and the
rental thereafter payable under this Lease shall be abated prorata from the date
of such taking in an amount by which that portion of the structural portion of
the Premises so taken shall bear to the structural portion of the Premises prior
to such taking. If any part of the building or real property shall be taken by
eminent domain, or by conveyance in lieu thereof, and if such taking
substantially interferes with the Owner's ownership or use of the building, the
Owner, at its option, may, upon thirty (30) days' notice to the Tenant,
terminate this Lease as of such taking. In any event, the Owner shall receive
the entire award for the land and improvements taken by condemnation.
22.0 SUBORDINATION:
This Lease shall be and is hereby made subordinate to any mortgage or
deed of trust which may now or hereafter encumber the building, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument or subordination
need be required by any mortgagee. In confirmation of such subordination,
however, Tenant shall, at Owner's request, execute promptly any appropriate
certificate, subordination agreement or instrument that Owner may request.
23.0 OPTIONS:
23.01 OPTION TO EXTEND:
Upon full and complete performance of all the terms, covenants and
conditions herein contained by Tenant and payment of all rental due under the
terms hereof, Tenant shall be given the option to extend this Lease for an
additional two (2) year term. In the event Tenant desires to exercise said
option, Tenant shall give written notice of such fact to Owner not less than one
hundred twenty (120) days nor more than one hundred eighty (180) days prior to
the expiration of the then current term of this Lease. Upon the Owner's receipt
of the Tenant's notice of intent to exercise the option, the parties shall,
within thirty (30) days, negotiate the rental rate for the additional period.
If, within the thirty (30) days the parties are unable to agree on a rental rate
for the additional period, this Lease shall terminate upon its terms. If the
parties agree to a rental rate, this Lease Agreement shall be deemed to be
extended for the additional period.
25.0 INTEREST ON PAST DUE OBLIGATIONS:
Any amount due to Owner not paid when due shall bear interest at one and
one-half percent (1 1/2%) per month from due date until paid. Payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
26.0 LATE CHARGE:
The Owner shall have the right to collect from Tenant, in addition to
any amounts due above, a monthly collection service charge equal to five percent
(5%) of the payment for any payment due to Owner hereunder which is delinquent
ten days or longer.
27.0 MEMORANDUM OF LEASE - RECORDING:
The parties hereto agree this Lease shall not be recorded in the office
of the Clerk and Recorder of the county in which the leased Premises are
located. In order to effect public
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recordation, the parties hereto may, at the time this Lease is executed, agree
to execute a Memorandum of Lease incorporating therein by reference the terms of
this Lease, but deleting therefrom any expressed statement or mention of the
amount of rent herein reserved, which instrument may be recorded by either party
in the office of the Clerk and Recorder of the court in which the leased
Premises are located.
28.0 NOTICE:
All notices, demands, and requests which may or are required to be given
by either party to the other shall be in writing and shall be deemed to have
been properly given if served on Tenant or Owner by registered or certified
mail, postage prepaid, return receipt requested, addressed:
If to Tenant: NUTRACEUTIX, INC.
8340 154th Avenue, N.E.
Redmond, Washington 98052
If to Owner: Judith Schell
2100 South 120th Street
Lafayette, Colorado 80026
or at such other place as Tenant or Owner may from time to time designate in a
written notice to the other. Any notice given by mailing shall be effective as
of the second business day after mailing as shown by the receipt given therefor.
29.0 HOLDING OVER:
If after expiration of the term of this Lease, Tenant shall remain in
possession of the leased Premises and continue to pay rent without a written
agreement as to such possession, then Tenant shall be deemed a month-to-month
Tenant and the rental rate during such holdover tenancy shall be equivalent to
one hundred twenty five percent (125%) of the monthly rental paid for the last
month of tenancy under this Lease. No holding over by Tenant shall operate to
renew or extend this Lease without the written consent of Owner to such renewal
or extension having been first obtained.
30.0 MODIFICATION OR EXTENSIONS:
No modification or extension of this Lease shall be binding unless in
writing, signed by all parties hereto.
31.0 CONTROLLING LAW:
The lease, and all terms hereof, shall be construed in accordance with
the laws of the State of Colorado.
32.0 BINDING UPON SUCCESSORS:
The covenants and agreements herein contained shall bind and inure to
the benefit of Owner and Tenant and their respective successors. This Lease
shall be signed by the parties in duplicate, each of which shall be complete and
effective original Lease.
33.0 PARTIAL INVALIDITY:
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 and circumstances other than those to which it
has been held invalid or unenforceable, shall not be affected thereby, and each
term, covenant and condition of this Lease shall be valid and shall be enforced
to the fullest permitted by law.
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34.0 FIRST RIGHT OF REFUSAL:
During the term of the Lease Tenant shall have a first right of refusal
to lease additional space in the building in which the Premises are located
exercisable by Tenant, in writing, within five (5) days after notice to Tenant
from Owner of the pending lease of such space.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
hereof.
OWNER:
/s/ Judith A Schell
-------------------------------------------
TENANT:
NUTRACEUTIX, INC., A DELAWARE CORPORATION
BY: /s/ WILLIAM D. ST. JOHN, President
----------------------------------------
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT was made as of the 1st day of April, 1998 by and between
Nutraceutix, Inc./Bio Techniques Laboratories, Inc., a Delaware corporation
with its principal offices at 8340 154th Avenue, N.E., Redmond, Washington 98052
(the "Company"), and William D. St. John, residing at
(the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is currently employed by the Company pursuant to an
employment agreement commencing December 1, 1996, which agreement provides that
either party may terminate same on 90 days prior notice, and,
WHEREAS, the Company desires to insure the continuing benefit of the
services of the Executive, and,
WHEREAS, the Executive is willing to continue to render such services to
the Company on the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and for other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
1. Upon the execution of this Agreement, all prior employment agreements,
whether written or oral, between the Executive and the Company, or any of its
parents, subsidiaries, affiliates, or predecessor constituent corporations, are
terminated and are of no further force and effect.
<PAGE> 2
2. Subject to the terms and conditions hereinafter set forth, the Company
hereby employs the Executive, and the Executive hereby agrees to and enters into
the employ of the Company, or of any parent, subsidiary, or affiliate of the
Company as the Company shall from time to time select, for an employment term
commencing as of the 1st day of April, 1998, and continuing for a period of
three years from such date (the "Term of Employment"). At the end of the initial
Term of Employment, this Agreement shall automatically be renewed for an
additional three year period, unless either party provides at least 180 days
written notice of its decision not to renew the Term of Employment.
3. During the Term of Employment, the Executive shall render and perform
such services as President or such other executive officer of the Company as may
be assigned to him from time to time by the Board of Directors. If the Executive
is elected as a Director of the Company by the Shareholders, he shall receive no
additional compensation for serving as a Director so long as he is employed by
the Company on a full-time basis in an executive position.
4. During the Term of Employment, the Executive shall devote his business
time, attention, skill and efforts to the performance of his duties for the
Company, except for reasonable vacation and except for illness or incapacity,
but nothing in this Agreement shall preclude the Executive from devoting
reasonable periods required for:
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(a) Serving as a Director, trustee, or member of a committee of any
organization involving no conflicting interests with those of the
Company;
(b) Delivering lectures, fulfilling speaking engagements, teaching at
educational institutions or business organizations;
(c) Engaging in charitable and community activities; and
(d) Managing his personal investments;
provided that such activities do not, individually or together, interfere with
the regular performance of his duties and responsibilities under this Agreement.
The Company shall pay all reasonable costs and expenses incurred by the
Executive in any undertaking under Subsections (a) - (c), inclusive, above when
participation in said activities provides direct or indirect benefit to the
Company.
5. For all services to be rendered by the Executive in any capacity
during the Term of Employment, including, without limitation, services as an
executive, officer, director or member of a committee of the Company or its
subsidiaries, divisions, and affiliates, the Executive shall be paid as
compensation such salary, payable in accordance with the customary payroll
practices of the Company (but in no event less frequently than semi-monthly) as
the Board of Directors of the Company may determine and any bonus as the Board
of Directors of the Company may determine.
3
<PAGE> 4
During the Term of Employment as set forth in this Agreement, it is agreed
that the compensation paid to the Executive shall be a base salary no less than
One Hundred Fifty Thousand ($150,000) Dollars per annum plus participation in
the Company's incentive plan which may be established and modified from time to
time at the discretion of the Board of Directors.
6. The Executive shall be entitled to reimbursement by the Company for
reasonable expenses actually incurred by him on its behalf in the course of his
employment by the Company, upon the presentation by the Executive, from time to
time, of an itemized account of such expenditures, together with said vouchers
and other receipts as the Company may require.
7. The Executive shall be entitled to vacations in accordance with the
Company's prevailing policy for its operating executives.
8. The rights of the Executive or any other person to the payment of
compensation or other benefits under this Agreement shall not be assigned,
transferred, anticipated, conveyed, pledged, or encumbered except by will or the
laws of descent and distribution; nor shall any such right or interest be in any
manner subject to levy, attachment, execution, garnishment or any other seizure
under legal, equitable, or other process for payment of debts, judgements,
alimony, or separate maintenance, or reached or transferred by operation of law
in the event of bankruptcy, insolvency, or otherwise.
4
<PAGE> 5
9. In the event of the Executive's involuntary termination of employment
due to circumstances beyond the control of the Company, or in the event of the
Executive's involuntary termination for any reason, other than for just cause
due to theft or fraud, the Executive shall be entitled to severance
compensation or benefits as provided in this paragraph 9. Nothing contained
herein, however, shall be construed so as to include absence or failure to
perform due to illness as a basis for termination.
(a) Subject to the provisions of paragraph 9(b) below, the Executive shall
be entitled (upon such involuntary termination of employment) to
immediate severance compensation equal to an amount equal to the
Executive's base salary for the remaining period of the Term of
Employment.
5
<PAGE> 6
(b) The Executive shall be entitled (upon such involuntary termination of
employment), in addition to the severance compensation described in
paragraph 9(a) above, to the benefits described in paragraph 9(c)
below, as follows:
(c) The Executive will be eligible to continue to participate in the
following employee benefit plans (to the extent permissible therein)
for a period of one year from the date of such involuntary termination
of employment. Cost of such participation for the Executive and
eligible dependents shall be born by the Company, provided the
Executive continues to make all contributions required as of the date
of termination to maintain his eligibility:
Medical Insurance Plan..............COBRA (Company paid)*
Dental Plan.........................COBRA (Company paid)*
* The Executive will have the option to continue this coverage for an
additional six months (beyond the twelve months paid by the Company)
by paying the full monthly premium.
10. Nothing contained herein shall in any way affect or interfere with
the Executive's rights or privileges under any qualified deferred compensation,
retirement, pension, profit sharing, bonus, insurance, hospitalization, or
other employee benefit plan, program or arrangement, now in effect or hereafter
6
<PAGE> 7
adopted, in which the Executive is entitled to share or participate as an
employee of the Company.
11. During the Term of Employment, if Executive shall, for a period of
more than three (3) consecutive months or for periods aggregating more than
twelve (12) weeks in any fifty-two consecutive weeks, be unable to perform the
services provided for herein, as a result of illness or incapacity or a
physical, mental, or other disability of any nature, the Company may, upon not
less than thirty (30) days notice, terminate the Executive's employment
hereunder. The Executive shall be considered unable to perform the services
provided for herein if he is unable to attend to the normal duties required of
him. In such event, the Company shall pay to the Executive, or to his legal
representatives, base compensation as specified in paragraph 5, hereof, for a
period of twelve (12) months from the date of termination. Upon completion of
the termination payments provided for in this paragraph, all of the Company's
obligations to pay compensation under this Agreement shall cease.
12. The Company makes no representations, guaranty, warranty, or other
assurance of any kind to the Executive or any other person regarding the
federal, state or local tax consequences of this Agreement or any payments
hereunder, and the Company does not agree to indemnify the Executive or any
other person for any federal, state or local taxes of any kind with respect to
payments hereunder.
7
<PAGE> 8
13. This Agreement shall be binding upon and inure to the benefit of
the Company, its successors and assigns, and the Executive and his heirs,
executors, administrators and legal representatives.
13. The Company will not consolidate or merge into or with another
corporation or entity, or transfer all or substantially all of its business
and/or assets to another entity, directly or indirectly, unless such other
entity (hereinafter referred to as the "Successor") shall assume this Agreement
and the obligations of the Company hereunder; and upon such assumption, the
Executive and the Successor shall become obligated to perform the terms and
conditions hereof. However, if during the first 180 days following any such
consolidation or merger, the Executive determines that he does not desire to
remain employed by the Successor or the Successor determines that the services
of the Executive are no longer required, such consolidation or merger shall be
deemed an involuntary termination of the Executive's employment, and the
Executive shall be paid an amount equal to his annual base salary at the time
of the consolidation or merger. This payment will be made to the Executive in a
single lump sum at the time of the termination.
14. The Executive will not, at any time during the Term of Employment,
or for a period of one year after the voluntary termination of the Executive's
employment, directly or indirectly disclose or furnish to any other person,
firm, or corporation any information relating to the Company or its parent,
subsidiaries,
8
<PAGE> 9
or affiliates with respect to technology of the Company's products, methods of
obtaining business, advertising products, customers or suppliers, or any
confidential or proprietary information acquired by the Executive during the
course of his employment by the Company or its parent, subsidiaries, or
affiliates.
15. This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter set forth herein and supersedes any prior
oral and/or written agreements, understandings, negotiations, or discussions of
the parties. There are no warranties, representations or agreements between the
parties in connection with the subject matter hereof, except as set forth or
referred to herein. No supplement, modification, waiver, or termination of this
Agreement or any provision hereof shall be binding unless executed in writing by
the parties to be bound thereby. Waiver of any of the provisions of this
Agreement shall not constitute a waiver of any other provision (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
specifically provided.
16. The failure of either party at any time to require performance by the
other of any provision hereof shall not affect in any way the full right to
require such performance at any time thereafter, nor shall the waiver by either
party of the breach of any provision hereof be taken or be held to be a waiver
of the provision itself.
9
<PAGE> 10
17. Any notice or other communication required or permitted to be given
under or in connection with this Agreement shall be in writing, delivered in
person or by public telegram, or by mailing same, certified or registered mail,
postage prepaid, in an envelope addressed to the party to whom notice is to be
given, at the address given at the beginning of this Agreement, and shall be
effective upon receipt thereof. Each party shall be entitled to specify a
different address by giving notice as aforesaid to the other party.
18. The invalidity or unenforceability or any paragraph, term, or
provision hereof shall in no way affect the validity or enforceability or the
remaining paragraphs, terms, or provisions hereof. In addition, in any such
event, the parties agree that it is their intention and agreement that any such
paragraph, term or provision which is held or determined to be unenforceable as
written shall nonetheless be in force and binding to the fullest extent
permitted by law as though such paragraph, term or provision had been written
in such a manner and to such an extent as to be enforceable under the
circumstance. Without limiting the foregoing, with respect to any restrictive
covenant contained herein, if it is determined that any such provision is
excessive as to duration or scope, it is intended that it nevertheless shall be
enforced for such shorter duration, or with such narrower scope, as will render
it enforceable.
19. All of the terms and provisions of this Agreement shall be binding
upon and shall inure to the benefit of the parties
10
<PAGE> 11
hereto and their respective heirs, executors, administrators, transferees,
successors, and assigns.
20. This Agreement shall be governed and construed under the laws of the
State of Washington.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
entered into as of the date and year hereinabove first set forth.
NUTRACEUTIX, INC./Bio Techniques
Laboratories, Inc.
By: /s/ STEVEN H. MOGER
----------------------------
Steven H. Moger,
Vice President - Operations
By: /s/ CARL W. SCHAFFER
----------------------------
Carl W. Schaffer, Director
By: /s/ HERBERT L. LUCAS
----------------------------
Herbert L. Lucas, Director
By: /s/ DANIEL B. WARD
----------------------------
Daniel B. Ward, Director
Executive:
/s/ WILLIAM D. ST. JOHN
----------------------------
William D. St. John
11
<PAGE> 1
EXHIBIT 10.8
AMENDMENT NO. 1
TO
NUTRACEUTIX, INC.
1995 STOCK OPTION PLAN
The Nutraceutix, Inc. 1995 Stock Option Plan (the "Plan") is hereby
amended to reflect the increase in amount of stock subject to the plan from
2,000,000 to 3,000,000 (Section 3) as set forth on Exhibit A attached hereto.
The date of the adoption of such amendment by the Board of Directors is
April 21, 1997. The date of adoption of such amendment by Shareholders is
June 20, 1997.
<PAGE> 2
NUTRACEUTIX, INC.
1995 Amended Stock option Plan
SECTION 1. Purpose. The purpose of the Nutraceutix, Inc. 1995 Stock
Option Plan (this "Plan") is to provide a means whereby selected employees,
directors (subject to the restrictions contained in Sections 2 and 4), officers,
agents, consultants and independent contractors of Nutraceutix Inc. (the
"Company") or of any parent or subsidiary (as defined in subsection 5.7 and
referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or nonqualified stock options to purchase the Common
Stock (as defined in Section 3) of the Company, in order to attract and retain
the services or advice of such employees, directors, officers, agents,
consultants and independent contractors and to provide added incentive to them
by encouraging stock ownership in the Company.
SECTION 2. Administration. This Plan shall be administered by the Board
of Directors of the Company (the "Board") or, in the event the Board shall
appoint and/or authorize a committee to administer this Plan, by such committee.
The administrator of this Plan shall hereinafter be referred to as the "Plan
Administrator."
In the event a member of the Board (or the committee) may be eligible,
subject to the restrictions set forth in Section 4, to participate in or receive
or hold options under this Plan, no member of the Board or the committee shall
vote with respect to the granting of an option hereunder to himself or herself,
as the case may be, and, if state corporate law does not permit a committee to
grant options to directors, then any option granted under this Plan to a
director for his or her services as such shall be approved by the full board.
The foregoing notwithstanding, in the event the Company shall register
any of its equity securities pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") , and any
directors are eligible to receive options under this Plan, then the following
provisions shall apply to the administration of the Plan with respect to grants
made to directors. The Plan Administrator shall be constituted at all times so
as to meet the requirements of Section 16(b) of the Exchange Act, as amended
from time to time. Currently, the Plan Administrator shall be the Board, a
majority of which Board and a majority of which directors acting in the matter
are disinterested,
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<PAGE> 3
or may be a committee which consists solely of not less than three disinterested
directors of the Company. In the event the Plan Administrator is a committee and
state corporate law does not permit a committee to grant options to directors,
then directors shall not be eligible to receive options under this Plan as
compensation for their services as directors. The members of any committee
serving as Plan Administrator shall be appointed by the Board for such term as
the Board may determine. The Board may from time to time remove members from, or
add members to, the committee. Vacancies on the committee, however caused, may
be filled by the Board. If at any time an insufficient number of disinterested
directors is available to serve on such committee, interested directors may
serve on the committee; however, during such time, no options shall be granted
under this Plan to any person if the granting of such option would not meet the
requirements of Section 16(b) of the Exchange Act.
For purposes of this Section 2, a disinterested director is a member of
the Board who meets the definition of "disinterested person" as set forth in the
rules and regulations promulgated under Section 16(b) of the Exchange Act, as
amended from time to time. Currently, a disinterested director for purposes of
this Section 2 is a member of the Board who is not, during the one year prior to
service as an administrator of a plan, or during such service, granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any of its affiliates, other than grants or awards that, pursuant to Rule
Section 240. 16b-3 (c) (2) (i) under the Exchange Act, will not cause the
director to cease to be a "disinterested person," as defined in that rule.
2.1 Procedures. The Board shall designate one of the members of
the Plan Administrator as chairman. The Plan Administrator may hold meetings at
such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum exists,
or acts reduced to or approved in writing by all Plan Administrator members,
shall be valid acts of the Plan Administrator.
2.2 Responsibilities. Except for the terms and conditions
explicitly set forth in this Plan, the Plan Administrator shall have the
authority, in its discretion, to determine all matters relating to the options
to be granted under this Plan, including selection of the individuals to be
granted options, the number of shares to be subject to each option, the exercise
price, and all other terms and conditions of the options. Grants under this Plan
need not be identical in any respect, even when made simultaneously. The
interpretation and construction by the Plan Administrator of any terms or
provisions of this Plan or any option issued hereunder, or of any rule or
regulation promulgated in connection herewith, shall be conclusive and binding
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<PAGE> 4
on all interested parties, so long as such interpretation and construction with
respect to incentive stock options corresponds to the requirements of Internal
Revenue Code (the "Code") Section 422, the regulations thereunder, and any
amendments thereto.
2.3 Section 16(b) Compliance and Bifurcation of Plan. It is the
intention of the Company that this Plan comply in all respects with Rule 16b-3
under the Exchange Act and, if any Plan provision is later found not to be in
compliance with such Section, the provision shall be deemed null and void, and
in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are officers and directors subject to Section 16(b) of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other participants.
SECTION 3. Stock Subject to This Plan. The stock subject to this Plan
shall be the Company's Common Stock (the "Common Stock") presently authorized,
but unissued or subsequently acquired by the Company. Subject to adjustment as
provided in Section 7 hereof, the aggregate amount of Common Stock to be
delivered upon the exercise of all options granted under this Plan shall not
exceed 3,000,000 shares as of the 6/20/97 Annual Shareholders Meeting as such
Common Stock was constituted on the effective date of this Plan. If any option
granted under this Plan shall expire, be surrendered, exchanged for another
option, cancelled or terminated for any reason without having been exercised in
full, the unpurchased shares subject thereto shall thereupon again be available
for purposes of this Plan, including for replacement options which may be
granted in exchange for such surrendered, cancelled or terminated options.
SECTION 4. Eligibility. An incentive stock option may be granted only to
any individual who, at the time the option is granted, is an employee of the
Company or any related corporation. A nonqualified stock option may be granted
to any employee, director, officer, agent, consultant or independent contractor
of the Company or any related corporation, whether an individual or an entity.
If required by Section 16(b) of the Exchange Act in order to establish a
disinterested Plan Administrator, the members of the Board who are not also
employees of the Company shall not be eligible to receive options under this
Plan once the Company has registered any of its equity securities pursuant to
Section 12(b) or 12(g) of the Exchange Act. Any party to whom an option is
granted under this Plan shall be referred to hereinafter as an "Optionee."
SECTION 5. Terms and Conditions of options. Options granted under this
Plan shall be evidenced by written agreements which
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<PAGE> 5
shall contain such terms, conditions, limitations and restrictions as the Plan
Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions.
5.1 Number of Shares and Price. The maximum number of shares
that may be purchased pursuant to the exercise of each option and the price per
share at which such option is exercisable (the "exercise price") shall be as
established by the Plan Administrator, provided that the Plan Administrator
shall act in good faith to establish the exercise price which shall be not less
than the fair market value per share of the Common Stock at the time the option
is granted with respect to incentive stock options and not less than 85% of the
fair market value per share of the Common Stock at the time the option is
granted with respect to nonqualified stock options and also provided that, with
respect to incentive stock options granted to greater than 10% shareholders, the
exercise price shall be as required by Section 6.
5.2 Term and Maturity. Subject to the restrictions contained in
Section 6 with respect to granting incentive stock options to greater than 10%
shareholders, the term of each incentive stock option shall be as established by
the Plan Administrator and, if not so established, shall be 10 years from the
date it is granted but in no event shall the term of any incentive stock option
exceed 10 years. The term of each nonqualified stock option shall be as
established by the Plan Administrator, and if not so established, shall be 10
years. To ensure that the Company or related corporation will achieve the
purpose and receive the benefits contemplated in this Plan, any option granted
to any Optionee hereunder shall, unless the condition of this sentence is waived
or modified in the agreement evidencing the option or by resolution adopted by
the Plan Administrator, be exercisable according to the following schedule:
<TABLE>
<CAPTION>
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total option
the option is Granted Which is Exercisable
- -----------------------------------------------------------------------------------
<S> <C>
after 6 months 16.66%
after 12 months 33.33%
after 24 months 66.67%
after 36 months 100%
</TABLE>
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<PAGE> 6
5.3 Exercise. Subject to the vesting schedule described in
subsection 5. 2 above and to any additional holding period required by
applicable law, each option may be exercised in whole or in part; provided,
however, that no fewer than 100 shares (or the remaining shares then purchasable
under the option, if less than 100 shares) may be purchased upon any exercise of
option rights hereunder and that only whole shares will be issued pursuant to
the exercise of any option. During an Optionee's lifetime, any incentive stock
options granted under this Plan are personal to him or her and are exercisable
solely by such Optionee. Options shall be exercised by delivery to the Company
of notice of the number of shares with respect to which the option is exercised,
together with payment of the exercise price.
5.4 Payment of Exercise Price. Payment of the option exercise
price shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's check
or personal check (unless at the time of exercise the Plan Administrator in a
particular case determines not to accept a personal check) for the Common Stock
being purchased.
The Plan Administrator can determine at the time the option is granted
for incentive stock options, or at any time before exercise for nonqualified
stock options, that additional forms of payment will be permitted. To the extent
permitted by the Plan Administrator and applicable laws and regulations
(including, but not limited to, federal tax and securities laws and regulations
and state corporate law), an option may be exercised by delivery of shares of
stock of the Company held by an optionee having a fair market value equal to the
exercise price, such fair market value to be determined in good faith by the
Plan Administrator; provided, however, that payment in stock held by an Optionee
shall not be made unless the stock shall have been owned by the optionee for a
period of at least six months.
5.5 Withholding Tax Requirement. The company or any related
corporation shall have the right to retain and withhold from any payment of cash
or Common Stock under the Plan the amount of taxes required by any government to
be withheld or otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require an Optionee receiving shares of common Stock
to reimburse the Company for any such taxes required to be withheld by the
Company and withhold any distribution in whole or in part until the company is
so reimbursed. In lieu thereof, the Company shall have the right to withhold
from any other cash amounts due or to become due from the Company to the
Optionee an amount equal to such taxes or retain and withhold a number of shares
having a market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for
- 5 -
<PAGE> 7
any such taxes and cancel (in whole or in part) any such shares so withheld. If
required by Section 16(b) of the Exchange Act, the election to pay withholding
taxes by delivery of shares held by any person who at the time of exercise is
subject to Section 16(b) of the Exchange Act, shall be made either six months
prior to the date the option exercise becomes taxable or during the quarterly
10-day window period required under Section 16(b) of the Exchange Act for
exercises of stock appreciation rights.
5.6 Nontransferability of Option. Options granted under this
Plan and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by the applicable laws of descent and
distribution, and shall not be subject to execution, attachment or similar
process. Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of any option under this Plan or of any right or privilege conferred
hereby, contrary to the Code or to the provisions of this Plan, or the sale or
levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void.
5.7 Termination of Relationship. If the Optionee's relationship
with the Company or any related corporation ceases for any reason other than
termination for cause, death or total disability, and unless by its terms the
option sooner terminates or expires, then the Optionee may exercise, for a
three-month period, that portion of the Optionee's option which is exercisable
at the time of such cessation, but the Optionee's option shall terminate at the
end of the three-month period following such cessation as to all shares for
which it has not theretofore been exercised, unless such provision is waived in
the agreement evidencing the option or by resolution adopted by the Plan
Administrator within 90 days of such cessation. The Plan Administrator shall
have sole discretion in a particular circumstance to extend the exercise period
following such cessation beyond that specified above. If, however, in the case
of an incentive stock option, the Optionee does not exercise the optionee's
option within three months after cessation of employment, the option will no
longer qualify as an incentive stock option under the Code. If, in the case of
an incentive stock option, an Optionee's relationship with the Company or
related corporation changes (i.e., from employee to nonemployee, such as a
consultant), such change shall constitute a termination of an Optionee's
employment with the Company or related corporation and the optionee's incentive
stock option shall terminate in accordance with this subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares
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<PAGE> 8
pursuant to such option. "Termination for cause." shall mean dismissal for
dishonesty, conviction or confession of a crime punishable by law (except minor
violations), fraud, misconduct or disclosure of confidential information. If an
Optionee's relationship with the Company or any related corporation is suspended
pending an investigation of whether or not the optionee shall be terminated for
cause, all optionee's rights under any option granted hereunder likewise shall
be suspended during the period of investigation.
If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive stock option, cease to be treated
as an incentive stock option until the end of the 12-month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
this Plan, the term "total disability" refers to a mental or physical impairment
of the Optionee which is expected to result in death or which has lasted or is
expected to last for a continuous period of 12 months or more and which causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship between
or among the Company and/or any related corporation shall not be deemed to
constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the
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<PAGE> 9
option, each of the corporations other than the Company owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
5.8 Death of Optionee. If an Optionee dies while he or she has a
relationship with the Company or any related corporation or within the
three-month period (or 12-month period in the case of totally disabled
Optionees) following cessation of such relationship, any option held by such
Optionee may be exercised within one year after his or her death by the personal
representative of his or her estate or by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the applicable laws
of descent and distribution.
5.9 Status of Shareholder. Neither the Optionee nor any party to
which the Optionee's rights and privileges under the option may pass shall be,
or have any of the rights or privileges of, a shareholder of the Company with
respect to any of the shares issuable upon the exercise of any option granted
under this Plan unless and until such option has been exercised.
5.10 Continuation of Employment. Nothing in this Plan or in any
option granted pursuant to this Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of a related corporation, or to
interfere in any way with the right of the Company or of any such related
corporation to terminate his or her employment or other relationship with the
Company at any time.
5.11 Modification and Amendment of Option. Subject to the
requirements of Code Section 422 with respect to incentive stock options and to
the terms and conditions and within the limitations of this Plan, the Plan
Administrator may modify or amend outstanding options granted under this Plan.
The modification or amendment of an outstanding option shall not, without the
consent of the Optionee, impair or diminish any of his or her rights or any of
the obligations of the Company under such option. Except as otherwise provided
in this Plan, no outstanding option shall be terminated without the consent of
the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments
made to outstanding incentive stock options granted under this Plan shall be
made in such a manner so as not to constitute a "modification" as defined in
Code Section 425(h) and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Code Section 422(b).
5.12 Limitation on Value for Incentive Stock Options. As to all
incentive stock options granted under the terms of this Plan, to the extent that
the aggregate fair market value (determined at the time the incentive stock
option is granted) of
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<PAGE> 10
the stock with respect to which incentive stock options are exercisable for the
first time by the Optionee during any calendar year (under this Plan and all
other incentive stock option plans of the Company, a related corporation or a
predecessor corporation) exceeds $100,000, such options shall be treated as
nonqualified stock options. The previous sentence shall not apply if the
Internal Revenue Service publicly rules, issues a private ruling to the Company,
any Optionee, or any legatee, personal representative or distributees of an
Optionee or issues regulations changing or eliminating such annual limit.
SECTION 6. Greater Than 10% Shareholders.
6.1 Exercise Price and Term of Incentive Stock Options. If
incentive stock options are granted under this Plan to employees who own more
than 10% of the total combined voting power of all classes of stock of the
Company or any related corporation, the term of such incentive stock options
shall not exceed five years and the exercise price shall be not less than 110%
of the fair market value of the Common Stock at the time the incentive stock
option is granted. This provision shall control notwithstanding any contrary
terms contained in an option agreement or any other document.
6.2 Attribution Rule. For purposes of subsection 6.1, in
determining stock ownership, an employee shall be deemed to own the stock owned,
directly or indirectly, by or for his or her brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or for
a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries. If an
employee or a person related to the employee owns an unexercised option or
warrant to purchase stock of the Company, the stock subject to that portion of
the option or warrant which is unexercised shall not be counted in determining
stock ownership. For purposes of this Section 6, stock owned by an employee
shall include all stock actually issued and outstanding immediately before the
grant of the incentive stock option to the employee.
SECTION 7. Adjustments Upon Changes in Capitalization. The aggregate
number and class of shares for which options may be granted under this Plan, the
number and class of shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
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7.1 Effect of Liquidation, Reorganization or Change in
Control.
7.1.1 Cash, Stock or other Property for Stock. Except as
provided in subsection 7.1.2, upon a merger (other than a merger of the Company
in which the holders of Common Stock immediately prior to the merger have the
same proportionate ownership of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than a mere reincorporation or the creation of
a holding company) or liquidation of the Company, as a result of which the
shareholders of the Company receive cash, stock or other property in exchange
for or in connection with their shares of Common Stock, any option granted
hereunder shall terminate, but the Optionee shall have the right immediately
prior to any such merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation to exercise such Optionee's option in
whole or in part whether or not the vesting requirements set forth in the option
agreement have been satisfied.
7.1.2 Conversion of Options on Stock for Stock Exchange.
If the shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion, determine that any or all
such options granted hereunder shall not be converted into options to purchase
shares of Exchange Stock but instead shall terminate in accordance with the
provisions of subsection 7.1.1. The amount and price of converted options shall
be determined by adjusting the amount and price of the options granted hereunder
in the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. The converted
options shall be fully vested whether or not the vesting requirements set forth
in the option agreement have been satisfied.
7.2 Fractional Shares. In the event of any adjustment in the
number of shares covered by any option, any fractional shares resulting from
such adjustment shall be disregarded and each such option shall cover only the
number of full shares resulting from such adjustment.
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7.3 Determination of Board to Be Final. All Section 7
adjustments shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive. Unless an optionee agrees otherwise, any change or adjustment to an
incentive stock option shall be made in such a manner so as not to constitute a
"modification" as defined in Code Section 425(h) and so as not to cause his or
her incentive stock option issued hereunder to fail to continue to qualify as an
incentive stock option as defined in Code Section 422(b).
SECTION 8. Securities Regulation. Shares shall not be issued with
respect to an option granted under this Plan unless the exercise of such option
and the issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, any applicable
state securities laws, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance, including the availability of an exemption from registration for the
issuance and sale of any shares hereunder. Inability of the Company to obtain
from any regulatory body having jurisdiction, the authority deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any shares
hereunder or the unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the Company of any
liability in respect of the non-issuance or sale of such shares as to which such
requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
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Should any at the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. Amendment and Termination.
9.1 Board Action. The Board may at any time suspend, amend or
terminate this Plan, provided that except as set forth in Section 7, the
approval of the Company's shareholders is necessary within 12 months before or
after the adoption by the Board of any amendment which will:
(a) increase the number of shares which are to be
reserved for the issuance of options under this Plan;
(b) permit the granting of stock options to a class of
persons other than those presently permitted to receive stock options under this
Plan; or
(c) require shareholder approval under applicable law,
including Section 16(b) of the Exchange Act.
Any amendments made to this Plan which would constitute "modifications"
to incentive stock options outstanding on the date of such amendment(s), shall
not be applicable to such outstanding incentive stock options but shall have
prospective effect only.
9.2 Automatic Termination. Unless sooner terminated by the
Board, this Plan shall terminate ten years from the earlier of (a) the date on
which this Plan is adopted by the Board or (b) the date on which this Plan is
approved by the shareholders of the Company. No option may be granted after such
termination or during any suspension of this Plan. The amendment or termination
of this Plan shall not, without the consent of the option holder, alter or
impair any rights or obligations under any option theretofore granted under this
Plan.
SECTION 10. Effectiveness of This Plan. This Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock at any time
within 12 months before or after the adoption of this Plan.
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