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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
_________________
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the Transition Period From to
Commission File Number: 000-19370
Curative Health Services, Inc.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1503914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Motor Parkway
Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 232-7000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months ( or such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
As of March 15, 1999, 10,288,510 shares of Common Stock of Curative
Health Services, Inc. were outstanding and the aggregate market value of such
Common Stock held by nonaffiliates (based upon its closing transaction price
on such date) was approximately $144 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its 1999 Annual Meeting of
Stockholders, which the Registrant intends to file not later than 120 days
following December 31, 1998, are incorporated by reference to Part III of
this Form 10-K Report.
1
PART I
Item 1 Business
General
Curative Health Services, Inc. is a leading disease management company
in the chronic wound care market. Currently, the Company manages, on behalf
of hospital clients, a nationwide network of Wound Care Centers that offers
a comprehensive range of services which enable the Company to provide
customized wound care. The Company's Wound Management Program consists of
diagnostic and therapeutic treatment regimens which are designed to meet each
patient's specific wound care needs on a cost effective basis. The Company's
treatment regimens are based on critical pathways designed for wound
healing. The Company has a proprietary database of patient outcomes that the
Company has collected since 1988 containing approximately 225,000 patient
records which indicate an overall healing rate of approximately 80% for
patients completing therapy. The Company's Wound Care Center network
consists of 154 outpatient clinics located on or near campuses of acute care
hospitals in 33 states. The Company is developing new service models for
other health care delivery settings including inpatient acute care and long
term care facilities. Additionally, the Company operates seven freestanding
Wound Care Centers.
The Company believes that the high degree of specialization and
expertise offered by the Wound Care Centers provide benefits: (i) to
patients through superior wound care, thus enhancing their quality of life,
in many cases, allowing them to avoid amputation; (ii) to affiliated
hospitals by enabling them to differentiate themselves from their competitors
through better wound care treatment outcomes, to reduce costs by decreasing
inpatient lengths of stay and to increase revenue through the introduction of
new patients; (iii) to affiliated physicians by providing greater access to
patients; and (iv) to insurers and managed care providers by offering a cost
effective alternative to traditional wound care.
Industry
Market Overview. Chronic wounds are common in patients with diabetes
and venous stasis disease, as well as in patients who are immobilized and
afflicted with pressure sores. A chronic wound generally is a wound which
shows no signs of significant healing in four weeks or has not healed in
eight weeks. The healing of a wound is dependent upon adequate blood flow to
stimulate new cell growth and combat infection. When adequate blood flow
does not occur, the healing process is retarded, often resulting in a chronic
wound that can last for months or years. Without effective treatment, a
chronic wound may lead to more severe medical conditions, such as infection,
gangrene and amputation, which are costly to payors and impede the quality of
life for the patient.
According to Chronic Wound Care: A Clinical Source Book for Healthcare
Professionals (Health Management Publications, 1990), it is estimated that at
least three million people suffer from chronic wounds in the United States.
Of the three million people with chronic wounds, an estimated 1.5 million
have pressure sores, over 700,000 have diabetic ulcers, and over 600,000
suffer from venous stasis ulcers. Diabetic ulcers are responsible for 60,000
limb amputations each year, accounting for more than half of all such
procedures not related to trauma. Venous stasis disease and pressure sores
often afflict the elderly, who constitute the most rapidly growing segment of
the U.S. population and account for a disproportionately large share of total
U.S. health care expenditures. It is estimated that the wound care segment
of the U.S. health care industry generated $2 billion in expenditures in
1994. It is also anticipated that the wound care market will continue to
grow due to the aging population and the increasing incidence of health
disorders, such as diabetes, which may lead to chronic wounds.
Traditional Approach to Chronic Wound Care. Traditional chronic wound
care treatment, which is typically administered by a primary care physician,
relies principally on cleansing and debriding the wound, controlling
infection with antibiotics and protecting the wound. For example, topical or
oral antibiotics are administered to decrease the bacterial count in the
wound, protective dressings are used to decrease tissue trauma and augment
repair and various topical agents are applied that chemically cleanse the
wound and remove wound exudate. These passive treatments do not directly
stimulate the underlying wound healing process. In many cases, the patient
may have to see a number of health care professionals before effective
treatment is received. In addition, under this traditional care model,
patients must manage their own care, which often leads to non-compliance and
treatment failure which may lead to infection, gangrene and amputation.
Although wound care programs have begun to evolve to more specialized and
aggressive treatment regimens, the Company believes that a significant
medical need and market opportunity exists for products and services that
improve and accelerate the wound healing process.
2
The Curative Approach to Chronic Wound Care
The Company's Wound Management Program is a comprehensive array of
diagnostic and therapeutic treatment regimens with all the components of care
necessary to treat chronic wounds. The Company's Wound Management Program is
administered primarily through the Company's nationwide network of Wound Care
Centers. The Company believes the Wound Management Program provides a better
approach to chronic wound management than the traditional approach, which the
Company believes lacks comprehensive wound programs, effective technology,
positive outcomes and cost efficiency. Each Wound Management Program offers
its patients a inter-disciplinary team of health care professionals,
including a medical director, surgeon, nurse, case manager, nutritionist and
endocrinologist.
In most cases, patients arriving at the Company's Wound Care Centers
have been treated with traditional wound healing techniques, but continue to
suffer from chronic wounds. In some cases, patients come to a Wound Care
Center after they have received an opinion from their primary physician that
limb amputation is required. Upon the commencement of treatment under the
Company's Wound Management Program, medical personnel conduct a systematic
diagnostic assessment of the patient. Specialized treatment protocols are
then established for the patient, based on the underlying cause of the wound
and the unique status of the patient. After the assessment phase, the course
of treatment in the Wound Management Program may include revascularization,
infection control, wound debridement, growth factor therapy, skin grafting,
nutrition, protection devices, patient education, referrals, and effective
management of care through patient/provider communications.
To measure the effectiveness of the Company's Wound Management Program,
the Company has developed a functional assessment scoring system to measure
the healing of a wound. Under this system, a chronic wound is considered
healed when (i) it is completely covered by epithelium (i.e., a membranous
cellular tissue that covers and protects a wound as it heals), (ii) maturing
skin is present in the wound, (iii) there is minimal drainage from the wound,
(iv) the wound requires only a protective dressing and (v) the limb involved
is functional. The Company has a proprietary database of patient outcomes
that the Company has collected since 1988 containing approximately 225,000
patient records which indicate an overall healing rate of approximately 80%
for patients completing therapy.
A unique aspect of the Company's Wound Management Program is the use of
Procuren, the Company's wound healing agent which is used to treat
approximately 14% of patients. Procuren is a naturally occurring complex
mixture of several growth factors. Growth factors have been shown to promote
the growth of skin, soft tissue and blood vessels. Procuren is produced by
stimulating the release of growth factors from platelets contained in the
patient's own blood. Blood is taken from the patient at the treatment center
and then sent to a Company-operated blood processing facility located in the
same state where the patient's blood was drawn. To produce Procuren, the
Company separates the platelets from the remainder of the blood sample.
Thrombin, a substance in the body that is active in the wound healing
process, is added to the platelets, causing the platelets to release growth
factors. The platelet shells are discarded and the growth factors are
diluted and placed in a buffered solution which is frozen until used. When
required as part of the patient's wound care treatment program, Procuren is
applied topically to the wound area by soaking a gauze dressing in the
Procuren solution and covering the wound area with the gauze. Procuren, as
part of a comprehensive treatment algorithm, has been used to treat over
50,000 patients to date. The Company believes that Procuren stimulates a
normal wound healing response in patients with chronic wounds in much the
same way as the body naturally initiates healing.
3
Company-sponsored studies suggest that the use of Procuren as part of
the Company's Wound Management Program is both efficacious and
cost-effective. For example, a Company-sponsored retrospective study of
patients with diabetic ulcers (who tend to have the most severe chronic
wounds) published by CP Fylling and PC McKeown in 1990 found that the average
charges for a conventional treatment program were $19,000 as compared to
$14,000 for a specialized wound management program that included the use of
Procuren. In addition to costing less, the specialized program had a healing
rate of 79% as compared to 24% for patients enrolled in the conventional
treatment program. Furthermore, 60% of the conventionally treated patients
required amputations at the end of the study compared with only 19% in the
specialized group of patients.
Strategy
The Company's objective is to enhance its position as a leading disease
management company in the chronic wound care market. The Company's growth
strategy is to continue to improve and refine the Wound Management Program
while broadening its delivery models to cover the entire continuum of care
for wound management. Key elements of this strategy include:
Continue to Develop the Company's Nationwide Network of Outpatient
Wound Care Centers. The Company intends to continue to establish additional
outpatient Wound Care Centers on or near the campuses of acute care
hospitals. Despite the Company's rapid growth from 32 outpatient centers in
1991 to 154 outpatient centers as of the end of 1998, the Company believes
the opportunity for further growth remains substantial. The Company has
identified over 300 additional markets in the United States which the Company
believes have the population necessary to support a dedicated wound care
program. The Company believes hospitals are continually seeking low cost,
high quality solutions to wound management such as those provided by the
Company. In addition, the Company believes it enables its hospital clients
to differentiate themselves from their competitors through better wound care
treatment outcomes, reduced costs due to decreased inpatient lengths of stay
and increased revenue through the introduction of new patients. As a result,
the Company believes there is a significant opportunity for the Company to
continue to expand its Wound Care Center operations through affiliation with
acute care hospitals. Additionally in response to the needs of acute care
hospitals in smaller rural markets the Company developed a wound care program
which effectively unbundles the Company's value added services. Through this
program, hospitals in smaller markets can purchase components of the Wound
Management Program through a licensing agreement which enables these
hospitals to manage wound care patients.
Develop New Service Models to Enhance Market Penetration. During 1998
the Company discontinued operating its nine subacute care inpatient programs,
due to third party reimbursement changes. The Company is actively developing
new service models in new health care delivery settings such as inpatient
programs for acute care hospitals and long term care facilities (e.g.,
nursing homes and long term acute care hospitals). These new service models
are being operated as a service from the Company's existing hospital
outpatient Wound Care Centers. Pressure sores, the most common form of
chronic wound, usually occur among nursing home, acute care and home patients
due to the sedentary lifestyle associated with those care settings. As the
Company further develops its inpatient service models, the Company believes
it will become more capable of penetrating the large pressure sore market.
The Company operates seven freestanding outpatient Wound Care Centers. The
freestanding service model was developed by the Company to strategically grow
its business through select target marketing and enter markets where a
suitable partner is not available or as a method of attracting a hospital
partner. The Company does not have any immediate plans to open additional
freestanding centers and expects to develop some existing freestanding
centers into hospital outpatient Wound Care Centers.
Provide a Comprehensive Managed Care Product. In addition to providing
new revenue opportunities, the Company believes its ability to provide its
services as a comprehensive managed care product in a number of settings will
increase its attractiveness to managed care payors seeking to provide a
continuum of care while reducing risk. With its Wound Management Program and
increasing presence in multiple health care delivery settings, the Company
can offer managed care payors a shared risk relationship which the Company
believes will provide better patient healing outcomes and more cost-effective
services for subscribers. Further, in 1998 the Company entered into a
development and license agreement with Accordant Health Services, Inc., a
private disease management company. As a strategic partner, Accordant has
been licensed by the Company to develop and market a wound care disease
management program to the managed care market. Additionally, the Company
signed an agreement with Accordant in which the Company agreed to an equity
investment of $4 million in Accordant.
4
Enhance the Company's Wound Management Program. The Company currently
offers a unique Wound Management Program which includes assessment, vascular
studies, revascularization, infection control, wound debridement, growth
factor therapy, skin grafting, nutrition, protection devices, patient
education, referrals and effective management of care through
patient/provider communications. In addition, the Company is continually
exploring and seeking advances in wound care management services and products
which could enhance its current Wound Management Program. The Company is
actively pursuing such advances through the continuous development of its
current services, and the consideration of acquisition opportunities and
co-marketing arrangements with other providers of wound care products and
services. Current product offerings include furnishing hyperbaric oxygen
services to interested hospital partners, alliance with companies marketing
new wound care technologies and developing clinical research capabilities for
the wound care center network.
Expand Into Other Disease Management Areas. Longer term, the Company
is considering capitalizing on its disease management expertise by expanding
its services into other disease management areas to meet the growing
continuum of health care needs of patients and providers. The Company
believes that there is a significant market potential for the delivery of
other disease management services through its existing network of Wound Care
Centers. The possibilities for expansion of the Company's disease management
services include the treatment of chronic wound related diseases such as
diabetes, as well as non-chronic wound related diseases such as
cardiovascular disorders.
Wound Care Operations
The Company's wound care operations offer health care providers the
opportunity to create specialty wound care departments designed to meet the
needs of chronic wound patients. The initial focus of the Company's wound
care operations has been hospital outpatient Wound Care Centers. The Company
is currently expanding its programmatic approach to wound care to inpatient
settings such as acute care hospitals and long term care facilities. In
these settings the Company is establishing a wound care program with existing
hospital Wound Care Centers to offer a inter-disciplinary approach to the
treatment of chronic wounds in the inpatient settings. In addition, the
Company has established freestanding outpatient Wound Care Centers.
Hospital Outpatient Wound Care Centers. Outpatient Wound Care Centers,
located on or near the campuses of acute care hospitals, represent the
Company's core business. A typical hospital outpatient Wound Care Center
consists of 4,000 square feet of space comprising four to eight exam rooms, a
nursing station, and physician and administrative offices. These Wound Care
Centers are designed to deliver all necessary outpatient services for the
treatment of chronic wounds, with the hospital providing any inpatient care,
such as revascularization or surgical debridement.
The Company currently offers its hospital clients two outpatient Wound
Care Center models: a management model and an "under arrangement" model, with
a primary focus on developing management models. The differences between
these two models relate primarily to the employment of the clinical staff at
the Wound Care Center and the basis for the management fees paid to the
Company. In the management model, generally the only employee of the
Company at the Wound Care Center is the Wound Care Center's Program Director,
and the Company generally receives a fixed monthly management fee and a
variable case management fee. In the "under arrangement" model, the Company
employs all of the clinical and administrative staff (other than physicians)
at the Wound Care Center and the Company generally receives fees based on the
services provided to each patient. In all other material respects the two
models are identical. In both models, physicians remain independent and the
Company recruits and trains the physicians and staff associated with the
Wound Care Center. The physicians providing services at a Wound Care Center
are recruited by the Company primarily from among the doctors who work at the
hospital and practice in related areas. In addition, in both models the
Company develops, manages and provides Procuren processing services for the
Wound Care Center, and the Company's field support departments provide the
staff at each Wound Care Center with clinical oversight, quality assurance,
reimbursement consulting, sales and marketing and general administrative
support services. The terms of the Company's contract with each hospital are
negotiated individually. Generally, in addition to the management fees
described above, the contracts provide for development fees and Procuren
processing fees charged to the hospital based on utilization. In both
models, the hospital and the physician bill the patient for the services
provided and are responsible for seeking reimbursement from insurers or other
third party payors.
5
The first Wound Care Center opened in 1988 and there are currently 154
hospital outpatient Wound Care Centers in operation in 33 states. The
Company has entered into contracts or letters of intent with 18 hospitals to
open additional Wound Care Centers. The Company's hospital client base
ranges from medium-sized community-based hospitals to large hospitals
affiliated with national chains and not-for-profit hospitals in local
markets. The Company selects hospital clients based on a number of
criteria. A suitable hospital client typically can accommodate at least 200
inpatient beds, offers services which complement the Wound Management
Program, including physician specialists in the areas of general, plastic and
vascular surgery, endocrinology and diabetes, is financially stable and has a
solid reputation in the community it serves. Of the Company's 154 current
hospital outpatient Wound Care Centers, 110 are management model centers and
44 are "under arrangement" model centers.
In expanding its product offering, the Company furnishes hyperbaric oxygen
therapy (HBO) services to interested hospital partners operating outpatient
wound care centers. These services generally include furnishing HBO chambers
and managing the program. The Company current manages 16 HBO programs at
existing hospital outpatient Wound Care Centers which accounted for
approximately 2% of the Company's revenue.
At December 31, 1998, the Company had management contracts with 32
acute care hospitals directly or indirectly owned by Columbia/HCA. These
hospitals collectively accounted for approximately 25% of the consolidated
revenues of the Company for the year ended December 31, 1998. In 1998 there
were 8 Columbia/HCA hospital contracts that terminated and closed. The
Company expects that the Columbia/HCA hospitals collectively will account for
less than 20% of future revenues. The Company and Columbia/HCA have been in
discussions initiated by Columbia/HCA to standardize the management contracts
and operating procedures at the Wound Care Centers in hospitals owned by
Columbia/HCA, as well as any Wound Care Centers to be opened in hospitals
owned by Columbia/HCA in the future. There can be no assurance these
discussions with Columbia/HCA will not result in changes which would have an
adverse impact on the Company's business, financial condition and results of
operations, including, without limitation, contract terminations, price
concessions, contract termination provisions less favorable to the Company,
and increased costs borne by the Company.
Inpatient Wound Care Programs. In 1998, the Company closed nine
inpatient subacute care nursing home-based programs in five states due to
third party reimbursement changes and has no plans to develop similar
inpatient programs in the near future. This model was designed to access the
segment of the chronic wound market comprised of non-ambulatory patients in
subacute inpatient facilities. The Company is addressing the needs of the
inpatient wound care market through the development of new inpatient
programs. These patients often have pressure sores resulting from
inactivity. While not typically as severe as diabetic or venous stasis
ulcers, pressure sores represent the largest segment of the chronic wound
market. The Company has developed a Wound Reduction Assessment Programsm for
its affiliated acute care hospitals with outpatient wound care centers that
is directed at assisting those hospitals in identifying and managing
inpatients in the acute care hospital that are at risk or who suffer from
chronic wounds. The program is primarily directed at reducing the length of
stay of those patients in the acute care setting. The Company has also
developed a Wound Outreach Programsm, whereby a nurse practitioner or
physician assistant from an affiliated outpatient wound care center provides
wound related services to long term care facilities in surrounding cachement
areas. Both programs are in the early stages of development and
implementation. There can be no assurance that these programs will be
successful in the future.
Freestanding Outpatient Wound Care Centers. In late 1995, the Company
began to establish freestanding Wound Care Centers in which the Company is
the owner and operator. The Company believes that this delivery model
allowed the Company to expand its market penetration in the outpatient
setting by allowing the Company to strategically penetrate markets without
the constraint of finding a hospital or contracting with competing
hospitals. The Company currently has seven freestanding centers in seven
states. The Company does not have any immediate plans to open additional
freestanding centers and expects to develop some existing freestanding
centers into hospitals outpatient wound care centers. The freestanding Wound
Care Centers resemble standard outpatient facilities or specialized physician
practices. The Company employs the staff of the Wound Care Center and is
responsible for billing patients for all services provided at the Wound Care
Center and for seeking reimbursement from third party payors. To date the
Company has not employed any of the physicians providing services at its
freestanding Wound Care Centers; however, the Company may employ physicians
at these models in the future.
6
Procuren Production Facilities. The Company currently produces
Procuren in 36 facilities in 33 states, all of which are registered with the
FDA as blood processing facilities. The Company's personnel at these
facilities produce Procuren at the direction of Wound Care Center physicians.
Contract Terms and Renewals
Substantially all of the revenues of the Company are derived from
management contracts with acute care hospitals. The contracts generally have
initial terms of three to five years and many have automatic renewal terms
unless specifically terminated. During the year ending December 31, 1999,
the contract terms of 47 of the Company's management contracts will expire,
including 44 contracts which provide for automatic one-year renewals. The
contracts often provide for early termination either by the client hospital
if specified performance criteria are not satisfied, or by the Company under
various other circumstances. Historically, some contracts have expired
without renewal and others have been terminated by the Company or the client
hospital for various reasons prior to their scheduled expiration. During
1998, two hospital contracts expired without renewal and an additional 14
hospital contracts were terminated prior to their scheduled expiration by the
client hospital and in some cases by the Company. Generally, the Company
elects to negotiate a mutual termination of a management contract if a client
hospital desires to terminate the contract prior to its stated term. The
continued success of the Company is subject to its ability to renew or extend
existing management contracts and obtain new management contracts. Hospitals
choose to terminate or not to renew contracts based on decisions to terminate
their programs or to convert their programs from independently managed
programs to programs operated internally. There can be no assurance that any
hospital will continue to do business with the Company following expiration
of its management contract or earlier, if such management contract is
terminable prior to expiration. In addition, any changes in the Medicare
program or third party reimbursement levels which generally have the effect
of limiting or reducing reimbursement levels for health services provided by
programs managed by the Company could result in the early termination of
existing management contracts and would adversely affect the ability of the
Company to renew or extend existing management contracts and to obtain new
management contracts. The termination or non-renewal of a material number of
management contracts could result in a significant decrease in the Company's
net revenues and could have a material adverse effect on the Company's
business, financial condition and results of operations.
Managed Care Operations
The Company's managed care strategy is currently focused on marketing
Wound Care Center services to local managed care organizations ("MCOs") in
concert with its hospital clients' efforts to promote all hospital-based
services to such MCOs. In those instances where hospital clients are unable
to establish contractual relations with a large local MCO or in those markets
where the Company operates freestanding Wound Care Centers where it would
otherwise be appropriate, the Company seeks to establish relations directly
with MCOs. The Company's contractual arrangements with MCOs, which will vary
based upon the needs of the particular MCO, are expected to provide for the
Company to receive compensation on a fee-for-service, fixed case rate or
at-risk capitation basis. While the Company anticipates that initially most
of its managed care contracts will be fee-for-service or case rate contracts,
it expects that at-risk capitation could become a contracting method.
The Company's longer term managed care strategy is to establish a wound
care carve-out product with selected MCOs. The Company has begun to develop
tools to help MCOs assess their current wound care experiences (both clinical
outcomes and costs) against the Company's Wound Management Program in order
to demonstrate that a wound care carve-out product can provide added value.
In order to make itself more attractive to MCOs by offering a broader disease
management program, the Company intends, where appropriate, to align itself
with other disease management companies focused on case management or
complementary diseases such as cardiac care (venous stasis management) and
diabetes. The Company expects that contracts for a carve-out product will
provide at-risk arrangements with MCOs (i.e., fixed case rates or capitation).
7
In 1998 the Company entered into a development and license agreement
with Accordant Health Services, Inc. a private disease management company.
As a strategic partner, Accordant has been licensed by the Company to develop
and market a wound care disease management program to the managed care market
including, Health Maintenance Organizations (HMO's), Preferred Provider
Organization (PPO's) and insurance companies. The wound care disease
management program being developed will include impact models,
assessment/intervention tools and outcome reporting. The model is expected
to be a "carve in" approach where by registered nurses will monitor health
plan subscribers identified as chronic wound patients through care management
programs. The case management software supports and prompts collection of
disease specific data points utilized by the registered nurses to assist
patients in caring for the chronic condition, identify and monitor patients
at risk and educate patients in preventative measures. The nurses conduct
proactive patient monitoring that assesses patient compliance, complications,
functional and clinical health status and patient satisfaction. The
respective health plans are then provided reports. The program is expected
to be launched in the second half of 1999. Additionally, the Company signed
an agreement with Accordant in which the Company agreed to an equity
investment of $4 million in Accordant.
The Company's managed care operations are overseen by a Vice President
of Managed Care. To date, the Company's managed care operations have been
limited. Although the Company or its hospital clients have been reimbursed
for wound treatment by a number of MCOs on a case-by-case basis, the Company
currently has no contracts that require or incentivize subscribers to use the
Company's wound care services. There can be no assurance that the Company
will be able to successfully expand its managed care operations.
Community Education and Marketing
The Company's community education and marketing strategy consists of a
two-fold approach involving the development of new wound care programs as
well as growth in operating Wound Care Centers. To accomplish this, the
Company has divided the United States into five operating regions each headed
by a Regional Vice President. The community education and marketing effort
in each region is directed by a Regional Sales Director under the supervision
of the Regional Vice President. The Regional Sales Director is responsible
for the activities of the Sales Managers, Professional Liaisons, Business
Development Managers. The Professional Liaisons are primarily responsible for
community education efforts directed at physicians and other healthcare
professionals to expand community awareness of the Wound Care Centers. The
primary job of the Business Development Manager is the development of new
wound care programs. The Company's community education and marketing
operations are overseen by a Vice President of Sales and Marketing.
As of December 31, 1998, the Company had five Regional Sales Directors,
11 Business Development Managers, five Sales Managers and 60 Professional
Liaisons.
In addition to the above, a community education plan and marketing plan
are developed each year at each Wound Care Center. The execution of the plan
is the responsibility of the Program Director at the Wound Care Center. The
plan details the anticipated marketing for the year including radio, print
and television advertising as well as professional symposiums and other
community education. The cost of this plan is generally shared between the
Company and the hospital. The Company markets the Wound Care Center concept
to hospitals as a therapeutic "Center of Excellence." The Company believes
that having a Wound Care Center can differentiate a hospital from its
competitors and can increase the hospital's revenues through the introduction
of new patients, which leads to an increase in ambulatory surgeries, X-rays,
laboratory tests and inpatient surgeries, such as debridements, vascular
surgeries and plastic surgeries. The Company has demonstrated that Wound
Care Centers provide significant incremental revenues to participating
hospitals, and therefore provide an attractive economic opportunity for
hospitals at the same time being more cost effective in terms of total
healthcare dollars expanded. Potential benefits to treating physicians
include the healing of difficult-to-heal wounds and an expansion of the
physician's practice.
8
Patents and Proprietary Rights
The Company's success depends in part on its ability to enforce
patents, maintain trade secret protection and operate without infringing on
or violating the proprietary rights of third parties. One U.S. patent has
been issued, and one additional application for a patent in the United States
has been filed, relating to the manufacture and use of Procuren for wound
care. There can be no assurance that any pending patent applications will be
approved or that any issued patents will provide the Company with competitive
advantages in the future or will not be challenged by any third parties or,
if involved in a challenge, will be found valid and infringed. Furthermore,
there can be no assurance that others will not design around the patents.
The issued U.S. patent is jointly owned by the University of Minnesota and
the Company. The joint interest of the University of Minnesota is licensed
exclusively to the Company under a paid in full, royalty free arrangement.
The U.S. Government has a nonexclusive grant back license under the issued
U.S. patent for all government purposes. The additional pending U.S.
application is owned by the Company and is not subject to the government
grant back license.
In addition to patent protection, the Company also relies, in part, on
trade secrets, proprietary know-how and technological advances which it seeks
to protect by measures such as confidentiality agreements with its employees,
consultants and other parties with whom it does business. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, that others will not independently
develop products similar to Procuren or that the Company's trade secrets and
proprietary know-how will not otherwise become known, be independently
discovered by others or found to be unprotected. The Company is aware of a
limited number of physicians who appear to be utilizing an autologous
platelet extract for the treatment of chronic wounds.
The Company has registered the names "Procuren" and "Wound Care Center"
as trademarks in the United States for use in connection with the Company's
wound care operations.
Government Regulation
The Company's Wound Care Centers and the production and marketing of
its products and services are subject to extensive regulation by numerous
governmental authorities in the United States, both federal and state.
Although the Company believes that it is currently in compliance with
applicable laws, regulations and rules, the Company received a Warning Letter
from FDA in March 1998 admonishing the Company for several alleged deviations
from good manufacturing practices at one of the Company's Wound Care
Centers. The Company has responded to the Warning Letter and believes that
it has adequately addressed FDA's concerns. However, there can be no
assurance that FDA, another governmental agency or a third party will not
contend that certain aspects of the Company's operations or procedures are
subject to or are not in compliance with such laws, regulations or rules or
that the state or federal regulatory agencies or courts would interpret such
laws, regulations and rules in the Company's favor. The sanctions for
failure to comply with such laws, regulations or rules could include denial
of the right to conduct business, significant fines and criminal penalties.
Additionally, an increase in the complexity or substantive requirements of
such laws, regulations or rules could have a material adverse effect on the
business, financial position and results of operations of the Company.
The FDA regulates drugs and biologics that move in interstate commerce
and requires that such products receive pre-marketing approval based on
evidence of safety and efficacy. Since Procuren is produced at one of the
Company's blood processing facilities in the state where the Wound Care
Center which will dispense the Procuren is located and so is not intended to
be shipped across state lines, the Company believes, based on the advice of
its counsel, that under current law and regulations, FDA approval is not
required for the Company to distribute and sell Procuren through the Wound
Care Centers. The FDA is currently reassessing its regulation of other
autologous and somatic cell products and has publicly stated that it believes
that if any component of a drug or biological or if any patient receiving
such substance moves in interstate commerce, a sufficient nexus with
interstate commerce exists for FDA to require pre-marketing approval and
licensure. The FDA has indicated to the Company that the status of Procuren
would be addressed by the FDA in a future Federal Register publication,
possibly as a part of the FDA's overall regulation of other autologous and
somatic cell products. While the production of Procuren includes components
that are shipped in interstate commerce, to date the FDA has not determined
that Procuren, as currently prepared, is subject to licensure or pre-market
approval. However, in the March 1998 FDA Warning Letter, FDA objected to the
Company providing Procuren to patients who reside in a state other than the
one in which the Wound Care Center is located. The Company ceased providing
Procuren to out-of-state patients. Although the Company believes interstate
shipment of the final biologic product is required to trigger pre-marketing
approval and licensure, a determination by the FDA to require Procuren to
obtain pre-marketing approval would materially and adversely affect the
Company.
9
Because FDA approval has not been required for Procuren, and state
approvals are generally limited to licensing of facilities, there has been no
independent determination of its efficacy by any governmental entity. If the
FDA were to require submission of a product license application ("PLA") as a
condition for the continued distribution and sale of Procuren, the Company
might have to demonstrate the safety, purity, potency and effectiveness of
the product through extensive clinical trials. Neither the Company nor any
third party has conducted the controlled clinical trials required to
establish Procuren's efficacy. Compliance with the requirements for a PLA is
time-consuming and involves the expenditure of substantial resources. There
can be no assurance that the Company would be able to establish efficacy or
to obtain or maintain the necessary FDA approvals to manufacture and
distribute Procuren.
Any change in current regulatory interpretations by or positions of
state officials where the Wound Care Center's are located could adversely
affect the Company's distribution of Procuren within those states. In states
where Wound Care Centers are not currently located, the Company intends to
utilize the same approaches adopted elsewhere for achieving state
compliance. However, state regulatory requirements could adversely affect
the Company's ability to establish Wound Care Centers in such other states.
Various state and federal laws regulate the relationships between
providers of health care services and physicians and other clinicians,
including employment or service contracts, investment relationships and
referrals for certain designated health services. These laws include the
fraud and abuse provisions and referral restrictions of the Medicare and
Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remunerations for the referral of Medicare
and Medicaid patients or for the ordering or providing of Medicare or
Medicaid covered services, items or equipment. Violations of these
provisions may result in civil or criminal penalties for individuals or
entities including exclusion from participation in the Medicare or Medicaid
programs. Several states have adopted similar laws that cover patients in
private programs as well as government programs. Because the anti-fraud and
abuse laws have been broadly interpreted, they limit the manner in which the
Company can operate its business and market its services to, and contract for
services with, other health care providers.
The Company has had contracts to operate Wound Care Centers at more
than thirty (32) hospitals operated by Columbia/HCA. The United States
Department of Justice is actively investigating Columbia/HCA, and has
extended its investigation of Columbia/HCA to a review of significant
management contracts between Columbia/HCA and other organizations including
contracts with the Company. The Company is not aware of any allegations,
findings, or conclusions by the government that any portion of the fees paid
by Columbia/HCA to the Company were not properly claimed by Columbia/HCA for
purposes of Medicare cost reimbursement (or any other cost reimbursement
program), or that there has been any misconduct. The Company cannot predict
the outcome of the government's review of its contracts with Columbia/HCA,
which are similar to the contracts the Company has with its other hospital
partners. If the government were to conclude that the Company has engaged in
any misconduct, it could result in affecting the Company's relationship with
all its hospital customers including Columbia/HCA, substantial monetary fines
and penalties, and exclusion from governmental health care programs which
could have a material adverse effect on the business, financial position and
results of operations of the Company.
10
Additionally, federal and some state laws impose restrictions on
physician's referrals for certain designated health services to entities with
which the physician has a financial relationship, but there is considerable
uncertainty about some facets of these laws, especially the federal law since
there are no final rules interpreting the law. The Company believes its
operations do not violate these restrictions to the extent applicable.
Periodically there are efforts to expand the scope of these referral
restrictions from its application to government health care programs to all
payors, and to additional health services. Certain states are considering
adopting similar restrictions or expanding the scope of existing
restrictions. There can be no assurance that the federal government or other
states in which the Company operates will not enact similar or more
restrictive legislation or restrictions or interpret existing laws and
regulations in a manner that could under certain circumstances limit the
manner in which the Company can operate its business and have a negative
impact on the Company's business, financial condition and results of
operations.
The laws of many states prohibit physicians from sharing professional
fees with non-physicians and prohibit non-physician entities, such as the
Company, from practicing medicine and from employing physicians to practice
medicine. The laws in most states regarding the corporate practice of
medicine have been subjected to limited judicial and regulatory
interpretation. The Company believes its current and planned activities do
not constitute prohibited fee splitting or violate any prohibition against
the corporate practice of medicine. There can be no assurance, however, that
future interpretations of such laws will not require structural or
organizational modifications of the Company's existing business or have a
negative impact on the Company's business, financial addition and results of
operations.
Pursuant to the federal Occupational Safety and Health Act, employers
have a general duty to provide a work place for their employees that is safe
from hazard. The U.S. Occupational Safety and Health Administration ("OSHA")
has issued rules relevant to certain hazards that are found in the Company's
blood processing facilities. In addition, OSHA issued a standard in 1992
applicable to protection of workers from blood-borne pathogens. Failure to
comply with this standard relating to blood-borne pathogens, other applicable
OSHA rules or with the general duty to provide a safe work place could
subject the Company to substantial fines and penalties.
Third Party Reimbursement
The Company, through its wound care operations, provides contractual
management services for fees and sells Procuren to acute care hospitals and
other health care providers. These providers, in turn, seek reimbursement
from third party payors, such as Medicare, Medicaid, health maintenance
organizations and private insurers, including Blue Cross/Blue Shield plans.
The availability of reimbursement from such payors has been a significant
factor in the Company's ability to increase its revenue streams and will be
important for future growth.
In addition to hospital outpatient Wound Care Centers which it manages
for its clients, the Company owns and operates freestanding outpatient Wound
Care Centers. With respect to services and products provided through its
freestanding centers, the Company is subject to the risks inherent in third
party reimbursement, including the risks associated with billing third party
payors. As of December 31, 1998, the Company operated seven freestanding
outpatient Wound Care Centers which contributed approximately $3,335,000 or
3% of the Company's revenues for the year ended December 31, 1998. However,
the Company anticipates that the number of, and amount of revenues
attributable to, its freestanding centers will decrease in the future since
the Company does not have any immediate plans to open additional freestanding
centers and expects to develop some existing freestanding centers into
hospital outpatient wound care centers. See "Business-Strategy."
11
Each third party payor formulates its own coverage and reimbursements
policies. In 1992, the Health Care Financing Administration ("HCFA"), the
agency that administers the Medicare program nationally, published a national
coverage decision denying coverage for Procuren based on its determination
that the safety and efficacy of Procuren had not been established and so the
use of Procuren was not "reasonable and necessary" within the meaning of
applicable law. Procuren sales represent a significant part of the Company's
revenues and earnings and the Company believes that Procuren, as a component
of its Wound Management Program, is a significant component of the Company's
services. Although the Company has not, and the Company believes that its
clients have not, in general experienced difficulty in securing third party
reimbursement for Wound Care Center services and the use of Procuren from
private insurers, some hospitals have experienced denials, delays and
difficulties in obtaining such reimbursement. In some cases where Procuren
reimbursement has been denied by a payor, the hospitals have ceased providing
Procuren to patients whose only means of payment is through such payor. To
the Company's knowledge, no widespread denials have been received by
hospitals regarding reimbursement for other Wound Care Center services or
reimbursement of management fees charged by the Company to its hospital
clients. The Company discusses coverage and reimbursement issues with its
hospital clients and third party payors on a regular basis. Such discussions
will continue as the Company seeks to assure sufficient payments from third
party payors to the Company's hospital customers for services managed by the
Company and for Procuren so that the Company's hospital customers and
potential customers find it financially feasible to renew contracts or enter
into contracts with the Company. Although no individual coverage and
reimbursement decision is material to the Company, a widespread denial of
reimbursement coverage for Procuren or other services would have a material
adverse effect on the Company's business, financial position and results of
operations.
Medicare regulations limit reimbursement for health care charges paid
to related parties. A party is considered "related" to a provider if there
is significant common ownership or common control by the provider. On
occasion, fiscal intermediaries under contract to HCFA to audit hospital
Medicare claims have asserted that one test for determining control for this
purpose is whether the percentage of the total revenues of the party received
from services rendered to the provider is so high that it effectively
constitutes control. Although the Company believes it does not currently
receive sufficient revenues from any customer, including Columbia/HCA, that
would make it a related party, it is possible that such regulations could
limit the number of management contracts that the Company could have with
Columbia/HCA or any other client.
The Wound Care Centers managed by the Company on behalf of acute care
hospitals are treated as "provider based entities" for Medicare cost based
reimbursement purposes. This designation is required for the hospital based
program to be covered under the Medicare cost based reimbursement system. In
August 1996 and again in May 1998, HCFA published criteria for determining
when programs may be designated "provider based entities". The
interpretation and application of these criteria are not entirely clear and
there is a risk that some of the programs managed by the Company could be
found not to be "provider based entities". In 1998, the Company modified the
terms of 6 under arrangement contracts to comply with provider based
guidelines which resulted in a reduction in revenue from those contracts.
Although the Company believes that the programs it manages meet the current
criteria to be designated "provider based entities", a widespread denial on
such designation would have a material adverse effect on the Company's
business, financial position and results of operations.
In the Balanced Budget Act of 1997, Congress directed HCFA to implement
a prospective payment system for all hospital outpatient department services
furnished to Medicare patients on or after January 1, 1999. However, due to
complexities HCFA faces in order for all of its systems to be "Year 2000"
compliant, HCFA has announced that the actual implementation of this new
payment system will be sometime after January 1, 2000. In September 1998,
HCFA published proposed rules, for comment, which delininate the proposed
framework, services and operation of the Prospective Payment System. Under
the proposed system, a predetermined rate would be paid to hospitals for
clinic services rendered, regardless of the hospitals cost. Due to the
complexities of the proposed system and since the final reimbursement
methodology and rates have not yet been determined, the effect on hospital
reimbursement is speculative. In the event that reimbursement rates are
insufficient, the Company may need to modify its management contracts with
hospitals which could have a material effect on the Company's business,
financial condition and results of operations. Additionally, the proposed
rules include new criteria for programs to be designated a "provider based
entity". The interpretation and application of these new proposed criteria
are not entirely clear and there is risk that some of the programs managed by
the Company could be determined not to be "provider based entities". A
widespread denial on such designation could have a material adverse effect on
the Company's business, financial position and results of operations.
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Although Congress
has failed to pass comprehensive health care reform legislation thus far, the
Company anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery and payment systems and
may in the future propose and adopt legislation effecting fundamental changes
in the health care delivery system. It is possible that future legislation
enacted by Congress or state legislatures will contain provisions which may
materially adversely affect the business, financial position and results of
operations of the Company or may change the operating environment for the
Company's targeted customers (including hospitals and managed care
organizations). Health care industry participants may react to such
legislation or the uncertainty surrounding related proposals by curtailing or
deferring expenditures and initiatives, including those relating to the
Company's programs and services. It is also possible that future legislation
either could result in modifications to the nation's public and private
health care insurance systems, which could affect reimbursement policies in a
manner adverse to the Company, or could encourage integration or
reorganization of the health care delivery system in a manner that could
materially affect the Company's ability to compete or to continue its
operations without substantial changes. The Company cannot predict which
other legislation relating to its business or to the health care industry may
be enacted, including legislation relating to third party reimbursement, or
what effect any such legislation may have on its business, financial position
and results of operations.
12
Competition
The Company's principal competition in the chronic wound care market
consists of specialty clinics that have been established by some hospitals or
physicians. Additionally, there are a number of private companies which
provide wound care services through a HBO program format. In the market for
disease management products and services, the Company faces competition from
other disease management facilities, general health care facilities and
service providers, pharmaceutical companies, biopharmaceutical companies and
other competitors. Many of these companies have substantially greater
capital resources and marketing staffs, and greater experience in
commercializing products and services, than the Company. In addition,
recently developed technologies, or technologies that may be developed in the
future, are or may be the basis for products which compete with the Company's
chronic wound care products and which may be in direct competition with
Procuren. There can be no assurance that the Company will be able to enter
into co-marketing arrangements with respect to these products, or that the
Company will be able to compete effectively against such companies in the
future.
Employees
As of December 31, 1998, the Company employed 731 full-time employees,
of which 599 employees were in the wound care operations, 66 employees were
in Procuren production, 18 employees were in technical support and 48
employees were in general administration and finance. The Company expects to
add additional personnel to its wound care operations in the next year. The
Company believes that its relations with its employees are good.
Item 2 Properties
The Company's headquarters and technical support facility is located in
Hauppauge, Long Island, New York. The Company leases this 30,000 square foot
facility under a lease through 2005. The Company believes that its facilities
are adequate and suitable for its operation. The Company also leases one
field operations office for its wound care operations totaling 4,100 square
feet, seven freestanding Wound Care Centers totaling 20,600 square feet and
24 production facilities totaling 46,000 square feet. The Company's
facilities at the hospital outpatient Wound Care Centers are owned or leased
by the hospitals.
Item 3 Legal Proceedings
The Company, in the ordinary course of business, is the subject of or
party to various lawsuits, the outcome of which in the opinion of management,
will not have a material adverse effect on its financial position or results
of operations.
Item 4 Submission of Matters to a Vote of Security Holders
None.
13
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on The Nasdaq Stock Market under
the symbol "CURE". As of March 15, 1999, there were approximately 214
holders of record of the Company's common stock. The Company has not paid
any cash dividends since its inception. The Company currently does not
intend to pay cash dividends in the foreseeable future but intends to retain
all earnings, if any, for use in its business operations.
The following table sets forth, for the fiscal periods indicated, the
range of high and low sales prices of the common stock as quoted on The
Nasdaq National Market System:
High Low
1998
Fourth Quarter.......... $ 35 $ 22 11/16
Third Quarter........... 32 1/4 20 1/2
Second Quarter.......... 35 3/4 25 3/4
First Quarter........... 39 1/4 30
1997
Fourth Quarter.......... $ 32 7/8 $ 27 3/4
Third Quarter........... 32 28
Second Quarter.......... 29 5/8 20 1/4
First Quarter........... 33 1/8 23
14
Item 6 Selected Consolidated Financial Data
Five year selected consolidated financial data and other operating
information of Curative Health Services, Inc., and subsidiaries follow:
Year Ended December 31,
-----------------------
1994 1995 1996 1997 1998
(In thousands, except per share and operating data)
Statement of Operations Data:
Revenues .................................................. $ 40,567 $ 52,442 $ 67,395 $ 87,906 $ 103,987
Costs and operating expenses:
Costs of products sales and services ................... 20,478 26,189 37,828 48,200 56,035
Selling, general and administrative .................... 15,177 18,209 19,208 22,617 23,358
Research and development ............................... 6,480 4,143 - - -
Restructuring charge ................................... 1,684 - - - -
-------- -------- -------- -------- --------
Total costs and operating expenses ........................ 43,819 48,541 57,036 70,817 79,393
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before interest income and minority
interest ............................................... (3,252) 3,901 10,359 17,089 24,594
Interest income ........................................... 306 528 1,344 2,666 2,660
Minority interest in net loss of
consolidated subsidiary ................................ 218 - - - -
-------- -------- -------- -------- --------
Income (loss) from continuing operations................... (2,728) 4,429 11,703 19,755 27,254
Income (loss) from discontinued operations ................ (4,545) - - - -
--------- -------- -------- -------- --------
Income (loss) before income taxes ......................... (7,273) 4,429 11,703 19,755 27,254
Income taxes .............................................. - 219 1,008 3,293 10,217
-------- -------- -------- -------- --------
Net income (loss) ......................................... $ (7,273) $ 4,210 $ 10,695 $ 16,462 $ 17,037
======== ======== ======== ======== =========
Net income (loss) per common share, basic
Continuing operations ............................... $ (0.27) $ 0.41 $ 0.95 $ 1.33 $ 1.34
Discontinued operations ............................. (0.46) - - - -
-------- -------- -------- -------- --------
Total ............................................. $ (0.73) $ 0.41 $ 0.95 $ 1.33 $ 1.34
======== ======== ======== ======== ========
Denominator for basic earnings per share,
weighted average common shares ........................ 9,943 10,192 11,212 12,404 12,704
Operating Data:
Wound care centers at end of period ....................... 61 79 105 132 154
Number of new patients .................................... 22,529 30,023 38,699 48,722 58,510
Balance Sheet Data:
Working capital ........................................... $ 7,267 $ 12,575 $ 45,760 $ 62,583 $ 76,419
Total assets .............................................. 18,592 25,030 61,959 84,939 109,121
Long-term debts
(including capital lease obligation) ................... 1,254 1,198 1,044 7 -
Retained earnings (deficit) ............................... (34,135) (29,925) (19,230) (2,768) 14,269
Stockholders' equity ...................................... 9,778 15,611 50,270 72,592 93,396
15
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's principal business is the delivery of chronic wound care
services through its nationwide network of Wound Care Centers located in or
near acute care hospitals. Substantially all of the Company's revenues are
currently generated under its contracts with acute care hospitals for the
management of chronic wound care programs and the production of Procuren.
The Company currently markets two types of Wound Care Center management
contracts to hospitals: a management model and an "under arrangement" model.
In the management model, the Company provides management and support
services for a chronic wound care facility owned or leased by the hospital
and staffed by employees of the hospital, and generally receives a fixed
monthly management fee and a variable case management fee. In the "under
arrangement" model, the Company provides management and support services, as
well as the clinical and administrative staff, for a chronic wound care
facility owned or leased by the hospital, and generally receives fees based
on the services provided to each patient. In both models, physicians remain
independent, and the Company recruits and trains the physicians and staff
associated with the Wound Care Center. In addition, in both models, the
Company receives fees for the production of Procuren based on utilization.
Of the 154 hospital outpatient Wound Care Centers in operation as of
December 31, 1998, 110 were management model Wound Care Centers, and 44 were
"under arrangement" model Wound Care Centers. The Company's fees under its
management contracts with acute care hospitals are paid by the hospitals
directly. See "Business-Third Party Reimbursement."
The Company has seven freestanding wound care centers that are owned
and operated by the Company. Although these centers accounted for
approximately 3% of the Company's revenue in 1998, the Company does not have
any immediate plans to open additional freestanding centers and expects to
develop some existing freestanding into hospital based wound care centers.
Results of Operations
Fiscal Year 1997 vs. Fiscal Year 1998. The Company's revenues increased
from $87.9 million in 1997 to $103.9 million in 1998, an 18% increase. The
increased revenue is primarily attributable to the operation of 132 wound
care centers at the end of 1997 compared with 154 at the end of 1998 and a
10% increase in revenues at existing wound care centers related to higher
patient volume. The Company's revenue growth declined to 18% in 1998 compared
to 30% in 1997. The decline is primarily attributable to the closing of 16
Wound Care Centers and the modification of contractual terms of six under
arrangement programs during 1998. At any time during a year, 10 percent to 15
percent of contracts are being re-negotiated with the client hospital for a
variety of contractual terms or issues. Historically, some contracts have
expired without renewal and others have been terminated by the Company or
the client hospital for various reasons prior to their scheduled expiration.
The termination or non-renewal of a material number of management contracts
could result in a continued decline in the Company's revenue growth. The
Company has a number of initiatives to counter the decline of growth in
revenue, although there can be no assurance that the initiatives will be
successful. Total new patients to the wound care centers increased 20% from
48,722 in 1997 to 58,510 in 1998. The total number of patients receiving
Procuren therapy decreased 5% from 8,583 in 1997 to 8,164 in 1998. The
percentage of patients receiving Procuren decreased from 18% in 1997 to 14%
in 1998. The Company believes that this decrease is attributable primarily to
an increase in the percentage of less severe chronic wounds being treated at
the Company's Wound Care Centers, for which physicians are less likely to
prescribe Procuren, as well as a lack of available reimbursement for Medicare
patients. The Company believes that this shift in the severity of the wounds
treated at a Wound Care Center occurs as the local medical community becomes
familiar with the services offered by the Wound Care Center and refers a
broader range of chronic wound patients to the Wound Care Center for
treatment. The Company anticipates that the percentage of patients receiving
Procuren will continue to decline gradually in the future.
16
Costs of product sales and services increased from $48.2 million in
1997 to $56.0 million in 1998, a 16% increase. The increase is attributable
to the additional staffing and operating expenses of approximately $5.3
million associated with the operation of 22 additional wound care facilities
at the end of 1998, offset by $2.5 million associated with closed centers, as
well as increased volume at existing wound care facilities. Additionally,
these 22 facilities include 14 under arrangement Wound Care Centers at which
the services component of costs is higher than at the Company's other
facilities due to the additional clinic staffing that these models require.
As compared with 1997, the higher services components at these facilities
accounted for an additional $3.8 million of the increase in product sales and
services for 1998. As a percentage of revenues, costs of product sales and
services was 54% in 1998 compared with 55% in 1997. The decrease is
attributable to the ability of the Company to leverage the fixed overhead
components of the cost of product sales and services over a broader revenue
base.
Selling, general and administrative expenses increased from $22.6
million in 1997 to $23.4 million in 1998, a 3% increase. The increase is
attributable to the additional staffing and operating expenses associated
with the growth of the wound care center business related to field support
departments. As a percentage of revenues, selling, general and
administrative expenses were 22% in 1998 compared to 26% in 1997. The
decrease is attributable to the ability of the Company to obtain leverage by
spreading the costs of its overhead structure over a broader revenue base.
Interest income was $2.7 million in 1998 and 1997. Interest income for
1998 is flat when compared to 1997 as the result of increased investment in
lower yielding tax free instruments in 1998.
Net income increased from $16.5 million or $1.27 (diluted) per share in
1997 to $17.0 million or $1.30 (diluted) per share in 1998. The increase in
earnings of $.5 million is primarily attributable to an improvement in
operating margins associated with the revenue growth particularly related to
existing wound care facilities and economies of scale achieved through market
growth, offset by an increase in income taxes as a result of a higher
effective tax rate in 1998.
Fiscal Year 1996 vs. Fiscal Year 1997. The Company's revenues increased
from $67.4 million in 1996 to $87.9 million in 1997, a 30% increase. The
increased revenue is primarily attributable to the operation of 105 wound
care centers at the end of 1996 compared with 132 at the end of 1997 and an
11% increase in revenues at existing wound care centers related to higher
patient volume. Total new patients to the wound care centers increased 26%
from 38,699 in 1996 to 48,722 in 1997. The total number of patients receiving
Procuren therapy increased 8% from 7,912 in 1996 to 8,583 in 1997; however
the percentage of patients receiving Procuren decreased from 20% in 1996 to
18% in 1997. The Company believes that this decrease is attributable
primarily to an increase in the percentage of less severe chronic wounds
being treated at the Company's Wound Care Centers, for which physicians are
less likely to prescribe Procuren, as well as a lack of available
reimbursement for Medicare patients. The Company believes that this shift in
the severity of the wounds treated at a Wound Care Center occurs as the local
medical community becomes familiar with the services offered by the Wound
Care Center and refers a broader range of chronic wound patients to the Wound
Care Center for treatment. The Company anticipates that the percentage of
patients receiving Procuren will continue to decline gradually in the
future.
Costs of product sales and services increased from $37.8 million in
1996 to $48.2 million in 1997, a 27% increase. The increase is attributable
to the additional staffing and operating expenses of approximately $4.7
million associated with the operation of 25 additional wound care facilities
at the end of 1997, as well as increased volume at existing wound care
facilities. Additionally, these 25 facilities include 15 under arrangement
Wound Care Centers and 1 freestanding Wound Care Center at which the services
component of costs is higher than at the Company's other facilities due to
the additional clinic staffing that these models require. As compared with
1996, the higher services components at these facilities accounted for an
additional $2.7 million of the increase in product sales and services for
1997. As a percentage of revenues, costs of product sales and services was
55% in 1997 compared with 56% in 1996. The decrease is attributable to the
ability of the Company to leverage the fixed overhead components of the cost
of product sales and services over a growing revenue base.
17
Selling, general and administrative expenses increased from $19.2
million in 1996 to $22.6 million in 1997, an 18% increase. The increase is
attributable to the additional staffing and operating expenses associated
with the growth of the wound care center business related to field support
departments particularly clinical operations, management information systems,
costs related to a branding campaign, and a charge of $.3 million related to
the decision to relocate the corporate office in 1998. As a percentage of
revenues, selling, general and administrative expenses were 26% in 1997
compared to 29% in 1996. The decrease is attributable to the ability of the
Company to obtain leverage by spreading the costs of its overhead structure
over a broader revenue base.
Interest income increased to $2.7 million in 1997 from $1.3 million in
1996. The increase is attributable to higher cash balances resulting from the
full year effect of investing the net proceeds of the $22.6 million common
stock offering during the third quarter of 1996 as well as cash provided by
operations.
Net income increased from $10.7 million or $.90 (diluted) per share in
1996 to $16.5 million or $1.27 (diluted) per share in 1997. The increase in
earnings of $5.8 million is primarily attributable to an improvement in
operating margins associated with the revenue growth particularly related to
existing wound care facilities and economies of scale achieved through market
growth. Additionally interest income increased in 1997 due to higher cash
balances but was offset by an increase in income taxes as a result of a
higher effective tax rate in 1997.
Liquidity and Capital Resources
Working capital was $76.4 million at December 31, 1998 compared to
$62.6 million at December 31, 1997. Total cash, cash equivalents and
marketable securities held-to-maturity as of December 31, 1998 was $70.1
million and was invested primarily in highly liquid money market funds,
commercial paper and government securities. The ratio of current assets to
current liabilities decreased from 6.1:1 at December 31, 1997 to 5.9:1 at
December 31, 1998. The increase in working capital was primarily
attributable to the net income for the year ended December 31, 1998. The
decrease in the ratio of current assets to current liabilities was primarily
attributable to an increase in accounts payable which included an increase
in income taxes payable as the result of a higher effective tax rate in 1998.
Cash flows provided by operations for 1998 totaled $19.5 million
primarily attributable to the net income for the period. Cash flows used in
investing activities for 1998 totaled approximately $36.9 million primarily
attributable to the excess of purchases of marketable securities held to
maturity over sales of $27.0 million and by capital expenditures for
furniture, equipment and leasehold improvements of $6.8 million and the
investment in Accordant Health Services, Inc. of $3.0 million (See Note B of
Notes to Consolidated Financial Statements). Cash flows provided by
financing activities totaled $1.9 million for 1998 primarily attributable to
net proceeds from the exercise of stock options.
During 1998, the Company experienced a $5.7 million increase in net
accounts receivable primarily due to the increase in revenues. The average
number of days receivables were outstanding increased from 54 days as of
December 31, 1997 to 66 days as of December 31, 1998 primarily attributed to
financial and cash flow constraints being experienced at some hospitals.
Further, compared to December 31, 1997, the Company's accounts payable and
accrued expenses increased $3.4 million as of December 31, 1998.
The Company's longer term cash requirements include working capital for
the further expansion of its wound care business. On February 18, 1999, the
Company announced a 2 million share buyback plan. This repurchase plan was
completed by March 8, 1999 and an additional buyback authorization of 1.5
million shares was announced. Through March 15, 1999, total cash, cash
equivalent and marketable securities used for such repurchases was
approximately $29.6 million. Other cash requirements are anticipated for
capital expenditures in the normal course of business. The Company expects
that, based on its current business plan, its existing cash, cash equivalents
and marketable securities will be sufficient to satisfy its currently
anticipated working capital needs and cost requirements of its stock buyback
plan. The effects of inflation and foreign currency translation risks are
considered immaterial.
18
Year 2000 Compliance
Many currently installed computer systems and software are coded
to accept only two-digit entries in the date code fields. These date code
fields will need to accept four-digit entries to distinguish 21st century
dates from 20th century dates. This problem could result in system failures
or miscalculations causing disruptions of business operations (including,
among other things, a temporary inability to process transactions, send
invoices or engage in other similar business activities.) As a result, many
companies' computer systems and software will need to be upgraded or replaced
in order to comply with Year 2000 requirements. The potential global impact
of the Year 2000 problem is not known, and, if not corrected in a timely
manner, could affect the Company and the U.S. and world economy generally.
The Company has formed a project team (consisting of representatives
from its information technology, finance, manufacturing, sales, marketing and
legal departments) to address other internal and external Year 2000 issues.
The Company's internal financial, manufacturing and other computer systems
are being reviewed to assess and remediate Year 2000 problems. The Company's
assessment of internal systems includes its information technology ("IT") as
well as non-IT systems (which systems contain embedded technology in
manufacturing or process control equipment containing microprocessors or
other similar circuitry). The Company's 2000 compliance program includes the
following phases: identifying systems that need to be modified or replaced;
carrying out remediation work to modify existing systems or convert to new
systems; and conducting validation testing of systems and applications to
ensure compliance. For its significant IT and non IT systems the Company is
currently in the remediation phase of this program.
The amount of remediation work required to address Year 2000 problems
is not expected to be extensive. During 1997 and 1998 the Company was
implementing a management information technology plan which included
developing and acquiring new software as well as acquiring and replacing
hardware. The cost of this management information technology plan was
approximately $7 million. Since the Company has replaced a significant
portion of its financial and operational systems in the last few years,
management believes that the new equipment and software substantially
addressees Year 2000 issues. However, the Company will be required to modify
some of its existing hardware and software in order for its computer systems
to function properly in the Year 2000 and thereafter. The Company estimates
that it will complete its Year 2000 compliance program for all of its
significant internal systems no later than the third quarter of fiscal year
1999.
In addition, the Company is requesting assurances from its major
suppliers that they are addressing the Year 2000 issue and that products
purchased by the Company from such suppliers will function properly in the
year 2000. Also, contacts are being made with the Company's major
customers. These actions are intended to help mitigate the possible external
impact of the Year 2000 problem. However, it is impossible to fully assess
the potential consequences in the event service interruptions from suppliers
occur or in the event that there are disruptions in such infrastructure areas
as utilities, communications, transportation, banking and government.
The Company has no way of assuring and it is unknown whether computer
applications of contract hospital clients, Medicare and other payors will be
year 2000 compliant. The Company has not determined the extent to which any
disruption in the billing practices of its hospital clients or the payment
practices of Medicare or other payors to the hospital clients caused by the
year 2000 issues will affect the Company's operations. However, any such
disruption in the billing or reimbursement process could have substantial
adverse impact on Medicare or Medicaid payments to the hospitals and, in
turn, payments to the Company. Any such disruption could have a material
adverse effect upon the Company's business, financial condition and results
of operations.
The Company expects the total cost associated with resolving the
Company's internal Year 2000 issues will not be material including replacing
non-complaint internal systems. The Company's estimates of Year 2000 costs
are based on numerous assumptions, and there can be no assurance that the
estimates are correct or that actual costs will not be materially greater
than anticipated.
19
Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of Year 2000 problems in
internal manufacturing processes, information processing or interface with
major customers, or with processing orders and billing. However, if certain
critical third-party providers, such as those providers supplying
electricity, water or telephone service, experience difficulties resulting in
disruption of service to the Company, a shutdown of the Company's operations
at individual facilities could occur for the duration of the disruption. The
Company has not yet developed a contingency plan to provide for continuity of
processing in such event of various problem scenarios, but it will assess the
need to develop such a plan based on the outcome of its validation phase of
its Year 2000 compliance program and the results of surveying its major
suppliers and customers. Assuming no major disruption in service from
utility companies or other critical third-party providers, the Company
believes that it will be able to manage its total Year 2000 transition
without any material effect on the Company's results of operations or
financial condition.
The Company has completed a review of its material computer
applications and believes it has identified and scheduled necessary
corrections for its computer applications. Corrections are currently being
made and are expected to be substantially implemented by the third quarter of
the fiscal year 1999. The Company expects that the total cost associated
with these revisions will not be material. These costs will be primarily
incurred during the fiscal year 1999 and be charged to expense as incurred.
The Company believes that by completing its planned corrections to its
computer applications, the Year 2000 issue with respect to the Company's
systems can be mitigated. However, if such corrections cannot be completed
on a timely basis, the Year 2000 issue could have a material adverse impact
on the Company's business, financial condition and results of operations.
Because of the many uncertainties associated with Year 2000 compliance
issues, and because the Company's assessment is necessarily based on
information from third party vendors and suppliers, there can be no assurance
that the Company's assessment is correct or as to the materiality or effect
of any failure of such assessment to be correct.
Cautionary Statements
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements include
statements regarding intent, belief or current expectations of the Company
and its management. These forward-looking statements are not guarantees of
future performance and involve a number of risks and uncertainties that may
cause the Company's actual results to differ materially from the results
discussed in these statements. Factors that might cause such differences
include, but are not limited to, changes in the Company's level of business
with Columbia/HCA Healthcare Corporation, terminations or non renewal of a
material number of contracts or inability to obtain new contracts, changes
in the government regulations relating to the Company's wound care operations
or Procuren, uncertainties relating to health care reform initiatives,
changes in the availability of third party reimbursements for the Company's
products and services, and the other risks and uncertainties detailed
throughout this report and from time to time in the Company's filings with
the Securities and Exchange Commission.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
None.
20
Item 8 Consolidated Financial Statements and Supplementary Data
The information required by this item is incorporated herein by
reference to the Consolidated Financial Statements listed in Item 14(a) of
Part IV of this Report.
The following table sets forth the financial results of the Company for
the eight quarters ended December 31, 1998 (in thousands, except per share
data):
Income Per
Quarter Ended Revenues Gross Profit Net Income Common Share Diluted
-------------------------------------------------------------------------------
1998:
December 31 $ 26,716 $ 12,412 $ 4,572 $ .35
September 30 26,722 12,313 4,392 .34
June 30 26,036 11,959 4,196 .32
March 31 24,513 11,268 3,877 .29
1997:
December 31 $ 23,860 $ 10,833 $ 4,599 $ .35
September 30 22,705 10,284 4,286 .33
June 30 21,687 9,793 3,912 .30
March 31 19,654 8,796 3,665 .28
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
21
PART III
This information required by Part III of this Form 10-K is omitted from
this Report in that the Registrant will file a definitive proxy statement
pursuant to Regulation 14(a) for its 1998 Annual Meeting of Stockholders (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is
incorporated herein by reference.
Item 10 Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
Item 11 Executive Compensation
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
Item 13 Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the Company's Proxy Statement.
22
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Index to Financial Statements.
The following consolidated financial statements of Curative
Health Services, Inc. are included herein:
Page
Number
Report of Independent Auditors...................................... F-1
Consolidated Balance Sheets at December 31, 1998 and 1997........... F-2
Consolidated Statements of Income for each of the years ended
December 31, 1998, 1997 and 1996.................................. F-3
Consolidated Statements of Stockholders' Equity for each of the
years ended December 31, 1998, 1997 and 1996...................... F-4
Consolidated Statements of Cash Flows for each of the years ended
December 31, 1998, 1997 and 1996.................................. F-5
Notes to Consolidated Financial Statements.......................... F-6
2. Financial Statement Schedules. The following financial statement
schedule of Curative Health Services, Inc. is included herein:
Schedule Page
II Valuation and Qualifying Accounts.............................. S-1
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits. The exhibits listed in the accompanying Index to Exhibits
immediately following the financial statement schedules are filed with
this report.
(b) Reports on Form 8-K. No reports were filed on Form 8-K filed by
the Company during the fiscal quarter ended December 31, 1998.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CURATIVE HEALTH SERVICES, INC.
By: /s/John Vakoutis
----------------
John Vakoutis
President, Chief Executive Officer
and Director
Dated: March 30, 1999
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Vakoutis and John C. Prior,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to
this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ John Vakoutis President, Chief Executive Officer March 30, 1999
------------ (Principal Executive Officer) and Director
John Vakoutis
/s/ John C. Prior Senior Vice President Finance and March 30, 1999
------------- Chief Financial Officer
John C. Prior (Principal Financial and Accounting
Officer) and Secretary
/s/ Gerardo Canet Director March 30, 1999
-------------
Gerardo Canet
/s/ Daniel A. Gregorie, MD Director March 30, 1999
----------------------
Daniel A. Gregorie, MD
/s/ Lawrence C. Hoff Director March 30, 1999
----------------
Lawrence C. Hoff
/s/ Timothy I. Maudlin Director March 30, 1999
------------------
Timothy I. Maudlin
/s/ Gerard Moufflet Director March 30, 1999
---------------
Gerard Moufflet
/s/ Lawrence J. Stuesser Chairman of the Board and Director March 30, 1999
--------------------
Lawrence J. Stuesser
24
Report of Independent Auditors
Board of Directors and Stockholders
Curative Health Services, Inc.
We have audited the accompanying consolidated balance sheets of Curative
Health Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Curative Health Services, Inc. and subsidiaries at December 31, 1998 and 1997,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Melville, New York
February 16, 1999, except for
Note M as to which the date is March 15, 1999
25
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
1998 1997
-------------------
ASSETS
Cash and cash equivalents................................ $ 24,222 $ 39,746
Marketable securities held-to-maturity................... 45,830 18,807
Accounts receivable (less allowance of $1,679 and $2,492
at December 31, 1998 and 1997, respectively)......... 19,871 14,211
Deferred tax assets...................................... 1,042 1,235
Prepaid and other current assets......................... 1,179 924
----- ---
Total current assets................................. 92,144 74,923
Property and equipment, net.............................. 13,366 9,268
Other assets............................................. 3,611 748
----- -----
Total assets......................................... $109,121 $ 84,939
======= ======
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts payable......................................... $ 13,497 $ 8,846
Accrued expenses......................................... 2,221 3,454
Capital lease obligations................................ 7 40
- --
Total current liabilities............................ 15,725 12,340
Capital lease obligations................................ - 7
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value per share; 10,000,000
shares authorized, none issued..................... - -
Preferred stock, Series A Junior Participating, par value
$.01 per share, 500,000 shares authorized, none issued - -
Common stock, $.01 par value per share; 50,000,000
shares authorized,12,758,282 shares issued and
outstanding (12,561,342 shares in 1997)............ 127 125
Additional paid in capital........................... 79,000 75,235
Returned earnings (deficit).......................... 14,269 (2,768)
------ ------
Total stockholders' equity............................... 93,396 72,592
------ ------
Total liabilities and stockholders' equity............... $109,121 $ 84,939
======= ======
See notes to consolidated financial statements
F - 2
26
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Year Ended December 31,
----------------------------
1998 1997 1996
------------------------------
Revenues........................................... $103,987 $ 87,906 $ 67,395
Costs and operating expenses:
Costs of product sales and services............ 56,035 48,200 37,828
Selling, general and administrative............ 23,358 22,617 19,208
------ ------ ------
Total costs and operating expenses......... 79,393 70,817 57,036
------ ------ ------
Income from operations............................. 24,594 17,089 10,359
Interest income.................................... 2,660 2,666 1,344
----- ----- -----
Income before income taxes......................... 27,254 19,755 11,703
Income taxes....................................... 10,217 3,293 1,008
------ ----- -----
Net income......................................... $ 17,037 $ 16,462 $ 10,695
====== ====== ======
Net income per common share, basic................. $ 1.34 $ 1.33 $ .95
==== ==== ===
Net income per common share, diluted............... $ 1.30 $ 1.27 $ .90
==== ==== ===
Denominator for basic earnings per share, weighted average
common shares.................................. 12,704 12,404 11,212
====== ====== ======
Denominator for diluted earnings per share, weighted
average common shares assuming conversions..... 13,071 12,954 11,909
====== ====== ======
See notes to consolidated financial statements
F - 3
27
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
Additional Retained Total
Common Stock Paid in Earnings Subscription Stockholders'
Shares Amount Capital (Deficit) Receivable Equity
--------------------------------------------------------------------------------------
Balance, December 31, 1995 ................ 10,426,769 $ 104 $ 45,474 $ (29,925) $ (42) $ 15,611
Secondary public offering, net
of expenses of $1,806 .............. 1,437,500 14 22,618 22,632
Exercise of warrants .................. 102,608 1 1
Exercise of options ................... 248,546 2 1,249 1,251
Tax benefit from stock option
exercises .......................... 80 80
Net income for 1996 ................... 10,695 10,695
--------------------------------------------------------------------------------------
Balance, December 31, 1996 ................ 12,215,423 121 69,421 (19,230) (42) 50,270
Subscription receivable ............... 42 42
Exercise of options ................... 345,919 4 2,414 2,418
Tax benefit from stock option
exercises .......................... 3,400 3,400
Net income for 1997 ................... 16,462 16,462
--------------------------------------------------------------------------------------
Balance, December 31, 1997 ................ 12,561,342 125 75,235 (2,768) - 72,592
Exercise of options ................... 196,940 2 1,916 1,918
Tax benefit from stock option
exercises .......................... 1,849 1,849
Net income for 1998 ................... 17,037 17,037
--------------------------------------------------------------------------------------
Balance, December 31, 1998 ................ 12,758,282 $ 127 $ 79,000 $ 14,269 $ - $ 93,396
======================================================================================
See notes to consolidated financial statements
F - 4
28
CURATIVE HEALTH SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
1998 1997 1996
-----------------------------
OPERATING ACTIVITIES:
Net income........................................... $ 17,037 $ 16,462 $ 10,695
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation & amortization........................ 2,794 2,014 1,185
Provision for doubtful accounts.................... 1,957 1,648 782
Equity in operations of invested................... 85 - -
Deferred income taxes.............................. 193 (1,235) -
Tax benefit from stock option exercises............ 1,849 3,400 80
Change in operating assets and liabilities:
Increase in accounts receivable.................... (7,617) (3,540) (5,325)
Decrease (increase) in prepaid and other current assets (255) 98 (202)
Increase in accounts payable and accrued expenses.. 3,418 1,795 2,447
----- ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 19,461 20,642 9,662
INVESTING ACTIVITIES:
Investment in Accordant Health Services, Inc......... (3,000) - -
Purchases of property and equipment.................. (6,840) (6,476) (2,505)
Purchases of marketable securities held-to-maturity.. (49,942) (56,781) (38,923)
Sales of marketable securities held-to-maturity...... 22,919 75,812 10,450
------ ------ ------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES.. (36,863) 12,555 30,978
FINANCING ACTIVITIES:
Proceeds from exercise of stock options, warrants
and subscription receivable........................ 1,918 2,460 1,252
Proceeds from secondary public offering, net of expenses - - 22,632
Principal payments on capital lease obligations and revolving
line of credit..................................... (40) (1,137) (177)
--- ------ ----
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 1,878 1,323 23,707
----- ----- ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (15,524) 34,520 2,391
Cash and cash equivalents at beginning of year....... 39,746 5,226 2,835
------ ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR............. $ 24,222 $ 39,746 $ 5,226
====== ====== =====
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid...................................... $ 31 $ 31 $ 93
== == ==
Income taxes paid.................................. $ 5,330 $ 265 $ 197
===== === ===
See Notes E and F for Non-Cash Transactions
See notes to consolidated financial statements
F - 5
29
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: The Company was organized under the laws of the State of
Minnesota in October 1984. It is a disease management company in the chronic
wound care business. The Company, operating in one business segment, manages a
nationwide network of Wound Care Centers that offers patients a
multi-disciplinary comprehensive wound treatment program. The Company's
management agreements with hospitals and other health care providers generally
have a term of five years.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.
Significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Net Income Per Share: Basic and diluted earnings per share is
calculated in accordance with Financial Accounting Standards Board
("FASB") Statement No. 128. All earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to
FASB No. 128 requirements.
Property and Equipment: Property and equipment are recorded at cost.
Depreciation of property and equipment is provided using the straight-line
method over the estimated useful lives (generally 5 to 7 years). Leased
equipment capitalized and leasehold improvements are amortized over the life of
the lease or the useful life of the related asset, whichever is shorter.
Other Assets: As of December 31, 1997 and 1998, other assets totalled $
748,000 and $3,611,000 respectively. As of December 31, 1997 other assets
consist of costs of filing patent and trademark applications of $748,000. As of
December 31, 1998 other assets consist principally of costs of filing patent and
trademarks of $696,000 and the net investment of $2,915,000 in Accordant Health
Services, Inc. (See Note B). Costs and expenses related to a 1992 patent of
$920,000 are being amortized over the life of the patent (17 years) and
trademarks of $75,000 are being amortized over the estimated life of the
trademark (20 years) using the straight-line method.
Long-Lived Assets: The Company periodically reviews the carrying value
of its long-lived assets in determining the ultimate recoverability of their
unamortized values using future undiscounted cash flows analyses. Such a review
has been performed by management and does not indicate an impairment of such
assets.
Cash and Cash Equivalents: Cash and cash equivalents consist of demand
deposits with banks, certificates of deposit with maturities of less than three
months at the time of purchase and highly liquid money market fund investments.
Marketable Securities Held-to-Maturity: Held-to-maturity marketable
securities represent highly liquid money market instruments with maturities of
greater than three months at the time of purchase. These securities, consisting
principally of securities of U.S. Government agencies maturing at various dates
through November 1999, are valued at amortized cost which approximates market.
F - 6
30
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company's investment policy gives primary consideration to safety of
principal, liquidity and return. The Company invests its funds with institutions
that have high credit ratings and to date has not experienced any losses on its
investments. The Company classifies its investments in such securities as
held-to-maturity as the Company has the intent and ability to hold these
securities to maturity. As of December 31, 1997 and 1998, the Company had
approximately $20,000 and $71,000 of unrealized gains on marketable securities,
respectively.
Concentration of Credit Risk: Substantially all of the Company's
revenues have been generated from Wound Care Centers which the Company has
established as cooperative ventures with acute care hospitals in the United
States to provide a multi-disciplinary treatment protocol for chronic wounds.
The Company provides contractual management services for fees and sells Procuren
to acute care hospitals and other health care providers. Credit is extended
based on an evaluation of the hospital's financial condition and collateral is
generally not required.
Revenues: Revenues are recognized when products are dispensed or as
contractual management services are rendered.
Income Taxes: Income taxes have been provided using the liability
method in accordance with FASB No. 109, "Accounting for Income Taxes."
Stock Based Compensation Plans: The Company grants options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No.25,"Accounting for Stock Issued to Employees" and
related Interpretations because the Company believes the alternate fair value
accounting provided for under FASB No. 123, "Accounting for Stock Based
Compensation" requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recorded.
NOTE B -- EQUITY INVESTMENT
On June 4, 1998, the Company signed an agreement with Accordant Health
Services, Inc. ("Accordant") in which the Company agreed to invest $4 million in
Accordant preferred stock. This agreement will give the Company an 11 percent
interest in Accordant and is accounted for using the equity method of accounting
as the Company has significant influence over the operations of Accordant.
As of December 31, 1998 the Company invested $3 million under this agreement and
its share of Accordant's 1998 net loss was approximately $85,000.
F - 7
31
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE C -- PROPERTY AND EQUIPMENT
A summary of property and equipment and related accumulated depreciation
and amortization follows:
December 31,
1998 1997
-------------------
(In thousands)
Property and equipment..................... $ 16,392 $ 10,295
Leased equipment capitalized............... 1,371 1,371
Leasehold improvements..................... 5,193 4,450
----- -----
22,956 16,116
Less accumulated depreciation and amortization 9,590 6,848
----- -----
$ 13,366 $ 9,268
====== =====
NOTE D -- ACCRUED EXPENSES
Accrued expenses are as follows:
December 31,
1998 1997
(In thousands)
--------------------
Incentive compensation and benefits.$ 2,221 $ 3,393
Technical service contracts ........ - 61
-- --
$ 2,221 $ 3,454
===== =====
NOTE E -- LEASES
The Company has entered into several noncancellable operating leases for
the rental of certain office space expiring in various years through 2005. The
Company also leases certain equipment under noncancellable capital and operating
leases expiring in various years through 1999. The principal lease for office
space provides for monthly rental of approximately $60,000 per year. The
following is a schedule of future minimum lease payments, by year and in the
aggregate, under capital leases and noncancellable operating leases with initial
or remaining terms of one year or more at December 31, 1998:
Capital Operating
Leases Leases
(In thousands)
-------------------------
1999............................................ $ 7 $ 1,908
2000 ........................................... - 1,676
2001 ........................................... - 1,371
2002............................................ - 1,078
2003............................................ - 949
Thereafter...................................... - 1,240
--- -----
Total minimum lease payments.................... 7 $ 8,222
=====
Less amounts representing interest.............. -
---
Present value of net minimum lease payments.... $ 7
=
Rent expense for all operating leases was approximately
$2,113,000, $2,118,000 and $1,498,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
F - 8
32
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE F -- STOCKHOLDERS' EQUITY
Common Stock: In August 1996 the Company completed a secondary public
offering of 1,437,500 shares of common stock at a price of $17.00 per share.
Expenses related to this offering were approximately $1,806,000.
Director Share Purchase Program: The Company maintains a Director Share
Purchase Program (the "Program") to encourage ownership of its common stock by
its directors. Under the Program, each non-employee director can elect to forego
receipt of cash payments for director's annual retainer and meeting fees and, in
lieu thereof, receive shares of common stock at market value equal to the cash
payment. The Program authorized the issuance of up to 120,000 shares of the
Company's common stock at market value. At December 31, 1998 and 1997, 118,406
shares of common stock were reserved for future issuance under the Program.
Rights Plan: On October 25, 1995, the Board of Directors of the Company
declared a dividend of one preferred share purchase right per share for each
outstanding share of common stock of the Company. The dividend was paid on
November 6, 1995 to shareholders of record on that date. Under certain
circumstances each right may be exercised to purchase one-one hundredth of a
share of Series A Junior Participating Preferred Stock, par value $.01, of the
Company for $65. The rights, which are redeemable by the Company at $.01 per
right, expire in November 2005. The purchase right issued under the Company's
Rights Agreement dated October 22, 1995 provides the holder in the event of (i)
the acquisition of 15% or more of the Company's outstanding common stock by an
Acquiring Person (as defined in the Rights Agreement), (ii) the commencement of
a tender offer or exchange offer which results in a person or group owning 15%
or more of the Company's common stock, to exercise each right (other than rights
held by an Acquiring Person) to purchase common stock of the Company or a
successor company with a market value of twice the $65 exercise price.
NOTE G -- STOCK BASED COMPENSATION PLANS
The Company has stock option plans which provide for the granting of
non-qualified or incentive options to employees, directors, consultants and
advisors. The plans authorize granting of up to 2,581,695 shares of the
Company's common stock at the market value at the date of such grants. All
options are exercisable at times as determined by the Board of Directors, not to
exceed ten years after the grant date.
Pro forma information regarding net income and net income per share is
required by FASB No. 123, and has been determined as if the Company has
accounted for its stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions at December 31, 1998, 1997 and 1996 respectively: risk-free interest
rate of 4.84%, 5.61% and 6.36%; no dividend yields; volatility factor of the
expected market price of the Company's common stock of 55.7%, 58.0% and 62.2%;
and a weighted-average expected life of the options of 4.0 years.
F - 9
33
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE G -- STOCK BASED COMPENSATION PLANS - (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options. The Company's pro forma
information is as follows:
(In thousands, except per share data)
------------------------------------
1998 1997 1996
---------------------------------------
Net Income: As reported $ 17,037 $ 16,462 $ 10,695
Pro forma 14,622 14,949 10,088
Basic EPS: As reported $ 1.34 $ 1.33 $ .95
Pro forma 1.15 1.21 .90
Diluted EPS: As reported $ 1.30 $ 1.27 $ .90
Pro forma 1.12 1.15 .85
A summary of the Company's stock option activity and related information
for the years ended December 31, is as follows:
1998 1997 1996
-----------------------------------------------------------------------------------------------
Weighted Avg Weighted Avg Weighted Avg
Options Exercise Price Options Exercise Price Options Exercise Price
-----------------------------------------------------------------------------------------------
Outstanding at beginning of year 1,353,614 $ 22.92 1,177,833 $ 15.04 1,131,611 $ 6.37
Granted...................... 250,000 28.14 625,500 28.43 348,100 21.91
Exercised.................... (196,940) 9.74 (345,919) 6.99 (248,546) 5.11
Cancelled.................... (39,240) 21.59 (103,800) 19.74 (53,332) 10.98
------- ------- ------
Outstanding at end of year.. 1,367,434 25.81 1,353,614 22.92 1,177,833 15.04
========= ========= =========
Exercisable at end of year... 499,413 338,303 318,481
======== ======= =======
Weighted average fair value of
options granted........... $ 13.85 $ 14.86 $ 11.64
===== ===== =====
The following table summarizes information about stock options
outstanding at December 31, 1998:
Weighted Average
Options Options Remaining
Exercise Price Outstanding Exercisable Contractual Life (In Years)
-------------- ----------- ----------- --------------------------
$1.55 - $ 4.75 107,186 61,772 4
4.875 - 7.00 89,783 59,933 4.4
8.50 - 10.125 76,000 58,525 6.5
13.25 - 20.00 132,945 114,986 7
20.25 - 27.25 274,270 176,780 7.8
27.50 - 33.06 687,250 27,417 8.8
------- ------ ---
1,367,434 499,413 5.9
========= ======= ===
At December 31, 1998, 1,214,261 shares of common stock were reserved for future
issuance.
F - 10
34
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE H -- INCOME TAXES
Significant components of the Company's deferred tax assets as of
December 31, 1998 and 1997 are as follows:
1998 1997
---- ----
Accrued expenses, deductible when paid $ 930 $ 1,032
Book over tax depreciation 112 203
--- ---
Deferred tax assets $ 1,042 $ 1,235
===== =====
The Company reduced its valuation allowance for deferred taxes by
$6,129,000 during the year ended December 31, 1997. Significant components of
the provision for income taxes are as follows:
1998 1997 1996
------------------------------
Current:
Federal $ 8,434 $ 7,340 $ 4,553
State 1,590 1,050 780
Deferred 193 (1,235) -
Utilization of net operating
loss carryforwards - (3,862) (4,325)
--- ------ ------
Total income tax provision $10,217 $ 3,293 $ 1,008
====== ===== =====
A reconciliation of income tax computed at the U.S. Federal statutory tax rate
to income tax expense is as follows:
1998 1997 1996
---- ---- ----
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes net
of Federal tax benefit 3.8% 3.5% 4.0%
Reduction in valuation allowance - (6.2%) -
Tax benefit of net operating
loss carryforwards - (23.0%) (30.0%)
Other (1.3%) 7.4% -
------ ----- -----
Effective tax rate 37.5% 16.7% 9.0%
====== ===== =====
NOTE I -- LOANS PAYABLE AND LONG TERM DEBT
In December 1992, the Company's then German subsidiary entered into a
1.4 million deutsche mark (dm) revolving credit facility. In April 1994, this
facility was increased to approximately 1.9 million dm, with 1.4 million dm
converted to a term loan due in May 1998, and .5 million dm as a revolving
credit facility. The Company was a guarantor of this long-term facility for up
to 1.4 million dm (approximately $1.0 million outstanding at December 31, 1996).
In May 1995, the Company sold its 62% interest in its German subsidiary. As part
of the sale agreement, the Company continued to guarantee the long term loan and
assumed responsibility for the interest payments on that loan. In March 1997,
the Company paid off the revolving credit facility and no longer guarantees any
debt of the former subsidiary.
F - 11
35
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE J -- MAJOR CUSTOMERS
In 1996, 1997 and 1998, the Company derived 28%, 29% and 25% of its
consolidated revenues from one customer, respectively.
NOTE K -- LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is the subject of or
party to various lawsuits, the outcome of which in the opinion of management,
will not have a material adverse effect on the consolidated financial
statements.
NOTE L -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
1998 1997 1996
--------------------------
(In thousands)
Denominator:
Denominator for basic earnings per
share, weighted average shares 12,704 12,404 11,212
Effect of dilutive employee stock options 367 550 697
--- --- ---
Denominator for diluted earnings per share,
adjusted weighted average shares and
assumed conversions 13,071 12,954 11,909
====== ====== ======
The numerator for basic and diluted earnings per share for the years
ended December 31, 1998, 1997 and 1996 is the net income for the period.
NOTE M -- SUBSEQUENT EVENTS
On February 18, 1999 the Company announced a 2 million share buyback
plan. This repurchase plan was completed by March 8, 1999 and an additional
buyback authorization of 1.5 million shares was announced. Through March 15,
1999 total cash, cash equivalents and marketable securities used for such
repurchases was approximately $ 29.6 million.
F - 12
36
Schedule II
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1998
COL. A COL.B COL. C COL. D COL. E
------ ----- ------ ------ ------
ADDITIONS
Balance at Charged to Charged to Balance at
Beginning Costs and Other Account Deductions End
DESCRIPTION of Period Expenses Describe Describe of Period
----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998:
Allowance for doubtful accounts $ 2,492,000 $ 1,957,000 $ x $ 2,770,000(1) $ 1,679,000
========= ========= === ========= =========
Year ended December 31, 1997:
Allowance for doubtful accounts $ 941,000 $ 1,648,000 $ x $ 97,000(1) $ 2,492,000
======= ========= === ====== =========
Allowance for deferred tax valuation $ 6,129,000 $ x $ x $6,129,000(2) $ x
========= ========= === ========= ===
Year ended December 31, 1996:
Allowance for doubtful accounts $ 514,000 $ 782,000 $ x $ (355,000)(1) $ 941,000
======= ======= === ======= =======
Allowance for deferred tax valuation $12,000,000 $ x $ x $ 5,871,000(2) $ 6,129,000
========== ======= === ========= =========
(1) Accounts written off
(2) Reduction in allowances
S-1
37
INDEX TO EXHIBITS
Exhibit No. Description Page No.
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
4.0 Rights Agreement, dated as of October 25, 1995 between
Curative Technologies, Inc. and Bank Minnesota,
National Association, as Rights Agent (6)
4.1 Stock Purchase Agreement, dated July 6, 1989, among
the Company and certain investors named therein (1)(Ex. 4.2)
10.1 Technology Transfer Agreement, dated September 21, 1990,
between Curative Technologies GmbH and the Company (1)(Ex. 10.8)
10.2 Contractual Agreement for Wound Healing Product
effective as of January 1, 1988, between the Company
and the University of Minnesota Hospital and Clinic (1)(Ex. 10.17)
10.3 Form of Wound Care Center(R)Contract *
10.4 Lease Agreement dated June 30, 1997, and Amended Lease
Agreement dated November 13, 1997, between New York Life
Insurance Company and the Company *
10.5 Employment Agreement, dated as of September 1, 1997
between John C. Prior and the Company (11)**
10.6 1991 Stock Option Plan (1)(Ex. 10.27)**
10.7 Amendment No.4 to the 1991 Stock Option Plan (12)**
10.8 Amended and Restated Bridge Financing Commitment
Agreement, dated April 30, 1991, with a form of
warrant attached (1)(Ex. 10.28)
10.8.1 Amendment to Stock Subscription Warrant for Shares
of Common Stock of Curative Technologies, Inc. (8)
10.9 Curative Health Services, Inc., Director Share
Purchase Program (2)**
10.10 Employment Agreement, dated as of October 21, 1993,
between Howard Jones and the Company (3)**
10.11 Curative Health Services, Inc. Employee 401(k) Savings
Plan, as amended and restated (4)**
10.12 Settlement Agreement by and between the University of
California, David R. Knighton and the Company dated
September 1, 1993 (5)
10.13 Settlement Agreement by and among the United States
of America and UltraMed, Inc., Robert Baurys,
Susan Hrim, Cy Corgan, Chris Rosenski and the Company
dated October 18, 1994 and related agreements (5)
10.14 Amendment of Employment Agreement, dated September 1, 1997
between John Vakoutis and the Company (11)**
10.15 Employment Agreement dated as of September 1, 1997, between
Carol Gleber and the Company (11)**
10.16 Employment Agreement dated as of June 17, 1987, between
Gary Jensen and the Company (5)**
10.17 Memorandum of Understanding-Settlement of Shareholder Lawsuit (9)
10.18 Final Judgment and Order of Dismissal with Prejudice
of Class Action (10)
10.19 Curative Technologies, Inc. Non-Employee Director
Stock Option Plan (7)
10.19.1 Amendment No. 1 to Curative Technologies, Inc. Non Employee
Director Stock Option Plan (Ex. 10.19) (12)
10.20 Employment Agreement dated as of October 21, 1998 between
Robert Heisler and the Company *
10.21 Amended Employment Agreement dated December 17, 1997 between
William Tella and the Company (13)**
10.22 Development and Licensing Agreement dated May 19, 1998 between
Accordant Health Services, Inc. and the Company *
10.23 Stock Purchase Agreement dated May 19, 1998, among Accordant
Health Services, Inc, the Company and certain investor
named herein *
10.24 Subsidiaries of the Registrant *
10.25 Consent of Ernst & Young LLP *
* Filed herewith
** Required to be filed pursuant to Item 601(b) (10) (ii) or (iii) (A) of
Regulation S-K.
(1) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Company's Registration Statement on Form S-1
(No. 33-39880).
(2) Incorporated by reference to the Company's Registration Statement on
Form S-8 (filed July 7, 1993, No. 33-65710).
(3) Incorporated by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K filed for the year ended December 31, 1993.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-8 (filed October 13, 1994, No. 33-85188).
(5) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report on Form 10-K filed for the year ended
December 31, 1994.
(6) Incorporated by reference to similarly numbered exhibit to the Company's
Current Report on Form 8-K dated November 6, 1995.
(7) Incorporated by reference to Exhibit 10.25.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.
(8) Incorporated by reference to Exhibit 25.1 filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
(9) Incorporated by reference to Exhibit 10.42 to the Company's Annual
Report on Form 10-K filed for the year ended December 31, 1995.
(10) Incorporated by reference to Exhibit 10.43 to the Company's Annual
Report on Form 10-K filed for the year ended December 31, 1996.
(11) Incorporated by reference to the similarly numbered exhibit to the
Company's Annual Report and Form 10-K filed the year ended
December 31, 1997.
(12) Incorporated by reference to the similarly numbers exhibit (unless
otherwise indicated) to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
(13) Incorporated by reference to Exhibit 10.45.1 to the Company's Quartely
Report on Form 10Q for the quarter ended March 3, 1998.
38
Exhibit 10.3
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT ("Agreement") is between CURATIVE HEALTH SERVICES, INC., located
at 150 Motor Parkway, Hauppauge, New York 11788 ("Company"), and [FACILITY
NAME], located at [FACILITY ADDRESS] ("Facility") and is effective as of
[EFFECTIVE DATE] ("Effective Date").
WHEREAS, Company is in the business of managing medical and physician Centers
and has developed an innovative, inter-disciplinary program for the medically
and cost effective diagnosis and treatment of chronic, non-healing wounds (the
"Program");
WHEREAS, Facility desires to engage Company to manage the Program for an
outpatient Wound Care Center at [FACILITY ADDRESS] ("Center") to allow it to
more efficiently and effectively provide medical services, including wound care
services, to patients of Center;
WHEREAS, Facility desires to obtain access to Procuren(R), a growth factor
therapy, and the right to use certain trademarks, trade secrets, and other
intellectual property of Company; and
WHEREAS, Company desires to manage the Program for Facility and provide Facility
access to Procuren(R) and the right to use certain of its trademarks, trade
secrets, and other intellectual property.
NOW, THEREFORE, for good and valuable consideration, intending to be legally
bound, Company and Facility hereby agree as follows:
1. Management Services. Company shall be the manager for Center and shall
do the following in support of Center ("Services"):
a) The Center, The Program, and Procuren(R). Develop and manage the
Center and the Program on an outpatient basis in accordance with
Company's clinical pathways for wound care management and make
Procuren(R) available as part of the Program;
b) Management and Operation of Center. Exercise management oversight of
the operation of Center and the Program, subject to Facility
requirements and the ultimate authority of Facility;
c) Case Management Plan. Provide a Case Management Plan for each new
patient of Center ("Center Patient");
d) Non-Physician Medical, Professional, and Other Support Staff. In
cooperation with Facility, supervise non-physician medical,
professional, and other support staff;
e) Program Director. Employ a Program Director or Manager to oversee,
coordinate, and manage Services and supervise Center Staff; the
Program Director or Manager shall report to and be accountable to
the Facility and its governing board or body;
1
f) Billing and Collection. Provide documentation and back up
information to support billing and collection by Facility;
g) Financial and Business Accounting and Reporting. Maintain business
and financial information and procedures to properly monitor,
account for, and report the business of Center; provide regular
business reports to Facility;
h) Clinical Analysis and Reporting. Establish systems, procedures, and
reports to assess and report the clinical activity of Center
including outcomes for patient treatment and patient satisfaction;
provide clinical reports to Facility;
i) Third Party Contracts and Fee Structures. Assist Facility in the
negotiation and administration of third party provider, payor,
vendor, and supplier contracts for Center; assist Facility in
establishing fees or charges for all services and supplies sold or
provided to or by Center;
j) Total Quality Management and Business Efficiency. Assess the
practices, procedures, and workflow of Center to improve its
efficiency, processes, and effectiveness; develop, implement, and
maintain a program of Total Quality Management ("TQM Program") for
Center to be integrated with existing quality management or
assurance programs of Facility; conduct periodic TQM Program
reviews;
k) Training and Education. Provide training and education for Center
and Facility staff as mutually agreed upon;
l) Community Relations and Education. In cooperation with Facility,
develop and implement a community relations and education program to
effectively communicate the wound care services of Center. The
community relations and education program shall include at least the
following:
i) Company design and publication of appropriate literature and
promotional materials;
ii) Company development and presentation of wound care seminars
for physicians, allied health professionals, and community
members; and
iii) Company and Facility development of general community
awareness of problems associated with non-healing wounds and
the methods of prevention and treatment of wounds including
the mailing or distribution of literature to Center Patients
and prospective patients.
m) Management Expenses. Bear all costs and expenses necessary to
perform Services ("Management Expenses"); Management Expenses shall
not include room, board, and travel expenses for training and
education for Facility staff and employees.
2
2. Duties and Obligations of Facility. In furtherance of this Agreement,
Facility shall do the following.
a) Facilities and Facilities Support. Provide, maintain, and bear all
costs for at least [SQUARE FEET] square feet of appropriate space
and furniture, fixtures, and equipment suitable for and exclusively
dedicated to the operation of a first class outpatient Center to
include routine maintenance; utilities including water, gas,
electricity, heat, air conditioning, and telephone; property taxes;
commercial liability and property insurance; and laundry, linen,
janitorial, cleaning, and disposal services, including disposal of
all biological or toxic wastes; staff parking; security; and access
to patient transportation;
b) Department of Facility. Operate Center as a department of Facility
under the administration of Facility and its medical staff;
c) Billing and Collection. Bill and account for revenues due and
payable for all Facility services and supplies provided or sold to
Center Patients ("Revenues");
d) Payment of Compensation. Bear the expense for and pay the
Compensation set forth in Section 3 of this Agreement
("Compensation");
e) Facility Expenses. In addition to Compensation, bear all expenses of
the Facility related to the Center and this Agreement which are not
Management Expenses borne by Company ("Facility Expenses");
f) Non-Disposable Equipment. Provide, maintain, and replace, when
necessary, all non-disposable equipment necessary to efficiently
operate Center;
g) Supplies and Disposable Equipment. Provide, maintain, and account
for all supplies and disposable equipment necessary to efficiently
operate Center;
h) Professional Services. Exercise full authority, control,
supervision, and direction over and responsibility for all
professional and other medical services rendered by or under the
direction of Facility and assume responsibility for all medical,
professional, and ethical matters affecting or applicable to its
relationship with physicians providing services at Center ("Center
Physicians");
i) Program Support. Use, and take measures to ensure that all Center
Physicians use, to the extent it is medically reasonable and
appropriate to do so, the clinical pathways of the Program;
j) Fee Structure and Charges. Set fee structures and charges for all
services and supplies sold or provided to or by Center;
k) Consultation. Advise Company in the development and refinement of
the Program;
3
l) Licensure and Certification. Assure that Center Physicians and all
other health professionals affiliated with Center are duly licensed
and certified to practice medicine in the state of Center and comply
with all applicable laws, regulations, and ethical standards;
m) Compliance. Take all steps necessary to properly operate, license,
and certify Center in accordance with all applicable federal, state,
and local laws and regulations; maintain all information and
documents necessary to demonstrate compliance;
n) Operations Reports. Provide Company internal operations reports
with sufficient detail and frequency to allow Company to monitor and
assess the performance of Program;
o) Community Relations and Education. Cooperate with Company to develop
the community relations and education program;
p) Medical and Patient Records. Maintain complete, accurate, and
up-to-date medical records in accordance with standard clinical
protocol and applicable laws and regulations;
q) Non-Physician Medical, Professional, and Other Support Staff.
Employ or provide, non-physician medical, professional, and other
support staff reasonably necessary for the effective operation of
Center;
r) Medical Director. Appoint a Medical Director for Center and, with
Company, enter into a Physician Affiliation Agreement in a form
mutually agreed upon between Facility and Company; and
s) Center Physicians. Staff Center with Center Physicians sufficient to
provide patient services for Center; assure that all Center
Physicians adhere to the terms and conditions of this Agreement and
enter into a Physician Affiliation Agreement in a form to be
mutually agreed upon between Facility and Company.
3. Compensation. Facility and Company agree to the business terms and fee,
compensation, and payment structure as set forth below:
a) Development Fee. Facility will pay Company a one-time fee of
[DEVELOPMENT FEE] for development, administration, and initial
management services provided in establishing the Program, payable
[DEVFEE NUMBER OF DAYS] days after the Effective Date.
b) Management Fee. For the first year after the Effective Date,
Facility will pay Company a Management Fee of [MANFEE FIRST YEAR]
per month; for the second full year of the term, Facility shall pay
Company a Management Fee of [MANFEE SECOND YEAR], in equal monthly
installments. Thereafter, the Management Fee will be adjusted upward
by Twenty Thousand Dollars ($20,000.00) annually.
4
c) Case Management Fee. Facility will pay Company a Case Management Fee
of [CASE MANAGEMENT FEE] for each Patient admitted to the Program.
No fee is payable for a Patient readmitted to the Program (1) within
thirty (30) days of discharge, and (2) for treatment for the same
wound previously treated.
d) Procuren(R)Solution Charges. For non-Medicare patients of Center
receiving Procuren(R), Facility shall pay Company, [PROCUREN FEE]
per daily patient dose. For all Medicare patients of Center receiving
Procuren(R), Facility shall pay Company [PROCUREN FEE MEDICARE] per
daily patient dose. A daily patient dose is defined as 10
milliliters unless the parties otherwise agree. Should a Center
Physician prescribe a daily patient dose greater than 10 milliliters
to a Patient, Company will provide Procuren(R)at the increased dosage
at no additional charge per dose, subject to an additional blood
processing fee of [REPROCESSING FEE] should additional blood
processing be required because of the increased dosage.
e) Blood Processing Facility ("BPF") Use Fee. For the operation and use
of the BPF, Facility shall pay Company [BPF USE FEE] per month
commencing on the Effective Date.
f) Courier Service. Facility will bear the cost for all shipments by a
suitable courier of blood and blood products to and from Company's
regional BPF.
g) Community Relations and Education Program. In support of the
community relations and education program, Company and Facility will
each commit to spend at least [MARKETING DOLLARS] ($***) annually.
h) Payment Terms. Company will submit monthly invoices to Facility for
all fees and charges incurred during the preceding month. Facility
will pay monthly invoices within thirty (30) days of receipt. Late
payments will be subject to a late payment fee of one and one half
percent (1 1/2%) of the invoice amount per month. Monthly bills will
be in a form and content sufficient to allow Facility to reconcile
its cost reporting and billing of charges.
i) Increases in Fees and Charges. Company Fees may be adjusted annually
to reflect increases in costs and services, as mutually agreed by
the parties. If the parties are unable to agree on a proposed
increase in Fees, they will be adjusted by an amount equal to the
lesser of the increase in the medical component of the consumer
price index or four percent (4%).
5
4. Independent Contractor. Neither Facility nor any of Center Physicians is
or shall be an employee, agent, or servant of Company; instead, Facility
and Center Physicians are independent contractors who are providing
Services on a fee for service basis to Center Patients. Furthermore,
Company is not and shall not be an employee, agent, or servant of Facility
or Center Physicians; instead it is an independent contractor providing
management service to Facility on a fee for service basis.
5. Patient Care. Nothing in this Agreement shall dictate how Facility or
Center Physicians shall practice medicine, deliver patient care, or
exercise medical judgment. Facility and Center Physicians shall have
complete control over the diagnosis and treatment of all Center Patients
and neither Company nor any employee of Company shall exercise any direct
supervision or control over the individual treatment of patients by
Facility or Center Physicians.
6. Restrictive Covenant Not To Compete. During the term of this Agreement
and for a period of one (1) year following the effective date of its
termination or non-renewal by Facility, Facility shall not, without the
prior written consent of Company, (i)establish or operate a facility which
has as its primary business the treatment of chronic, non-healing wounds
in direct or indirect competition with the services provided at Center;
(ii) employ, hire, or contract for services with any employees or former
employees of Company; or (iii)engage or contract with any person or entity
to provide Facility comprehensive wound care management services of the
kind contemplated by this Agreement. These restrictions are not intended
to prevent Facility or Center Physicians from otherwise operating a medical
practice or providing professional services, including wound healing
services. The parties have agreed that this restriction is reasonable in
both scope and duration and that Company is entitled to seek injunctive
relief to enforce it.
7. Medical Records. All medical records, including patient records, are
maintained by Facility and will remain the property of Facility; however,
Facility will provide Company reasonable access to inspect and copy them,
subject to any legal restrictions or restrictions necessary to maintain
their confidentiality. Company and Facility will not disclose the contents
of any patient's medical record to any third party without the patient's
prior written consent unless required to do so pursuant to law.
8. Facility Books and Records. Upon reasonable request by Company, Facility
will make available to Company those Facility records necessary for
Company to provide Services pursuant to this Agreement.
9. Company Records. All records and information created and maintained by
Company in providing Services are and will remain the property of Company.
Company will provide Facility with reasonable access to inspect and copy
them, subject to any legal restrictions or restrictions necessary to
maintain their confidentiality.
10. Government Access to Records. Company agrees, to the extent required by
law, to make available upon reasonable request to the Secretary of the U.S
Department of Health and Human Services, and the U.S. Comptroller General
and their duly authorized representatives this Agreement and all books,
documents and records relating to Center operations. If Company carries
out its responsibilities through a subcontract of Ten Thousand Dollars
($10,000.00) or more over a twelve (12) month period with a related
organization, the subcontract will also contain a government access to
records clause similar to this clause.
6
11. Confidential Information. In performing Services, Company will provide
Facility proprietary information, including proformas and this agreement,
which is confidential to Company about its inventions; research and
development; wound care management protocols, processes, and algorithms;
systems; technological improvements; trade secrets; financial information;
and business strategy or policies ("Confidential Information").
Confidential Information shall not include public information or
information legally and properly obtained from other sources without breach
of any agreement with Company. Facility or Center Physicians will not use
Confidential Information for any purpose other than operation of the
Program or providing Services and will not disclose, publish, or
disseminate any Confidential Information to any third party without the
express prior written consent of Company, except as may be required by
state or federal law. Should applicable law require Facility to disclose
Confidential Information, Facility will notify Company of the request for
disclosure within at least fifteen (15) days prior to the deadline for
disclosure.
12. Trademarks & Service Marks. Facility acknowledges that Company is the
sole and exclusive owner of certain trademarks, including Curative Health
Services(R), Procuren(R), Wound Care Center(R), and such other marks as may be
designated by Company from time to time (the "Marks"). Facility is granted
a non-exclusive, non-transferable, limited right during the term of this
Agreement to use the Marks solely to identify Company or the Program.
Facility will adhere to Company's protocols for use of its Marks and will
submit to Company for approval any written materials not developed by
Company which use the Marks. Facility will not at any time do or suffer to
be done any act or thing which will impair the rights of Company in and to
the Marks.
13. Copyright. Company will make available to Facility copyrighted material
owned by Company including, but not limited to, manuals, commercial
scripts, and marketing plans. Company grants to Facility a non-exclusive,
non-transferable, limited right for the term of this Agreement to use
copyrighted material solely for the communication of the Program.
14. Assignment of Improvements to Program. Any new product or process
improvement to Program ("Improvement") developed solely by Company in
support of the Program shall vest in and be the exclusive property of
Company. Company shall also have an exclusive right to license or purchase
any Improvement developed by Facility solely or in cooperation with
Company, in which case Facility will provide Company written notice of and
information about the Improvement and Company shall then have ninety (90)
days to license or purchase an exclusive right to the Improvement. Company
and Facility will negotiate the terms and conditions of the license or
purchase in good faith, whereupon Facility will assign and transfer, and
shall cooperate to perfect the assignment and transfer, to Company, all
intellectual property right, title, and interest in and to Facility's
Improvement or contribution to the Improvement.
7
15. Wound Healing Agents and Preparations. Facility shall recognize Company
as having sole and exclusive authority to evaluate wound healing agents,
growth factor preparations, human skin equivalents, and other wound healing
agents, preparations or products ("Healing Agents") that are now or may
become available and determine whether and how to incorporate them into the
clinical pathways of Center. Facility shall give Company the exclusive
option to be the distributor or supplier of Healing Agents for use in
Center, subject to mutually agreed upon terms and conditions.
16. Program Name. The name of the Program will be "FACILITY NAME / Wound Care
Center(R), Wound Care Center(R) is a Curative Network Member" to optimize
community identification, create a strong name relationship, and achieve
cost savings through regional awareness. The Program name may be used in
publications and periodicals about professional and patient awareness of
the Program. The Program name will incorporate those protocols for font,
logo, design, and layout specified by Company.
17. Term. This Agreement commences on the Effective Date and continues for an
initial term of five (5) years unless terminated earlier pursuant to this
Agreement. At the end of the initial and each subsequent term, this
Agreement will automatically renew for an additional one (1) year term
unless either party provides written notice of its intention not to renew
at least one (1) year prior to the end of the term.
18. Termination. Either party may terminate this Agreement as follows:
a) At any time with twelve (12) months prior written notice;
b) Immediately, after ninety (90) days notice of a material breach of
any term or condition of this Agreement, if the material breach is
not cured within the ninety (90) day notice period. Notice to the
breaching party shall set forth sufficient detail about the breach
to permit cure; or
c) Immediately, should either party voluntarily file a petition in
bankruptcy, make an assignment for the benefit of creditors, or
otherwise seek relief from creditors under any federal or state
bankruptcy, insolvency, reorganization, or moratorium statute.
Upon termination, Company and Facility will cooperate to assure a smooth
transition; Facility will return all Confidential Information in whatever
form or format to Company.
19. General. This Agreement is for the benefit of both parties and may not be
assigned by either without the written consent of the other. It will be
governed by and construed in accordance with the laws of the state of
Facility without applying the conflicts of law rules of that state. All
notices required by this Agreement will be in writing and mailed by first
class mail to the address first set forth above or to such other address
as either party may designate from time to time, or transmitted by hand
delivery or facsimile. Notices will be deemed given upon receipt. Should
any part of this Agreement be found by a court of competent jurisdiction
to be invalid or unenforceable, the remainder of this Agreement shall not
be affected and each term shall be valid and enforced to the fullest
extent permitted by law. This Agreement and its attachments are the entire
agreement between the parties because all prior written or oral promises
or representations are incorporated in this Agreement. No amendments or
modifications of this Agreement will be binding upon either party unless
in writing and signed by both parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
dates set forth below.
[FACILITY NAME] CURATIVE HEALTH SERVICES, INC.
By: By:
Name: [FACILITY SIGNATORY] Name: John Vakoutis
Title:[FACILITY SIGNATORY TITLE] Title:President & Chief
Executive Officer
Date: Date:
Exhibit 10.4
NEW YORK LIFE INSURANCE COMPANY
LANCLORD
TO
CURATIVE HEALTH SERVICES, INC.
TENANT
- --------------------------------------------------------------------------------
LEASE
Dated as of June 30, 1997
TABLE OF CONTENTS LEASE Page
ARTICLE I Premises; Term; Use.................................................2
1.01 Demise.............................................................2
1.02 Term...............................................................2
1.03 Commencement Date..................................................2
1.04 Tenant Delay.......................................................4
1.05 Use................................................................4
1.06 Storage Space......................................................5
1.07 Offer Space........................................................6
1.08 Expansion Space....................................................8
ARTICLE 2 Rent ...............................................................9
2.01 Rent...............................................................9
2.02 Fixed Rent.........................................................9
2.03 Additional Rent...................................................10
2.04 Tax Payments......................................................10
2.05 Tax Provision.....................................................12
2.06 Electricity.......................................................13
2.07 Manner of Pavment.................................................14
2.08 Securitv..........................................................15
ARTICLE 3 Landlord Covenants.................................................17
3.01 Landlord Services.................................................17
ARTICLE 4 Leasehold improvements; Tenant Covenants...........................19
4.01 Initial improvements..............................................19
4.02 Alterations.......................................................21
4.03 Landlord's and Tenant's Propertv..................................23
4.04 Access and Changes to Building....................................24
4.05 Repairs...........................................................25
4.06 Compliance with Laws..............................................26
4.07 Tenant Advertising................................................26
4.08 Right to Perform Tenant Covenants.................................26
ARTICLE 5 Assignment and Subletting..........................................27
5.01 Assignment; Etc...................................................27
5.02 Landlord's Right of First Offer...................................28
5.03 Assignment and Subletting Procedures..............................30
5.04 General Provisions................................................32
5.05 Partnership Tenant................................................33
5.06 Assignment and Sublease Profts....................................33
ARTICLE 6 Subordination; Default; indemnity..................................34
6.01 Subordination.....................................................34
6.02 Estoppel Certiftcate..............................................36
6.03 Default...........................................................36
6.04 Re-entry by Landlord..............................................37
6.05 Damages...........................................................37
6.06 Other Remedies....................................................38
6.07 Right to Injunction...............................................38
6.08 Certain Waivers...................................................39
6.09 No Waiver.........................................................39
6.10 Holding Over......................................................39
6.11 Attornevs' Fees...................................................40
6.12 Nonliabilitv and Indemnification..................................40
ARTICLE 7 insurance; Casualty; Condemnation..................................41
7.01 Compliance with insurance Standards...............................41
7.02 Tenant's insurance................................................41
7.03 Subrogation Waiver................................................42
7.04 Condemnation......................................................42
7.05 Casualtv..........................................................44
ARTICLE 8 Miscellaneous Provisions...........................................45
8.01 Notice............................................................45
8.02 Building Rules....................................................46
8.03 Severability......................................................47
8.04 Certain Deftnitions...............................................47
8.05 Quiet Enjoyment...................................................47
8.06 Limitation of Landlord's Personal Liabilitv.......................47
8.07 Counterclaims.....................................................47
8.08 Survival..........................................................48
8.09 Certain Remedies..................................................48
8.10 No Offer..........................................................48
8.11 Captions: Construction............................................48
8.12 Amendments........................................................49
8.13 Broker............................................................49
8.14 Merger............................................................49
8.15 Successors........................................................49
8.16 Applicable Law....................................................49
8.17 Parking ..........................................................49
8.18 Graphics; Building Directory; Card Key Access.....................50
8.19 Health Club.......................................................51
8.20 Media Center......................................................52
ARTICLE 9 Renewal Right......................................................53
9.01 Renewal Right.....................................................53
9.02 Renewal Rent and Other Terms......................................53
EXHIBITS
A Description of Land
B Floor Plan
B-l Storage Space
B-2 Offer Space
B-3 Expansion Space
C Building Rules and Regulations
D Standard Cleaning Specifications
D-l HVAC Specification
E Form of Commencement Letter
F Intentionally Omitted
G Health Club Waiver Form
INDEX OF DEFINED TERMS
Definition Where Defined
AAA ...................................Section 9.02
Additional Rent........................Section 2.03
Affiliate .............................Section 5.01
Adjusted Electric Charge...............Section 2.06
Alterations............................Section 4.02
Architect..............................Section 4.01
Assignment Consideration...............Section 5.05
Base Electric Rate.....................Section 2.06
Base Amount............................Section 2.05
Base Year..............................Section 2.05
Base Tax Amount........................Section 2.04
Broker.................................Section 8.13
Building ..............................Recitals
Business Days..........................Section 3.01
Business Hours.........................Section 3.01
Casualty...............................Section 7.05
Change Order...........................Section 4.01
Change Order Request...................Section 4.01
Commencement Date......................Section 1.03
Control ...............................Section 5.01
Curing Party...........................Section 4.08
Electric Rate..........................Section 2.06
Existing Adjusted Electric Charge......Section 2.06
Expiration Date........................Section 1.02
Fixed Rent.............................Section 2.02
Fixtures ..............................Section 4.03
GAAP...................................Section 2.05
Health Club............................Section 8.19
Improvements and Betterments...........Section 4.03
Indemnified Party......................Section 6.12
Initial Improvements...................Section 4.01
Interest Rate..........................Section 4.08
Land...................................Recitals
Landlord...............................Introduction; Section 8.04
Landlord Services......................Section 3.01
Landlord's Statement...................Section 2.05
Landlord's Work........................Section 4.01
Laws...................................Section 4.06
Material Alteration....................Section 4.02
Media Center...........................Section 8.20
New Tenant.............................Section 6.10
Other Sublease Consideration............Section 5.05
Parking Areas...........................Section 8.17
Premises................................Section 1.01
Project.................................Recitals
Rent....................................Section 2.01
Rent Commencement Date..................Section 2.02
Security Deposit........................Section 2.09
Space Plan..............................Section 4.01
Substitution Premises...................Section 8.21
Successor Landlord......................Section 6.01
Superior Lease..........................Section 6.01
Superior Lessor.........................Section 6.01
Superior Mortgage.......................Section 6.01
Superior Mortgagee .....................Section 6.01
Tax Payment.............................Section 2.04
Tax Year................................Section 2.04
Taxes ..................................Section 2.04
Tenant .................................Introduction
Tenant's Basic Cost.....................Section 5.05
Tenant Delay ...........................Section 1.04
Tenant's Offer Notice...................Section 5.02
Tenant's Parking Spaces.................Section 8.17
Tenant's Property.......................Section 4.03
Tenant's Share..........................Section 2.04
Tenant's Special Work...................Section 1.03(d)
Term....................................Section 1.02
Transfer Notice.........................Section 5.03
Working Drawings........................Section 4.01
Exhibit 10-4
LEASE, dated as of June, 30 1997, between NEW YORK LIFE INSURANCE
COMPANY ("Landlord"), a New York corporation, having an address at 51 Madison
Avenue, New York, New York 10010 and CURATIVE HEALTH SERVICES, INC. ("Tenant"),
a Minnesota corporation having an address at 14 Research Way, East Setauket,
New York 11733, prior to the commencement of the Term, and thereafter Tenant's
address shall be that of the Building.
WITNESSETH
WHEREAS, Landlord is willing to lease to Tenant and Tenant is
willing to hire from Landlord, on the terms hereinafter set forth, certain
space on the 4th floor of the office building located at 150 Vanderbilt Motor
Parkway, Hauppauge, New York (the "Building" on the land more particularly
described in Exhibit A (the "Land.'; the Land and the Building and all plazas,
sidewalks and curbs adjacent thereto are collectively called the 'Project').
NOW, THEREFORE, Landlord and Tenant agree as follows:
REFERENCE DATA
LOCATION/RENTABLE AREA: Portion of the 4th floor; 25,000 rentable square feet.
RENTABLE AREA OF THE BUILDING 195,125
COMMENCEMENT DATE: As set forth in Section 1.03(a).
RENT COMMENCEMENT DATE: 6 months after the Commencement Date.
TERM/EXPIRATION DATE: 7 years, 6 months, ending on the last day of the month
in which occurs the 7th anniversary of the day
preceding the Rent Commencement Date.
ANNUAL BASE RENT: As set forth in Section 2.02.
MONTHLY BASE RENT: As set forth in Section 2.02.
TENANT'S SHARE: As set forth in Section 2.04.
BASE TAX YEAR December I, 1997 - November 30, 1998.
SECURITY DEPOSIT: $500,000 letter of credit.
LANDLORD'S REPRESENTATIVE: Kevin P. Welsh of C.B. Commercial/Hampshire, L.L.C
TENANT'S REPRESENTATIVE:David C.Leviton of Cushman& Wakefield ofLong Island,Inc
1
The foregoing Reference Data are incorporated into and made a part of this
Lease. In the event of any conflict between any Reference Data and the other
provisions of this Lease, the other provisions of this Lease shall control.
ARTICLE I
Premises; Term; Use
1.01 Demise. (a) Landlord hereby leases to Tenant and Tenant hereby
hires from Landlord, subject to the terms and conditions of this Lease, the
space on the 4th floor of the Building (the "Premises") substantially as shown
hatched on the plan annexed as Exhibit B. Landlord and Tenant agree that the
Premises is conclusively deemed to contain 25,000 rentable square feet.
1.02 Term. The term of this Lease (the "Term") shall commence on
the Commencement Date and shall end, unless sooner terminated as herein
provided, on the last day of the calendar month in which occurs the 7th
anniversary of the day preceding the Rent Commencement Date (such date, as the
same may be extended pursuant to Article 9, is called the 'expiration Date").
1.03 Commencement Date. (a) "Commencement Date" means the later of
(i) January 1, 1998 and (ii) the day on which Landlord's Work is deemed to have
been substantially completed in accordance with Section 1.03(b). After the
occurrence of the Commencement Date, Landlord shall advise Tenant thereof and
Landlord and Tenant shall promptly confirm the Commencement Date and the
Expiration Date by executing and delivering an instrument in the form of
Exhibit E annexed hereto; provided, that the failure to execute and deliver
such instrument shall not affect the determination of such dates in accordance
with this Article I Pending the resolution of any dispute as to the
Commencement Date, Tenant shall pay Rent based upon Landlord's determination.
(b) Landlord's Work shall be deemed to have been
substantially completed on the earlier of (i) the date upon which Landlord's
Work has been completed, other than (A) minor details or adjustments, (B) any
Tenant Special Work and (C) any part of Landlord's Work that is not completed
due to Tenant Delay; provided, that in each case Landlord shall nevertheless
remain obligated to promptly complete Landlord's Work and (ii) the date Tenant
takes possession of the Premises for the performance of Alterations or for any
other reason (except as provided in the following sentence). Landlord shall use
reasonable efforts to provide Tenant access to the Premises 10 days prior to
the Commencement Date for the purpose of installing
2
special equipment, furniture, telecommunications equipment, computers, etc. if
such access shall not materially interfere with the completion of Landlord's
Work. If Tenant shall access the Premises in accordance with the preceding
sentence, all of the provisions of this Lease shall be applicable thereto
(including, without limitation, the insurance requirements of Section 7.02 (and
Tenant shall in all events provide Landlord with evidence of such insurance
prior to any such access), the provisions of Section 4.02 regarding the
performance of Alterations (except for clause (c), clauses d (ii) and (iii) and
clause (b) of Section 4.02) and Tenant's indemnity set forth in Section 6.12);
provided, that the Commencement Date shall not be deemed to have occurred
solely by reason of such access for the purposes permitted in the preceding
sentence. Landlord shall have no liability to Tenant and the Commencement Date
shall in no event be affected if Landlord shall be unable to provide Tenant
with such access to the Premises. Any delay caused in the completion of
Landlord's Work resulting from Tenant's access shall constitute a Tenant Delay.
(c) if for any reason Landlord shall be unable to deliver
possession of the Premises to Tenant on any date specified in this Lease for
such delivery, Landlord shall have no liability to Tenant therefor and the
validity of this Lease shall not be impaired, nor shall the Term be extended,
by reason thereof This Section 1.03 shall be an express provision to the
contrary for purposes of Section 223-a of the New York Real Property Law and
any other law of like import now or hereafter in effect. If the Commencement
Date does not occur on or before 180 days after the date hereof (the "Outside
Date") as such date may be extended by any delays beyond Landlord's reasonable
control (including, without limitation, any Tenant Delay, but excluding
Landlord's failure to satisfy an obligation to pay money), then Tenant may give
to Landlord not less than 30 days' notice of Tenant's intent to terminate this
Lease, which notice of termination must be given by Tenant on or before the
date that is 30 days after the Outside Date (time being of the essence). if
Tenant timely gives a termination notice pursuant to the preceding sentence and
the Commencement Date does not occur on or before the date set for the
termination of this Lease in Tenant's notice, then this Lease shall terminate
on such date provided therefor in Tenant's termination notice and neither
Tenant nor Landlord shall have any further obligation or liability to the
other.
(d) "Tenant Special Work" means any work which Landlord
reasonably anticipates would delay the projected time schedule for completion
of Landlord's Work, whether (as examples and not by way of limitation) because
of the specialized technical services required therefor (eg, computer
installations or special electronic security systems), or a materially
increased probability of delay by virtue of the requirements of prefabrication
of material (eg, extraordinary woodworking or carpentry requirements) or the
obtaining of unique commodities (eg, special woods or stones). Upon Tenant's
request, Landlord shall advise Tenant whether, based upon the information
submitted by Tenant to Landlord, any item of Landlord's Work shall constitute
Tenant Special Work.
3
(e) On or before June 30, 1997, Landlord shall pay $600,000
to Tenant's prior landlord (In-House Partners) as consideration for the buy-out
of Tenant's obligations under its lease with such prior landlord. If Landlord
shall not make such payment on or before June 30, 1997 this Lease shall
automatically terminate and be of no further force or effect and Landlord shall
refund to Tenant the first installment of Fixed Rent paid by Tenant upon
execution and delivery of this Lease and the Tenant Improvement Contribution.
1.04 Tenant Delay. "Tenant Delay" means any delay which Landlord
may encounter in the performance of Landlord's obligations under this Lease by
reason of any act or omission of any nature of Tenant, its agents or
contractors, including, without limitation, delays due to material changes in
or additions to Landlord's Work requested by Tenant after submission by Tenant
of the information required pursuant to the first sentence of Section4.01(b),
changes in or additions to Landlord's Work requested by Tenant after approval
of the Working Drawings by Tenant, delays by Tenant in submission of
information or giving authorizations or approvals or delays due to the
postponement of any Landlord's Work at the request of Tenant. Tenant shall pay
to Landlord any costs or expenses incurred by Landlord by reason of any Tenant
Delay.
1.05 Use. The Premises shall be used and occupied by Tenant (and
its permitted subtenants) solely as general and executive offices (including
such ancillary uses in connection therewith as shall be reasonably required by
Tenant in the operation of its business); provided, that in no event shall the
Premises be used for any of the following: (a) a banking, trust company, or
safe deposit business, (b) a savings bank, a savings and loan association, or a
loan company, (c) the sale of travelers' checks and/or foreign exchange, (d) a
stock brokerage office or for stock brokerage purposes, (e) a restaurant, bar
or for the sale of food or beverages, (f) photographic reproductions and/or
offset printing, (g) an employment or travel agency, (b) a school or classroom,
(i) medical or psychiatric offices, (j) conduct of an auction, (k) gambling
activities, (1) conduct of obscene, pornographic or other disreputable
activities, (m) offices of an agency, department or bureau of the United States
Government, any state or municipality within the United States or any foreign
government, or any political subdivision of any of them, (n) offices of any
charitable, religious, union or other not-for-profit organization, or (o)
offices of any tax exempt entity within the meaning of Section 168(h)(2) of the
Internal Revenue Code of 1986, as amended, or any successor or substitute
statute, or rule or regulation applicable thereto. The Premises shall not be
used for any purpose which would tend to lower the first-class character of the
Building, create unreasonable or excessive elevator or floor loads, impair or
interfere with any of the Building operations or the normal and efficient
heating, ventilation, air-conditioning, cleaning or other servicing of the
Building, constitute a public or private nuisance, interfere with, annoy or
disturb any other tenant or Landlord, or impair the appearance of the Building.
4
1.07 Offer Space. (a) As used herein:
"Available" means, as to any Offer Space, that such space is
vacant and free of any present or future possessory right now or hereafter
existing in favor of any third party. Anything to the contrary contained herein
notwithstanding, Tenant's right of first offer pursuant to this Section 1.07 is
subordinate to any right of offer, refusal right, extension right, expansion
right or similar right or option in favor of any third party existing as of the
date of this Lease.
"Offer Period" means the period commencing on the
Commencement Date to and including the date that is 36 months prior to the
Expiration Date of the initial Term.
"Offer Space" means any Available space on the 3rd and 4th
floors of the Building substantially as shown hatched on the plan annexed as
Exhibit B-2.
(b) Provided (i) this Lease shall not have been terminated,
(ii) Tenant shall not be in monetary default under this Lease or non-monetary
default under this Lease beyond any applicable notice and grace period, and
(iii) Tenant and/or a permitted subtenant under Section 5.01(c) shall occupy
the entire Premises, if at any time during the Offer Period, either any Offer
Space becomes, or Landlord reasonably anticipates that within the next 12
months (but not later than the last day of the Offer Period) any Offer Space
will become Available, Landlord shall give to Tenant notice (an "Offer Notice")
thereof, specifying (A) the fixed annual rental ("Offer Rental") which Landlord
is then considering in good faith for the lease of such Offer Space, (B) the
date or estimated date that such Offer Space has or shall become Available, (C)
the number of rentable square feet contained in such Offer Space and (D) such
other matters as Landlord may deem appropriate for such Offer Notice.
(c) Provided that on the date that Tenant exercises the Offer
Space Option with respect to any Offer Space and on the Offer Space inclusion
Date with respect to such Offer Space (i) this Lease shall not have been
terminated, (ii) Tenant shall not be in monetary default under this Lease or
non-monetary default under this Lease beyond any applicable notice and grace
period, and (iii) Tenant and/or a pemmitted subtenant under Section 5.01(c)
shall occupy the entire Premises, Tenant shall have the option (the "Offer
Space Option"), exercisable by notice (an "Acceptance Notice") given to
Landlord on or before the date that is 30 days aver the giving of the Offer
Notice (time
5
being of the essence) to include such Offer Space in the Premises. Provided
Tenant shall comply with clauses (i) - (iii) above, and Tenant furnishes notice
to Landlord within 10 days after Tenant's receipt of the Offer Notice, Tenant
shall be permitted to inspect such Offer Space prior to Tenant's delivery of
the Acceptance Notice at a time scheduled by Landlord with any tenant of such
Offer Space and subject to the terms of any such tenant's lease, so long as
Tenant shall be accompanied by a representative of Landlord.
(d) if Tenant timely delivers the Acceptance Notice with
respect to any Offer Space, then, on the date on which Landlord delivers vacant
possession of such Offer Space to Tenant (the "Offer Space Inclusion Date"),
such Offer Space shall become part of the Premises, upon all of the terms and
conditions set forth in this Lease, except (i) Fixed Rent with respect to such
Offer Space shall be the Offer Rental, (ii) Tenant's Share shall be increased
by a fraction (expressed as a percentage rounded to the nearest l/lOth) whose
numerator is the number of rentable square feet contained in such Offer Space
as specified in the Offer Notice and whose denominator is 195,125, (iii)
Landlord shall not be required to perform Landlord's Work or any other work,
pay any contribution or any other amount, or render any services to make the
Building or such Offer Space ready for Tenant's use or occupancy, and Tenant
shall accept such Offer Space in its "as is" condition on the Offer Space
inclusion Date, and (iv) as may be otherwise set forth in the Offer Notice.
(e) if Landlord is unable to deliver possession of any Offer
Space to Tenant for any reason on or before the date on which Landlord
indicates that such Offer Space shall be Available as set forth in the Offer
Notice, the Offer Space Inclusion Date shall be the date on which Landlord is
able to so deliver possession and Landlord shall have no liability to Tenant
therefor and this Lease shall not in any way be impaired. This Section 1.07(e)
constitutes "an express provision to the contrary" within the meaning of
Section 223(a) of the New York Real Property Law and any other law of like
import now or hereafter in effect. If on the Offer Space inclusion Date with
respect to any Offer Space, there is a holdover tenancy in such Offer Space,
Landlord shall use reasonable efforts (including the prompt commencement and
diligent prosecution of summary dispossess proceedings) to terminate such
holdover tenancy.
(f) if Tenant fails timely to give an Acceptance Notice with
respect to any Offer Space, then (i) Landlord may enter into one or more leases
of the Offer Space with third parties on such terms and conditions as Landlord
shall determine, the Offer Space Option and this Section 1.07 shall be null and
void and of no further force and effect and Landlord shall have no further
obligation to offer any Offer Space to Tenant, and (ii) Tenant shall, upon
demand by Landlord, execute an instrument confirming Tenant's waiver of, and
extinguishing, the Offer Space Option, but the failure by Tenant to execute any
such instrument shall not affect the provisions of clause (i) above.
(g) Promptly after the occurrence of the Offer Space
inclusion Date with respect to any Offer Space, Landlord and Tenant shall
confirm the occurrence
6
thereof and the inclusion of such Offer Space in the Premises by executing an
instrument reasonably satisfactory to Landlord and Tenant; provided, that
failure by Landlord or Tenant to execute such instrument shall not affect the
inclusion of such Offer Space in the Premises in accordance with this Section
1.07.
(b) if any Offer Space is included in the Premises in
accordance with this Section 1.07, then (i) the Offer Space Option shall be
null and void and of no further force and effect and Landlord shall have no
further obligation to offer any other Offer Space to Tenant, and (ii) Tenant
shall, upon demand by Landlord, execute an instrument confirming Tenant's
waiver of, and extinguishing, the Offer Space Option, but the failure by Tenant
to execute any such instrument shall not affect the provisions of clause (i)
above.
(i) Anything in this Lease to the contrary notwithstanding,
this Section 1.07 shall be null and void and of no force or effect if (i)
Curative Health Services, inc. or any assignee of this Lease from Curative
Health Services, Inc. in accordance with Section 5.01(b) or (c) of this Lease
is no longer the Tenant under this Lease, (ii) Curative Health Services, Inc.
or any such assignee, together with a permitted subtenant under Section
5.01(c), at any time fails to occupy the entire Premises or (iii) Curative
Health Services, Inc. or any such assignee shall at any time be in default
under this Lease beyond any applicable period of grace.
1.08 Expansion Space. (a) Provided that on the date Tenant
exercises the Expansion Option and on the Commencement Date this Lease shall
not have been terminated, Tenant shall have the option (the "Expansion Option")
to lease all or any portion of the space on the 4th floor of the Building
substantially as shown hatched on the floor plan annexed as Exhibit B-3
(subject to the further provisions hereof, the space with respect to which
Tenant exercises the Expansion Option is the "Expansion Space" and the entire
space shown hatched on the floor plan annexed as Exhibit B-3 is the "Potential
Expansion Space"). if Tenant desires to exercise the Expansion Option for less
than the entire Potential Expansion Space, Tenant shall deliver to Landlord,
together with the Expansion Notice, a floor plan prepared by Tenant's architect
showing the portion of the Potential Expansion Space with respect to which
Tenant desires to exercise the Expansion Option (it being understood that the
final location of the demising walls for such portion of the Potential
Expansion Space shall be designated by Landlord). in all events the Expansion
Space must be contiguous with the initial Premises. If the Expansion Space is
less than all of the Potential Expansion Space, the number of rentable square
feet contained therein shall be measured by the Architect in the same manner as
the measurement of the Potential Expansion Space and such measurement by the
Architect shall be conclusive and binding upon Tenant absent manifest error.
Landlord and Tenant confirm that the Potential Expansion Space is conclusively
deemed to contain 10,329 rentable square feet. The Expansion Option shall be
exercisable by Tenant giving Landlord notice thereof (the "Expansion Notice")
on or before the date which is 30 days after the date of this Lease (time being
of the essence). if Tenant timely gives the Expansion Notice, the Expansion
Space shall automatically become part of the Premises,
7
upon all of the terms and conditions set forth in this Lease. Together with the
Expansion Notice, Tenant shall pay to Landlord an amount equal to the product
of (i) 1/12th multiplied by (ii) $22.98 multiplied by (iii) the number of
rentable square feet contained in the Expansion Space, to be applied against
the first monthly installment of Fixed Rent.
(b) Promptly after the timely giving by Tenant of the
Expansion Notice, Landlord and Tenant shall confirm the occurrence thereof and
the inclusion of the Expansion Space in the Premises by executing an instrument
reasonably satisfactory to Landlord and Tenant; provided, that failure by
Landlord or Tenant to execute such instrument shall not affect the inclusion of
the Expansion Space in the Premises in accordance with this Section 1.08.
(c) Anything in this Lease to the contrary notwithstanding,
this Section 1.08 shall be null and void and of no force or effect if Curative
Health Services, Inc. is no longer the Tenant under this Lease or this Lease
shall be terminated.
ARTICLE 2
Rent
2.01 Rent. "Rent" shall consist of Fixed Rent and Additional Rent
2.02 Fixed Rent. (a) The fixed rent ("Fixed Rent") shall be payable as
follows:
(i) for the period from the Rent Commencement
Date to and including the day before the Ist anniversary of the Commencement
Date, at the annual rate of $22.98 per rentable square foot contained in the
Premises;
(ii) for the period from the 1st anniversary of
the Commencement Date to and including the day before the 2nd anniversary of
the Commencement Date, at the annual rate of $23.31 per rentable square foot
contained in the Premises;
(iii) for the period from the 2nd anniversary of
the Commencement Date to and including the day before the 3rd anniversary of
the Commencement Date, at the annual rate of $23.64 per rentable square foot
contained in the Premises;
(iv) for the period from the 3rd anniversary of
the Commencement Date to and including the day before the 4th anniversary of
the Commencement Date, at the annual rate of $23.97 per rentable square foot
contained in the Premises;
(v) for the period from the 4th anniversary of
the Commencement Date to and including the day before the 5th anniversary
of the
8
Commencement Date, at the annual rate of $24.31 per rentable square foot
contained in the Premises;
(vi) for the period from the 5'h anniversary of
the Commencement Date to and including the 6'h anniversary of the Commencement
Date, at the annual rate of $24.66 per rentable square foot contained in the
Premises;
(vii) for the period from the 6'h anniversary of
the Commencement Date to and including the 7'h anniversary of the Commencement
Date, at the annual rate of $25.01 per rentable square foot contained in the
Premises; and
(viii) for the period from the 7'h anniversary of
the Commencement Date to and including the Expiration Date, at the annual rate
of $25.37 per rentable square foot contained in the Premises.
Fixed Rent shall be payable by Tenant in 12 equal monthly
installments in advance on the Rent Commencement Date and on the first day of
each calendar month thereafter; provided, that Tenant shall pay, upon the
execution and delivery of this Lease by Tenant, $47,875.00 to be applied
against the first full monthly installment of Fixed Rent; and Provided further,
that if the Rent Commencement Date is not the first day of a month, then Fixed
Rent for the month in which the Rent Commencement Date occurs shall be prorated
and paid on the Rent Commencement Date. "Rent Commencement Date" means the date
occurring in the 6th month after the Commencement Date which is the same
numerical date in the month as the Commencement Date except that if no same
numerical date shall exist in such 6'h month, the Rent Commencement Date shall
be the last day of such 6ih month.
2.03 Additional Rent. "Additional Rent" means Tax Payments and all
other sums of money, other than Fixed Rent, at any time payable by Tenant under
this Lease, all of which Additional Rent shall be deemed to be rent.
2.04 Tax Payments. (a) "Base Tax Amount" means the Taxes
(excluding any amounts described in Section 2.04(b!(ii!) for the Tax Year
commencing on December 1, 1997.
(b) "Taxes" means (i) the real estate taxes, assessments and
special assessments levied, assessed or imposed upon or with respect to the
Project by any federal, state, municipal or other government or governmental
body or authority and (ii) any expenses incurred by Landlord in contesting such
taxes or assessments and/or the assessed value of the Project, which expenses
shall be allocated to the Tax Year to which such expenses relate. If at any
time the method of taxation shall be altered so that in lieu of or as an
addition to or as a substitute for, the whole or any part of such real estate
taxes, assessments and special assessments now imposed on real estate, there
shall be levied, assessed or imposed (x) a tax, assessment, levy, imposition,
fee or charge wholly or partially as a capital levy or otherwise on the rents
received therefrom, or (v) any other additional or substitute tax, assessment,
levy, imposition, fee or charge, including,
9
without limitation, business improvement district and transportation taxes,
fees and assessments, then all such taxes, assessments, levies, impositions,
fees or charges or the part thereof so measured or based shall be included in
"Taxes" Except as permitted in this Section 2.04(b), "Taxes" shall not include
any franchise, capital stock or transfer tax.
(c) "Tax Year" means each period of 12 months, commencing on
the first day of December of each such period, in which occurs any part of the
Term, or such other period of ] 2 months occurring during the Term as hereafter
may be adopted as the fiscal year for real estate tax purposes of the Town of
Hauppauge.
(d) "Tenant's Share" means a fraction (expressed as a
percentage rounded to the nearest (1/lOth) whose numerator is the number of
rentable square feet contained in the Premises and whose denominator is 195,125
(e) if Taxes for any Tax Year, including the Tax Year in
which the Commencement Date occurs, shall exceed the Base Tax Amount, Tenant
shall pay to Landlord (each, a "Tax Payment Tenant's Share of the amount by
which Taxes for such Tax Year are greater than the Base Tax Amount. Landlord
may furnish to Tenant, prior to the commencement of each Tax Year, a statement
setting forth Landlord's reasonable estimate of the Tax Payment for such Tax
Year. Tenant shall pay to Landlord on the first day of each month during such
Tax Year, an amount equal to 1/12th of Landlord's estimate of the Tax Payment
for such Tax Year. If Landlord shall not furnish any such estimate for a Tax
Year or if Landlord shall furnish any such estimate for a Tax Year subsequent
to the commencement thereof, then (i) until the first day of the month
following the month in which such estimate is furnished to Tenant, Tenant shall
pay to Landlord on the first day of each month an amount equal to the monthly
sum payable by Tenant to Landlord under this Section 2.04(e) in respect of the
last month of the preceding Tax Year; (ii) after such estimate is furnished to
Tenant, Landlord shall notify Tenant whether the installments of the Tax
Payment previously made for such Tax Year were greater or less than the
installments of the Tax Payment to be made in accordance with such estimate,
and (x) if there is a deficiency, Tenant shall pay the amount thereof within 10
days after demand there for or (y) if there is an overpayment, Landlord shall
promptly refund to Tenant the amount thereof and (iii) on the first day of the
month following the month in which such estimate is furnished to Tenant and
monthly thereafter throughout such Tax Year, Tenant shall pay to Landlord an
amount equal to 1/12th of the Tax Payment shown on such estimate. Landlord may,
during each Tax Year, furnish to Tenant a revised statement of Landlord's
estimate of the Tax Payment for such Tax Year, and in such case, the Tax
Payment for such Tax Year shall be adjusted and paid or refunded as the case
may be, substantially in the same manner as provided in the preceding sentence.
After the end of each Tax Year Landlord shall furnish to Tenant a statement of
Tenant's Tax Payment for such Tax Year (and shall endeavor to do so within 180
days after the end of each Tax Year) along with a copy of any relevant Tax
bill. If such statement shall show that the sums paid by Tenant, if any, under
Section 2.04(e) exceeded the Tax Payment to be paid by Tenant for the
applicable Tax Year, Landlord shall promptly refund to Tenant the amount of
such excess; and if such statement shall
10
show that the sums so paid by Tenant were less than the Tax Payment to be paid
by Tenant for such Tax Year, Tenant shall pay the amount of such deficiency
within 10 days after demand therefor. If there shall be any increase in the
Taxes for any Tax Year, whether during or after such Tax Year, or if there
shall be any decrease in the Taxes for any Tax Year, the Tax Payment for such
Tax Year shall be appropriately adjusted and paid or refunded, as the case may
be, in accordance herewith. In no event, however, shall Taxes be reduced below
the Base Tax Amount (as the same may be reduced pursuant to clause (g) below).
(f) if Landlord shall receive a refund of Taxes for any Tax
Year, Landlord shall pay to Tenant Tenant's Share of the net refund (after
deducting from such refund the costs and expenses of obtaining the same,
including, without limitation, appraisal, accounting and legal fees, to the
extent that such costs and expenses were not included in the Taxes for such Tax
Year); provided, that such payment to Tenant shall in no event exceed Tenant's
Tax Payment paid for such Tax Year.
(g) if the Taxes comprising the Base Tax Amount are reduced
as a result of an appropriate proceeding or otherwise, the Taxes as so reduced
shall for all purposes be deemed to be the Base Tax Amount and Landlord shall
notify Tenant of the amount by which the Tax Payments previously made were less
than the Tax Payments required to be made under this Section 2.04, and Tenant
shall pay the deficiency within 10 days after demand therefor.
2.05 Tax Provision.
(a) in any case provided in Section 2.04 in which Tenant is
entitled to a refund, Landlord may, in lieu of making such refund, credit
against future installments of Rent any amounts to which Tenant shall be
entitled. Nothing in this Article 2 shall be construed so as to result in a
decrease in the Fixed Rent. If this Lease shall expire before any such credit
shall have been fully applied, then (provided Tenant is not in default under
this Lease) Landlord shall refund to Tenant the unapplied balance of such
credit.
(b) Landlord's failure to render or delay in rendering any
statement with respect to any Tax Payment or installment thereof shall not
prejudice Landlord's right to thereafter render such a statement, nor shall the
rendering of a statement for any Tax Payment or installment thereof prejudice
Landlord's right to thereafter render a corrected statement therefor.
(c) Each Tax Payment in respect of a Tax Year which begins
prior to the Commencement Date or ends after the expiration or earlier
termination of this Lease, and any tax refund pursuant to Section 2.04(f),
shall be prorated to correspond to that portion of such Tax Year occurring
within the Term.
2.06 Electricity. (a) Tenant's demand for, and consumption of
electricity in the Premises (excluding all electricity necessary to operate the
unit which provides heating, ventilation and air-conditioning to the Premises
in accordance with
11
Section 3.01(a)(i) below) shall be determined by meter or meters installed (or,
if existing, retrofitted) by Landlord (as part of Landlord's Work) at Tenant's
expense. Tenant shall pay for such electric consumption within 15 days after
rendition of bills therefor, which bills shall be rendered by or on behalf of
Landlord separately for each meter. In addition, Tenant shall pay to Landlord
on the first day of each month during the Term $100.00 as an administrative
charge.
(b) The amount payable by Tenant per "KW" and "KWHR" for
electricity consumed within the Premises, whether determined by meters or as
otherwise provided below, shall be the amount ("Landlord's Rate") at which
Landlord from time to time purchases each KW and KWHR of electricity for the
same period from the utility company (including all surcharges, taxes, fuel
adjustments, taxes passed on to consumers by the public utility, and other sums
payable in respect thereof). Landlord's Rate shall be determined from time to
time by dividing the cost charged by said utility (averaged separately for KW
and KWHRs) during each respective billing period by the number of KWs and KWHRs
consumed by the Building as set forth on the utility company invoice for such
period.
(c) if on the Offer Space inclusion Date with respect to any
Offer Space, (i) any portion of Tenant's electric consumption (KW and KWHR) is
measured on a meter that also measures the electric consumption of another
tenant in the Building or (ii) Tenant occupies the Offer Space prior to the
installation of meters, then in either such case Tenant's consumption (KW and
KWHR) of electricity shall be reasonably estimated by Landlord, and Tenant
shall pay Landlord's Rate as applied to such consumption (the "Actual Charge");
provided, that in no event shall Tenant pay less than $2.25 per rentable square
foot per annum (the "Minimum Charge").
(d) The Actual Charge shall be adjusted by Landlord from time
to time if there is a change in Landlord's Rate, and may be adjusted by
Landlord from time to time if, in Landlord's reasonable judgment, Tenant is not
paying for the entire cost of Tenant's demand for, and consumption of,
electricity, including, without limitation, by reason that additional
electrical equipment is installed in the Premises, or if Tenant increases its
hours of operation. If applicable, any adjustment to the Actual Charge shall be
retroactive to the date of the relevant change in Tenant's consumption or in
Landlord's Rate.
(e) if Tenant disagrees in good faith with any such
determination or adjustment made by Landlord in the absence of a meter or with
respect to a shared meter, Tenant shall notify Landlord thereof within 60 days
after Landlord gives Tenant notice of such determination or adjustment and
Landlord, at Tenant's request made within such 60 day period, shall retain, at
Tenant's expense, an independent electrical consultant reasonably satisfactory
to Tenant who shall survey the demand for, and consumption of, electricity by
Tenant and, if applicable, each other tenant who shares such submeter, and the
determination made by such electrical consultant shall be binding on Landlord
and Tenant (provided that in no event shall the charge to Tenant be less than
12
the Minimum Charge). if Tenant fails to so disagree with any such determination
or adjustment made by Landlord, or to request that Landlord obtain an
independent electrical consultant, within such 60 day period, such
determination or adjustment shall be conclusive and binding on Tenant. Pending
the determination of such consultant. Tenant shall pay the Actual Charge
determined by Landlord, and upon such determination by the consultant,
appropriate adjustment shall be made retroactive to the date of determination
by the consultant. Surveys of Tenant's electrical consumption shall be based
upon the use of electricity during Business Hours on Business Days, and on such
other days and hours when electricity is used in the Premises; and if cleaning
services are provided by Landlord, such survey shall include Landlord's normal
cleaning hours of 5 hours per day for lighting within the Premises and for
electrical equipment normally used for such cleaning.
(f) in no event shall the charge to Tenant for electric
energy furnished to the Premises be less than the cost to Landlord of obtaining
and furnishing such electric energy, in which event such charge shall be equal
to such cost.
(g) if pursuant to Laws, the charges to Tenant pursuant to
Sections 2.06(b) and (c) shall be reduced below that to which Landlord is
entitled under those sections, the deficiency shall be paid by Tenant within 30
days after being billed therefor, for the use and maintenance of the electric
distribution system of the Building. If any charge or tax is imposed upon the
sale or resale of electric energy to Tenant, then, to the extent permitted by
law, the amount of such charge or tax shall be paid by Tenant, and Landlord may
include the amount thereof in its bill(s) to Tenant.
(b) At Landlord's option, Landlord shall furnish and install
all replacement lighting, tubes, lamps, bulbs and ballasts required in the
Premises, and Tenant shall pay to Landlord or its designated contractor upon
demand Landlord's then established reasonable charges therefor.
2.07 Manner of Payment. Tenant shall pay all Rent as the same shall
become due and payable under this Lease either by wire transfer of immediately
available federal funds as directed by Landlord or by check (subject to
collection) drawn on a New York Clearing House Association member bank, in each
case at the times provided herein without notice or demand and without setoff
or counterclaim. All Rent shall be paid in lawful money of the United States to
Landlord at its office or such other place as Landlord may from time to time
designate. If Tenant fails timely to pay any Rent, Tenant shall pay interest
thereon from the date when such Rent became due to the date of Landlord's
receipt thereof at the lesser of (a) I'./2O/o per month or (b) the maximum rate
permitted by law. Any Additional Rent for which no due date is specified in
this Lease shall be due and payable on the 10th day after the date of invoice.
All bills, invoices and statements rendered to Tenant with respect to this
Lease shall be binding and conclusive on Tenant unless, within 60 days after
receipt of same, Tenant notifies Landlord that it is disputing same.
13
2.08 Security. (a) Within 7 days after the date hereof, Tenant
shall deliver to Landlord, as security for the performance of Tenant's
obligations under this Lease, a clean, irrevocable, non-documentary and
unconditional Letter of Credit issued by and drawable upon any commercial bank,
trust company, national banking association or savings and loan association
with offices for banking purposes in the City of New York (the "Issuing Bank"),
which has outstanding unsecured, uninsured and unguaranteed indebtedness, or
shall have issued a letter of credit or other credit facility that constitutes
the primary security for any outstanding indebtedness (which is otherwise
uninsured and unguaranteed), that is then rated, without regard to
qualification of such rating by symbols such as "+" or "-" or numerical
notation, "AA" or better by Moody's investors Service and "Aa" or better by
Standard & Poor's Ratings Service, and has combined capital, surplus and
undivided profits of not less than $500,000,000. Such Letter of Credit shall
(i) name Landlord as beneficiary, (ii) be in the amount of $500,000 "Securitv
Deposit", (iii) have a term of not less than one year, (iv) permit multiple
drawings, (v) be fully transferable by Landlord to a successor landlord, and
(vi) otherwise be in form and content reasonably satisfactory to Landlord;
provided, however, that Landlord shall in no event be obligated to accept a
Letter of Credit for any amount less than $25,000. If upon any transfer of the
Letter of Credit, any fees or charges shall be so imposed, then such fees or
charges shall be payable by Tenant and the Letter of Credit shall so specify.
The Letter of Credit shall provide that it shall be deemed automatically
renewed, without amendment, for consecutive periods of one year each thereafter
during the Term, unless the issuing Bank sends a notice (the "Non-Renewal
Notice") to Landlord by certified mail, return receipt requested, not less than
45 days next preceding the then expiration date of the Letter of Credit,
stating that the issuing Bank has elected not to renew the Letter of Credit.
Landlord shall have the right, upon receipt of a Non-Renewal Notice, to draw
the full amount of the Letter of Credit, by sight draft on the issuing Bank,
and shall thereafter hold or apply the cash proceeds of the Letter of Credit
pursuant to the terms of this Section 2.08. The issuing Bank shall agree with
all drawers, endorsers and bona fide holders that drafts drawn under and in
compliance with the terms of the Letter of Credit will be duly honored upon
presentation to the issuing Bank at an office location in Manhattan. The Letter
of Credit shall be subject in all respects to the Uniform Customs and Practice
for Documentary Credits (1993 revision), international Chamber of Commerce
Publication No. 500. Landlord may draw on the Security Deposit to remedy
defaults by Tenant in the payment or performance of any of Tenant's obligations
under this Lease. If Landlord shall have so drawn upon the Security Deposit,
Tenant shall upon demand deposit with Landlord a sum equal to the amount so
drawn by Landlord.
(i) if Tenant fails to deliver the Letter of
Credit to Landlord within 7 days after the date hereof such failure shall
constitute an immediate event of default entitling Landlord to exercise all of
its rights and remedies under Article 6.
(b) Notwithstanding anything to the contrary contained in
this Section 2.08, provided Tenant shall not be in default in the performance
of any obligation under this Lease and no default by Tenant shall have
previously occurred under this
14
Lease, Landlord shall consent to
the Security Deposit being reduced to $40
I
the first anniversary of the Rent
Commencement Date, $300,000.00 on
anniversary of the Rent Commencement Date, $200,000.00 on the
third an
the Rent Commencement Date and $100,000.00 on the fourth
anniversarv
Commencement Date (each, a
"Reduction Date"). At any time following each
I Date (provided Tenant shall not be in default in the performance of
any obligation I this Lease and no default by Tenant shall have
previously occurred under
Tenant may deliver to Landlord an amendment to the Letter of
Credit (which
must be reasonably acceptable to
Landlord in all respects) reducing the
Letter of Credit accordingly and Landlord shall execute the amendment
tn.
I
documents as are reasonably
necessary to reduce the amount of the Letter m
accordance with the terms hereof Provided that Tenant shall
not be in default
obligation set forth in this Lease
and no default by Tenant shall have previous
|
under this Lease, at any time
after the fifth anniversary of the Rent Commence
I
Tenant may replace the Letter of
Credit with a certified check payable to L
drawn on a New York Clearinghouse Association member
bank in an amount 1/12 multiplied by the product of
$25.37 per rentable square foot multi
number of rentable square feet contained in the Premises on the Rent
Date. The proceeds of such certified check shall be held in an
interest-bear
and may be applied by Landlord to remedy defaults by Tenant in
the
performance of any of Tenant's obligations under this Lease.
If Landlord
such proceeds, Tenant shall upon demand deposit with Landlord
a sum
amount so applied by Landlord. Provided Tenant is not in
default under this
Tenant has surrendered the Premises to Landlord in accordance
with all of
conditions of this Lease, on or before the date that is 30
days after the expiration
termination of this Lease, (i) Landlord shall return to Tenant
the Security E
held by Landlord with interest or (ii) if Lo
Deposit to remedy defaults by Tenant in
obligations under this Lease, Landlord
Security Deposit remaining in Land
3.01 Landlord Se
occupies the Premises for
the condo with the
following services
(i)
Premises from 8:00 a.m. to 6:00 pm
on Saturdays (other than any Saturday
"Business Days") for reasonably
Tenant's compliance with design .
criteria set forth on Exhibit D-l an
15
or air conditioning services at any other times, Landlord shall furnish such
service (A) in the case of a Business Day, upon receiving notice from Tenant by
3:00 p.m. of such Business Day and (B) in the case of a day other than a
Business Day, upon receiving notice from Tenant by 1:00 p.m. of the immediately
preceding Business Day, and Tenant shall pay to Landlord upon demand Landlord's
then established charges therefor, which are currently $75.00 per hour.
(ii) (A) passenger elevator service to each
floor of the Premises at all times during Business Hours on Business Days, with
at least one passenger elevator subject to call at all other times and (B)
freight elevator service to the Premises on a reserved basis and, if at times
other than Business Hours on Business Days, upon the payment of Landlord's then
established charges therefor (except that there shall be no charge to Tenant
for use of such freight elevator for the performance of the initial
Improvements and for Tenant's initial move into the Premises); the use of all
elevators shall be on a nonexclusive basis;
(iii) reasonable quantities of hot and cold
water to the floor(s) on which the Premises are located; if Tenant shall
require quantities of water in excess of that customarily used in an office
installation, Landlord may install and maintain, at Tenant's expense, meters to
measure Tenant's consumption of cold water and/or hot water in which event
Tenant shall reimburse Landlord for the quantities of cold water and hot water
shown on such meters (including Landlord's standard charge for the production
of such hot water, if produced by Landlord), on demand;
(iv) 6 watts per rentable square foot of the
Premises of electric energy through presently installed electric facilities for
Tenant's reasonable use of lighting and other electrical fixtures, appliances
and equipment based on Tenant's approved plan for initial occupancy; in no
event shall Tenant's consumption of electricity exceed the capacity of existing
feeders to the Building or the risers or wiring serving the Premises, nor shall
Tenant be entitled to any unallocated power available in the Building unless,
in Landlord's judgment (taking into account the then existing and future needs
of other then existing and future tenants, and other needs of the Building),
the same is available and necessary for Tenant's use; and
(v) cleaning services in accordance with
Exhibit D attached hereto. Tenant shall pay to Landlord upon rendition of an
invoice therefor the costs incurred by Landlord for (A) extra cleaning work in
the Premises required because of (w) carelessness, indifference, misuse or
neglect on the part of Tenant, its subtenants or their respective employees or
visitors, (x) interior glass partitions or an unusual quantity of interior
glass surfaces, (y) non-building standard materials or finishes installed in
the Premises and/or (z) the use of the Premises other than during Business
Hours on Business Days and/or (B) removal from the Premises and the Building of
any refuse of Tenant (x) in excess of that ordinarily accumulated in business
office occupancy, and/or (y) at times other than Landlord's standard cleaning
times. Notwithstanding the foregoing, Landlord shall not be required to clean
any portions of the Premises used for kitchens (except for
16
so-called Dwyer Units or kitchenettes where no cooking is performed other than
by microwave ovens), cafeterias, private lavatories or toilets or other special
purposes requiring greater or more difficult cleaning work than office areas
and Tenant shall retain Landlord's cleaning contractor to perform such cleaning
at Tenant's expense; provided, that if Landlord's contractor shall be an
Affiliate of Landlord, the cost of such cleaning services shall not exceed an
amount charged by first-class providers of such services on an arms-length
basis. Landlord's cleaning contractor shall have access to the Premises after
6:00 p.m. and before 8:00 a.m. and shall have the right to use, without charge
therefor, all light, power and water in the Premises reasonably required to
clean the Premises.
(b) Landlord may stop or interrupt any Landlord Service,
electricity, or other service and may stop or interrupt the use of any Building
facilities and systems at such times as may be necessary and for as long as may
reasonably be required by reason of accidents, strikes, or the making of
repairs, alterations or improvements, or inability to secure a proper supply of
fuel, gas, steam, water, electricity, labor or supplies, or by reason of any
other cause beyond the reasonable control of Landlord. Landlord shall have no
liability to Tenant by reason of any stoppage or interruption of any Landlord
Service, electricity or other service or the use of any Building facilities and
systems for any reason. In case of any stoppage or interruption of any Landlord
Service where such stoppage or interruption has occurred due to circumstances
or conditions within Landlord's control, Landlord shall use reasonable efforts
to minimize any interference with Tenant's use of the Premises for the ordinary
conduct of Tenant's business and shall comply with Section 4.04(d) with respect
to any access to the Premises. Landlord shall use reasonable diligence (which
shall not include incurring overtime charges) to make such repairs as may be
required to machinery or equipment within the Project to provide restoration of
any Landlord Service and, where the cessation or interruption of such Landlord
Service has occurred due to circumstances or conditions beyond the Project
boundaries, to cause the same to be restored by diligent application or request
to the provider.
(c) Without limiting any of Landlord's other rights and
remedies, if Tenant shall be in default beyond any applicable grace period,
Landlord shall not be obligated to furnish to the Premises any service outside
of Business Hours on Business Days, and Landlord shall have no liability to
Tenant by reason of any failure to provide, or discontinuance of, any such
service.
(d) "Business Hours" means 8:00 a.m. to 6:00 p.m. and from 8:00 a.m. to 1:00
p.m. on Saturdays. "Business Days" means all days except Saturday, Sundays, New
Year's Day, Washington's Birthday, Memorial Day, independence Day, Labor Day,
Thanksgiving, the day following Thanksgiving, Christmas and any other days
which are observed by both the federal and the state governments as legal
holidays.
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ARTICLE 4
Leasehold Improvements; Tenant Covenants
4.01 initial Improvements. (a) Landlord shall retain and coordinate
the services of an architect (the "Architect") to prepare working drawings (the
"Working Drawings") relating to the construction of Tenant's initial leasehold
improvements in the Premises (the "Initial Improvements"). Tenant shall review
the Working Drawings and shall notify Landlord of any required revisions within
7 Business Days and any delay by Tenant in doing so shall constitute a Tenant
Delay. Landlord shall cause all of the initial Improvements (other than the
wiring and installation of telephones, computers and of Rice equipment) to be
constructed ("Landlord's Work"). On the date hereof, Tenant has paid to
Landlord an amount equal to $600,000 (the "Tenant improvement Contribution")
which shall be used and applied by Landlord to pay for the cost to perform
Landlord's Work. If the cost to perform Landlord's Work exceeds the Tenant
improvement Contribution, then Landlord shall bear the next portion of such
costs up to an amount equal to (i) $22.50 per rentable square foot contained in
the Premises, less (ii) the Tenant Improvement Contribution. If the cost to
perform Landlord's Work exceeds $22.50 per rentable square foot contained in
the Premises then within 10 days after Tenant's receipt of an invoice therefor,
Tenant shall pay to Landlord the amount by which the cost to perform Landlord's
Work exceeds $22.50 per rentable square foot contained in the Premises. Upon
request, Landlord shall provide to Tenant reasonable information regarding the
use and application of the Tenant improvement Contribution to pay for costs
incurred by Landlord to perform Landlord's Work. All references in this Section
4.01(a) to "the cost to perform Landlord's Work" shall be inclusive of a sum
equal to 3% of the total cost of Landlord's Work for Landlord's indirect costs,
field inspection and coordination in connection with Landlord's Work. All
references in this Section4.01(a) to "the cost to perform Landlord's Work"
shall be exclusive of all architectural (including the Architect), engineering
and other fees and expenses, which fees and expenses shall be paid by Landlord,
provided that in no event shall such fees and expenses exceed $2.15 per
rentable square foot contained in the Premises. In the event that such fees and
expenses shall exceed $2.15 per rentable square foot contained in the Premises,
Tenant shall pay any such excess.
(b) it is understood that Tenant's architect shall be
responsible for programming, schematic design and design development. On or
before the date which is 30 days after the date of this Lease, Tenant shall
deliver to Landlord a space plan (which shall be submitted on a computer disk
which shall conform to the AUTO-CAD system) showing in appropriate detail the
proposed location of partitions, doors, millwork and custom areas, door and
hardware types, electrical communication and special lighting plans and generic
room finish schedule and other relevant information reasonably requested by the
Architect to prepare the Working Drawings. Without limiting the foregoing,
Tenant shall (i) approve or request specific changes with respect to any
drawings, plans or other materials submitted to Tenant by Landlord and (ii)
upon request
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by Landlord, make a representative available to meet with Landlord or the
Architect at the offices of Landlord or the Architect, in each case as soon as
reasonably practicable, but in all events within 3 Business Days of such
request. If Tenant fails to comply in a timely manner with this Section
4.01(b), such failure shall constitute a Tenant Delay.
(c) (i) if Tenant desires to make changes in Landlord's Work
after submission to Landlord of the information described in the first sentence
of Section 4.01 (b) (other than such changes as are consistent with the Space
Plan and do not constitute material changes to such information provided to
Landlord) or any changes in Landlord's Work after Tenant's approval of the
Working Drawings, Tenant or the Architect shall submit a signed change order
request (a "Change Order Request") accompanied by drawings in sufficient detail
depicting the change.
(ii) Within 7 days after receipt from Tenant of
the Change Order Request and drawings in sufficient detail depicting the
change, Landlord shall submit a change order (a "Change Order"), including an
estimate of the cost of such work, to Tenant for approval.
(iii) if a Change Order is acceptable to
Tenant, Tenant shall accept the Change Order by executing the Change Order and
returning it to Landlord within 3 Business Days after receiving same from
Landlord. If Tenant does not execute a Change Order within 3 Business Days
after receiving same from Landlord, such Change Order shall be considered
disapproved by Tenant, and Landlord shall continue with Landlord's Work as if
the change were never requested by Tenant. All costs incurred by Landlord for
any delay arising from Tenant's failure to execute a Change Order shall be for
Tenant's account.
(iv) No change or addition made by or on behalf
of Tenant in Landlord's Work after Landlord's receipt of the information
described in the first sentence of Section4.01(b) (other than such changes
which are consistent with the Space Plan and do not constitute material changes
to such information provided to Landlord) or any changes in Landlord's Work
after Tenant's approval of the Working Drawings shall extend the Rent
Commencement Date.
(d) Not later than 4 Business Days prior to substantial
completion of Landlord's Work, Landlord, Tenant and the Architect shall perform
a joint walk-through of the Premises and, in accordance with such walk-through,
the Architect shall prepare and provide to Landlord and Tenant a "punch list"
which identifies (i) incomplete construction and (ii) construction completed
which is inconsistent with the Working Drawings. Landlord shall thereafter
complete the work properly shown on said list with reasonable diligence.
(e) Landlord shall bid the performance of Landlord's Work to
at least 3 general contractors. Tenant may recommend I general contractor to
participate in such bidding (subject to Landlord's reasonable approval
thereof). Tenant shall have the
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right to review all bids, but Landlord shall have the right in its sole
discretion to select the general contractor.
4.02 Alterations. (a) Tenant shall make no improvements, changes or
alterations in or to the Premises ("Alterations") without Landlord's prior
approval. Provided Tenant is not in monetary default under this Lease or
non-monetary default Under this Lease beyond any applicable notice and grace
period, Landlord shall not unreasonably withhold its approval to any Alteration
that is not a Material Alteration. "Material Alteration" means an Alteration
that (i) is not limited to the interior of the Premises or which affects the
exterior (including the appearance) of the Building, (ii) is structural or
affects the strength of the Building, (iii) affects the usage (more than to a
de minimis extent) or the proper functioning of any of the Building systems,
(iv) has a cost greater than $25,000.00,(v) requires the consent of any
Superior Mortgagee or Superior Lessor or (vi) requires a change to the
Building's certificate of occupancy.
(b) Tenant shall not proceed with any Alteration unless and
until Landlord approves Tenant's plans and specificationS therefor Any review
or approval by Landlord of plans and specifications with respect to any
Alteration is solely for Landlord's benefit, and without any representation or
warranty to Tenant with respect to the adequacy, correctness or efficiency
thereof, its compliance with Laws or otherwise.
(c) Tenant shall pay to Landlord upon demand Landlord's
reasonable costs and expenses (including, without limitation, the fees of any
architect or engineer employed by Landlord or any Superior Lessor or Superior
Mortgagee for such purpose) for reviewing plans and specifications and
inspecting Alterations.
(d) Before proceeding with any Alteration that will cost more
than $25,000.00 (exclusive of the costs of decorating work and items
constituting Tenant's Property), as estimated by a reputable contractor
designated by Landlord, Tenant shall furnish to Landlord one of the following
(as selected by Landlord): (i) a cash deposit, (ii) a performance bond and a
labor and materials payment bond (issued by a corporate surety licensed to do
business in New York reasonably satisfactory to Landlord) or (iii) an
irrevocable, unconditional, negotiable letter of credit, issued by a bank and
in a form reasonably satisfactory to Landlord; each to be equal to 100% of the
cost of the Alteration, estimated as set forth above. Any such letter of credit
shall be for one year and shall be renewed by Tenant each and every year until
the Alteration in question is completed and shall be delivered to Landlord not
less than 30 days prior to the expiration of the then current letter of credit,
failing which Landlord may present the then current letter of credit for
payment and deposit the proceeds into an interest-bearing account to be
administered in accordance with this Section 4.02. Upon (A) the completion of
the Alteration in accordance with the terms of this Section 4.02 and (B) the
submission to Landlord of (x) proof evidencing the payment in full for said
Alteration, (y) written unconditional lien waivers of mechanics' liens and
other liens on the Project from all contractors performing said Alteration and
(z) all sign-offs from governmental agencies having jurisdiction, the security
deposited with Landlord (or the balance of the
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proceeds thereof, if Landlord has drawn on the same) shall be returned to
Tenant. Upon Tenant's failure properly to perform, complete and fully pay for
any Alteration, as determined by Landlord, Landlord may, upon notice to Tenant,
draw on the security deposited under this Section 4.02(d) to the extent
Landlord deems necessary in connection with said Alteration, the restoration
and or protection of the Premises or the Project and the payment of any costs,
damages or expenses resulting therefrom.
(e) Tenant shall obtain (and furnish copies to Landlord of)
all necessary governmental permits and certificates for the commencement and
prosecution of Alterations and for final approval thereof upon completion, and
shall cause Alterations to be performed in compliance therewith, and in
compliance with all Laws and with the plans and specifications approved by
Landlord. Alterations shall be diligently performed in a good and workmanlike
manner, using new materials and equipment at least equal in quality and class
to the then standards for the Building established by Landlord. Alterations
shall be performed by contractors first approved by Landlord, which approval
shall not be unreasonably withheld or delayed; provided, that any Alterations
in or to the systems of the Building shall be performed only by the
contractor(s) designated by Landlord; Provided that if such contractor is an
Affiliate of Landlord, the fees of such contractor shall not exceed the amount
which would be charged by a first-class contractor on an arms-length basis. The
performance of any Alteration shall not be done in a manner which would create
any work stoppage, picketing, labor disruption, disharmony or dispute or any
interference with the business of Landlord or any tenant or occupant of the
Building. Tenant shall immediately stop the performance of any Alteration if
Landlord notifies Tenant that continuing such Alteration would create any work
stoppage, picketing, labor disruption, disharmony or dispute or any material
interference with the business of Landlord or any tenant or occupant of the
Building.
(f) Throughout the performance of Alterations, Tenant shall
carry worker's compensation insurance in statutory limits, "all risk" Builders
Risk coverage and general liability insurance, with completed operation
endorsement, for any occurrence in or about the Project, under which Landlord
and its agent and any Superior Lessor and Superior Mortgagee whose name and
address have been furnished to Tenant shall be named as parties insured, in
such limits as Landlord may reasonably require, with insurers reasonably
satisfactory to Landlord. Tenant shall furnish Landlord with evidence that such
insurance is in effect at or before the commencement of Alterations and, on
request, at reasonable intervals thereafter during the continuance of
Alterations.
(g) Should any mechanics' or other liens be filed against any
portion of the Project by reason of the acts or omissions of, or because of a
claim against, Tenant or anyone claiming under or through Tenant, Tenant shall
cause the same to be canceled or discharged of record by bond or otherwise
within 10 days after notice from Landlord. If Tenant shall fail to cancel or
discharge said lien or liens within said 10 day period, Landlord may cancel or
discharge the same and, upon Landlord's demand, Tenant shall reimburse Landlord
for all costs incurred in canceling or discharging such liens, together with
interest thereon at the interest Rate from the date incurred by Landlord to
21
the date of payment by Tenant, such reimbursement to be made within 10 days
after receipt by Tenant of a written statement from Landlord as to the amount
of such costs. Tenant shall indemnify and hold Landlord harmless from and
against all costs (including, without limitation, attorneys' fees and
disbursements and costs of suit), losses, liabilities or causes of action
arising out of or relating to any Alteration, including, without limitation,
any mechanics' or other liens asserted in connection with such Alteration.
(b) Tenant shall deliver to Landlord, within 30 days after
the completion of an Alteration, "as-built" drawings thereof During the Term,
Tenant shall keep records of Alterations costing in excess of $5,000 including
plans and specifications, copies of contracts, invoices, evidence of payment
and all other records customarily maintained in the real estate business
relating to Alterations and the cost thereof and shall, within 30 days after
demand by Landlord. furnish to Landlord copies of such records.
(i) All Alterations to and Fixtures installed by Tenant in
the Premises shall be fully paid for by Tenant in cash and shall not be subject
to conditional bills of sale, chattel mortgages, or other title retention
agreements.
4.03 Landlord's and Tenant's Property. (a) All fixtures, equipment,
improvements and appurtenances attached to or built into the Premises which
would cause material damage to the Premises or the Building to remove, whether
or not at the expense of Tenant (collectively, "Fixtures"), shall be and remain
a part of the Premises and shall not be removed by Tenant. All Fixtures
constituting improvements and Betterrments shall be the property of Tenant
during the Term and, upon expiration or earlier termination of this Lease,
shall become the property of Landlord. All Fixtures other than improvements and
Betterments shall, upon installation, be the property of Landlord.
"Improvements and Betterments" means (i) all Fixtures, if any, installed at the
expense of Tenant, whether installed by Tenant or by Landlord (i.e., excluding
any Fixtures paid for by Landlord directly or by way of an allowance) and (ii)
all carpeting in the Premises.
(b) All movable partitions, business and trade fixtures,
machinery and equipment, and all furniture, furnishings and other articles of
movable personal property owned by Tenant and located in the Premises
(collectively, "Tenant's Property") shall be and shall remain the property of
Tenant and may be removed by Tenant at any time during the Term; provided, that
if any Tenant's Property is removed, Tenant shall repair any damage to the
Premises or to the Building resulting from the installation and/or removal
thereof
(c) At or before the Expiration Date, or within 15 days after
any earlier termination of this Lease, Tenant, at Tenant's expense, shall
remove Tenant's Property from the Premises (except such items thereof as
Landlord shall have expressly permitted to remain, which shall become the
property of Landlord), and Tenant shall repair any damage to the Premises or
the Building resulting from any installation and/or
22
removal of Tenant's Property. Any items of Tenant's Property which remain in
the Premises after the Expiration Date, or more than 15 days after an earlier
termination of this Lease, may, at the option of Landlord, be deemed to have
been abandoned, and may be retained by Landlord as its property or disposed of
by Landlord, without accountability, in such manner as Landlord shall determine
at Tenant's expense.
(d) Landlord, by notice given to Tenant at any time prior to
the Expiration Date or not later than 30 days after any earlier termination of
this Lease, may require Tenant, notwithstanding Section 4.03(a), to remove all
or any Fixtures that do not constitute a standard office installation, such as,
by way of example only, kitchens, vaults, safes, raised flooring and
stairwells. If Landlord shall give such notice, then Tenant, at Tenant's
expense, prior to the Expiration Date, or, in the case of an earlier
termination of this Lease, within 15 days after the giving of such notice by
Landlord, shall remove the same from the Premises, shall repair and restore the
Premises to the condition existing prior to installation thereof and shall
repair any damage to the Premises or to the Building due to such removal.
Notwithstanding the foregoing, Tenant may, together with the plans and
specifications required to be submitted pursuant to Section 4.02, submit a
notice to Landlord inquiring whether the proposed Alteration (or any pan
thereof does not constitute a standard of office installation.
4.04 Access and Changes to Building. (a) Landlord reserves the
right, at any time, to make changes in or to the Project as Landlord may deem
necessary or desirable, and Landlord shall have no liability to Tenant
therefor, provided any such change does not deprive Tenant of access to the
Premises or the parking to which Tenant is entitled pursuant to Section 8.17
and does not affect the first-class nature of the Project. Landlord may install
and maintain pipes, fans, ducts, wires and conduits within or through the
walls, floors or ceilings of the Premises; provided, (i) there shall be no
diminution to the size of the Premises (other than to a de minimis extent);
(ii) such installation shall be concealed; and (iii) Landlord shall restore any
damage to the Premises caused by such installations. In exercising its rights
under this Section 4.04, Landlord shall use reasonable efforts to minimize any
interference with Tenant's use of the Premises for the ordinary conduct of
Tenant's business and shall comply with Section 4.04(d) with respect to any
access to the Premises.
(b) Except for the space within the inside surfaces of all
walls, hung ceilings, floors, windows and doors bounding the Premises, all of
the Building, including, without limitation, exterior Building walls, core
corridor walls and doors and any core corridor entrance, any terraces or roofs
adjacent to the Premises, and any space in or adjacent to the Premises used for
shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities,
sinks or other Building facilities, and the use thereof, as well as access
thereto through the Premises, are reserved to Landlord and are not part of the
Premises. Landlord reserves the right to name the Building and to change the
name or address of the Building at any time and from time to time.
23
(c) Landlord shall have no liability to Tenant if at
any time any windows of the Premises are either temporarily darkened or
obstructed by reason of any repairs, improvements, maintenance and or
cleaning in or about the Building (or permanently darkened or
obstructed if required by Law) or covered by any translucent material
for the purpose of energy conservation, or if any part of the Building,
other than the Premises, is temporarily or permanently closed or
inoperable.
(d) Landlord and persons authorized by Landlord shall
have the right, upon prior notice to Tenant (except in an emergency),
to enter the Premises (together with any necessary materials and/or
equipment), to inspect or perform such work as Landlord may reasonably
deem necessary or to exhibit the Premises to prospective purchasers or
mortgagees or, during the last 9 months of the Term, to prospective
tenants, or for any other purpose as Landlord may deem necessary or
desirable. Landlord shall have no liability to Tenant by reason of any
such entry. Landlord shall not be required to make any improvements or
repairs of any kind or character to the Premises during the Term,
except as otherwise expressly provided herein.
4.05 Repairs. Tenant shall keep the Premises (including,
without limitation, all Fixtures) in good condition and, upon
expiration or earlier termination of the Term, shall surrender the same
to Landlord in the same condition as when first occupied, reasonable
wear and tear excepted. Tenant's obligation shall include, without
limitation, the obligation to repair all damage caused by Tenant, its
agents, employees, invitees and licensees to the equipment and other
installations in the Premises or anywhere in the Building; Tenant shall
not be responsible for repairs to the Building's systems or structural
components of the Building unless such repairs shall be necessitated
because of the acts or omissions of Tenant or Tenant's agents,
employees, invitees or licensees. Any maintenance, repair or
replacement to the windows (including, without limitation, any solar
film attached thereto), the Building systems, the Building's structural
components or any areas outside the Premises and which is Tenant's
obligation to perform shall be performed by Landlord at Tenant's
expense. Tenant shall not commit or allow to be committed any waste or
damage to any portion of the Premises or the Building.
4.06 Compliance with Laws. Tenant shall comply with all
laws, ordinances, rules, orders and regulations (present, future,
ordinary, extraordinary. foreseen or unforeseen) of any governmental,
public or quasi-public authority and of the New York Board of
Underwriters, the New York Fire insurance Rating Organization and any
other entity performing similar functions, at any time duly in force
(collectively "Laws"), attributable to any work, installation,
occupancy, use or manner of use by Tenant of the Premises or any part
thereof. Nothing contained in this Section 4.06 shall require Tenant to
make any structural changes unless the same are necessitated by reason
of Tenant's manner of use of the Premises or the use by Tenant of the
Premises for purposes other than normal and customary ordinary office
purposes. Tenant shall procure and maintain all licenses and permits
required for its business.
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4.07 Tenant Advertising. Tenant shall not Use, and shall cause each
of its Affiliates not to use, the name or likeness of the Building or the
Project in any advertising (by whatever medium) without Landlord's consent (not
to be unreasonably withheld or delayed).
4.08 Right to Perform Tenant Covenants. If Tenant fails to perform
any of its obligations under this Lease, Landlord, any Superior Lessor or any
Superior Mortgagee (each, a "Curing Partv") may perform the same at the expense
of Tenant (a) immediately and without notice in the case of emergency or in
case such failure interferes with the Use of space by any other tenant in the
Building or with the efficient operation of the Building or may result in a
violation of any Law or in a cancellation of any insurance policy maintained by
Landlord and (b) in any other case if such failure continues beyond any
applicable grace period. If a Curing Party performs any of Tenant's obligations
under this Lease, Tenant shall pay to Landlord (as Additional Rent) the costs
thereof, together with interest at the interest Rate from the date incurred by
the Curing Party until paid by Tenant, within 10 days after receipt by Tenant
of a statement as to the amounts of such costs. If the Curing Party effects
such cure by bonding any lien which Tenant is required to bond or otherwise
discharge, Tenant shall obtain and substitute a bond for the Curing Party's
bond and shall reimburse the Curing Party for the cost of the Curing Party's
bond. "Interest Rate" means the lesser of (i) the base rate from time to time
announced by Citibank, N.A. (or, if Citibank, ALA. shall not exist, such other
bank in New York, New York, as shall be designated by Landlord in a notice to
Tenant) to be in effect at its principal office in New York, New York plus 2%
or (ii) the maximum rate permitted by law
ARTICLE 5
Assignment and
Subletting
5.01 Assignment Etc. (a) Subject to Section 5.02, neither this
Lease nor the term and estate hereby granted, nor any pan hereof or thereof
shall be assigned, mortgaged, pledged, encumbered or otherwise transferred
voluntarily, involuntarily, by operation of law or otherwise, and neither the
Premises, nor any pan thereof, shall be subleased, be licensed, be used or
occupied by any person or entity other than Tenant or be encumbered in any
manner by reason of any act or omission on the pan of Tenant. and no rents or
other sums receivable by Tenant under any sublease of all or any pan of the
Premises shall be assigned or otherwise encumbered, without the prior consent
of Landlord. The dissolution or direct or indirect transfer of control of
Tenant (however accomplished including, by way of example, the admission of new
partners or members or withdrawal of existing partners or members, or transfers
of interests in distributions of profits or losses of Tenant, issuance of
additional stock, redemption of stock, stock voting agreement, or change in
classes of stock) shall be deemed an assignment of this Lease regardless of
whether the transfer is made by one or more transactions, or whether one or
more persons or entities hold the controlling interest prior to the transfer or
afterwards. An agreement under which another person or entity becomes
responsible for all or a
25
portion of Tenant's obligations under this Lease shall be deemed an assignment
of this Lease. No assignment or other transfer of this Lease and the term and
estate hereby granted, and no subletting of all or any portion of the Premises
shall relieve Tenant of its liability under this Lease or of the obligation to
obtain Landlord's prior consent to any further assignment, other transfer or
subletting. Any attempt to assign this Lease or sublet all or any portion of
the Premises in violation of this Article 5 shall be null and void.
(b) Notwithstanding Section 5.01 (a), without the consent of
Landlord, this Lease may be assigned to (i) an entity created by merger,
reorganization or recapitalization of or with Tenant or (ii) a purchaser of all
or substantially all of Tenant's assets; provided, in the case of both clause
(i) and clause (ii), that (A) Landlord shall have received a notice of such
assignment from Tenant, (B) the assignee assumes by written instrument
reasonably satisfactory to Landlord all of Tenant's obligations under this
Lease, (C) such assignment is for a valid business purpose and not to avoid any
obligations under this Lease, and (D) the assignee is a reputable entity of
good character and shall have, immediately after giving effect to such
assignment, an aggregate net worth (computed in accordance with GAAP) at least
equal to the aggregate net worth (as so computed) of Tenant immediately prior
to such assignment or on the date of this Lease, whichever is greater.
(c) Notwithstanding Section 5.01(a), without the consent of
Landlord, Tenant may assign this Lease or sublet all or any part of the
Premises to an Affiliate of Tenant; provided, that (i) Landlord shall have
received a notice of such assignment or sublease from Tenant; and (ii) in the
case of any such assignment, (A) the assignment is for a valid business purpose
and not to avoid any obligations under this Lease, and (B) the assignee assumes
by written instrument reasonably satisfactory to Landlord all of Tenant's
obligations under this Lease. "Affiliate" means, as to any designated person or
entity, any other person or entity which controls, is controlled by, or is
under common control with, such designated person or entity. "Control" (and
with correlative meaning, "controlled by" and "under common control with")
means ownership or voting control, directly or indirectly, of 50% or more of
the voting stock, partnership interests or other beneficial ownership interests
of the entity in question.
5.02 Landlord's Right of First Offer. (a) if Tenant desires to
assign this Lease or sublet ail or part of the Premises (other than in
accordance with Sections 5.01(b) or 5.01(c)), Tenant shall give to Landlord
notice ("Tenant's Offer Notice") thereof, specifying (i) in the case of a
proposed subletting, the location of the space to be sublet and the term of the
subletting of such space, (ii) (A) in the case of a proposed assignment,
Tenant's good faith offer of the consideration Tenant desires to receive or pay
for such assignment or (B) in the case of a proposed subletting, Tenant's good
faith offer of the fixed annual rent which Tenant desires to receive for such
proposed subletting (assuming that a subtenant will pay for Taxes and
electricity in the same manner, and utilizing the same base year or base
amount, as Tenant pays for such amounts under this Lease) and (iii) the
proposed assignment or sublease commencement date.
26
(b) Tenant's Offer Notice shall be deemed an offer from
Tenant to Landlord whereby Landlord (or Landlord's designee) may, at Landlord's
option, (i) sublease such space from Tenant (if the proposed transaction is a
sublease of all or pan of the Premises), (ii) have this Lease assigned to it or
terminate this Lease (if the proposed transaction is an assignment or a
sublease of all or substantially all of the Premises or a sublease of a portion
of the Premises which, when aggregated with other subleases then in effect,
covers all or substantially all of the Premises), or (iii) terminate this Lease
with respect to the space covered by the proposed sublease (if the proposed
transaction is a sublease of part of the Premises) Said option may be exercised
by Landlord by notice to Tenant within 60 days after a Tenant's Offer Notice,
together with all information required pursuant to Section 5.02(a), has been
given by Tenant to Landlord. If Landlord exercises its right to sublet space
from Tenant or to have this Lease assigned to Landlord pursuant to this Section
5.02, Tenant shall remain fully liable for the payment of the any difference in
the Rent reserved under such assignment or sublease and the Rent reserved under
this Lease for so long as such assignment or sublease is in effect but Tenant
shall have no further obligations under this Lease.
(c) if Landlord exercises its option under Section
5.02(b)(ii) to terminate this Lease, then this Lease shall terminate on the
proposed assignment or sublease commencement date specified in the applicable
Tenant's Offer Notice and all Rent shall be paid and apportioned to such date
(d) if Landlord exercises its option under Section
5.02(b)(ii) to have this Lease assigned to it (or its designee), then Tenant
shall assign this Lease to Landlord (or Landlord's designee) by an assignment
in form and substance reasonably satisfactory to Landlord, effective on the
proposed assignment or sublease commencement date specified in the applicable
Tenant's Offer Notice. Tenant shall not be entitled to consideration or payment
from Landlord (or Landlord's designee) in connection with any such assignment.
If the Tenant's Offer Notice provides that Tenant will pay any consideration or
grant any concessions in connection with the proposed assignment or sublease,
then Tenant shall pay such consideration and/or grant any such concessions to
Landlord (or Landlord's designee) on the date Tenant assigns this Lease to
Landlord (or Landlord's designee).
(e) if Landlord exercises its option under Section 5.02(a)(3)
to terminate this Lease with respect to the space covered by a proposed
sublease, then (i) this Lease shall terminate with respect to such part of the
Premises on the effective date of the proposed sublease; (ii) from and after
such date the Rent shall be adjusted, based upon the proportion that the
rentable area of the Premises remaining bears to the total rentable area of the
Premises and (iii) Tenant shall pay to Landlord, upon demand, the costs
incurred by Landlord in demising separately such part of the Premises and in
complying with any Laws relating to such demise.
(f) if Landlord exercises its option under Section 5.02(b)(i)
to sublet the space Tenant desires to sublet, such sublease to Landlord or its
designee (as
27
subtenant) shall be in form and substance reasonably satisfactory to Landlord
at the lower of (i) the rental rate per rentable square foot of Fixed Rent and
Additional Rent then payable pursuant to this Lease or (ii) the rental set
forth in the applicable Tenant's Offer Notice with respect to such sublet
space, and shall be for the term set forth in the applicable Tenant's Offer
Notice, and:
(A) shall be subject to all of the terms and
conditions of this Lease except such as are irrelevant or inapplicable, and
except as otherwise expressly set forth to the contrary in this Section
5.02(f);
(B) shall be upon the same terms and conditions
as those contained in the applicable Tenant's Offer Notice and otherwise on the
terms and conditions of this Lease, except such as are irrelevant or
inapplicable and except as otherwise expressly set forth to the contrary in
this Section 5.02(f);
(C) shall permit the sublessee, without
Tenant's consent, freely to assign such sublease or any interest therein or to
sublet all or any pan of the space covered by such sublease and to make any and
all alterations and improvements in the space covered by such sublease;
(D) shall provide that any assignee or further
subtenant of Landlord or its designee may, at the election of Landlord, make
alterations, decorations and installations in such space or any pan thereof,
any or all of which may be removed, in whole or in part, by such assignee or
subtenant, at its option, prior to or upon the expiration or other termination
of such sublease, provided that such assignee or subtenant, at its expense,
shall repair any damage caused by such removal; and
(E) shall provide that (1) the parties to such
sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties, (2)
any assignment or subletting by Landlord or its designee (as the subtenant) may
be for any purpose or purposes that Landlord shall deem appropriate, (3)
Landlord, at Tenant's expense, may make such alterations as may be required or
deemed reasonably necessary by Landlord to demise separately the subleased
space and to comply with any Laws relating to such demise, and (4) at the
expiration of the term of such sublease, Tenant shall accept the space covered
by such sublease in its then existing condition, subject to the obligations of
the sublessee to make such repairs thereto as may be necessary to preserve such
space in good order and condition and Tenant shall have no obligation to remove
any Alterations performed in such space by or for the subtenant or to restore
any damage caused by the subtenant.
(g) in the case of a proposed sublease, Tenant shall not
sublet any space to a third party at a rental which is less (on a per rentable
square foot basis) than the rental (on a per rentable square foot basis)
specified in Tenant's Offer Notice with respect to such space, without
complying once again with all of the provisions of this Section 5.02 and
re-offering such space to Landlord at such lower rental. In the case of a
proposed assignment, Tenant shall not assign this Lease to a third party where
Tenant
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pays greater consideration or grants a greater concession to such third party
for such assignment then the consideration offered to be paid or concession
offered to be granted to Landlord in Tenant's Offer Notice without complying
once again with all of the provisions of this Section 5.02 and re-offering to
assign this Lease to Landlord and pay such consideration or grant such
concession to Landlord.
5.03 Assignment and Subletting Procedures. (a) if Tenant delivers
to Landlord a Tenant's Offer Notice with respect to any proposed assignment of
this Lease or subletting of all or part of the Premises and Landlord does not
timely exercise any of its options under Section 5.02, and Tenant thereafter
desires to assign this Lease or sublet the space specified in Tenant's Offer
Notice, Tenant shall notify Landlord (a "Transfer Notice") of such desire,
which notice shall be accompanied by (i) a copy of the proposed assignment or
sublease and all related agreements, the effective date of which shall be at
least 30 days after the giving of the Transfer Notice, (ii) a statement setting
forth in reasonable detail the identity of the proposed assignee or subtenant,
the nature of its business and its proposed use of the Premises, (iii) current
financial information with respect to the proposed assignee or subtenant,
including, without limitation, its most recent financial statement and (iv)
such other information as Landlord may reasonably request, and Landlord's
consent to the proposed assignment or sublease shall not be unreasonably
withheld, provided that:
(i) such Transfer Notice shall be delivered to
Landlord within six months after the delivery to Landlord of the applicable
Tenant's Offer Notice.
(ii) in Landlord's judgment the proposed
assignee or subtenant will use the Premises in a manner that (A) is in keeping
with the then standards of the Building, (B) is limited to the use expressly
permitted under this Lease, and (C) will not violate any negative covenant as
to use contained in any other Lease of space in the Building.
(iii) The proposed assignee or subtenant is, in
Landlord's reasonable judgment, a reputable person or entity of good character
and with sufficient financial worth considering the responsibility involved.
(iv) Neither the proposed assignee or
sublessee, nor any Affiliate of such assignee or sublessee, is then an occupant
of any pan of the Building unless, in the case of any Affiliate of an occupant
of the Building, Landlord shall have actually negotiated with such Affiliate to
lease space in the Building and terminated negotiations with such Affiliate.
(v) The proposed assignee or sublessee is not a
person with whom Landlord is then negotiating or has within the prior 6 months
negotiated to lease space in the Building.
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(vi) The form of the proposed sublease shall be
reasonably satisfactory to Landlord and shall comply with the applicable
provisions of this Article 5.
(vii) There shall not be more than I subtenant of the
Premises.
(viii) The aggregate rent to be paid by the
proposed subtenant is not less than the greater of (A) the fair rental value of
the sublet space as sublet space or (B) 90% of the fair rental value of the
sublet space if such space were being leased directly by Landlord (in each case
as reasonably determined by Landlord).
(ix) Tenant shall reimburse Landlord on demand
for any costs incurred by Landlord in connection with said assignment or
sublease, including, without limitation, the costs of making investigations as
to the acceptability of the proposed assignee or subtenant, and reasonable
legal costs incurred in connection with the granting of any requested consent.
(b) if Landlord consents to a proposed assignment or sublease
and Tenant fails to execute and deliver the assignment or sublease to which
Landlord consented within 45 days after the giving of such consent, then Tenant
shall again comply with this Article 5 before assigning this Lease or
subletting all or part of the Premises.
5.04 General Provisions. (a) if this Lease is assigned, whether or
not in violation of this Lease, Landlord may collect rent from the assignee. If
the Premises or any part thereof are sublet or occupied by anybody other than
Tenant, whether or not in violation of this Lease, Landlord may, after default
by Tenant, and expiration of Tenant's time to cure such default, collect rent
from the subtenant or occupant. In either event, Landlord may apply the net
amount collected against Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section
5.01(a), or the acceptance of the assignee, subtenant or occupant as tenant, or
a release of Tenant from the performance of Tenant's obligations under this
Lease.
(b) No assignment or transfer shall be effective until the
assignee delivers to Landlord (i) evidence that the assignee, as Tenant
hereunder, has complied with the requirements of Sections 7.02 and 7.03, and
(ii) an agreement in form and substance reasonably satisfactory to Landlord
whereby the assignee assumes Tenant's obligations under this Lease.
(c) Notwithstanding any assignment or transfer, whether or
not in violation of this Lease, and notwithstanding the acceptance of any Rent
by Landlord from an assignee, transferee, or any other party, the original
named Tenant and each successor Tenant shall remain fully liable for the
payment of the Rent and the performance of all of Tenant's other obligations
under this Lease. The joint and several liability of Tenant and any immediate
or remote successor in interest of Tenant shall not be discharged, released or
impaired in any respect by any agreement made by Landlord
30
extending the time to perform, or otherwise modifying, any of the obligations
of Tenant under this Lease, or by any waiver or failure of Landlord to enforce
any of the obligations of Tenant under this Lease. The foregoing shall not
affect the last sentence of Section 5.02(b).
(d) Each subletting by Tenant shall be subject to the
following:
(i) No subletting shall be for a term
(including any renewal or extension options contained in the sublease) ending
later than one day prior to the Expiration Date.
(ii) No sublease shall be valid, and no
subtenant shall take possession of the Premises or any part thereof, until
there has been delivered to Landlord, both (A) an executed counterpart of such
sub ease, and (B) a certificate of insurance evidencing that (x) Landlord is an
additional insured under the insurance policies required to be maintained by
occupants of the Premises pursuant to Section 7.02, and (y) there is in full
force and effect, the insurance otherwise required by Section 7.02.
(iii) Each sublease shall provide that it is
subject and subordinate to this Lease, and that in the event of termination,
reentry or dispossess by Landlord under this Lease Landlord may, at its option,
take over all of the right, title and interest of Tenant, as sublessor, under
such sublease, and such subtenant shall, at Landlord's option, attorn to
Landlord pursuant to the then executory provisions of such sublease, except
that Landlord shall not be liable for, subject to or bound by any item of the
type that a Successor Landlord is not so liable for, subject to or bound by in
the case of an attornment by Tenant to a Successor Landlord under Section 6.01
(a).
(e) Each sublease shall provide that the subtenant may not
assign its rights thereunder or further sublet the space demised under the
sublease, in whole or in part, without Landlord's consent and without complying
with all of the terms and conditions of this Article 5, including, without
limitation, Section 5.04, which for purposes of this Section 5.04(e) shall be
deemed to be appropriately modified to take into account that the transaction
in question is an assignment of the sublease or a further subletting of the
space demised under the sublease, as the case may be.
(f) Tenant shall not publicly advertise the availability of
the Premises or any portion thereof as sublet space or by way of an assignment
of this Lease, without first obtaining Landlord's consent, which consent shall
not be unreasonably withheld or delayed provided that Tenant shall in no event
advertise the rental rate or any description thereof
5.05 Partnership Tenant. If at any time Tenant is a partnership the
following shall apply: (a) the liability of each of the parties comprising
Tenant shall be joint and several, (b) each of the parties comprising Tenant
hereby consents to, and agrees to be bound by, any written instrument which may
hereafter be executed, changing modifying or discharging this Lease, in whole
or in part, or surrendering all or any part
31
of the Premises to Landlord or renewing or extending this Lease and by any
notices, demands, requests or other communications which may hereafter be
given, by Tenant or by any of the parties comprising Tenant, (c) any bills,
statements, notices, demands, requests or other communications given or
rendered to Tenant or to any of the parties comprising Tenant shall be deemed
given or rendered to Tenant and to all such parties and shall be binding upon
Tenant and all such parties, (d) if Tenant shall admit new partners. all of
such new partners shall, by their admission to Tenant, be deemed to have
assumed performance of all of the terms, covenants and conditions of this Lease
on Tenant's part to be observed and performed, (e) Tenant shall give prompt
notice to Landlord of the admission of any partner or partners, and upon demand
of Landlord, shall cause each such partner to execute and deliver to Landlord
an agreement in form satisfactory to Landlord, wherein each such new partner
shall assume performance of all of the terms, covenants and conditions of this
Lease on Tenant's pan to be observed and performed (but neither Landlord's
failure to request any such agreement nor the failure of any such new partner
to execute or deliver any such agreement to Landlord shall vitiate the
provisions of this Section 5.05, and (a) on each anniversary of the
Commencement Date, Tenant Hall deliver to Landlord a list of all partners
together with their current residential addresses.
5.06 Assignment and Sublease Profits. (a) if the aggregate of the
amounts payable as fixed rent and as additional rent on account of Taxes and
electricity by a subtenant under a sublease of any pan of the Premises and the
amount of any Other Sublease Consideration payable to Tenant by such subtenant,
whether received in a lumpsum payment or otherwise shall be in excess of
Tenant's Basic Cost therefor at that time then, promptly after the collection
thereof, Tenant shall pay to Landlord 50% of such excess in monthly
installments as and when collected. Tenant shall deliver to Landlord within 60
days after the end of each calendar year and within 60 days after the
expiration or earlier termination of this Lease a statement specifying each
sublease in effect during such calendar year or partial calendar year, the
rentable area demised thereby, the term thereof and a computation in reasonable
detail showing the calculation of the amounts paid and payable by the subtenant
to Tenant, and by Tenant to Landlord, with respect to such sublease for the
period covered by such statement. "Tenant's Basic Cost" for sublet space at any
time means the sum of (i) the portion of the Fixed Rent and Tax Payments which
is attributable to the sublet space, plus (ii) the amount payable by Tenant on
account of electricity in respect of the sublet space, plus (iii) the amount of
any costs reasonably incurred by Tenant in making changes in the layout and
finish of the sublet space for the subtenant amortized on a straight-line basis
over the term of the sublease plus (iv) the amount of any reasonable brokerage
commissions and reasonable legal fees paid by Tenant in connection with the
sublease amortized on a straight-line basis over the term of the sublease.
"Other Sublease Consideration" means all sums paid for the furnishing of
services by Tenant and the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture or other personal property less, in the case
of the sale thereof, the then net unamortized or undepreciated cost thereof
determined on the basis of Tenant's federal income tax returns.
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(b) Upon any assignment of this Lease, Tenant shall pay to
Landlord 50% of the Assignment Consideration received by Tenant for such
assignment, after deducting therefrom customary and reasonable closing
expenses. "Assignment Consideration" means an amount equal to all sums and
other considerations paid to Tenant by the assignee for or by reason of such
assignment (including, without limitation, sums paid for the furnishing of
services by Tenant and the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture, furnishings or other personal property,
less, in the case of a sale thereof, the then net unamortized or undepreciated
cost thereof determined on the basis of Tenant's federal income tax returns).
ARTICLE 6
Subordination: Default; Indemnity
6.01 Subordination. (a) This Lease is subject and
subordinate to each mortgage (a "Superior Mortgage and each underlying lease (a
"Superior Lease") which may now or hereafter affect all or any portion of the
Project or any interest therein. The lessor under a Superior Lease is called a
"Superior Lessor" and the mortgagee under a Superior Mortgage is called a
"Superior Mortgagee". Tenant shall execute, acknowledge and deliver any
instrument reasonably requested by Landlord, a Superior Lessor or Superior
Mortgagee to evidence such subordination, but no such instrument shall be
necessary to make such subordination effective. Tenant shall execute any
amendment of this Lease requested by a Superior Mortgagee or a Superior Lessor,
provided such amendment shall not result in a material increase in Tenant's
obligations under this Lease or a material reduction in the benefits available
to Tenant. In the event of the enforcement by a Superior Mortgagee of the
remedies provided for by law or by such Superior Mortgage, or in the event of
the termination or expiration of a Superior Lease, Tenant, upon request of such
Superior Mortgagee, Superior Lessor or any person succeeding to the interest of
such mortgagee or lessor (each, a "Successor Landlord"), shall automatically
become the tenant of such Successor Landlord without change in the terms or
provisions of this Lease (it being understood that Tenant shall, if requested,
enter into a new lease on terms identical to those in this Lease); provided,
that any Successor Landlord shall not be (i) liable for any act, omission or
default of any prior landlord (including, without limitation, Landlord); (ii)
liable for the return of any monies paid to or on deposit with any prior
landlord (including, without limitation, Landlord), except to the extent such
monies or deposits are delivered to such Successor Landlord; (iii) subject to
any offset, claims or defense that Tenant might have against any prior landlord
(including, without limitation, Landlord); (iv) bound by any Rent which Tenant
might have paid for more than the current month to any prior landlord
(including, without limitation, Landlord) unless actually received by such
Successor Landlord; (v) bound by any covenant to perform or complete any
construction in connection with the Project or the Premises or to pay any sums
to Tenant in connection therewith; or (vi) bound by any waiver or forbearance
under, or any amendment, modification, abridgment, cancellation or surrender of
this Lease made without the consent of such Successor Landlord. Upon request by
such Successor Landlord, Tenant shall execute and deliver an instrument or
33
instruments, reasonably requested by such Successor Landlord, confirming the
attornment provided for herein, but no such instrument shall be necessary to
make such attornment effective.
(b) in case of any Superior Mortgage or Superior Lease
affecting the Project after the date hereof, Landlord shall use reasonable
efforts to obtain from the Superior Mortgagee or Superior Lessor in question a
non-disturbance agreement in the form customarily used by such Superior
Mortgagee or Superior Lessor; provided, that Landlord shall not be required to
spend any sums more than de minimus administrative expenses or incur any costs
(unless Tenant shall pay such sums and costs) to obtain such non-disturbance
agreement and Landlord shall have no liability to Tenant and this Lease shall
in all events be subject and be subordinate to such Superior mortgage or
Superior Lease if such Superior Mortgagee or Superior Lessor does not execute
such non-disturbance agreement in favor of Tenant.
(c) Tenant shall give each Superior Mortgagee and each
Superior Lessor a copy of any notice of default served upon Landlord, provided
that Tenant has been notified of the address of such mortgagee or lessor. If
Landlord fails to cure any default as to which Tenant is obligated to give
notice pursuant to the preceding sentence within the time provided for in this
Lease, then each such mortgagee or lessor shall have an additional 30 days
after receipt of such notice within which to cure such default or if such
default cannot be cured within that time, then such additional time as may be
necessary if, within such 30 days, any such mortgagee or lessor has commenced
and is diligently pursuing the remedies necessary to cure such default
(including, without limitation, commencement of foreclosure proceedings or
eviction proceedings, if necessary to effect such cure; provided that such time
period shall not be extended by more than 60 days by reason of such
proceedings), in which event this Lease shall not be terminated and Tenant
shall not exercise any other rights or remedies under this Lease or otherwise
while such remedies are being so diligently pursued. Nothing herein shall be
deemed to imply that Tenant has any right to terminate this Lease or any other
right or remedy, except as may be otherwise expressly provided for in this
Lease.
6.02 Estoppel Certificate. Each party shall, at any time and from
time to time, within 10 Business Days after request by the other party, execute
and deliver to the requesting party (or to such person or entity as the
requesting party may designate) a statement certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), certifying the Commencement Date, Expiration Date and the dates
to which the Fixed Rent and Additional Rent have been paid and stating whether
or not, to the best knowledge of such party the other party is in default in
performance of any of its obligations under this Lease, and, if so, specifying
each such default of which such party has knowledge, it being intended that any
such statement shall be deemed a representation and warranty to be relied upon
by the party to whom such statement is addressed. Tenant also shall include or
confirm in any such statement such other information concerning this Lease as
Landlord may reasonably request.
34
6.03 Default. This Lease and the term and estate hereby granted are
subject to the limitation that:
(a) if Tenant defaults in the payment of any Rent, and such
default continues for 5 days after gives to Tenant a notice specifying such
default, or
(b) if Tenant defaults in the keeping, observance or
performance of any covenant or agreement (other than a default of the character
referred to in Sections 6.03(a), (c), (d), (e) or (f) or (g), and if such
default continues and is not cured within 15 days after Landlord gives to
Tenant a notice specifying the same, or, in the case of a default which for
causes beyond Tenant's reasonable control cannot with due diligence be cured
within such period of 15 days, if Tenant shall not prior to the expiration of
such I 5-day period, (i) advise Landlord of Tenant's intention duly to
institute all steps necessary to cure such default or (ii) institute and
thereafter diligently prosecute to completion all steps necessary to cure the
same,
(c) if this Lease or the estate hereby granted would, by
operation of law or otherwise, devolve upon or pass to any person or entity
other than Tenant, except as expressly permitted by Article 5, or
(d) if Tenant shall abandon the Premises, or (e) if a default
of the kind set forth in Section
6.03(a) or (b) shall occur and have been cured, and if a similar default shall
occur more than once within the next 365 days, whether or not such similar
defaults are cured within the applicable grace period, or
(f) if Tenant fails to deliver to Landlord any Security
Deposit within the time period required under Section 2.08, then, in any of
such cases, in addition to any other remedies available to Landlord at law or
in equity, Landlord shall be entitled to give to Tenant a notice of intention
to end the Term at the expiration of 5 days from the date of the giving of such
notice, and, in the event such notice is given, this Lease and the term and
estate hereby granted shall terminate upon the expiration of such 5 days with
the same effect as if the last of such 5 days were the Expiration Date, but
Tenant shall remain liable for damages as provided herein or pursuant to law.
6.04 Re-entry by Landlord. If Tenant defaults in the payment of any
Rent and such default continues for 5 days after notice from Landlord, or if
this Lease shall terminate as in Section 6.03 provided, Landlord or Landlord's
agents and servants may immediately or at any time thereafter re-enter into or
upon the Premises, or any pan thereof, either by summary dispossess proceedings
or by any suitable action or proceeding at law, without being liable to
indictment, prosecution or damages therefor, and may repossess the same, and
may remove any persons therefrom, to the end that
35
Landlord may have, hold and enjoy the Premises. The words "re-enter" and
"recentering" as used in this Lease are not restricted to their technical legal
meanings. Upon such termination or re-entry, Tenant shall pay to Landlord any
Rent then due and owing (in addition to any damages payable under Section
6.05).
6.05 Damages. If this Lease is terminated under Section 6.03, or if
Landlord re-enters the Premises under Section 6.04, Tenant shall pay to
Landlord as damages, at the election of Landlord, either:
(a) a sum which, at the time of such termination represents
the then value of the excess, if any, of ( I ) the aggregate of the Rent which,
had this Lease not terminated, would have been payable hereunder by Tenant for
the period commencing on the day following the date of such termination or
re-entry to and including the Expiration Date over (2) the aggregate fair
rental value of the Premises for the same period (for the purposes of this
clause (a) the amount of Additional Rent which would have been payable by
Tenant under Sections 2.04 and 2.05 shall, for each calendar year ending after
such termination or re-entry, be deemed to be an amount equal to the amount of
such Additional Rent payable by Tenant for the calendar year immediately
preceding the calendar year in which such termination or re-entry shall occur),
or
(b) sums equal to the Rent that would have been payable by
Tenant through and including the Expiration Date had this Lease not terminated
or had Landlord not re-entered the Premises, payable upon the due dates
therefor specified in this Lease; provided, that if Landlord shall relet all or
any part of the Premises for all or any part of the period commencing on the
day following the date of such termination or re-entry to and including the
Expiration Date, Landlord shall credit Tenant with the net rents received by
Landlord from such reletting, such net rents to be determined by first
deducting from the gross rents as and when received by Landlord from such
reletting the expenses incurred or paid by Landlord in terminating this Lease
and of re-entering the Premises and of securing possession thereof, as well as
the expenses of reletting, including, without limitation, altering and
preparing the Premises for new tenants, brokers' commissions, and all other
expenses properly chargeable against the Premises and the rental therefrom in
connection with such reletting, it being understood that any such reletting may
be for a period equal to or shorter or longer than said period; provided,
further, that (i) in no event shall Tenant be entitled to receive any excess of
such net rents over the sums payable by Tenant to Landlord under this Lease,
(ii) in no event shall Tenant be entitled, in any suit for the collection of
damages pursuant to this Section 6.05(b), to a credit in respect of any net
rents from a reletting except to the extent that such net rents are actually
received by Landlord prior to the commencement of such suit, (iii) if the
Premises or any part thereof should be relet in combination with other space,
then proper apportionment on a square foot rentable area basis shall be made of
the rent received from such reletting and of the expenses of reletting and (iv)
Landlord shall have no obligation to so relet the Premises and Tenant hereby
waives any right Tenant may have, at law or in equity, to require Landlord to
so relet the Premises.
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Suit or suits for the recovery of any damages payable hereunder by
Tenant, or any installments thereof, may be brought by Landlord from time to
time at its election, and nothing contained herein shall require Landlord to
postpone suit until the date when the Term would have expired but for such
termination or re-entry.
6.06 Other Remedies. Nothing contained in this Lease shall be
construed as limiting or precluding the recovery by Landlord against Tenant of
any sums or damages to which, in addition to the damages particularly provided
above, Landlord may lawfully be entitled by reason of any default hereunder on
the part of Tenant. Anything in this Lease to the contrary notwithstanding,
during the continuation of any default by Tenant, Tenant shall not be entitled
to exercise any rights or options, or to receive any funds or proceeds being
held, under or pursuant to this Lease.
6.07 Right to Injunction. In the event of a breach or threatened
breach by Tenant of any of its obligations under this Lease, Landlord shall
also have the right of injunction. The specified remedies to which Landlord may
resort hereunder are cumulative and are not intended to be exclusive of any
other remedies or means of redress to which Landlord may lawfully be entitled,
and Landlord may invoke any remedy allowed at law or in equity as if specific
remedies were not herein provided for.
6.08 Certain Waivers. Tenant waives and surrenders all right and
privilege that Tenant might have under or by reason of any present or future
law to redeem the Premises or to have a continuance of this Lease after Tenant
is dispossessed or ejected therefrom by process of law or under the terms of
this Lease or after any termination of this Lease. Tenant also waives the
provisions of any law relating to notice and/or delay in levy of execution in
case of any eviction or dispossession for nonpayment of rent, and the
provisions of any successor or other law of like import. Landlord and Tenant
each waive trial by jury in any action in connection with this Lease.
6.09 No Waiver. Failure by either party to declare any default
immediately upon its occurrence or delay in taking any action in connection
with such default shall not waive such default but such party shall have the
right to declare any such default at any time thereafter. Any amounts paid by
Tenant to Landlord may be applied by Landlord, in Landlord's discretion, to any
items then owing by Tenant to Landlord under this Lease. Receipt by Landlord of
a partial payment shall not be deemed to be an accord and satisfaction
(notwithstanding any endorsement or statement on any check or any letter
accompanying any check or payment) nor shall such receipt constitute a waiver
by Landlord of Tenant's obligation to make full payment. No act or thing done
by Landlord or its agents shall be deemed an acceptance of a surrender of the
Premises, and no agreement to accept such surrender shall be valid unless in
writing and signed by Landlord and by each Superior Lessor and Superior
Mortgagee whose lease or mortgage provides that any such surrender may not be
accepted without its consent.
6.10 Holding Over. If Tenant holds over without the consent
of Landlord after expiration or termination of this Lease, Tenant shall
pay as holdover rental
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for each month of the holdover tenancy an amount equal to the product of (i)
the Applicable Percentage and (ii) the Rent which Tenant was obligated to pay
for the month immediately preceding the end of the Term. "Applicable
Percentage" means (A) 150% for the 1st 60 days of such holdover tenancy and
(B) 200% thereafter. Tenant shall also be liable to Landlord for and indemnify
Landlord against (i) any payment or rent concession which Landlord may be
required to make to any tenant obtained by Landlord for all or any part of the
Premises (a "New Tenant") by reason of the late delivery of space to the New
Tenant as a result of Tenant's holding over or in order to induce such New
Tenant not to terminate its lease by reason of the holding over by Tenant, (ii)
the loss of the benefit of the bargain if any New Tenant shall terminate its
lease by reason of the holding over by Tenant and (iii) any claim for damages
by any New Tenant. No holding over by Tenant after the Term shall operate to
extend the Term. Notwithstanding the foregoing, the acceptance of any rent paid
by Tenant pursuant to this Section 6.10 shall not preclude Landlord from
commencing and prosecuting a holdover or summary eviction proceeding.
6.11 Attornevs' Fees. If either party places the enforcement of
this Lease or any part thereof, in the hands of an attorney, or files suit upon
the same, or in the event any bankruptcy, insolvency or other similar
proceeding is commenced involving the other party and such party is successful
in such enforcement action, the unsuccessful party shall, upon demand,
reimburse the successful party for its reasonable attorneys' fees and
disbursements and court costs.
6.12 Nonliabilitv and Indemnifications (a) Neither Landlord. any
Superior Lessor or any Superior Mortgagee, nor any partner, director, officer,
shareholder, principal, agent, servant or employee of Landlord, any Superior
Lessor or any Superior Mortgagee (whether disclosed or undisclosed), shall be
liable to Tenant for (i) any loss, injury or damage to Tenant or to any other
person, or to its or their property irrespective of the cause of such injury,
damage or loss, nor shall the aforesaid parties be liable for any loss of or
damage to property of Tenant or of others entrusted to employees of Landlord;
provided, that, except to the extent of the release of liability and waiver of
subrogation provided in Section 7.03 hereof, the foregoing shall not be deemed
to relieve Landlord of any liability to the extent resulting from the
negligence of Landlord, its agents, servants or employees in the operation or
maintenance of the Premises or the Building or the Project, (ii) any loss,
injury or damage described in clause (i) above caused by other tenants or
persons in, upon or about the Building, or caused by operations in construction
of any private, public or quasi-public work, or (iii) even if negligent,
consequential damages arising out of any loss of use of the Premises or any
equipment, facilities or other Tenant's Property therein.
(b) Tenant shall indemnify and hold harmless Landlord, all
Superior Lessors and all Superior Mortgagees and each of their respective
partners, directors, officers, shareholders, principals, agents and employees
(each, an "Indemnified Party"), from and against any and all claims arising
from or in connection with (i) the conduct or management of the Premises or of
any business therein, or any work or thing
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done, or any condition created in the Premises, (ii) any act, omission or
negligence of Tenant or any person claiming through or under Tenant or any of
their respective partners, directors, officers, agents, employees or
contractors, (iii) any accident, injury or damage occurring in, at or upon the
Premises, (iv) any default by Tenant in the performance of Tenant's obligations
under this Lease and (v) any brokerage commission or similar compensation
claimed to be due by reason of any proposed subletting or assignment by Tenant
(irrespective of the exercise by Landlord of any of the options in Section
5.02(b)); together with all costs, expenses and liabilities incurred in
connection with each such claim or action or proceeding brought thereon,
including, without limitation, all reasonable attorneys' fees and
disbursements; Provided, that the foregoing indemnity shall not apply to the
extent such claim results from the negligence (other than negligence to which
the release of liability and waiver of subrogation provided in Section 7.03
below applies) or willful misconduct of the indemnified Party. If any action or
proceeding is brought against any indemnified Party by reason of any such
claim, Tenant. upon notice from such Indemnified Party shall resist and defend
such action or proceeding by counsel reasonably satisfactory to such
indemnified Party.
ARTICLE 7
Insurance: Casualty; Condemnation
7.01 Compliance with insurance Standards. (a) Tenant shalt
not knowingly violate, or permit the violation of, any condition imposed by any
insurance policy then issued in respect of the Project and shall not do, or
permit anything to be done, or knowingly keep or permit anything to be kept in
the Premises, which would subject Landlord, any Superior Lessor or any Superior
Mortgagee to any liability or responsibility for personal injury or death or
property damage, or which would increase any insurance rate in respect of the
Project over the rate which would otherwise then be in effect or which would
result in insurance companies of good standing refusing to insure the Project
in amounts reasonably satisfactory to Landlord, or which would result in the
cancellation of, or the assertion of any defense by the insurer in whole or in
part to claims under, any policy of insurance in respect of the Project.
(b) if, by reason of any failure of Tenant to comply with
this Lease, the premiums on Landlord's insurance on the Project shall be higher
than they otherwise would be, Tenant shall reimburse Landlord, on demand, for
that part of such premiums attributable to such failure on the part of Tenant.
A schedule or "make up" of rates for the Project or the Premises, as the case
may be, issued by the New York Fire Insurance Rating Organization or other
similar body making rates for insurance for the Project or the Premises, as the
case may be, shall be conclusive evidence of the facts therein stated and of
the several items and charges in the insurance rate then applicable to the
Project or the Premises, as the case may be.
7.02 Tenant's insurance. Tenant shall maintain at all times during
the Term (a) "all risk" property insurance covering all present and future
Tenant's Property
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and Tenant's improvements and Betterments to a limit of not less than the full
replacement cost thereof, and (b) commercial general liability insurance,
including a contractual liability endorsement, and personal injury liability
coverage, in respect of the Premises and the conduct or operation of business
therein, with Landlord and its managing agent, if any, and each Superior Lessor
and Superior Mortgagee whose name and address shall have been furnished to
Tenant, as additional insureds, limits of not less than $5,000,000 combined
single limit for bodily injury and property damage liability in any one
occurrence and (c) boiler and machinery insurance, if there is a boiler,
supplementary air conditioner or pressure object or similar equipment in the
Premises, with Landlord and its managing agent, if any, and each Superior
Lessor and Superior Mortgagee whose name and address shall have been furnished
to Tenant, as additional insureds, with limits of not less than $5,000,000 and
(d) when Alterations are in process, the insurance specified in Section 4.02(f)
hereof The limits of such insurance shall not limit the liability of Tenant.
Tenant shall deliver to Landlord and any additional insureds, at least 10 days
prior to the Commencement Date, such fully paid-for policies or certificates of
insurance, in form reasonably satisfactory to Landlord issued by the insurance
company or its authorized agent. Tenant shall procure and pay for renewals of
such insurance from time to time before the expiration thereof, and Tenant
shall deliver to Landlord and any additional insureds such renewal policy or a
certificate thereof at least 30 days before the expiration of any existing
policy. All such policies shall be issued by companies of recognized
responsibility licensed to do business in New York State and rated by Best's
insurance Reports or any successor publication of comparable standing as
A-/VIII or better or the then equivalent of such rating, and all such policies
shall contain a provision whereby the same cannot be canceled, allowed to lapse
or modified unless Landlord and any additional insureds are given at least 30
days' prior written notice of such cancellation, lapse or modification. Tenant
shall cooperate with Landlord in connection with the collection of any
insurance monies that may be due in the event of loss and Tenant shall execute
and deliver to Landlord such proofs of loss and other instruments which may be
required to recover any such insurance monies. Landlord may from time to time
require that the amount of the insurance to be maintained by Tenant under this
Section 7.02 be increased, so that the amount thereof adequately protects
Landlord's interest.
7.03 Subrogation Waiver. Landlord and Tenant shall each include in
each of its insurance policies (insuring the Building in case of Landlord, and
insuring Tenant's Property and improvements and Betterments in the case of
Tenant, against loss, damage or destruction by fire or other casualty) a waiver
of the insurer's right of subrogation against the other party during the Term
or, if such waiver should be unobtainable or unenforceable, (a) an express
agreement that such policy shall not be invalidated if the assured waives the
right of recovery against any party responsible for a casualty covered by the
policy before the casualty or (b) any other form of permission for the release
of the other party. Each party hereby releases the other party with respect to
any claim (including a claim for negligence) which it might otherwise have
against the other party for loss, damage or destruction with respect to its
property occurring during the Term to the extent to which it is, or is required
to be, insured under a policy or
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policies containing a waiver of subrogation or permission to release liability.
Nothing contained in this Section 7.03 shall be deemed to relieve either party
of any duty imposed elsewhere in this Lease to repair, restore or rebuild or to
nullify any abatement of rents provided for elsewhere in this Lease.
7.04 Condemnation. (a) if there shall be a total taking of the
Building in condemnation proceedings or by any right of eminent domain, this
Lease and the term and estate hereby granted shall terminate as of the date of
taking of possession by the condemning authority and all Rent shall be prorated
and paid as of such termination date. If there shall be a taking of any
material (in Landlord's reasonable judgment) portion of the Land or the
Building (whether or not the Premises are affected by such taking), then
Landlord may terminate this Lease and the term and estate granted hereby by
giving notice to Tenant within 60 days after the date of taking of possession
by the condemning authority. If there shall be a taking of the Premises
(including the parking spaces to which Tenant is entitled pursuant to Section
8. 17) of such scope (but in no event less than 20% thereof that the untaken
part of the Premises would in Tenant's reasonable judgment be uneconomic to
operate, then Tenant may terminate this Lease and the term and estate granted
hereby by giving notice to Landlord within 60 days after the date of taking of
possession by the condemning authority. If either Landlord or Tenant shall give
a termination notice as aforesaid, then this Lease and the term and estate
granted hereby shall terminate as of the date of such notice and all Rent shall
be prorated and paid as of such termination date. In the event of a taking of
the Premises which does not result in the termination of this Lease (i) the
term and estate hereby granted with respect to the taken part of the Premises
shall terminate as of the date of taking of possession by the condemning
authority and all Rent shall be appropriately abated for the period from such
date to the Expiration Date and (ii) Landlord shall with reasonable diligence
restore the remaining portion of the Premises (exclusive of Tenant's Property)
as nearly as practicable to its condition prior to such taking.
(b) in the event of any taking of all or a part of the
Building. Landlord shall be entitled to receive the entire award in the
condemnation proceeding, including, without limitation, any award made for the
value of the estate vested by this Lease in Tenant or any value attributable to
the unexpired portion of the Term, and Tenant hereby assigns to Landlord any
and all right, title and interest of Tenant now or hereafter arising in or to
any such award or any part thereof, and Tenant shall be entitled to receive no
part of such award; provided, that nothing shall preclude Tenant from
intervening in any such condemnation proceeding to claim or receive from the
condemning authority any compensation to which Tenant may otherwise lawfully be
entitled in such case in respect of Tenant's Property or moving expenses,
provided the same do not include any value of the estate vested by this Lease
in Tenant or of the unexpired portion of the Term and do not reduce the amount
available to Landlord or materially delay the payment thereof
(c) if all or any part of the Premises shall be taken for a
limited period, Tenant shall be entitled, except as hereinafter set forth, to
that portion of the
41
award for such taking which represents compensation for the use and occupancy
of the Premises, for the taking of Tenant's Property and for moving expenses,
and Landlord shall be entitled to that portion which represents reimbursement
for the cost of restoration of the Premises. This Lease shall remain unaffected
by such taking and Tenant shall continue to be responsible for all of its
obligations under this Lease to the extent such obligations are not affected by
such taking and shall continue to pay in full all Rent when due. If the period
of temporary use or occupancy shall extend beyond the Expiration Date, that
part of the award which represents compensation for the use and occupancy of
the Premises shall be apportioned between Landlord and Tenant as of the
Expiration Date. Any award for temporary use and occupancy for a period beyond
the date to which the Rent has been paid shall be paid to, held and applied by
Landlord as a trust fund for payment of the Rent thereafter becoming due.
(d) in the event of any taking which does not result in
termination of this Lease, (i) Landlord, whether or not any award shall be
sufficient therefor, shall proceed with reasonable diligence to repair the
remaining parts of the Project, the Building and the Premises (other than those
parts of the Premises which constitute Tenant's Property) to substantially
their former condition to the extent that the same may be feasible (subject to
reasonable changes which Landlord deems desirable) and so as to constitute a
complete and rentable Project, Building and Premises and (ii) Tenant, whether
or not any award shall be sufficient therefor, shall proceed with reasonable
diligence to repair the remaining parts of the Premises which constitute
Tenant's Property, to substantially their former condition to the extent that
the same may be feasible, subject to reasonable changes which shall be deemed
Alterations.
7.05 Casualty (a) if the Project, the Building or the Premises
shall be partially or totally damaged or destroyed by fire or other casualty
(each, a "Casualty") and if this Lease is not terminated as provided below,
then (i) Landlord shall repair and restore the Project, the Building and the
Premises (other than Tenant's improvements and Betterments and Tenant's
Property) with reasonable dispatch (but Landlord shall not be required to
perform the same on an overtime or premium pay basis) after the collection of
the insurance proceeds attributable to such Casualty and (ii) Tenant shall
repair and restore in accordance with Section 4.02 all Tenant's improvements
and Betterments and all Tenant's Property with reasonable dispatch after the
Casualty.
(b) if all or part of the Premises shall be rendered
untenantable by reason of a Casualty, the Fixed Rent and the Additional Rent
under Sections 2.04 and 2.05 shall be abated in the proportion that the
untenantable area of the Premises bears to the total area of the Premises, for
the period from the date of the Casualty to the earlier of (i) the date the
Premises is made tenantable (provided, that if the Premises would have been
tenantable at an earlier date but for Tenant having failed to cooperate with
Landlord in effecting repairs or restoration or collecting insurance proceeds,
then the Premises shall be deemed to have been made tenantable on such earlier
date and the abatement shall cease) or (ii) the date Tenant or any subtenant
reoccupies a portion of the Premises other than for repair or restoration
purposes (in which case the Fixed Rent and the Additional
42
Rent allocable to such reoccupied portion shall be payable by Tenant from the
date of such occupancy). Landlord's determination of the date the Premises is
tenantable shall be controlling unless Tenant disputes same by notice to
Landlord within 10 days after such determination by Landlord, and pending
resolution of such dispute, Tenant shall pay Rent in accordance with Landlord's
determination. Notwithstanding the foregoing, if by reason of any act or
omission by Tenant, any subtenant or any of their respective partners,
directors, officers, servants, employees, agents or contractors which occurred
after Tenant received a copy of a notice from Landlord's insurer advising
Tenant of such act or omission, Landlord, any Superior Lessor or any Superior
Mortgagee shall be unable to collect all of the insurance proceeds (including,
without limitation, rent insurance proceeds) applicable to the Casualty, then,
without prejudice to any other remedies which may be available against Tenant,
there shall be no abatement of Rent. Nothing contained in this Section 7.05
shall relieve Tenant from any liability that may exist as a result of any
Casualty. Landlord shall promptly deliver to Tenant a copy of any notice from
Landlord's insurer requesting the performance of any matter by Tenant.
(c) if by reason of a Casualty (i) the Building shall be
totally damaged or destroyed, (ii) the Building shall be so damaged or
destroyed (whether or not the Premises are damaged or destroyed) that repair or
restoration shall require more than 270 days or the expenditure of more than
20% percent of the full insurable value of the Building (which, for purposes of
this Section 7.05(c), shall mean replacement cost less the cost of footings,
foundations and other structures below the street and first floor of the
Building) immediately prior to the Casualty or (iii) more than 30% of the
Premises shall be damaged or destroyed (as estimated in any such case by a
reputable contractor, architect or engineer designated by Landlord ("Landlord
Consultant")), then in any such case Landlord may terminate this Lease by
notice given to Tenant within 180 days after the Casualty. If a Casualty
meeting the condition set forth in clause (iii) above shall occur during the
last 2 years of the Term and the Landlord Consultant shall determine that the
repair or restoration shall require more than 270 days, then in such case
Tenant may terminate this Lease by giving notice to Landlord within 30 days
after Tenant's receipt of such determination by Landlord's Consultant.
(d) Landlord shall not carry any insurance on Tenant's
Property or on Tenant's improvements and Betterments and shall not be obligated
to repair or replace Tenant's Property or Tenant's improvements and
Betterments. Tenant shall look solely to its insurance for recovery of any
damage to or loss of Tenant's Property or Tenant's improvements and
Betterments. Tenant shall notify Landlord promptly of any Casualty in the
Premises.
(e) This Section 7.05 shall be deemed an express agreement
governing any damage or destruction of the Premises by fire or other casualty,
and Section 227 of the New York Real Property Law providing for such a
contingency in the absence of an express agreement, and any other law of like
import now or hereafter in force, shall have no application.
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ARTICLE 8
Miscellaneous Provisions
8.01 Notice. All notices, demands, consents, approvals, advices,
waivers or other communications which may or are required to be given by either
party to the other under this Lease shall be in writing and shall be deemed to
have been given one Business Day after deposit in the United States mail,
certified or registered, postage prepaid, return receipt requested, and
addressed to the party to be notified as follows, or to such other place as the
party to be notified may from time to time designate by at least 5 days' notice
to the notifying party:
If to Landlord:
New York Life insurance Company 51 Madison Avenue New York,
New York 10010 Attention: Asset Manager/150 Vanderbilt
Motor Parkway. Hauppauge, New York
with a copy to:
C.B. Commercial/Hampshire, L.L.C. 400 Frank W. Burr Blvd.
Atrium at Glenpointe Teaneck, New Jersey 07666 Attention:
Kevin P. Welsh
If to Tenant:
Curative Health Services, Inc. 14 Research Way East
Setauket, New York 11733 Attention: Allan Keysor, Esq.
prior to the commencement of the Term, and thereafter Tenant's address
shall be that of the Building.
Notices from Landlord may be given by Landlord's managing agent, if
any, or by Landlord's attorney.
8.02 Building Rules. Tenant shall comply with, and Tenant shall
cause its licensees, employees, contractors, agents and invitees to comply
with, the rules of the Building set forth in Exhibit C, as the same may be
reasonably modified or supplemented by Landlord from time to time for the
safety, care and cleanliness of the Premises and the
44
Building and for preservation of good order therein. Landlord shall not be
obligated to enforce the rules of the Building against Tenant or any other
tenant of the Building or any other party, and Landlord shall have no liability
to Tenant by reason of the violation by any tenant or other party of the rules
of the Building; provided, that Landlord shall not enforce the rules of the
Building in a manner which discriminates against Tenant. If any rule of the
Building shall conflict with any provision of this Lease, such provision of
this Lease shall govern.
8.03 Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected, and each provision of this
Lease shall be valid and shall be enforceable to the extent permitted by law.
8.04 Certain Definitions. (a) "Landlord" means only the owner, at
the time in question, of the Building or that portion of the Building of which
the Premises are a part, or of a lease of the Building or that portion of the
Building of which the Premises are a part, so that in the event of any transfer
or transfers of title to the Building or of Landlord's interest in a lease of
the Building or such portion of the Building, the transferor shall be and
hereby is relieved and freed of all obligations of Landlord under this Lease
accruing after such transfer, and it shall be deemed, without further
agreement, that such transferee has assumed all obligations of Landlord during
the period it is the holder of Landlord's interest under this Lease.
(b) "Landlord shall have no liability to Tenant" or words of
similar import mean that Tenant is not entitled to terminate this Lease, or to
claim actual or constructive eviction, partial, or total, or to receive any
abatement or diminution of Rent, or to be relieved in any manner or any of its
other obligations under this Lease, or to be compensated for loss or injury
suffered or to enforce any other right or kind of liability whatsoever against
Landlord under or with respect to this Lease or with respect to Tenant's use or
occupancy of the Premises.
8.05 Ouiet Enjovment. Tenant shall and may peaceably and quietly
have, hold and enjoy the Premises, subject to the other terms of this Lease and
to Superior Leases and Superior Mortgages, provided that Tenant pays the Fixed
Rent and Additional Rent to be paid by Tenant and performs all of Tenant's
covenants and agreements contained in this Lease.
8.06 Limitation of Landlord's Personal Liability. Tenant shall look
solely to Landlord's interest in the Project for the recovery of any judgment
against Landlord, and no other property or assets of Landlord or Landlord's
partners, officers, directors, shareholders or principals, direct or indirect,
disclosed or undisclosed, shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this Lease.
45
8.07 Counterclaims. If Landlord commences any summary proceeding or
action for nonpayment of Rent or to recover possession of the Premises, Tenant
shall not interpose any counterclaim of any nature or description in any such
proceeding or action, unless Tenant's failure to interpose such counterclaim in
such proceeding or action would result in the waiver of Tenant's right to bring
such claim in a separate proceeding under applicable law.
8.08 Survival. All obligations and liabilities of Landlord or
Tenant to the other which accrued before the expiration or other termination of
this Lease and all such obligations and liabilities which by their nature or
under the circumstances can only be, or by the provisions of this Lease may be,
performed after such expiration or other termination, shall survive the
expiration or other termination of this Lease. Without limiting the generality
of the foregoing, the rights and obligations of the parties with respect to any
indemnity under this Lease, and with respect to Tax Payments and any other
amounts payable under this Lease, shall survive the expiration or other
termination of this Lease.
8.09 Certain Remedies. If Tenant requests Landlord's consent and
Landlord fails or refuses to give such consent, Tenant shall not be entitled to
any damages for any withholding by Landlord of its consent, it being intended
that Tenant's sole remedy shall be an action for specific performance or
injunction, and that such remedy shall be available only in those cases where
this Lease provides that Landlord shall not unreasonably withhold its consent.
No dispute relating to this Lease or the relationship of Landlord and Tenant
under this Lease shall be resolved by arbitration unless this Lease expressly
provides for such dispute to be resolved by arbitration.
8.10 No Offer. The submission by Landlord of this Lease in draft
form shall be solely for Tenant's consideration and not for acceptance and
execution. Such submission shall have no binding force or effect and shall
confer no rights nor impose any obligations, including brokerage obligations,
on either party unless and until both Landlord and Tenant shall have executed a
lease and duplicate originals thereof shall have been delivered to the
respective parties.
8.11 Captions; Construction. The table of contents, captions,
headings and titles in this Lease are solely for convenience of reference and
shall not affect its interpretation This Lease shall be construed without
regard to any presumption or other rule requiring construction against the
party causing this Lease to be drafted. Each covenant, agreement, obligation or
other provision of this Lease on Tenant's part to be performed, shall be deemed
and construed as a separate and independent covenant of Tenant, not dependent
on any other provision of this Lease.
8.12 Amendments. This Lease may not be altered, changed or amended,
except by an instrument in writing signed by the party to be charged.
8.13 Broker. Each party represents to the other that such party has
dealt with no broker in connection with this Lease or the Building except for
C.B.
46
Commercial/Hampshire, L.L.C. and Cushman& Wakefield of Long island, Inc. (the
"Broker"), and each party shall indemnify and hold the other harmless from and
against all loss, cost, liability and expense (including, without limitation,
reasonable attorneys' fees and disbursements) arising out of any claim for a
commission or other compensation by any broker other than the Brokers who
alleges that it has dealt with the indemnifying party in connection with this
Lease or the Building. Landlord shall pay to each of the brokers constituting
the Broker a commission in connection with this Lease, subject to and in
accordance with the terms and conditions of separate agreements between
Landlord and such brokers.
8.14 Merger. Tenant acknowledges that Landlord has not made and is
not making, and Tenant, in executing and delivering this Lease, is not relying
upon, any warranties, representations, promises or statements, except to the
extent that the same are expressly set forth in this Lease. This Lease embodies
the entire understanding between the parties with respect to the subject matter
hereof, and all prior agreements, understandings and statements, oral or
written, with respect thereto are merged in this Lease.
8.15 Successors. This Lease shall be binding upon and inure to the
benefit of Landlord, its successors and assigns, and shall be binding upon and
inure to the benefit of Tenant, its successors, and to the extent that an
assignment may be approved by Landlord, Tenant's assigns.
8.16 Applicable Law. This Lease shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
any principles of conflicts of laws.
8.17 Parking (a) Landlord shall provide within the boundaries of
the Land, such parking areas and driveways, and entrances thereto and exits
therefrom, including landscaped and planted areas (collectively, the "Parking
Areas"), as Landlord shall at any time and from time to time deem reasonably
appropriate, for parking of vehicles by Tenant, subject to the further
provisions of this Section 8.17. Landlord reserves the right to change the
area, location and configuration of the Parking Areas. During the Term,
Landlord shall make available to Tenant (i) 7 parking spaces in the Parking
Areas on a reserved basis and (ii) 173 parking spaces in the Parking Areas on a
non-reserved basis. ("Tenant's Parking Spaces
(b) Tenant's Parking Spaces shall be used exclusively for the
parking of standard size (or smaller) passenger cars, belonging to or leased to
or operated by Tenant, any of Tenant's permitted subtenants, and their
respective employees and invitees, and for no other purpose. Tenant shall not
allow any parking of any cars of Tenant or Tenant's permitted subtenants, or
their employees or invitees in parking spaces within the Property designated
for use by Landlord or other tenants or their respective employees or invitees,
and Landlord may tow, at Tenant's expense, any cars so parked.
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Landlord may from time to time relocate any of Tenant's Parking Spaces which
are reserved.
(c) Tenant's use of Tenant's Parking Spaces shall be subject
to such reasonable rules and regulations as may from time to time be
promulgated by Landlord in accordance with this Lease. Landlord may require
Tenant to use reasonable visible identification (e.g. bumper decal, window
sticker, or pass) to evidence authorized use of Tenant's Parking Spaces.
Landlord may tow, at Tenant's expense, any cars not exhibiting such
identification if required. Tenant shall from time to time furnish to Landlord
a list of the persons that Tenant has permitted to use Tenant's Parking Spaces,
together with such other corresponding identification (e.g., license plates,
car models or addresses) as Landlord may require.
(d) Use of Tenant's Parking Spaces shall be at Tenant's risk
Landlord shall have no obligation to police the Parking Areas. Landlord shall
have no responsibility for loss, theft, collision, vandalism or other damage,
howsoever caused, to person or property arising out of or attributable to
Tenant's Parking Spaces.
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8.18 Graphics; Building Directorv; Card Key Access. (a) No signs,
numerals, letters or other graphics shall be used or permitted on the exterior
of, or which may be visible from outside, the Premises, unless approved by
Landlord in advance of installation. Landlord shall provide Building standard
signage at the entry door of the Premises. Landlord shall also permit Tenant to
erect and install a sign (the "Monument Sign") on a portion of the Project
facing Motor Parkway to be designated by Landlord, which sign will contain
Tenant's name. The foregoing rights are subject to (i) compliance by Tenant
with all applicable laws and requirements of governmental authorities having
jurisdiction (including, without limitation, approval by the Town of
Smithtown), (ii) the approval by Landlord of the contractor to be used by
Tenant to perform such sign work, the specific location of the Monument Sign,
as applicable, and the size, color and design of the Monument Sign, as
applicable and (iv) the submission by Tenant to Landlord for its approval of
plans and specifications for such sign work. The Monument Sign, and any other
sign installed by Tenant in accordance with this Section 8.18, shall be kept by
Tenant in good condition at all times, including, but not limited to
repainting, replacing and/or refurbishing the same when necessary and replacing
any lighting whenever necessary. Tenant agrees to indemnify and hold Landlord
harmless from and against any and all losses, damages, claims, suits or actions
resulting from Tenant's failure to comply with all local zoning and other laws
and requirements with respect to the erection and maintenance of such signs,
and any damage or injury to person or property caused by the erection and
maintenance of such signs or parts thereof and Tenant shall provide for
insurance coverage for such signs in the public liability insurance policy
required under Article 7 of the Lease. In the event that Tenant shall not be
permitted to erect and install the Monument Sign by reason of clause (i) above,
Landlord shall place Tenant's name on the entrance monument in a location and
manner to be agreed upon by Landlord and Tenant at Tenant's expense.
(i) Landlord hereby agrees that no tenant of
the Building (now or hereafter) whose premises shall contain an amount of
rentable square feet which is less than the amount of rentable square feet
contained in the Premises (including any Offer Space) shall be entitled to
erect any signage on the exterior of the Building.
(b) Landlord, at Tenant's request, shall provide Tenant with
7 lines on the Building's directory to list Tenant's name and the names of its
officers and employees designated by Tenant. The reasonable charge of Landlord
for any changes in such listing requested by Tenant shall be paid by Tenant to
Landlord on demand.
(c) Landlord shall maintain a card key access system which
shall restrict access to the Building at times other than Business Hours on
Business Days. Tenant shall be entitled to an initial allocation of 2 card keys
per each 1,000 rentable square feet included in the Premises. Any additional
cards shall be provided by Landlord at Landlord's then standard charges
therefor. Tenant shall provide to Landlord from time to time, as requested by
Landlord, a list of the persons to whom card keys have been
49
issued Tenant shall comply with such reasonable rules and regulations as
Landlord may from time to time promulgate with respect to the use of card keys.
8.19 Health Club. (a) Landlord hereby grants to Tenant a membership
in the health club located on the basement level of the Building (the "Health
Club"). Subject to the provisions of this Section 8.19, such Health Club
membership shall entitle Tenant to grant to its full time employees who work at
the Premises a non-exclusive right to use the Health Club facilities in common
with others to whom such right may be granted by Landlord. Such use of the
Health Club facilities shall be subject to the terms of this Lease and such
rules, regulations and conditions as may be established or amended from time to
time by Landlord.
(b) Tenant shall pay to Landlord an annual charge (which is
currently equal to $25) for each employee of Tenant to whom Tenant grants the
right to use the Health Club facilities. Landlord shall have the right, in its
sole discretion, to reasonably increase the amount of such charge from year to
year. Tenant shall pay the annual charge for each employee (i) initially, at
the time that Tenant notifies Landlord that Tenant has granted such employee
the right to use the Health Club facilities (appropriately prorated for any
part of a year) and (ii) thereafter, in advance on January Ist of each year.
All sums payable pursuant to this Section 8.19(b) shall be deemed Additional
Rent.
(c) Anything in this Section 8.19 or elsewhere in this Lease
to the contrary notwithstanding, Tenant shall not grant to any employee the
right, and no employee of Tenant shall be permitted, to use the Health Club
facilities unless and until Tenant (i) shall have notified Landlord that Tenant
has granted such right to such employee and (ii) shall have caused such
employee to complete and execute a waiver of liability in the form attached
hereto as Exhibit G and delivered such executed document to Landlord. Tenant
shall prohibit, and shall take all steps necessary to prevent, any employees of
Tenant who have failed to execute a waiver of liability in the form attached
hereto as Exhibit G from using the Health Club facilities.
(d) Tenant acknowledges that all users of the Health Club
facilities do so at their own risk and agrees that it shall be solely Tenant's
obligation fully to inform each of Tenant's employees to whom the right to use
the Health Club facilities may be granted of such risk. Tenant acknowledges and
agrees that Landlord shall have no liability to Tenant or any employee of
Tenant or any person claiming through or under either of the foregoing arising
from or in connection with the use of the Health Club facilities by any of
Tenant's employees or Landlord's operation and/or maintenance of the Health
Club facilities, including any such claim arising out of negligence; together
with all costs, expenses and liabilities incurred in connection with each such
claim or action or proceeding brought thereon, including, without limitation,
all attorneys' fees and disbursements.
50
(e) Landlord reserves the right to discontinue providing the
Health Club as an amenity to Tenant and its employees at any time if (i) Tenant
or any of Tenant's employees violates any of the rules, regulations or
conditions governing the use of the Health Club facilities, (ii) Landlord
elects to discontinue offering the Health Club as an amenity to all tenants in
the Building, or (iii) Landlord has any commercial reason, in Landlord's sole
and absolute judgment, to discontinue providing the Health Club as an amenity
to Tenant and its employees.
8.20 Media Center. (a) So long as Landlord elects to offer to
tenants in the Building the use of the conference facility located on the
basement level of the Building (the "Media Center"), Tenant may reserve the use
of the Media Center for meeting purposes, subject to the payment by Tenant of
Landlord's then established charges therefor, including any overtime and
special charges required to be paid for the use of the Media Center.
(b) Use of the Media Center shall be subject to the terms of
this Lease and such rules, regulations and conditions as may be established or
amended from time to time by Landlord. Tenant acknowledges that other tenants
in the Building shall have the right to reserve the use of the Media Center and
agrees that use of the Media Center shall be on a "first-come, first-served
basis." Landlord reserves the right to discontinue providing the Media Center
as an amenity to Tenant at any time if (i) Tenant or any of Tenant's employees,
agents or invitees violates any of the rules, regulations or conditions
governing use of the Media Center, (ii) Landlord elects to discontinue offering
the Media Center as an amenity to all tenants in the Building, or (iii)
Landlord has any commercial reason, in Landlord's sole and absolute judgment,
to discontinue providing the Media Center as an amenity to Tenant.
ARTICLE 9
Renewal Right
9.01 Renewal Right. (a) Provided that on the date Tenant exercises
the Renewal Option and at the commencement of the Renewal Term (i) this Lease
shall not have been terminated, (ii) Tenant shall not be in monetary default
under this Lease or non-monetary default under this Lease beyond any applicable
notice and grace period and (iii) Tenant shall occupy the entire Premises,
Tenant shall have a I time option (the "Renewal Option") to extend the term of
this Lease for an additional 5 year period (the "Renewal Term"), to commence at
the expiration of the initial Term.
(b) The Renewal Option shall be exercised with respect to the
entire Premises only and shall be exercisable by Tenant giving notice to
Landlord (the "Renewal Notice") at least 9 months before the last day of the
initial Term. Time is of the essence with respect to the giving of the Renewal
Notice.
9.02 Renewal Rent and Other Terms. (a) The Renewal Term
shall be upon all of the terms and conditions set forth in this Lease,
except that (i) the Fixed
51
Rent shall be as determined pursuant to the further provisions of this Section
9.02; (ii) Tenant shall accept the Premises in its "as is" condition at the
commencement of the Renewal Term, and Landlord shall not be required to perform
Landlord's Work or any other work, pay any work allowance or any other amount
or render any services to make the Premises ready for Tenant's use and
occupancy or provide any abatement of Fixed Rent or Additional Rent, in each
case with respect to the Renewal Term; (iii) Tenant shall have no option to
renew this Lease beyond the expiration of the Renewal Term; and (iv) the Base
Tax Amount shall be the Taxes for the Tax Year ending immediately before the
commencement of the Renewal Term.
(b) The annual Fixed Rent for the Premises for the Renewal
Term shall be the greater of (i) 95% of the Fair Market Rent or (ii) an amount
(the "Annual Rent") equal to the aggregate of (A) the Fixed Rent payable by
Tenant for the 12 month period ending on the last day of the initial Term and
(B) the Tax Payment payable with respect to the Tax Year ending immediately
before the commencement of the Renewal Term (the greater of Fair Market Rent
and Annual Rent is called the "Rental Value"). "Fair Market Rent" means the
fixed annual rent that a willing lessee would pay and a willing lessor would
accept for the Premises during the Renewal Term, taking into account all
relevant factors, provided, that for purposes of determining Fair Market Rent
it shall be assumed (whether or not such be the case) that (x) Tenant is given
the benefit of customary rent concessions and free rent periods then obtaining
in the Building for leases of a similar size, (y) the Premises is to be built
out by Landlord pursuant to the then Building standard workletter for space in
the Building similar to the Premises, including all Building standard work and
other work and concessions to be performed at Landlord's expense and that
Landlord will pay to Tenant a work allowance in the amount then customarily
paid by Landlord with respect to leases in the Building of similar size and (z)
a full brokerage commission shall be payable by Landlord, on then market terms.
(c) if Tenant timely exercises the Renewal Option, Landlord
shall notify Tenant (the "Rent Notice") at least 90 days before the last day of
the initial Term of Landlord's determination of the Fair Market Rent
("Landlord's Determination"). If Landlord's Determination exceeds the Annual
Rent, then Tenant shall notify Landlord ("Tenant's Notice"), within 20 days
after Tenant's receipt of the Rent Notice, whether Tenant accepts or disputes
Landlord's Determination, and if Tenant disputes Landlord's Determination,
Tenant's Notice shall set forth Tenant's determination of the Fair Market Rent
(which shall not be less than the Annual Rent). if Tenant fails to give
Tenant's Notice within such 20 day period, Tenant shall be deemed to have
accepted Landlord's Determination.
(d) if Tenant timely disputes Landlord's Determination and
Landlord and Tenant fail to agree as to the Fair Market Rent within 20 days
after the giving of Tenant's Notice, then the Fair Market Rent shall be
determined as follows: Such dispute shall be resolved by arbitration conducted
in accordance with the Real Estate Valuation Arbitration Rules (Expedited
Procedures) of the American Arbitration Association (or any organization which
is the successor thereto (the "AAA"), except that
52
the provisions of this Section 9.02(d) shall supersede any conflicting or
inconsistent provisions of said rules. The party requesting arbitration shall
do so by giving notice to that effect to the other party, specifying in said
notice the nature of the dispute, and that said dispute shall be determined in
the City of New York, by a panel of 3 arbitrators in accordance with this
Section 9.02(d). Landlord and Tenant shall each appoint their own arbitrator
within 7 days after the giving of notice by either party. If either Landlord or
Tenant shall fail timely to appoint an arbitrator, the appointed arbitrator
shall select the second arbitrator, who shall be impartial, within 7 days after
such party's failure to appoint. Such two arbitrators shall have 7 days to
appoint a third arbitrator who shall be impartial. If such arbitrators fail to
do so, then either Landlord or Tenant may request the AAA to appoint an
arbitrator who shall be impartial within 14 days of such request and both
parties shall be bound by any appointment so made within such 1 4-day period.
If no such third arbitrator shall have been appointed within such 14 days,
either Landlord or Tenant may apply to any court having jurisdiction to make
such appointment. The third arbitrator only shall subscribe and swear to an
oath fairly and impartially to determine such dispute. Within 14 days after the
third arbitrator has been appointed, each of the first two arbitrators shall
submit its determination of the Fair Market Rent to the third arbitrator, who
shall select one or the other of such determinations (whichever the third
arbitrator determines to be closest to the Fair Market Rent), and the selection
so made shall be final and binding upon the parties. The fees and expenses of
any arbitration pursuant to this Section 9 02(d) shall be borne by the parties
equally, but each party shall bear the expense of its own arbitrator, attorneys
and experts and the additional expenses of presenting its own proof The
arbitrators shall not have the power to add to, modify or change any of the
provisions of this Lease. Each arbitrator shall have at least 10 years'
experience in leasing and valuation of properties which are similar in
character to the Building. After a determination has been made of the Fair
Market Rent, the parties shall execute and deliver an instrument setting forth
the Fair Market Rent, but the failure to so execute and deliver any such
instrument shall not effect the determination of Fair Market Rent.
(e) if Tenant disputes Landlord's Determination and if the
final determination of Fair Market Rent shall not be made on or before the
first day of the Renewal Term, then, pending such final determination. Tenant
shall pay, as Fixed Rent for the Renewal Term, an amount equal to Landlord's
Determination. If based upon the final determination of the Fair Market Rent,
the Fixed Rent payments made by Tenant for such portion of the Renewal Term
were (i) less than the Rental Value payable for the Renewal Term, Tenant shall
pay to Landlord the amount of such deficiency within 10 days after demand
therefor or (ii) greater than the Rental Value payable for the Renewal Term,
Landlord shall credit the amount of such excess against future installments of
Fixed Rent and/or Additional Rent payable by Tenant.
53
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Lease as of the day and year first written above.
Landlord: NEW YORK LIFE INSURANCE COMPANY
By: /s/Michael W. Towne
Name: Michael W. Towne
Title: Real Estate Vice President
Tenant: CURATIVE HEALTH SERVICES, INC.
By: /s/John Vakoutis
Name: John Vakoutis
Title: President and CEO
54
AMENDMENT OF LEASE
Agreement, dated as of November 13, 1997 between NEW YORK LIFE
INSURANCE COMPANY, A New York corporation having an office at 51 Madison Avenue,
New York, New York 10010 ("Landlord") and CURATIVE HEALTH SERVICES, INC., a
Minnesota corporation having an office at 150 Motor Parkway, Hauppauge, New
York. ("Tenant")
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a Lease, dated as of June 30,
1997 (the "Lease"), pursuant to which Landlord is leasing to Tenant and Tenant
is hiring from Landlord certain space (the "Original Space") on the 4th floor of
the building located at 150 Motor Parkway, Hauppauge, New York (the "Building")
and;
WHEREAS, Landlord and Tenant desire to amend the Lease to (a) modify
certain provisions set forth in the Lease and (b) provide that Landlord lease to
Tenant and Tenant hire from Landlord certain additional space on the 4th floor
of the Building and certain storage space on the concourse level.
NOW, THEREFORE, Landlord and Tenant agree as follows:
1. Defined Terms. All capitalized terms used herein but not defined
shall have the meanings ascribed to them in the Lease.
2. Lease of Additional Space. Landlord hereby leases to Tenant and
Tenanthereby hires from Landlord, upon and subject to the terms, covenants,
provisions and conditions of this Agreement, the portion of the 4th floor of
the Building, substantially as shown on the floor plan attached hereto as
Exhibit A and made a part hereof (the "Additional Space"), for a term
commencing as of the Commencement Date and terminating on the Expiration Date
or on such earlier date upon which the terms of this Lease shall expire or be
cancelled or terminated pursuant to any of the conditions or covenants of the
Lease or pursuant to law. The Additional Space shall be conclusively deemed
to contain 5,968 rentable square feet. Effective as of the date hereof, the
term "Premises" shall mean, collectively, the Original Space and the Additional
Space.
3. Terms Applicable to Additional Space. The lease of the Additional
Space by Tenant shall be on all of the terms and conditions of the Lease, except
that:
(a) Except as expressly provided in Section 4.01 of the Lease, Landlord
shall not be required to perform any work, install any fixtures or equipment or
render any services to make the Building or the Additional Space ready or
suitable for Tenant's use or occupancy, and Tenant shall accept the Additional
Space in its "as is" condition on the Commencement Date; provided, that (i)
Landlord's obligation, set forth in Section 4.01 of the Lease, to fund the
Initial Improvements in the event the Initial Improvements exceed the Tenant
Improvement Contribution, shall be increased from $22.50 per rentable square
foot to $25 per rentable square foot, contained in the Premises, (ii) the
Commencement Date shall be modified to be the later of March 1, 1998 and the day
on which Landlord's Work is deemed to be substantially completed in accordance
with Section 1.03(b), accordingly, Landlord shall use commercially reasonable
efforts to deliver the Premises (including the Additional Space) on or before
March 1, 1998, (iii) with respect to the bidding for Tenant's Initial
Improvements, (A) Landlord shall inform Tenant of such bidding process, (B)
Tenant may be present at the auction or meeting relating to such bids. (C)
Tenant may submit requests for clarification to the contractors submitting bids
and Landlord shall use reasonable efforts to ask that such contractors promptly
respond to Tenant's requests. Notwithstanding anything set forth in clause (iii)
above, Landlord shall not be obligated to choose the contractor requested by
Tenant to perform Tenant's initial Improvements and, if Landlord matches the
lowest competitive bid submitted with respect to such Initial Improvements (the
"Low Bid"), Landlord shall, at its option, have the right to perform the Initial
Improvements on the terms and conditions set forth in the Low Bid.
(b) In the event the Commencement Date shall occur on or
after July 1, 1998,
Landlord shall be liable to Tenant through the Commencement Date for two-thirds
(2/3) of such amounts as Tenant's prior landlord claims and is due under
Tenant's previous lease as hold-over rent; provided, however that in no event
shall Landlord be liable to Tenant for any amount which exceeds $3,337.97 per
diem. Further, Landlord shall have no liability for any period of time which
delays the Commencement Date as a result of either a Tenant Delay or force
majeure. Except as specifically provided above, Landlord shall have no liability
whatsoever to Tenant for any delay in the Commencement Date. If the Commencement
Date has not occurred by December 1, 1998 then Tenant shall have the option to
terminate the Lease, at which time Landlord shall have no further obligation or
liability to Tenant.
(c) In addition to the Fixed Rent payable under Article 2 of
the Lease, Fixed
Rent with respect to the Additional Space shall be payable from and after the
Rent Commencement Date to and including the Expiration Date in the following
amounts:
(i) for the period from the Rent Commencement
Date to and including the day before the 1st anniversary of the Commencement
Date, at the annual rate of $22.98 per rentable square foot contained in the
Premises;
(ii) for the period from the 1st anniversary of
the Commencement Date to and including the day before the 2nd anniversary of
the Commencement Date, at the annual rate of $23.31 per rentable square foot
contained in the Premises;
(iii) for the period from the 2nd anniversary of the
Commencement Date to and including the day before the 3rd anniversary of the
Commencement Date, at the annual rate of $23.64 per rentable square foot
contained in the Premises;
(iv) for the period from the 3rd anniversary of
the Commencement Date to and including the day before the 4th anniversary of
the Commencement Date, at the annual rate of $23.97 per rentable square foot
contained in the Premises;
(v) for the period from the 4th anniversary of
the Commencement Date to and including the day before the 5th anniversary of the
Commencement Date, at the annual rate of $24.31 per rentable square foot
contained in the Premises;
(vi) for the period from the 5th anniversary of
the Commencement Date to and including the 6th anniversary of the
Commencement Date, at the annual rate of $24.66 per rentable square foot
contained in the Premises;
(vii) for the period from the 6th anniversary of the
Commencement Date to and including the 7th anniversary of the Commencement
Date, at the annual rate of $25.01 per rentable square foot contained in the
Premises, and
(viii) for the period from the 7th anniversary of
the Commencement date to and including the Expiration Date, at the annual
rate of $25.37 per rentable square foot contained in the Premises.
d) From and after the Rent Commencement Date to and including
the Expiration Date, Tenant shall pay to Landlord Tax Payments with respect to
the Premises at the times and in the manner set forth in the Lease and the term
"Tenant's Share" (with respect to the Premises) shall mean 16.44%.
(e) Tenant shall pay for electric energy supplied to the
Additional Space from and after the Commencement Date and otherwise in the
amounts and at the times set forth in Section 2.06 of the Lease.
(f) Tenant's termination option as set forth in Section
1.03 of the Lease shall be null and void and of no further force or effect.
4. Storage Space (a) Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord, subject to the terms and conditions of this Lease, the space
on the concourse level of the Building substantially as shown on Exhibit B
(the "Storage Space") for the Term.
(b) The leasing of the Storage Space shall be on
the terms and conditions of this Lease, subject to the following;
(i) the Storage Space shall be
delivered in its "as is" condition on the Commencement Date and
Landlord shall not be obligated to perform any work or provide any
contribution or allowance with respect thereto;
(ii) Fixed Rent for the Storage Space shall
be equal to $9.25 per rentable square foot per annum throughout the Term and
shall be payable in equal monthly installments from and after Rent
Commencement Date.
(iv) the Storage Space shall only be used
for storage purposes (which shall include
the shipping and receiving of items stored in the Storage Space and personnel
necessary to oversee such shipping and receiving) in connection with Tenant's
operation of its business in the Premises;
(v) Tenant, at Tenant's expense, shall cause
the Storage Space to be cleaned regularly in a manner reasonably satisfactory to
Landlord and to be exterminated against by vermin, rodents or roaches and such
cleaning and exterminating shall be performed at Tenant's expense by
Landlord's employees or Landlord's contractor;
(vi) the Storage Space shall be deemed to
contain 1,112 rentable square feet for all purposes of this Lease; and
(vii) except as expressly provided herein,
the Storage Space shall be deemed to be part of the Premises for all purposes
of this Lease.
(c) If Landlord shall be unable to deliver possession of the
Storage Space to Tenant on the Commencement Date as a result of a tenant's
holdover in space which shall constitute a portion of the Storage Space,
provided Landlord shall use reasonable efforts (including the prompt
commencement and diligent prosecution of summary dispossess proceedings) to
terminate such holdover tenancy. Landlord shall have no liability to Tenant
therefor and the validity of this Lease shall not be impaired, nor shall the
Term be extended, by reason thereof except that, until possession of the Storage
Space shall be delivered to Tenant, Tenant shall not be charged Rent with
respect to the Storage Space. This provision shall be deemed to be "an express
provision to the contrary" for purposes of Section 223-a of the New York Real
Property law or any successor Laws.
(d) Landlord shall have the right to relocate Storage Space at
any time and from time to time to comparable space in the Building, upon nor
less than 30 days prior notice to Tenant, provided that Landlord shall install
at its expense (or, at its option, reimburse Tenant for the reasonable costs
incurred by Tenant in installing) in the new Storage Space the fixtures existing
in the prior Storage Space (or reasonable replacements thereof) and either move
or, at Landlord's option, reimburse Tenant for the reasonable costs of moving
from the prior Storage Space to the new Storage Space, Tenant's Property stored
therein.
5. Broker Each party hereto covenants, warrants and represents to the
other party that it had no conversations or negotiation with any other broker
other than CB Commercial Hampshire, L.L.C. and Cushman & Wakefield of Long
Island, Inc. (collectively, the "Broker"), concerning the leasing of the
Additional Space. Each party hereto shall indemnify and hold harmless the other
party against and from any claims for any brokerage commissions and all costs,
expenses and liabilities in connection therewith, including, without limitation,
attorney's fees and expenses, arising out of any conversations or negotiations
had by the indemnifying party with any broker (other than the Broker, in case of
the indemnity by Tenant) concerning the leasing of the Additional Space.
Landlord shall pay any brokerage commissions due to the Broker pursuant to a
separate agreement between Landlord and the Broker.
6. No Other Changes Except as expressly set forth in this Agreement,
the Lease shall remain unmodified and in full force and effect,
and the Lease as modified herein is ratified and confirmed. All
references in the Lease to "this lease" shall hereafter be deemed
to refer to the Lease as amended by this Agreement.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Agreement as of the day and year first above written.
NEW YORK INSURANCE COMPANY,
Landlord
By: /s/Michael W. Towne
Name: Michael W. Towne
Title: Real Estate, Vice President
CURATIVE HEALTH SERVICES, Inc.
Tenant
By: /s/Allan L. Keysor
Name: Allan L. Keysor
Title: Vice President & General Council
EMPLOYMENT AGREEMENT Exhibit 10.20
This Agreement, dated as of October 21, 1998 ("Effective Date"), is
between Curative Health Services, Inc., a Minnesota Corporation ("Company") and
Robert Heisler, an individual residing at 310 West 106th Street, Apartment 7D,
New York, NY 10025, ("Executive").
WITNESSETH
WHEREAS, Company wishes to retain Executive as a key employee; and
WHEREAS, Company and Executive want the terms and conditions of Executive's
employment to be governed by this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, intending to be legally bound, the parties hereto agree as
follows:
1. Employment and Duties.
(a) General. Executive has been serving and shall continue to serve as
Regional Vice President of the Company. Executive shall perform all of the
duties of the position as assigned to Executive by the Board of Directors of
Company ("Board"). Executive shall report to the Chief Operating Officer
("COO").
(b) Services. While employed by Company, Executive shall devote
Executive's full business time to the performance of Executive's duties;
faithfully serve Company; and comply with the lawful and good faith directions
and instructions given to Executive by the COO, CEO, and the Board. Executive
shall use best efforts to promote and serve the interests of Company.
2. Term of Employment. The term of Executive's employment ("Term") shall
commence on the Effective Date and continue until the one (1) year anniversary
of the Effective Date. On the first anniversary of the Effective Date and on
each subsequent anniversary date thereafter, the Term shall automatically renew
for an additional year unless, within thirty (30) days prior to the applicable
anniversary date, either party shall have given the other party written notice
of its intention not to extend the Term or Executive's employment is terminated
pursuant to the terms and conditions of this Agreement.
3. Compensation and Benefits. Company shall pay or provide the following
compensation or benefits to Executive during the Term as compensation for all
services rendered:
(a) Base Salary. Company shall initially pay Executive an annual base
salary of One Hundred Twenty Six Thousand Dollars ($126,000.00). Salary shall be
paid to Executive in accordance with normal payroll practices of Company for its
other executives as they may be in effect from time to time. Executive shall be
eligible for a salary review not less often than annually in accordance with
Company's Compensation Plan as in effect from time to time.
(b) Quarterly and Annual Bonus. During the Term, Executive shall be
eligible for each calendar year of the Term to participate in the Company's
Incentive Compensation Plan established by Company for executives as in effect
from time to time ("Incentive Plan").
(c) Stock Options. Executive shall be eligible to participate in the
Company's Stock Option Plan ("Option Plan") and to receive grants of stock
options from time to time under the same terms and conditions applicable to
other executives of Company in accordance with the terms and conditions of the
Option Plan as in effect from time to time and to such other terms and
conditions as may be specified by Company in the form of a standard option
agreement with Executive.
(e) Expenses. Company shall pay or reimburse Executive for all reasonable
expenses incurred by Executive in connection with Executive's employment by
Company in accordance with Company's rules and practices applicable thereto as
in effect from time to time. Expenses shall be reimbursed upon the periodic
submission of expense reports reasonably promptly after the date of submission.
No expense payment shall be "grossed up" or increased to take into account any
tax liability incurred by Executive as a result of expense payments or
reimbursements.
(f) Pension, Welfare, and Fringe Benefits. During the Term, Executive
shall be eligible to participate in Company's 401(k), medical, dental,
disability, and other welfare plans made available to other executives of
Company in accordance with the rules of the plans as in effect from time to
time.
(g) Vacation. During the Term, Executive shall be entitled to vacation in
accordance with Company's policies and standard procedures governing vacation as
in effect from time to time.
4. Termination of Employment. Subject to the notice and other provisions
of this Section 4, Company shall have the right to terminate Executive's
employment and Executive shall have the right to resign at any time for any
reason or for no stated reason.
(a) Termination for Cause; Resignation.
(i) If, prior to the expiration of Term, Executive's employment is
terminated by Company for Cause or if Executive resigns from Executive's
employment, Executive shall be entitled to payment of the pro-rata portion of
Executive's salary earned through and including the date of termination or
resignation as well as any unreimbursed expenses. Except to the extent required
by the terms of any grant to Executive in accordance with Section 3(c) above, by
the terms of Section 3(f), or applicable law, Executive shall have no right
under this Agreement or otherwise to receive any other compensation or to
participate in any other plan, program, or arrangement after such termination or
resignation of employment.
(ii) Termination for "Cause" shall mean termination of Executive's
employment with Company because of (A) Executive's refusal (other than by reason
of incapacity because of physical or mental illness) to perform Executive's
duties hereunder, (B) the commission by Executive of a felony or the
perpetration by Executive of a dishonest act or fraud against Company or any
affiliate of Company, (C) any act or omission by Executive which is the result
of Executive's willful misconduct or gross negligence and which, in the good
faith opinion of Company, is injurious in any material way to the financial
condition, business, or reputation of Company or its affiliates, or (D) a
material breach by Executive of this Agreement.
(iii) Termination of Executive's employment for Cause shall be
communicated by delivery by Company to Executive of a written notice stating
that Executive has been terminated for Cause and specifying the particulars
thereof and the effective date of the termination. The date of resignation by
Executive shall be the date specified in a written notice of resignation from
Executive to Company. Executive shall provide at least sixty (60) days prior
written notice of resignation.
(b) Involuntary Termination.
(i) If Company terminates or does not extend the term of Executive's
employment for any reason other than for Disability or Cause ("Involuntary
Termination"), Company shall pay to Executive Executive's salary as well as
unreimbursed expenses which have been earned or incurred up to and including the
date of Involuntary Termination. In addition, Company shall pay to Executive as
severance Executive's salary prorated on a monthly basis, at the rate in effect
on the date of Involuntary Termination ("Severance Payments") for the nine (9)
month period beginning immediately following the date of Involuntary termination
("Severance Period"). Severance Payments shall be paid in payroll installments
in accordance with the Company's payroll practices as in effect from time to
time; provided, however, that Company, in its sole discretion, may at any time
during the Severance Period pay to Executive the then remaining portion of
Severance Payments due during the Severance Period in a cash lump sum.
(ii) In the event of Involuntary Termination, Executive shall continue to
participate on the same terms and conditions as are in effect immediately prior
to the termination or in Company's health, medical, and dental plans as set
forth in Section 3 until the last day Company is obligated to make Severance
Payments in accordance with Section 4(b)(i) above. Upon request from Executive,
Company shall also provide Executive an executive outplacement program with an
outplacement firm mutually acceptable to Executive and Company, the cost of
which may not exceed ten percent (10%) of Executive's base salary.
(iii) In the event of Executive's death prior to the end of the Severance
Period, Severance Payments shall cease.
(iv) If, following Involuntary Termination, Executive materially breaches
the provisions of Section 5 of this Agreement, Executive shall not be eligible,
as of the date of the breach, for the payments and benefits described in Section
4 and any obligations of Company for such payments and benefits shall thereupon
cease.
(v) The date of Involuntary Termination shall be the date specified in the
written notice of termination to Executive.
(c) Termination because of Disability. In the event of Executive's
Disability, Company shall be entitled to terminate Executive's employment.
Should Company terminate Executive's employment because of Disability, Executive
shall be entitled to payment of the pro-rata portion of Executive's salary and,
subject to the terms of the Incentive Plan, bonuses earned through the date of
termination as well as any unpaid expenses. Notwithstanding anything in this
Agreement to the contrary, if Executive's employment is terminated because of
Disability, Company shall continue to pay Executive Executive's annual salary
until the earliest to occur of (i) the end of the six (6) month period following
the date of termination, (ii) the date of Executive's death, or (iii) the first
day on which Executive is entitled to benefits under Company's long term
disability plan. As used in this Section 4(c), the term "Disability" shall mean
a physical or mental incapacity that substantially prevents Executive from
performing Executive's duties hereunder, has continued for at least one hundred
eighty (180) days, and can reasonably be expected to continue indefinitely. Any
dispute about whether or not Executive is disabled within the meaning of this
Section shall be resolved by a physician reasonably acceptable to Executive and
Company, and the determination of such physician shall be final and binding upon
both Executive and Company.
(d) Death. Except as provided in Sections 3(f), 4(b)(iii), and this
Section 4(d), no salary or benefits shall be payable under this Agreement
following the date of Executive's death. In the event of Executive's death, any
salary and, subject to the terms of the Incentive Plan, bonuses earned by
Executive up to the date of death, as well as any unreimbursed expenses shall be
paid to Executive's beneficiary within thirty (30) days of death. Executive's
Beneficiary shall also be entitled to any death benefits which are provided
under the terms of any plan, program, or arrangement referred to in Section 3(f)
applicable to Executive at time of death.
(e) Beneficiary. For this Agreement, "Beneficiary" shall mean the person
or persons designated in writing by Executive to receive benefits under a plan,
program, or arrangement due in the event of Executive's death, or, if no such
person or persons are designated by Executive, Executive's estate. No
Beneficiary designation shall be effective unless it is in writing and received
by Company prior to the date of Executive's death.
5. Protection of Company's Interests.
(a) No Competing Employment. For so long as Executive is employed by
Company and continuing for one (1) year after termination of employment or
resignation ("Restricted Period"), Executive shall not, unless Executive
receives prior written consent from Company, directly or indirectly own an
interest in, manage, operate, join, control, lend money or render financial or
other assistance to, or participate in or be connected with as an officer,
employee, partner, stockholder, consultant or otherwise any individual,
partnership, firm, corporation or other business organization or entity that
competes with Company.
(b) No Interference. During the Restricted Period and for a period of one
(1) year thereafter, Executive shall not, whether for Executive's own account or
for the account of any other individual, partnership, firm, corporation or other
business organization (other than Company), intentionally solicit, endeavor to
entice away from Company, or otherwise interfere with the relationship of
Company with any person who is employed by or otherwise engaged to perform
services for Company or any person or entity who is, or was, within the then
most recent twelve-month period, a customer, client, or supplier of Company.
(c) Secrecy. Executive recognizes that the services Executive will perform
are special, unique, and extraordinary because as part of Executive's employment
Executive may acquire confidential information and trade secrets about the
operation of Company or its affiliates, the use or disclosure of which could
cause Company substantial loss or damage which could not be readily calculated
and for which no remedy at law would be adequate. Accordingly, Executive shall
not at any time, except in performance of Executive's obligations to Company or
with prior written consent of Company, directly or indirectly disclose to any
person any secret or confidential information. "Confidential Information" means
any information not previously disclosed to the public by Company's management
about Company's products, facilities, business practices, trade secrets,
intellectual property, systems, procedures, manuals, confidential reports, price
lists, customer lists, financial information, and business plans, prospects, or
opportunities.
(d) Exclusive Property. All Confidential Information is and shall remain
the exclusive property of Company. All business records, papers, and documents
kept or made by Executive about the business of Company shall be and remain the
property of Company. Upon termination of employment or upon request of Company
at any time, Executive shall promptly deliver to Company and shall not, without
consent of Company, retain copies of any written materials not previously made
available to the public or records and documents made by Executive or coming
into Executive's possession and relating to the business of Company; provided,
however, that subsequent to any termination, Company shall provide Executive
with copies of any documents which are requested by Executive and necessary for
Executive to comply with any applicable law or the terms and conditions of the
Agreement.
(e) Enforcement. Should the period of time or the scope of the restrictive
covenants set forth above be adjudged unreasonable in a judicial proceeding,
then the period of time or the scope or both shall be reduced accordingly, so
that the covenants may be enforced in such scope and during such period of time
as are judged by the court to be reasonable. Should Executive breach or violate
this Agreement, in addition to all other remedies, Company shall be entitled to
equitable relief in any court of competent jurisdiction, including the right to
obtain injunctive relief for specific performance, it being covenanted hereby
that Company has no adequate remedy at law for the breach of the covenants
contained herein.
6. General Provisions.
(a) Other Severance Benefits. Should Company adopt a Severance Plan
("Severance Plan") applicable to senior executives of Company, Executive shall
be eligible for benefits under the Severance Plan but only to the extent that
benefits thereunder are additional to or greater than the severance benefits
provided herein. Should Executive's employment be terminated for any reason,
except for the obligations of Company expressly provided for herein, Executive
unconditionally releases Company and its directors, officers, employees, and
stockholders, or any of them, from any and all claims, liabilities, or
obligations for any other compensation or severance benefits in connection with
Executive's employment or termination.
(b) Tax Withholding. Payments to Executive for all compensation
contemplated by this Agreement shall be subject to all applicable tax
withholding.
(c) Notices. Notice by either party shall be given in writing by personal
delivery or certified mail, return receipt requested, or if to Company by
facsimile to the applicable address set forth below:
(i) To Company: Carol Gleber
Chief Operating Officer
Curative Health Services
150 Motor Parkway
Hauppauge, NY 11733
(ii) To Executive: Robert Heisler
310 West 106th Street
Apartment 7D
New York, NY 10025
or to such other persons or addresses either party may specify to the other in
writing.
(d) Representation by Executive. Executive represents and warrants that
Executive's entering into and performance under this Agreement will not breach
the provisions of any agreement to which the Executive is a party or any decree,
judgment, or order to which Executive is subject and that this Agreement
constitutes a valid and binding obligation of Executive. Breach of this
representation will render all of the Company's obligations under this Agreement
void ab initio.
(e) Assignment. This Agreement shall not be assigned by Executive, and any
attempted assignment or delegation in violation of this provision shall be void.
Subject to the preceding sentence, this Agreement shall be binding upon the
parties hereto and their respective heirs, successors, and assigns.
(f) Amendment. This Agreement may not be amended, modified, or canceled
except by written agreement between Executive and Company.
(g) Severability. If any term or provision of this Agreement is determined
to be invalid or unenforceable in a final court or arbitration proceeding, (i)
the remaining terms and provisions shall be unimpaired and, (ii) the invalid or
unenforceable term or provision shall be deemed replaced by a term or provision
that is valid and enforceable and comes closest to expressing the intention of
the invalid or unenforceable term or provision.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to any choice
or conflicts of law provisions.
(i) Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties with respect to the matters covered hereby and
supersedes all prior agreements and understandings of the parties with respect
to the subject matter hereof.
(j) Headings. The headings and captions of this Agreement are included
solely for convenience of reference and shall not control the meaning or
interpretation of any term or provision of this Agreement.
(k) Counterparts. This Agreement may be executed by the parties in
counterparts, each of which shall be deemed an original; but both such
counterparts shall together constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the day and year first written above.
CURATIVE HEALTH SERVICES, INC.
By:/s/John Vakoutis
Name: John Vakoutis
Title:President and Chief Executive Officer
EXECUTIVE
By:/s/Robert Heisler
Name: Robert Heisler
Title:Regional Vice President
Exhibit 10.22
DEVELOPMENT AND LICENSE AGREEMENT
between
CURATIVE HEALTH SERVICES, INC.
and
ACCORDANT HEALTH SERVICES, INC.
Dated as of May 19, 1998
1
TABLE OF CONTENTS
Page
1. DEFINITIONS 1
2. ACTIVITIES RELATING TO DEVELOPMENT OF THE PROGRAM DURING THE
DEVELOPMENT TERM 4
2.1 Responsibilities of Parties 4
2.2 Establishment of Project Committee 5
2.3 Elements of the Project Plan 6
3. MARKETING RIGHTS AND OBLIGATIONS; PAYMENT TO CHSI 6
3.1 Grant of Non-Exclusive Marketing Rights 6
3.2 Marketing Activities 6
3.3 Payment to CHSI 7
3.4 Subcontract of Service 7
3.5 Access to Accounting Books and Statements 7
4. REPRESENTATIONS AND WARRANTIES OF ACCORDANT AND CHSI 8
4.1 Mutual Representations and Warranties 8
4.2 Additional Representations 9
4.3 Additional Representations, Warranties and Covenants of 9
CHSI
4.4 Continuing Nature of Representations and Warranties 9
5. INSURANCE 10
5.1 Comprehensive General Liability and Other Insurance 10
5.2 Certificates of Insurance 10
6. OWNERSHIP; GRANT OF LICENSE; PROTECTION OF INTELLECTUAL 10
PROPERTY
6.1 Ownership of Program 10
6.2 License to Accordant 11
6.3 Protection of Program 11
6.4 Enforcement of Intellectual Property Rights 11
7. CONFIDENTIALITY; NON-COMPETITION COVENANT 11
7.1 Mutual Obligations of Confidentiality 11
7.2 Exceptions 12
7.3 Non-Competition Covenant of Accordant 12
7.4 Non-Competition Covenant of CHSI 13
7.5 Non-Solicitation 13
7.6 Enforcement 13
8. TERM AND TERMINATION
8.1 Term 13
8.2 Rights of Termination 13
8.3 Termination by Either Party 14
8.4 Termination by CHSI 15
8.5 Termination by Accordant 15
8.6 Adjusted Fair Market Value 16
8.7 Survival 17
9. INDEMNIFICATION 17
9.1 Mutual Obligations to Indemnify 17
9.2 Claims Procedure 17
9.3 Rights Cumulative 18
10. MISCELLANEOUS 18
10.1 Access to Operations 18
10.2 Further Assurances 18
10.3 Relationship 18
10.4 Entire Agreement 18
10.5 Assignability; Binding Nature 19
10.6 Waiver 19
10.7 Severability 19
10.8 Governing Law 19
10.9 Enforceability 19
10.10 Headings 19
10.11 Notices 19
10.12 Force Majeure 20
10.13 Arbitration 20
10.14 Counterparts 20
2
DEVELOPMENT AND LICENSE AGREEMENT
THIS DEVELOPMENT AND LICENSE AGREEMENT dated as of the 19th. day of May,
1998, between CURATIVE HEALTH SERVICES, INC., a Minnesota corporation
("CHSI"), having offices at 150 Motor Parkway, Hauppauge, New York 11788, and
ACCORDANT HEALTH SERVICES, INC., a Delaware corporation ("Accordant"), having
offices at 5509-A West Friendly Avenue, Suite 101, Greensboro, North Carolina
27410 (the "Agreement").
WHEREAS, CHSI is engaged in the marketing and sale of an innovative,
interdisciplinary program for the medically and cost effective diagnosis and
treatment of chronic non-healing wounds; and
WHEREAS, Accordant is engaged in the research, development, marketing
and sale of programs relating to the monitoring, care and stabilization of
the condition of individuals suffering from certain chronic illnesses; and
WHEREAS, CHSI and Accordant desire to pursue the development of a
comprehensive program for the monitoring, care and stabilization of the
condition of individuals suffering from chronic non-healing wounds; and
WHEREAS, following the successful development of such program,
Accordant desires to obtain a license from CHSI to market such program for
its own account, and CHSI is willing to grant Accordant a license to do so.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall be defined
as set forth below:
1.1 Accordant Know-How - shall mean all materials, methods or
other technical information, including data, formulas, patterns,
compilations, devices, techniques, processes and procedures, developed, owned
and/or controlled by Accordant prior to the Effective Date and used in
connection with the development of the Program.
1.2 Adjusted Fair Market Value - shall have the meaning set
forth in Section 8.6 hereof.
3
1.3 Affiliate - shall mean a corporation or other entity
controlled by, under common control with, or controlling a party, which
control means either (i)the ownership either directly or indirectly of more
than fifty percent (50%) of the voting power of the entity, or (ii) the right
to elect the majority of directors of the entity, and in either case, where
such control may be exercised without the consent of any third party.
1.4 Change of Control - shall mean either (i) the merger or
consolidation of Accordant with another entity in which the shareholders of
Accordant immediately prior to such transaction own less than 50% of the
voting power of the entity surviving such transaction, (ii) the sale of all
of, or a controlling interest in, the capital stock of Accordant to a third
party or group acting in concert, or (iii) the sale of a substantial portion
of Accordant's assets to a third party or group acting in concert.
1.5 CHSI Know-How - shall mean all materials, methods or other
technical information, including data, formulas, patterns, compilations,
devices, techniques, processes and procedures, now or hereafter developed,
owned and/or controlled by CHSI and provided by CHSI to Accordant in
connection with the development of the Program or otherwise obtained by
Accordant in connection with development of the Program (whether or not it is
used for such development), including improvements to the foregoing made by
CHSI during the term of this Agreement.
1.6 Customers - shall mean health maintenance organizations,
insurance companies, preferred provider organizations and other purchasers of
the goods and services offered by Accordant and other business organizations
providing disease management services to payors of the costs of medical
services. The term "Customers" shall not include any providers of medical
services which are not also payors of the costs of medical services.
1.7 Development Cost - shall mean the sum of the (i) Direct
Labor, (ii) Direct Materials and Costs, and (iii) Accordant overhead (which
is deemed to be equal to ten percent (10%) of the sum of (i) and (ii))
incurred by Accordant in the development of the Program during the
Development Term, as certified to CHSI by Accordant. No element of overhead
shall be included in Direct Labor.
1.8 Development Term - shall mean the period from the Effective
Date to the date twelve calendar months after adoption of the Project Plan
pursuant to Section 2.2.
1.9 Direct Labor - shall mean all costs of employment,
including, without limitation, employee benefits and taxes paid by the
employer, for those employees whose services are directly related to the
development and marketing of the Program and/or the performance of the
Program for the benefit of Accordant's Customers or CHSI's customers, as the
context may require.
4
1.10 Direct Materials and Costs - shall mean out-of-pocket
expenses for materials and third party services actually incurred by
Accordant or CHSI, as the context may require, which are identifiable and
directly related to the development and marketing of the Program and/or the
performance of the Program for the benefit of CHSI's Customers (and other
third parties) or Accordant's Customers, as the context may require,
including, but not limited to, travel expenses, shipping and postage charges,
mailing inserts and direct medical advisor expenses.
1.11 Effective Date - shall mean the date of this Agreement.
1.12 Indemnifying Party - shall mean, for purposes of Article 9
hereof, either CHSI or Accordant, as the context may require.
1.13 Indemnified Persons - shall have the meaning set forth in
Section 9.1 hereof.
1.14 Information - shall mean documents, materials, knowledge or
other confidential or proprietary business or technical information,
including, without limitation, information relating to markets, customers,
products, patent rights, inventions, trade secrets, procedures, methods,
designs, strategies, plans, assets, liabilities, costs, revenues, profits,
organization, employees, agents, distributors or business in general.
1.15 Initial Term - shall mean the initial term of this
Agreement, i.e., the five (5) year period from and after the Effective Date.
1.16 Losses - shall mean losses, claims, damages, liabilities
and expenses (including reasonable fees and disbursements of counsel)
incurred by Indemnified Persons.
1.17 Marketing Plan - shall mean the plan for the
implementation, marketing and operation of the Program prepared by Accordant
in accordance with Section 2.1(b)(x).
1.18 Net Profits - shall mean, for any period, the positive
difference, if any, between (a) Net Sales of the Program, less (b) the sum of
(i) Direct Labor, (ii)Direct Materials and Costs and (iii) Accordant
overhead (which is deemed to be equal to ten percent (10%) of the sum of (i)
and (ii)) incurred by Accordant in connection with such Net Sales. No
element of overhead shall be included in Direct Labor.
5
1.19 Net Sales - shall mean gross receipts from sales by
Accordant for performing the Program for the benefit of its Customers, less
adjustments or credits made by Accordant in the ordinary course of its
business consistent with past practices.
1.20 Program - shall mean the comprehensive program for case
management of individuals suffering from chronic non-healing wounds, which
will contain, at a minimum, the following elements in accordance with the
Specifications provided by CHSI under Section 2.1(a) of this Agreement:
(a) comprehensive disease profile; (b) normative cost model; (c) intervention
model; (d) impact model; (e) data templates; (f) assessment tools;
(g) intervention and education (payor/provider); (h) care management plan;
(i) outcomes reports; and (j) outcomes management.
1.21 Program Completion - shall mean the completion of the
development of the Program and its certification as "completed" by the
Project Committee, provided that the Project Committee's certification shall
be deemed provided unless the Project Committee provides a detailed
description of any changes to the Program required for it to conform to the
Specifications within fifteen (15) days of Accordant's submission of the
Program to the Project Committee; and provided further that the Project
Committee will not unreasonably withhold its consent to such certification.
1.22 Project Committee - shall mean the joint project committee
established by CHSI and Accordant in accordance with Section 2.2 hereof.
1.23 Project Plan - shall mean the project plan for the
development of the Program prepared by the Project Committee in accordance
with Section 2.2 hereof.
1.24 Specifications - shall mean the specifications for the
Program which have been provided to Accordant from time-to-time by CHSI, and
accepted by Accordant, such acceptance not to be unreasonably withheld.
6
2. ACTIVITIES RELATING TO DEVELOPMENT OF THE PROGRAM DURING THE
DEVELOPMENT TERM
Subject to the terms and conditions set forth herein, the parties shall
have the responsibilities set forth in this Article 2 for developing the
Program.
(a) Responsibilities of CHSI. CHSI shall be responsible
for: (i)providing Accordant with Specifications for the Program no later
than the dates determined, from time to time, by the Project Committee;
(ii)providing Accordant with all necessary CHSI Know-How, as reasonably
requested by Accordant, no later than the date(s) as set forth, from time to
time, by the Project Committee; and (iii)selection of a beta site for the
beta testing of the Program.
(b) Responsibilities of Accordant. Accordant shall
(i)be ultimately responsible for the development of the Program for use in
the United States and elsewhere; (ii)develop the Program materially in
accordance with the Specifications supplied by CHSI, as may be modified from
time-to-time by CHSI after consultation with Accordant and accepted by
Accordant, such acceptance not to be unreasonably withheld; (iii)in
consultation with CHSI, appoint an Accordant employee as project manager who
shall be dedicated to (A) the timely development of the Program and (B)the
marketing of the Program to its Customers following Program Completion;
(iv)present the Project Plan to CHSI no later than one (1) month after
Accordant's acceptance of the Specifications; (v)complete a first draft of
the Program no later than six (6) months after the adoption of the Project
Plan by the Project Committee; (vi) complete development of the Program no
later than the end of the Development Term; (vii)appoint, or cause to be
elected, for the term of this Agreement (including any renewals) John
Vakoutis, or his replacement as directed by CHSI's Board of Directors, as a
Director on the Board of Accordant; (viii)fund the Development Cost of the
Program; (ix) arrange for Beta testing of the Program immediately following
Program Completion; (x)deliver to CHSI, no later than six (6) months
following the Effective Date, a detailed Marketing Plan for the
implementation, marketing and operation of the Program for approval by CHSI;
(xi)in accordance with the Marketing Plan, incorporate the Program into its
offering of services to its Customers no later than nine (9) months after the
adoption of the Project Plan by the Project Committee; (xii)assure that no
later than sixty (60) days after the end of the Development Term at least one
(1) Customer shall have entered a binding contract with Accordant for the
Program; and (xiii) deliver one current copy of the Program and other
materials used by Accordant in the course of its performance under this
Agreement as provided in Section 8.3(d) below.
2.2 Establish the Project Committee.
Promptly following the Effective Date, CHSI and Accordant shall establish
the Project Committee. The Project Committee will be responsible for the
oversight of all activities related to development of the Program during the
Development Term. The Project Committee shall use its best efforts to
expedite the development process to ensure that the Program is available to
be performed for the benefit of Customers at the earliest practicable date,
but in no event later than nine (9) months following adoption of the Project
Plan, and shall be responsible for the following: (i)adopting the Project
Plan for the development of the Program; (ii)assisting Accordant with the
formulation of the Marketing Plan for the implementation, marketing and
operation of the Program; (iii) monitoring Accordant's progress under the
Project Plan and the Marketing Plan; and (iv) modifying and/or otherwise
revising the Project Plan as and when deemed necessary.
7
2.3 Elements of the Project Plan and Marketing Plan.
The Project Plan and Marketing Plan shall each be in
writing and shall include, without limitation, the following elements:
(a) the Specifications;
(b) a statement of the extent to which testing of the
Program will be conducted by CHSI and/or Accordant;
(c) establishment of the various milestones and deadlines
(other than those set forth in this Agreement), as they may be changed from
time to time by the Project Committee, to be achieved; and
(d) such other matters pertaining to the cooperative
efforts of CHSI and Accordant in connection with the development, marketing
and promotion of the Program, and performance of the Program for the benefit
of Customers as the Project Committee shall deem necessary or appropriate.
3. MARKETING RIGHTS AND OBLIGATIONS; PAYMENT TO CHSI
3.1 Grant of Non-Exclusive Marketing Rights
Subject to the ownership of the Program by CHSI as provided in Section 6.1
of this Agreement and the terms and conditions set forth in this Article 3,
CHSI hereby grants Accordant, during the term of this Agreement and
thereafter (but only to the extent provided in Sections 3.4 and 8.3), the
non-exclusive right to market and promote the Program and perform the Program
for the benefit of its Customers in the United States and outside. Accordant
hereby accepts such grant and agrees to market and promote the Program and
perform the Program for the benefit of its Customers on the terms and subject
to the conditions set forth herein.
8
3.2 Marketing Activities
(a) Accordant, for the term of this Agreement, shall have
full responsibility and authority for the promotion and marketing of the
Program and the performance of the Program for the benefit of its Customers,
as provided in the Marketing Plan, subject to CHSI's rights as owner of the
Program and the right of CHSI to, from time to time, review and in
consultation with Accordant amend the Marketing Plan. Accordant shall price
the Program separately from the other case management programs for other
disease states offered by Accordant to its Customers and shall establish the
price for the Program on a non-discriminatory basis consistent with the
prices established for such other programs. Accordant shall assume all
administrative and other responsibilities necessary to perform the Program
for the benefit of its Customers and shall be solely responsible for all
direct and indirect costs and expenses associated with the marketing,
promotion and performance of the Program to and for the benefit of its
Customers. Without CHSI's prior written consent (except as provided in the
Marketing Plan), Accordant shall not promote, market or exploit the Program.
(b) CHSI hereby agrees that prior to entering
negotiations with any business organization offering disease management
services to payors of the costs of medical services (a "Prospective
Licensee") for the grant of a license to market and perform the Program for
the benefit of any Customers, CHSI shall negotiate in good faith on an
exclusive basis with Accordant for a period of sixty (60) days as to the
terms and conditions of a possible agreement pursuant to which Accordant
would market and promote the Program to, and perform the Program for the
benefit of, the number and type of Customers to and for whom CHSI reasonably
anticipates the Prospective Licensee would promote, market and perform the
Program. It is understood and agreed that if no agreement is reached between
CHSI and Accordant during such sixty (60) day period, CHSI shall thereafter
be free to enter negotiations with and grant a license to the Prospective
Licensee to promote, market and perform the Program.
3.3 Payment to CHSI
As consideration for the rights granted under this Agreement, Accordant
shall remit to CHSI within thirty (30) days after the end of each calendar
quarter during the Initial Term of this Agreement or any renewal thereof an
amount equal to the thirty percent (30%) of the Net Profits earned in such
calendar quarter, together with a written statement certified by the Chief
Financial Officer of Accordant detailing the calculation of Net Profits in
the preceding calendar quarter and in the year-to-date.
3.4 Subcontract of Service
At the request of CHSI from time to time during the term of this Agreement
and thereafter as contemplated by Section 8.3(b), Accordant, as a
subcontractor to CHSI, shall provide all case management, administrative and
other services necessary to enable CHSI to perform the Program for the
benefit of its Customers, hospital partners and other third parties. At such
time(s) as CHSI requests Accordant to act as subcontractor to CHSI under this
Section 3.4, CHSI shall allow Accordant such period of time as may be
reasonably necessary under the circumstances to hire additional staff and/or
take such other steps as may be reasonably necessary under the circumstances
to accommodate CHSI's request. In consideration thereof, CHSI shall pay to
Accordant on a calendar quarterly basis an amount equal to the sum of the (i)
Direct Labor, (ii) Direct Materials and Costs and (iii) Accordant overhead
(which is deemed to be equal to 10% of the sum of (i) and (ii)) incurred by
Accordant in providing such services to or for the benefit of CHSI. No
element of overhead shall be included in Direct Labor.
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3.5 Access to Accounting Books and Statements.
All calculations of Net Profits, and any and all other calculations
affecting any amounts due to or from CHSI hereunder, shall be final only upon
the review, verification and approval of such calculations (and the
underlying financials of Accordant) by CHSI, or upon CHSI's failure to notify
Accordant of any objection thereto (other than an objection based on fraud)
within one (1) year after receipt of any report covering such calculations.
For this purpose, CHSI shall have reasonable access to all quarterly and
annual financial reports and any other financial information that CHSI may
reasonably request to review.
4. REPRESENTATIONS AND WARRANTIES OF ACCORDANT AND CHSI
4.1 Mutual Rerpresentations and Warranties.
Each of CHSI and Accordant represents and warrants to the other that:
(a) it is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation, with
all requisite corporate power and authority to consummate the transactions
contemplated hereunder;
(b) the execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate action;
(c) this Agreement has been duly executed and delivered
and constitutes a valid and legally binding agreement and obligation of such
party, enforceable against it in accordance with the terms hereof;
(d) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereunder do not and will not
conflict with or violate any provisions of law or the Certificate of
Incorporation or By-laws of such party, and do not and will not conflict with
or result in the breach of any condition or provision of, or constitute a
default under, or result in the creation or imposition of any lien upon any
of the property or assets of either party by reason of the terms of any
contract, mortgage, lien, lease, agreement, indenture, instrument or judgment
to which it is a party, or which is, or purports to be, binding upon it, or
which affects, or purports to affect, any of its properties or assets, and no
action by any governmental department, commission, board, bureau or
instrumentality is necessary to make this Agreement valid and binding upon
either of the parties hereto in accordance with its terms; and
(e) it possesses all permits, licenses and other
governmental approvals necessary to perform its obligations hereunder and
will comply fully with the terms and conditions of all such permits, licenses
and other approvals and with all federal, state and local statutes and
regulations applicable to its facilities and the performance of its
obligations hereunder.
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4.3 Additional Representations, Warranties and Covenants of Accordant.
Accordant further represents, warrants and covenants to CHSI that:
(a) the Program shall be developed in accordance in all
material respects with the Specifications, as they may change from time to
time (subject to Accordant's acceptance of such changes, such acceptance not
to be unreasonably withheld), and all applicable federal, state and local
laws, codes, ordinances, rules and regulations;
(b) Accordant shall not use any third party in connection
with the development of the Program unless Accordant has entered into a
written agreement with such third party reasonably acceptable to CHSI by
which all of the intellectual property rights, including, without limitation,
all copyrights, patent rights, trademark rights, trade secret rights, and
know-how have been assigned to Accordant;
(c) Accordant shall be the owner of all intellectual
property rights, including, without limitation, all copyrights, patent
rights, trademark rights, trade secret rights, and know-how in any
information, material, know-how, data or other contributions that Accordant
makes to the Program and Accordant has the right to make the assignment and
grant of rights to CHSI pursuant to Article 6 below; and
(d) no royalty or other fees shall be due to any third
parties in order for CHSI to own the Program as provided herein.
4.3 Additional Representations, Warranties and Covenants of CHSI.
CHSI further represents, warrants and covenants to Accordant that:s of CHSI
(a) CHSI has the right to license Accordant to use the
CHSI Know-How in connection with the development and marketing of the Program
as provided herein; and
(b) Accordant's use of the CHSI Know-How will not violate
any copyrights, patent rights, trademark rights, trade secret rights or
know-how of any third party.
4.4 Continuing Nature of Representations and Warranties.
The representations and warranties contained herein shall be true and
correct as of the Effective Date and at all times during the term of this
Agreement or any extensions or renewals thereof as though continuously made.
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5. INSURANCE
5.1 Comprehensive General Liability and Other Insurance.
Accordant shall maintain, at its own cost and expense, for the entire term
of this Agreement, and for three (3) years thereafter, (i) comprehensive
general liability insurance coverage for property damage, bodily injury or
death arising from the performance of its obligations and activities under
this Agreement and in providing the Program to its Customers, with a single
limit of $1,000,000 per occurrence, and (ii) coverage for errors and
omissions, with a single limit of $5,000,000 per occurence. Accordant shall
at least annually during the term of this Agreement review the types and
limits of its insurance coverages and obtain such additional or increased
coverages as may be prudent and necessary to protect against liability from
the performance of its obligations and activities under this Agreement.
5.2 Certificates of Insurance
The policies of insurance required under this Article 5 shall be valid and
enforceable policies issued by insurers of recognized responsibility.
Accordant shall deliver to CHSI evidence of the insurance required by this
Article 5.
6. OWNERSHIP; GRANT OF LICENSE; PROTECTION OF INTELLECTUAL PROPERTY
6.1 Ownership of Program
The Program, at each stage of its development, and upon Program
Completion, including any and all CHSI Know-How, as well as any and all other
technology, know-how, materials, processes or other technical information
that shall be developed by Accordant during the term of this Agreement and
that shall be used in connection with the development of the Program or that
shall be part of the Program ("Accordant Contributions") shall be owned by
CHSI, which shall have all rights pertaining thereto; provided that any and
all Accordant Know-How or Information owned by Accordant and incorporated
into the Program, or developed or used in the development of, or provided by
Accordant as part of, the Program that are not specific to the Program (the
"Accordant Background Technology") shall remain the sole and exclusive
property and confidential information of Accordant; provided further that
CHSI shall have a perpetual, fully paid, transferable, non-exclusive license,
with right to sublicense, to reproduce, distribute, display, perform and
modify, and create derivative works in connection with, the Accordant
Background Technology to the extent that such Accordant Background Technology
is included as part of, or is otherwise necessary to use, the Program, in any
media now or hereafter created; and provided further, that no license shall
be provided by Accordant for any off-the-shelf third party software
applications or tools used in connection with the Program which are readily
available to CHSI, with or without charge, upon termination of this
Agreement. Accordant hereby acknowledges and agrees that all Accordant
Contributions other than Accordant Background Technology shall be "works made
for hire" within the meaning of the Copyright Act of 1976, as amended, and
shall be the exclusive property of CHSI. To the extent that any Accordant
Contributions other than Accordant Background Technology do not vest in CHSI
as "works made for hire" or otherwise, Accordant hereby assigns and transfers
in whole to CHSI all right, title and interest in and to such Accordant
Contributions, including all copyrights, patent rights, trademark rights,
trade secret rights, know-how and any other intellectual property rights
therein.
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6.2 License to Accordant
CHSI shall and does hereby grant to Accordant during the term of this
Agreement (i) the non-exclusive license to reproduce the CHSI Know-How in
connection with the development of the Program, and (ii) the non-exclusive
right to promote and market the Program and perform the Program for the
benefit of its Customers. Accordant shall have no rights to sublicense the
Program.
6.3 Protection of Program
CHSI shall have the sole right (but not the obligation) to apply for and
to register the intellectual property rights in the Program, if any.
Accordant agrees to take all reasonable steps, at no cost to Accordant, to
assist CHSI in connection with such applications and registrations.
6.4 Enforcement of Intellectual Property Rights
Each party shall give the other party prompt notice of any infringement or
threatened infringement of the Program or any intellectual property rights
therein that may come to its attention. CHSI shall have the sole right (but
not the obligation), at its own expense and sole discretion, to bring any
legal action against persons infringing or violating any rights in the
Program, and Accordant shall, at CHSI's request cooperate and join as a party
in any such action; provided, however, CHSI shall have full and complete
control over the filing, prosecution and settlement of such action. Any
recovery from a proceeding attributable to infringement or violation by a
third party, whether by judgment or settlement, shall be the sole property of
CHSI.
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7. CONFIDENTIALITY; NON-COMPETITION COVENANT
7.1 Mutual Obligations of Confidentiality
Accordant and CHSI each hereby agrees to keep strictly confidential any
and all Information disclosed to or developed by the other in connection with
the transactions contemplated by this Agreement, including, without
limitation, any and all Information relating to the Program, CHSI Know-How,
Accordant Know-How and all such other information as the provider may
designate as confidential and/or proprietary. Each of Accordant and CHSI
agrees that all Information shall remain the sole and absolute property of
the party disclosing the same, subject to the provisions in Article 6 of this
Agreement and consistent with CHSI's ownership of the Program and Accordant's
ownership of the Accordant Background Technology. During the Initial Term,
or
any extensions or renewals thereof, the parties shall not use, disclose,
disseminate, publish, reproduce or otherwise make available any Information
to any person, firm, corporation or other entity, except for the purposes
contemplated hereby. Following expiration or termination of this Agreement,
neither party shall use, disclose, disseminate, publish, reproduce or
otherwise make available any Information to any person, firm, corporation or
other entity, subject to the provisions in Article 6 of this Agreement and
consistent with CHSI's ownership of the Program and Accordant's ownership of
the Accordant Background Technology. Upon expiration or termination of this
Agreement, each of Accordant and CHSI shall, subject to the provisions in
Article 6 of this Agreement and consistent with CHSI's ownership of the
Program and Accordant's ownership of the Accordant Background Technology,
return to the other all records and any compositions, articles, devices,
equipment and other items which disclose or embody any Information, including
all copies or specimens thereof, in such party's possession, whether prepared
by such party or by others, except for such records and other items which
CHSI or Accordant, as the case may be, is required to retain in accordance
with applicable law. CHSI and Accordant each further agrees to cause its
respective Affiliates to comply with these provisions in the same manner as
if each of them were a party hereto.
7.2 Exceptions
The covenant of confidentiality set forth in Section 7.1 shall not apply
to: (i) any Information in the public domain prior to the Effective Date;
(ii) any Information that may fall into the public domain subsequent to the
Effective Date through no fault of the recipient thereof; (iii) any
Information that was in the possession of the recipient prior to the
disclosure by the other party hereto; (iv) any Information that is obtained
from a third person not a party to this Agreement and who has a right to
disclose the same; (v) any Information required by law to be disclosed; or
(vi) any Information the recipient is otherwise permitted to disclose under
the terms of this Agreement.
7.3 Non-Competition Covenant of Accordant
Accordant covenants, agrees and warrants that, in consideration of the
agreements set forth herein, except for the extent necessary to perform its
obligations under Section 3.4, for a period beginning on the Effective Date
and expiring on the date which is two (2) years after the date of
termination, expiration or non-renewal of this Agreement, Accordant shall
not, directly or indirectly, in any area where the Program is promoted,
marketed or sold by or on behalf of CHSI or any of its designees (including
Accordant) engage in the promotion, marketing or sale of any product or
program that shall compete directly with the Program. Further, Accordant
shall not, directly or indirectly, during the term of this Agreement, or for
two (2) years thereafter, develop or assist in the development of any program
of treatment and management of chronic non-healing wounds. Accordant further
agrees to use its best efforts to cause its Affiliates to comply with these
provisions in the same manner as if each of them were a party hereto.
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7.4 Non-Competition Covenant of CHSI
CHSI covenants, agrees and warrants that, in consideration of the
agreements set forth herein, for a period beginning on the Effective Date and
expiring on the date which is two (2) years after the date of termination,
expiration or non-renewal of this Agreement, CHSI shall not, directly or
indirectly, offer or sell to Customers any other comprehensive case
management programs for the disease states listed on Schedule 1 attached
hereto.
7.5 Non-Solicitation
Each of Accordant and CHSI covenants, agrees and warrants that, in
consideration of the agreements set forth herein, for a period beginning on
the Effective Date and expiring on the date which is two (2) years after the
termination, expiration or non-renewal of this Agreement, except as
contemplated by Section 8.3 hereof, neither party shall, directly or
indirectly, solicit or induce any present or future employee of the other
party to leave the employment of such other party for any reason or hire any
such employee.
7.6 Enforcement
CHSI and Accordant each agrees that the provisions of this Article 7 are
necessary and reasonable to protect the other (or any other entity which
succeeds, in whole or in part, to such other party), in the conduct of its
business. Each party acknowledges that the damages at law may be an
inadequate remedy for the breach of any of the covenants contained in this
Article 7 and, accordingly, in addition to any other remedies to which such
party would be otherwise entitled, such party shall be entitled to injunctive
relief for breach by the other party of any of the provisions contained
herein. If any provision of the time period or geographic area of the
non-competition restriction contained herein shall be deemed to exceed the
maximum time period or geographic area which a court of competent
jurisdiction would deem permissible, then the time period or geographic area,
as the case may be, shall for the purposes of this Agreement be deemed to be
the maximum time period or geographic area which a court of competent
jurisdiction would deem valid and enforceable.
8. TERM AND TERMINATION
8.1 Term
The term of this Agreement shall commence on the Effective Date and shall
continue through the Initial Term. Thereafter, this Agreement shall be
automatically renewed for additional terms of one (1) year each, unless
either CHSI or Accordant shall notify the other party, not less than six (6)
months prior to the next renewal date of this Agreement, of its intention not
to renew it.
8.2 Rights of Termination
This Agreement may not be terminated by either party during the Initial
Term or renewal thereof except as follows: (a) either party may terminate
the Agreement immediately, at any time during the Initial Term or thereafter,
in the event of a material breach of this Agreement and
such breach shall continue for a period of at least thirty (30) days
following written notice thereof; (b) CHSI may terminate this Agreement
immediately, at any time during the Initial Term or thereafter, in the event
of a Change of Control of Accordant; and (c) CHSI may terminate this
Agreement upon not less than six (6) months prior written notice given at any
time on or after the second anniversary of the Effective Date.
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8.3 Termination by Either Party
In the event of any termination or non-renewal of this Agreement:
(a) at the request of CHSI, Accordant shall make
available for hire by CHSI all case managers employed by Accordant whose
primary responsibilities are chronic non-healing wound care. In addition,
for a period of six (6) months after the termination or non-renewal of this
Agreement, at CHSI's request, Accordant shall make available its project
manager for the Program as a leased employee to CHSI in consideration for
which CHSI shall reimburse Accordant for all salary and out-of-pocket benefit
costs for such project manager during such period;
(b) at the request of CHSI, Accordant shall assign to
CHSI, and CHSI shall assume and perform, Accordant's rights and obligations
under its contracts with its Customers for the Program applicable to the
period commencing on the effective date of such termination or non-renewal,
unless Accordant and such Customers have agreed to terminate such contracts;
provided, however, Accordant shall take no action to terminate any such
contracts without first obtaining CHSI's prior written approval which may be
withheld by CHSI in its sole and absolute discretion. CHSI shall have the
right to subcontract with Accordant pursuant to Section 3.4 for the remaining
term of such Customer contracts. Accordant shall and does hereby indemnify
and hold harmless CHSI against Losses arising from or relating to Accordant's
performance of such Customer contracts during the period prior to the date of
such termination or non-renewal;
(c) except as otherwise required for Accordant to fulfill
its obligations under Section 3.4, Accordant shall immediately discontinue
all promotion, marketing and performance of the Program and shall return all
CHSI Know-How to CHSI; and
(d) within fifteen (15) days following the termination of
this Agreement, Accordant shall deliver to CHSI one complete copy of the
current Program (including source code, executables and all files necessary
to generate executables from source code) on appropriate computer-readable
media along with any other documentation, reports, databases, tables, and any
other materials included as part of, or as are otherwise necessary for CHSI
to use, the Program without further expense after termination of this
Agreement in the same manner as
Accordant used the Program during the term of this Agreement; provided that
Accordant shall not have an obligation to provide CHSI with off-the-shelf
third party software or tools used in connection with the Program which are
readily available to CHSI, with or without charge, upon termination of this
Agreement.
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8.4 Termination by CHSI
(a) In the event of any termination or non-renewal of this Agreement by
CHSI, other than pursuant to Section 8.2(a):
(i) CHSI shall pay to Accordant promptly following the
effective date of such termination or non-renewal an amount equal to the sum
of (X) the positive difference, if any, between the Development Cost, less
the aggregate Net Profits earned and retained by Accordant during the term of
this Agreement (i.e., Net Profits less all payments made to CHSI pursuant to
Section 3.3 hereof), plus (Y) an amount equal to the Adjusted Fair Market
Value of the Program determined in accordance with Section 8.6. For purposes
of calculating Net Profits earned by Accordant under clause (X) of this
Section 8.4(a)(i), no deduction from Net Sales shall be made for all or any
part of the Development Cost; and
(ii) at such time as CHSI has the operational capability to
perform the Program for the benefit of its Customers (CHSI being under no
obligation to do so), CHSI and Accordant shall negotiate in good faith the
terms and conditions of a possible agreement pursuant to which (X) Accordant
would be granted the license to market the Program to its Customers, (Y) CHSI
would act as subcontractor for Accordant in performing the Program for the
benefit of such Customers, and (Z) Accordant would pay to CHSI a fair royalty
for the rights contemplated in clause (X) and compensation computed in the
manner described in Section 3.4 for CHSI's services contemplated in clause
(Y).
(b) In the event of any termination of this Agreement by
CHSI pursuant to Section 8.2(a) due to the failure of Accordant to meet the
requirements of clause (xii) of Section 2.1(b), CHSI shall pay to Accordant
promptly following the effective date of such termination an amount equal to
one-half of the Development Cost. In the event of any termination by CHSI
pursuant to Section 8.2(a) for any other reason, CHSI shall have no further
liability or obligation to Accordant hereunder.
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8.5 Termination by Accordant
In the event of termination of this Agreement by Accordant pursuant to
Section 8.2(a), CHSI shall pay to Accordant promptly following the effective
date of such termination the amount calculated in the manner specified in
Section 8.4(a)(i).
8.6 Adjusted Fair Market Value
(a) Adjusted Fair Market Value shall be the fair market
value of the Program determined in accordance with this Section 8.6 as of the
date of either party's notice of termination or non-renewal which triggers a
payment obligation under Section 8.4(a)(i) or Section 8.5. In connection
with such notice of termination or non-renewal, CHSI shall give notice to
Accordant of the amount which it in good faith believes to be the Adjusted
Fair Market Value of the Program ("Proposed Adjusted Fair Market Value").
(b) Accordant shall have thirty (30) days after receiving
such notice within which to accept or reject such Proposed Adjusted Fair
Market Value as the Adjusted Fair Market Value. If Accordant shall fail to
give such notice timely, then Accordant shall be deemed to have accepted such
Proposed Adjusted Fair Market Value as conclusively determining the Adjusted
Fair Market Value.
(c) If Accordant shall reject such Proposed Adjusted Fair
Market Value, then such rejection shall be accompanied by a Proposed Adjusted
Fair Market Value proposed by Accordant and by the names of at least three
nationally recognized investment banking firms having substantial expertise
in the health case industry, reasonably acceptable to CHSI, any of which
Accordant is prepared to have determine the Adjusted Fair Market Value of the
Program. Within thirty (30) days thereafter CHSI shall either accept the
Proposed Adjusted Fair Market Value proposed by Accordant or select one of
the investment banking firms proposed by Accordant (the "Investment Banking
Firm") and shall retain the same to determine the Adjusted Fair Market Value
of the Program.
(d) In determining the Adjusted Fair Market Value, the
Investment Banking Firm shall value the Program as a separate element of
Accordant's business based on the price a willing buyer would pay Accordant
on an arms length basis to acquire from Accordant the rights in the Program
granted to Accordant on the terms and subject to the conditions set forth in
this Agreement, but assuming that Accordant's rights under this Agreement
could not be terminated by CHSI pursuant to Sections 8.1, 8.2(b) or 8.2(c).
In the event the Adjusted Fair Market Value is determined as a result of a
Change of Control of Accordant pursuant to Section 8.2(b), the Investment
Banking Firm shall not take into account any effect that the Change of
Control transaction might have on Adjusted Fair Market Value. Except for the
foregoing, the Investment Banking Firm may base its determination on any and
all facts and factors which in good faith it deems appropriate.
18
(e) Accordant shall render all reasonable cooperation to
the Investment Banking Firm upon its request and shall provide it with all
books, records, documents and other information reasonably available and
which it reasonably requests.
(f) The parties will jointly instruct the Investment
Banking Firm to make its determination of Adjusted Fair Market Value within
thirty (30) days following the request. Such determination or any earlier
determination pursuant to Section 8.6(b) hereof (the earlier of which is the
"Determination") shall be final and binding upon all parties hereto.
(g) The Investment Banking Firm shall not be liable for
any action taken or omitted in connection with such determination except
those taken or omitted in bad faith, recklessly or in a grossly negligent
manner.
(h) If the Investment Banking Firm's Determination shall
be less than, or not more than 110% of, the Proposed Adjusted Fair Market
Value proposed by CHSI, then the fees and expenses of the Investment Banking
Firm in making the Determination shall be paid by Accordant, otherwise they
shall be paid by CHSI. All amounts needed to be advanced in connection with
and prior to the Determination shall be advanced by CHSI, subject to
reimbursement from Accordant as provided above.
8.7 Survival
In the event of termination, expiration or non-renewal of this Agreement,
all of the terms and conditions set forth in Section 3.4 and Articles 4, 6,
7, 8, 9 and 10 of this Agreement shall survive.
9. INDEMNIFICATION
9.1 Mutual Obligations to Indemnify
Accordant and CHSI each agrees to indemnify, defend and hold harmless the
other party and its Affiliates, the respective directors, officers, partners,
agents and employees of such other party and its affiliates and each other
person, if any, controlling such other party or any of its affiliates
(collectively, the "Indemnified Persons"), to the full extent lawful, (i)
from and against all Losses which are caused by actions taken or omitted to
be taken (including any untrue statements made or any statements omitted to
be made) by the Indemnifying Party or its agents and employees pursuant to
this Agreement; (ii) a breach of any representations, warranties or covenants
of such party contained in this Agreement; and (iii) any failure of such
party to fulfill its obligations under this Agreement. The Indemnifying
Party will not be responsible, however, to indemnify for any Losses pursuant
to the preceding sentence which result from the bad faith or negligence of
the person or entity seeking indemnification hereunder.
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9.2 Claims Procedure
Each person or entity seeking indemnification hereunder shall promptly
notify the Indemnifying Party of any Loss for which the Indemnifying Party
may become liable hereunder and shall
permit the Indemnifying Party a reasonable opportunity to cure any underlying
problem, to mitigate actual or potential damages, and to participate in, or
assume the defense of, any third party claim or action. In the event that
the Indemnifying Party chooses to assume the defense of any third party claim
or action, the Indemnifying Party shall provide the Indemnified Persons with
notice of the progress of such defense. The Indemnifying Party further
agrees that it will not, without the prior written consent of the Indemnified
Persons, which consent shall not be unreasonably withheld or delayed, settle
or compromise or consent to the entry of any judgment or award in any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder.
9.3 Rights Cumulative
The rights hereunder shall be in addition to any rights that Accordant,
CHSI or any other indemnified person may have at common law or otherwise,
including, but not limited to, any right to contribution.
10. MISCELLANEOUS
10.1 Access to Operations
CHSI and Accordant each agrees to provide authorized officers, employees,
agents and representatives of the other with reasonable access to information
and records relating to the development and marketing of the Program.
Accordant shall permit CHSI to perform (not more frequently than once per
year, unless otherwise required by law) reasonable reviews and audits of the
development process for the Program, and Accordant shall permit authorized
persons from CHSI to participate in studies and research and development in
respect of the Program as reasonably requested by CHSI. Nothing herein shall
require either party to disclose information or provide access to its
operations for purposes reasonably deemed by such party to be unrelated to
this Agreement.
10.2 Further Assurances
Each of the parties hereto agrees to execute such instruments and take
such further action, if any, as may be reasonably requested by the other
party in order to assure such requesting party of the rights and benefits
intended by this Agreement, it being understood that the expense of any such
action shall be borne by the party requesting the same.
10.3 Relationship
The relationship between the parties established by this Agreement is
solely that of independent contractors. Neither party is in any way the
legal representative, partner or agent of the other, nor is either party
authorized or empowered to create or assume any obligation of any kind,
implied or expressed, on behalf of the other party, without the express prior
written consent of the other.
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10.4 Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto
relating to the subject matter hereof, there
being no prior written or oral promises or representations not incorporated
herein. No amendments or modifications of the terms of this Agreement shall
be binding upon either party unless in writing signed by both parties.
10.5 Assignability; Binding Nature
The rights and obligations of each party hereunder may not be assigned
without the written consent of the other party; provided, however, that
either party may assign this Agreement to a parent, wholly-owned subsidiary
or other affiliated company or purchaser of all or substantially all of the
assets or capital stock of such party without the written consent of the
other, subject to CHSI's rights of termination under Section 8.2(b). In the
event of any permitted assignment hereunder, the assignor shall not be
released from its liabilities and obligations under this Agreement, unless
otherwise agreed by the non-assigning party. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
10.6 Waiver
Neither the waiver by either party hereto of any breach of or default
under any of the provisions of this Agreement, nor the failure of either of
the parties to enforce any of the provisions of this Agreement or to exercise
any right hereunder, shall be construed as a waiver of any subsequent breach
or defaults or as a waiver of any such rights or provisions hereunder.
10.7 Severability
If any part of this Agreement shall be held to be invalid or
unenforceable under applicable law, such part shall be ineffective to the
extent of such invalidity or unenforceable only, without in any way affecting
the remaining parts of this Agreement.
10.8 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of laws principles.
10.9 Enforceability
It is the explicit intent of the parties hereto that no person or entity
other than the parties hereto is or shall be entitled to bring any action to
enforce any provision of this Agreement against either of the parties hereto.
10.10 Headings
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.
21
10.11 Notices
Any notices or other communications required or permitted hereunder will
be deemed given if sent by certified mail, return receipt requested,
facsimile with confirmation by certified mail, return receipt requested,
postage paid, or if personally delivered addressed as follows, or to such
other address as any party shall designate by notice duly given hereunder:
If to Accordant to: Accordant Health Services, Inc.
5509-A West Friendly Avenue, Suite 101
Greensboro, North Carolina 27410
Attn: Steve Schelhammer, President
Facsimile No.: (336) 852-7413
With a copy to: Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27609
Attn: J. Christopher Lynch, Esq.
Facsimile No.: (919) 781-4865
If to CHSI to: Curative Health Services, Inc.
150 Motor Parkway
Hauppauge, New York 11788
Attn: John Vakoutis, President
Facsimile No.: (516) 233-8102
With a copy to: Dorsey & Whitney LLP
250 Park Avenue
New York, New York 10177
Attn: Robert J. Dwyer, Jr., Esq.
Facsimile No.: (212) 953-7201
10.12 Force Majeure
Any prevention of or delay in either party's performance hereunder due to
labor disputes, acts of God, governmental restrictions, enemy or hostile
governmental action, fire or other casualty or other causes beyond such
party's control shall excuse such party's performance of its obligations
hereunder for a period equal the duration of any such prevention or delay;
provided, however, that CHSI shall have the absolute right to contract with a
third party for the development of the Program if any such event causes an
interruption in Accordant's ability to perform hereunder for a period in
excess of sixty (60) days.
10.13 Arbitration
Any controversy or claim arising out of or relating to this Agreement or
the transactions contemplated hereby, or the breach hereof or thereof, shall
be finally settled by arbitration in Wilmington, Delaware, in accordance with
the Rules of the American Arbitration Association by an arbitrator appointed
in accordance with such Rules. The arbitrator shall follow the law governing
this Agreement. Judgment upon the award may be entered in any court having
jurisdiction.
10.14 Counterparts
This Agreement may be executed in one or more counterparts, each of which
will be considered one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
CURATIVE HEALTH SERVICES, INC.
By:/s/John Vakoutis
-------------------
John Vakoutis
Its: President & CEO
ACCORDANT HEALTH SERVICES, INC.
By:/s/Steven K. Schelhammer
-------------------------
Steven K. Schelhammer
Its: President & CEO
22
Schedule 1
Disease States For Which Accordant
Provides Disease Management Services
Gauchers Diseases
Cystic Fibrosis
Sickle Cell Anemia
Hemophilia
Parkinson's Disease
ALS
Multiple Sclerosis
Myasthenia Gravis
Systemic Lupus Erythematosus
Systemic Sclerosis
Dermatamyositis
Polymyositis
Rheumatoid Arthritis
Exhibit 10.23
ACCORDANT HEALTH SERVICES, INC.
- -------------------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
- -------------------------------------------
May 19, 1998
ACCORDANT HEALTH SERVICES, INC.
- -------------------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
- -------------------------------------------
1
Table of Contents
Page
1.Authorization and Sale of Series C Preferred Stock.
1.1 Authorization
1.2 Sale
1.3 Additional Sales
2. Closing; Delivery.
2.1 Closings
2.2 Delivery
3. Representations and Warranties of the Company
3.1 Organization and Standing
3.2 Capitalization
3.3 Subsidiaries
3.4 Corporate Power; Authorization
3.5 Validity of the Shares
3.6 Financial Statements; Business Plan
3.7 Changes
3.8 Material Agreements
3.9 Title to Properties and Assets
3.10 Insurance
3.11 Related Party Transactions
3.12 Employees
3.13 Compliance with Law and Other Instruments
3.14 Litigation
3.15 Patents and Trademarks
3.16 Taxes
3.17 Registration Rights
3.18 Voting Agreements
3.19 Governmental Consents
3.20 Offering
3.21 Finders' Fees
3.22 Qualified Small Business
3.23 Minute Books
3.24 Real Property Holding Corporation
3.25 Disclosure
3.26 Licenses: Permits
3.27 Liabilities
2
4. Representations and Warranties of the Purchasers
4.1 Power and Authority
4.2 Due Execution
4.3 Investment Representations
4.4 No Public Market
4.5 Government Consents
4.6 Finders' Fees
5. Conditions to Purchasers' Obligations at Closing
5.1 Representations and Warranties
5.2 Performance
5.3 Qualifications
5.4 Certificate
5.5 Opinion of the Company's Counsel
5.6 Proceedings and Documents
5.7 Investor Rights Agreement
5.8 Board of Directors
5.9 Compliance Certificate
5.10 Minimum Purchase
5.11 Secretary's Certificate
5.12 Certificate of Good Standing
5.13 Stock Sale Agreement
6. Conditions to the Company's Obligations at Closing
6.1 Representations and Warranties
6.2 Performance
6.3 Qualifications
6.4 Certificate
6.5 Investor Rights Agreement
6.6 Minimum Purchase
6.7 Stock Sale Agreement
7 Covenants of the Company.
7.1 Use of Proceeds.
7.2 Meetings of Board of Directors.
7.3 Indemnification.
8. Miscellaneous
8.1 Entire Agreement
8.2 Governing Law
8.3 Counterparts
8.4 Headings
8.5 Notices.
8.6 Survival
8.7 Severability
8.8 Delays or Omissions
8.9 California Corporate Securities Laws
8.10 Amendments and Waivers
8.11 Expenses
EXHIBITS:
A SCHEDULE OF PURCHASERS
B CERTIFICATE OF INCORPORATION
C SCHEDULE OF EXCEPTIONS
D INVESTOR RIGHTS AGREEMENT
E FORM OF OPINION OF COUNSEL FOR THE COMPANY
F FORM OF EMPLOYEE NONDISCLOSURE AND DEVELOPMENTS AGREEMENT
G FORM OF STOCK SALE AGREEMENT
H LIST OF STOCKHOLDERS
3
ACCORDANT HEALTH SERVICES, INC.
- -------------------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
- -------------------------------------------
This Series C Preferred Stock Purchase Agreement (the "Agreement") is entered
into as of the 19th day of May 1998 by and among Accordant Health Services,
Inc., a Delaware corporation (the "Company"), and each of the persons and
entities listed on the Schedule of Purchasers attached hereto as Exhibit A and
incorporated herein by reference (hereinafter collectively referred to as the
"Original Purchasers" and each individually as an "Original Purchaser"), and any
additional investor named in any amendment to Exhibit A that becomes a signatory
hereto on or before July 31, 1998 (the "Final Closing Date") (hereinafter
collectively referred to as the "Additional Purchasers" and each individually as
an "Additional Purchaser"). The Original Purchasers and Additional Purchasers
are hereinafter collectively referred to as the "Purchasers" and each
individually as a "Purchaser."
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties to
this Agreement mutually agree as follows:
1. Authorization and Sale of Series C Preferred Stock.
1.1 Authorization. The Company has authorized the issuance and sale
of up to an aggregate of 1,400,000 shares of its Series C Preferred Stock,
$.001 par value (the "Shares"), having the rights, preferences, privileges
and restrictions set forth in the Company's Amended and Restated
Certificate of Incorporation, a copy of which is attached hereto as
Exhibit B (the "Certificate").
1.2 Sale. Subject to the terms and conditions of this Agreement, the
Purchasers agree to purchase from the Company, and the Company agrees to
sell and issue to each Purchaser, the number of Shares specified opposite
such Purchaser's name on the Schedule of Purchasers at the purchase price
of $5.00 per Share. The sale of the Shares to each Purchaser will
constitute a separate sale hereunder.
1.3 Additional Sales. At any Subsequent Closing (as defined below),
the Company may sell the Shares not sold in previous Closings (as defined
below) to any Additional Purchaser, at a price of $5.00 per Share;
provided (i) that such Additional Purchaser executes and delivers
signature pages to this Agreement, the Investor Rights Agreement in
substantially the form attached hereto as Exhibit D (the "Rights
Agreement") and the Stock Sale Agreement in substantially the form
attached hereto as Exhibit G (the "Stock Sale Agreement") not later than
the Final Closing Date and (ii) that the total number of shares of Series
C Preferred Stock sold at all Closings hereunder shall not exceed an
aggregate of 1,400,000.
2. Closing; Delivery
2.1 Closings. The initial closing of the purchase and sale of Shares
under this Agreement to the Original Purchasers (the "Initial Closing")
shall take place at 1:00 p.m. (EDT) on May __, 1998 at the offices of
Wyrick Robbins Yates & Ponton LLP, 4101 Lake Boone Trail, Suite 300,
Raleigh, North Carolina 27607, or at such other time and place as the
Company and the Original Purchasers may agree. The closing or closings of
the purchase and sale of Shares under this Agreement to the Additional
Purchasers (the "Subsequent Closings") shall take place at any time on or
before the Final Closing Date. Notwithstanding the foregoing, the Company
shall reserve a
5
total of 400,000 Shares not sold in the Initial Closing (the "CHSI
Additional Shares") for sale to Curative Health Services, Inc. (CHSI"),
and CHSI shall purchase such CHSI Additional Shares, as follows: the
Company shall issue and sell, and CHSI shall purchase from the Company,
200,000
Shares on each of November 1, 1998, and May 1, 1999, or at such earlier
times as the Company and CHSI shall agree (each, a "CHSI Additional
Closing"). For purpose of this Agreement, the term "Closing" includes the
Initial Closing and the Subsequent Closing(s), and the CHSI Additional
Closing as appropriate.
2.2 Delivery. At the Closing, subject to the terms and conditions hereof,
the Company will deliver to the Purchasers certificates, in such
denominations and registered in such name or names as the Purchasers may
designate by notice to the Company, representing the Shares to be
purchased by the Purchasers from the Company, dated the date of the
Closing, against payment of the purchase price therefor by wire transfer,
a check or checks made payable to the order of the Company, or any
combination of the above or by such other means as shall be mutually
agreeable to a majority-in-interest of the Purchasers and the Company.
3. Representations and Warranties of the Company. Subject to and except as
disclosed by the Company in the Schedule of Exceptions attached hereto as
Exhibit C and incorporated herein by reference (the "Schedule of
Exceptions"), the Company represents and warrants to each Purchaser as
follows.
3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware, has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as now
conducted and as currently proposed to be conducted. The Company is duly
qualified and authorized to do business, and is in good standing as a
foreign corporation, in the State of North Carolina and each other
jurisdiction where the failure to be so qualified would have a material
adverse effect on its business, properties, prospects, or financial
condition.
3.2 Capitalization. The authorized capital stock of the Company,
immediately prior to the first Closing, will consist of:
(a) Preferred Stock: 6,650,000 shares of Preferred Stock,
$.001 par value, 1,818,332 shares of which have been designated Series A
Preferred Stock (the "Series A Stock"), all of which are issued and
outstanding and owned by the stockholders set forth on Exhibit H attached
hereto; 2,170,000 of which have been designated Series B Preferred Stock
(the "Series B Stock"), of which 1,700,000 shares are issued and
outstanding and 470,000 shares are reserved for issuance upon exercise of
outstanding warrants; and 1,650,000 shares of which have been designated
Series C Preferred Stock (the "Series C Stock"), none of which are issued
and outstanding and 1,400,000 shares of which are reserved for issuance
pursuant to this Agreement; and
(b) Common Stock: 10,000,000 shares of Common Stock, $.001
par value, of which 1,024,854 shares are issued and outstanding and owned
by the stockholders set forth on Exhibit H attached hereto.
All of the outstanding shares of Common Stock and Preferred Stock have been duly
authorized and validly issued, are fully paid and nonassessable and were issued
in compliance with all applicable federal and state securities laws. The Company
has duly and validly reserved (i) 6,650,000 shares of Common Stock for issuance
upon conversion of Preferred Stock, (ii) 25,000 shares of Common Stock for
issuance upon exercise of outstanding warrants, and (iii) 850,000 shares of
Common Stock for issuance under the Company's 1995 Stock Plan, under which
89,354 shares have been issued, options to purchase 473,583 shares of Common
Stock are outstanding and 287,063 shares of Common Stock are available for
future issuance. Except for the foregoing rights, the conversion rights
associated with the Preferred Stock and the rights created under this Agreement
and the Rights Agreement, there are no outstanding rights of first
6
refusal, preemptive rights or other rights, options, warrants, conversion rights
or other agreements, either directly or indirectly, for the purchase or
acquisition from the Company of any shares of its capital stock.
3.3 Subsidiaries. The Company does not currently own or control,
directly or indirectly, any other corporation, association, or other
business entity. The Company is not, directly or indirectly, a participant
in any joint venture or partnership.
3.4 Corporate Power; Authorization. The Company will have at the
Closing all requisite legal and corporate power to execute and deliver
this Agreement, the Rights Agreement and the Stock Sale Agreement, to sell
and issue the Shares hereunder, to issue the Common Stock issuable upon
conversion of the Shares (the "Underlying Common Stock") and to carry out
and perform its obligations hereunder and thereunder. All corporate action
on the part of the Company and its officers, directors and stockholders
necessary for the authorization, execution and delivery of this Agreement,
the Rights Agreement and the Stock Sale Agreement, the performance of all
the Company's obligations hereunder and thereunder at the Closing, and the
authorization, issuance, sale and delivery of the Shares and the
Underlying Common Stock has been taken or will be taken prior to the
Closing. This Agreement, the Rights Agreement and the Stock Sale
Agreement, when executed and delivered by the Company and the parties
hereto and thereto, shall constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms, subject to (i)
laws of general application relating to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of credits' rights generally, (ii) rules and laws governing
specific performance, injunctive relief and other equitable remedies and,
(iii) with respect to the indemnification agreements set forth in the
Rights Agreement, applicable state and federal securities laws and
principles of public policy.
3.5 Validity of the Shares. The sale of the Shares and the subsequent
conversion of the Shares into the Underlying Common Stock are not and will
not be subject to any preemptive rights, rights of first refusal or other
preferential rights that have not been waived, and the Shares, when
issued, sold and delivered in accordance with the terms of this Agreement,
and the Underlying Common Stock, when issued upon conversion of the Shares
in accordance with the Certificate, will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances; provided,
however, that the Shares and the Underlying Common Stock may be subject to
restrictions on transfer under state and/or federal securities laws or as
set forth herein or in the Stock Sale Agreement and the Rights Agreement.
3.6 Financial Statements; Business Plan. The Company has delivered to
each Purchaser its audited financial statements at December 31, 1997 and
for the fiscal year then ended and its unaudited financial statements at
and for the three-month period ended March 31, 1998 (collectively, the
"Financial Statements"). The Financial Statements are true, complete and
correct in all material respects, subject (in the case of the unaudited
statements) to normal year-end adjustments, and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated and are consistent with
each other. The Financial Statements accurately set out, describe and
fairly present the financial condition and operating results of the
Company as of the dates, and for the periods, indicated therein, subject
(in the case of the unaudited statements) to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to March 31, 1998,
and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which,
individually or in the aggregate, are not material to the financial
condition or operating results of the Company. The Company maintains and
will continue to maintain a system of accounting established and
administered in accordance with generally accepted accounting principles.
7
The Company has previously delivered to the Purchasers a copy of the
Company's Business Plan (the "Business Plan"). As of the date hereof,
except as otherwise set forth in the Schedule of Exceptions, the
description in the business Plan of the Company's business and its
business plan, taken as a whole, is true and correct in all material
respects. All material assumptions and adjustments made in the preparation
of the financial projections contained in the Business Plan (the
"Projections") were prepared in good faith based on reasonable
assumptions, and represent the Company's reasonable estimate of future
results of the Company's operations, taken as a whole, based on
information available as of the date of the Business Plan; it being
recognized, however, that such Projections do not constitute any warranty
as to the Company's future performance and that actual results may vary
from projected results. Except as set forth in Schedule of Exceptions, the
Projections continue to represent the Company's reasonable estimate of
future results of the Company's operations, taken as a whole, based on
information currently available. Except as otherwise set forth herein or
in the Schedule of Exceptions, the Company has no reason to believe, and
does not believe on the date hereof, that the assumptions of fact and
statements of opinion contained in the Business Plan, taken as a whole,
are unreasonable, untrue or false, or omits to state any material fact or
assumption necessary to make the same not misleading.
3.7 Changes. To the Company's knowledge, since March 31, 1998, there
has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes, including operating losses, in the ordinary
course of business that have not been, in the aggregate, materially
adverse; (b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties
or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted); (c) any waiver or
compromise by the Company of a valuable right of a material debt owed
to it; (d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the
ordinary course of business and that which is not material to the
business, properties or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(e) any material change to a material contract or arrangement by which
the Company or any of its assets is bound or subject; (f) any material
change in any compensation arrangement or agreement with any
key employee, officer, director or stockholder;
(g) any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets, or other material intangible assets; (h) any
resignation or termination of employment of any key officer of the
Company;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company; (j) any
mortgage, pledge, transfer of a security interest in, or lien created
by, the Company with respect to any of its material properties or
assets, except liens for taxes not yet due or payable or liens incurred
in the ordinary course of business; (k) any loans or guarantees made by
the Company to or for the benefit of its employees, officers, or
directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its
business; (l) any declaration, setting aside, or payment or other
distribution in respect of any of the Company's capital stock, or any
direct or indirect redemption, purchase, or other acquisition of any of
such stock by the Company (other than repurchases of stock of employees
and consultants upon the termination of their employment or consulting
relationship with the Company); or
(m) to the Company's knowledge, any other event or condition of any
character that has materially and adversely affected the business,
properties or financial condition of the Company.
8
3.8 Material Agreements. The Schedule of Exceptions contains a complete
list of all of the following material agreements to which the Company is a
party: (a) all contracts, agreements and instruments that involve a
commitment by the Company in excess of $5,000; (b) all stock purchase
agreements; (C) all loan, lease or debt agreements in excess of $5,000;
(d) all employment agreements with employees (exclusive of the Employee
Nondisclosure and Developments Agreements that have been executed by each
employee of the Company); and (e) all licenses of any patent, trade secret
or other proprietary right to or from the Company (collectively, the
"Material Agreements"). All the Material Agreements are valid and binding
obligations of the Company, in full force and effect in all material
respects. The Company is not in material default and not aware of any
material default by another party, either pending or threatened, with
respect to the Material Agreements. The Company is not a party to and is
not bound by any contract, agreement, instrument or understanding, or
subject to any restriction under its Certificate or Bylaws, that adversely
affects its business as presently conducted or as currently proposed to be
conducted, its properties or its financial condition, or that otherwise
limit, restrict or adversely affect the ability of the Company to develop,
market or sell its proposed products and services.
3.9 Title to Properties and Assets. The Company has good and marketable
title to its properties and assets held at the date of Closing (except any
properties and assets held under capitalized leases) and has good title to
all its leasehold interests, in each case subject to no mortgage, pledge,
lien, lease, encumbrance or charge, other than (a) the lien of current
taxes not yet due and payable, and (b) possible minor liens and
encumbrances that do not in any case, either individually or in the
aggregate, materially detract from the value of the property subject
thereto or materially impair the operations of the Company. The tangible
property and assets held under any material lease by the Company are held
by it under leases that remain in force, and there exists no default or
other occurrence or condition that could result in a material default or
termination thereunder.
3.10 Insurance. The Company has in full force and effect the insurance
policies described in the Schedule of Exceptions, which the Company
believes are sufficient in amount (subject to reasonable deductibles) to
allow it to replace any of its properties that might be damaged or
destroyed through fire, theft or casualty.
3.11 Related Party Transactions. Set forth on the Schedule of Exceptions
is a schedule of (a) all of the material obligations of the Company to all
officers, directors, stockholders and employees of the Company, including
any member of their immediate families (other than normal accrued wages
and benefits) and (b) all of the obligations of the Company's officers,
directors, stockholders and employees, including any member of their
immediate families (other than expense advances made in the ordinary
course of the Company's business) to the Company, which schedule is
complete and correct in all material respects as of the date of this
Agreement. To the best knowledge of the Company, none of such persons has
any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company,
except that employees, officers, consultants or directors of the Company
and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. Except as set forth on
Exhibit C, no member of the immediate family of any officer or director of
the Company is directly or indirectly interested in any material contract
with the Company.
3.12 Employees. To the best of the Company's knowledge, no employee of the
Company is obligated under any contract (including licenses, covenants or
commitments of any nature) or other
9
agreement, or subject to any judgment, decree or order of any court or
administrative agency that would conflict with such employee's obligation
to use his or her best efforts to promote the interests of the Company or
that would conflict with the Company's business as conducted or as
proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees
of the Company, nor the conduct of the Company's business as currently
proposed, will, to the best of the Company's knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or
constitute a default under,
any contract, covenant or instrument under which any of such employees
is now obligated. To the best of the Company's knowledge, no employee or
consultant of the Company is in violation of any term of any employment
contract, proprietary information and inventions agreement, noncompetition
agreement or any other contract or agreement relating to the relationship
of any such employee or consultant with the Company or any previous
employer; provided that the Company has not undertaken any independent
investigation of any consultants' relationships with other employers. To
the best of the Company's knowledge, no officer of the Company, nor any
employee (as hereinafter defined), has any present intention of
terminating his or her employment with the Company. The Company has no
collective bargaining agreements with any of its employees and to the best
of the Company's knowledge there is no labor-union-organizing activity
pending or threatened with respect to the Company. The Company does not
have any employment contracts, deferred compensation agreements or bonus,
incentive or profit-sharing plans, severance agreements, retirement plans
or other employee compensation arrangements either currently in effect or
proposed. To the best of the Company's knowledge, the Company has complied
in all material respects with all applicable state and federal equal
opportunity and other laws related to employment. Each employee of the
Company has executed, or prior to the Closing will execute, an Employee
Nondisclosure and Developments Agreement in substantially the form
attached hereto as Exhibit F, and no exceptions have been taken by any
such employee to the terms of such agreement. Each consultant of the
Company has executed, or prior to the Closing will execute, a consulting
agreement substantially in the form or forms which have been made
available to the Purchasers and/or their legal counsel and which contain
provisions regarding confidentiality and assignment of developments, and
no exceptions have been taken by any such consultant to the terms of such
agreement. The Company, after reasonable investigation, is not aware that
any of its employees or consultants are in violation thereof, and the
Company will use its commercially reasonable efforts to prevent such
violation.
3.13 Compliance with Law and Other InstrumentsCompliance with Law and
Other Instruments. The Company has complied in all material respects with
all laws, rules, regulations and orders applicable to its business,
operations, properties, assets, products and services, the Company has all
material permits, licenses and other authorizations required to conduct
its business as conducted and as presently proposed to be conducted, and
the Company has been operating its business pursuant to and in material
compliance with the terms of all such permits, licenses and other
authorizations. There is no existing law, rule, regulation or order known
to the Company, and the Company after due inquiry is not aware of any
proposed law, rule, regulation or order, whether federal, state, county or
local, that would prohibit or restrict the Company from, or otherwise
materially adversely affect the Company in, conducting its business in any
jurisdiction in which it is now conducting its business or in which it
presently proposes to conduct its business. The Company is not in
violation of any provisions of the Certificate or its Bylaws in effect on
and as of the Closing, or of any provision of any material instrument or
contract to which it is a party or any judgment, decree or order by which
it is bound or any statute, rule or regulation applicable to the Company.
The execution, delivery and performance of this Agreement, the Stock Sale
Agreement and the Rights Agreement, and the issuance and sale of the
Shares pursuant hereto and the Underlying Common Stock pursuant to the
Certificate, will not result in any such violation or be in material
conflict with or constitute, with or without passage of time or giving of
notice, a material default under any such provisions or result in the
creation of any material mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company.
10
3.14 Litigation. There is no action, proceeding or investigation pending
or, to the best of the Company's knowledge after reasonable investigation,
currently threatened against the Company or any of its properties before
any court or governmental agency (or any basis therefor known to the
Company). The foregoing includes, without limiting its generality, actions
pending or threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees or
existing or prior relationships of any consultant or their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers or under prior or
existing consulting agreements. The Company is not a party to or subject
to any order, writ, injunction, judgment or decree of any court or
governmental agency or instrumentality. There is no action, proceeding
or investigation by the Company currently pending or that the Company
intends to initiate.
3.15 Patents and Trademarks. The Company has sufficient title and
ownership of or is licensed under all patents, trademarks, service marks,
trade names, copyrights, and all registrations and applications for
registration of any of the foregoing, and all trade secrets, information,
inventions, computer programs owned or licensed by the Company,
documentation, proprietary rights and processes (collectively,
"Intellectual Property") necessary for its business as now conducted and
as currently proposed to be conducted without any conflict with or without
infringement of the rights of others. Set forth on the Schedule of
Exceptions is a true, correct and complete list of all patents and pending
patent applications, all registered copyrights and copyright applications,
all registered trademarks and trademark applications, and all material
unregistered copyrights and trademarks held by the Company. There are no
outstanding options, licenses or agreements relating to the foregoing nor
is the Company bound by or a party to any options, licenses or agreements
with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting
its business as currently proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company does
not believe it is or will be necessary to utilize any inventions of any of
its employees (or people it currently intends to hire) made prior to their
employment by the Company.
3.16 Taxes. The Company has accurately prepared and timely filed all
United States income tax returns and all state and municipal tax returns
that are required to be filed by it and has paid or made provision for the
payment of all taxes that have become due pursuant to such returns. The
Company believes such returns are true and correct in all material
respects. No deficiency assessment or proposed adjustment of the Company's
United States income tax or state or municipal taxes is pending and the
Company has no knowledge of any liability or basis for liability as of the
date hereof for any tax.
3.17 Registration Rights. Except as provided in the Rights Agreement, the
Company is not under any obligation to register (as defined in the Rights
Agreement) any of its presently outstanding securities or any of its
securities that may hereafter be issued.
3.18 Voting Agreements. Except as provided in the Certificate and the
Rights Agreement, the Company has no agreement, obligation or commitment
with respect to the election of any individual or individuals to the Board
of Directors, and to the best of the Company's knowledge, except for the
Stockholders Voting Agreement of even date herewith, there is no voting
agreement or other arrangement among its stockholders with respect to the
election of any individual or individuals to the Board of Directors or for
any other purpose.
3.19 Governmental Consents. All consents, approvals, orders or
authorization of, or registrations, qualifications, designations,
declarations or filings with, any federal or state governmental authority
on the part of the Company required in connection with the valid execution
and delivery of this Agreement, the Stock Sale Agreement and the Rights
Agreement, the offer, sale or issuance
12
of the Shares and the Underlying Common Stock, or the consummation of any
other transaction contemplated hereby or thereby have been obtained, or
will be obtained prior to the Closing, except for notices required to be
filed with certain state and federal securities commissions after the
Closing, which notices will be filed on a timely basis.
3.20 Offering. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4 hereof, the offer,
issuance and sale of the Shares are and will be exempt from the
registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "1933 Act"), and have been registered or qualified
(or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
3.21 Finders' Fees. The Company (i) represents and warrants that it has
retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and to
hold each Purchaser harmless of and from any liability for any commission
or compensation in the nature of a finder's fee to any broker or other
person or firm (and the costs
and expenses of defending against such liability or asserted
liability) for which the Company or any of its employees or
representatives is responsible.
3.22 Qualified Small Business. The Company represents and warrants to the
Purchasers that, at the Closing, the Shares qualify as "Qualified Small
Business Stock" as defined in Section 1202(C) of the Internal Revenue Code
of 1986, as amended (the "Code"). The Company will use its reasonable
efforts to comply with the reporting and recordkeeping requirements of
Section 1202 of the Code and any regulations promulgated thereunder, and
agrees not to repurchase any stock of the Company if such repurchase would
cause such Shares not to so qualify as "Qualified Small Business Stock."
3.23 Minute Books. The minute books of the Company and its subsidiaries
made available to the Purchasers or their attorneys or agents, upon their
request, contain a complete summary of all meetings of directors and
stockholders since the time of their respective incorporations.
3.24 Real Property Holding Corporation. The Company is not a real property
holding corporation within the meaning of Section 897(C)(2) of the Code
and the regulations promulgated thereunder.
3.25 Disclosure. The Company has provided each Purchaser all information
which the Company believes is reasonably necessary to enable the Purchaser
to decide whether to purchase the Shares. This Agreement, the Rights
Agreement, the Stock Sale Agreement, and , the material documents and
other agreements, statements, schedules or certificates made or delivered
in connection herewith or therewith do not, when taken as a whole, contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading. There is no
fact within the knowledge of the Company which is reasonably likely to
affect the business, properties or financial condition of the Company
materially and adversely which has not been disclosed herein or in writing
to each Purchaser.
3.26 Licenses; Permits. The Company has obtained all licenses, permits and
franchises and any similar authority necessary for the conduct of its
business as now being conducted by it (including without limitation,
licenses from the applicable health care regulatory authorities), the lack
of which could affect the business, properties or financial condition of
the Company materially and adversely. The Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of
its business as planned to be conducted. The Company is not in default
under any of such licenses, permits, franchises or other similar authority
which default could affect the business, properties or financial condition
of the Company materially and adversely. All employees of the Company
required to be licensed by the applicable health care
13
regulatory authorities have obtained the required licenses and all such
licenses are in full force and effect and have not been suspended or
revoked.
3.27 Liabilities. A schedule of liabilities for borrowed money, guaranties
with respect thereto and the present value of all payments due under all
capitalized leases as of the Closing is included as part of Exhibit C.
Except as set forth in such schedule, the Company has no material
liabilities of any kind, either direct or indirect, matured or unmatured,
absolute or contingent, or otherwise, except specifically disclosed in any
Exhibit or otherwise. For purposes of this Section 3.27 the term
"liabilities" shall include, without limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage deficiency, cost,
expense, obligation and responsibility of the Company, whether fixed,
unfixed, secured or unsecured.
4. Representations and Warranties of the Purchasers. Each Purchaser,
severally, but not jointly, hereby represents and warrants to the Company
as follows.
4.1 Power and Authority. It has the requisite power and authority to
enter into this Agreement, to purchase the Shares subject to all of the
terms of the Certificate and hereunder, and to carry out and perform its
obligations under the terms of this Agreement.
4.2 Due Execution. This Agreement, the Stock Sale Agreement and the Rights
Agreement have been duly authorized, executed and delivered by it, and,
upon due execution and delivery by the Company, this Agreement, the Stock
Sale Agreement and the Rights Agreement will be a valid and binding
agreement of it, subject to (i) laws of general application relating to
bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of credits' rights generally, (ii) rules
and laws governing specific performance, injunctive relief and other
equitable remedies and, (iii) with respect to the indemnification
agreements set forth in the Rights Agreement, applicable state and federal
securities laws and principles of public policy.
4.3 Investment Representations.
(a) This Agreement is made with the Purchaser in reliance upon the
Purchaser's representation to the Company, which by its acceptance hereof
the Purchaser hereby confirms, that the Shares to be received by it will
be acquired for investment for its own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and
that it has no present intention of selling, granting participation in, or
otherwise distributing the same, but subject nevertheless to any
requirement of law that the disposition of its property shall at all times
be within its control. By executing this Agreement, the Purchaser further
represents that except as may be provided in the Stock Sale Agreement, it
does not have any contract, undertaking, agreement, or arrangement with
any person to sell, transfer or grant participations to such person, or to
any third person, with respect to any of the Shares or any Underlying
Common Stock.
14
(b) The Purchaser understands that the Shares and the
Underlying Common Stock have not been registered under the 1933 Act on the
grounds that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the 1933 Act, and
that the Company's reliance on such exemption is predicated in part on the
Purchaser's representations set forth herein. The Purchaser realizes that
the basis for the exemption may not be present if, notwithstanding such
representations, the Purchaser has in mind merely acquiring the Shares for
a fixed or determined period in the future, or for a market rise, or for
sale if the market does not rise. The Purchaser does not have any such
intention.
(C) The Purchaser represents that it is experienced in
evaluating emerging growth companies such as the Company, is able to fend
for itself in the transactions contemplated by this Agreement, has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment, and has the
ability to bear the economic risks of its investment. The Purchaser
further represents that it has had access, during the course of the
transactions and prior to its purchase of Shares, to all such information
as it deemed necessary or appropriate and that it has had, during the
course of the transactions and prior to its purchase of Shares, the
opportunity to ask questions of, and receive answers from, the Company
concerning the terms and conditions of the offering and to obtain
additional information necessary to verify the accuracy of any information
furnished to it or to which it had access.
(d) The Purchaser understands that the Shares and the Underlying
Common Stock may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Shares (or the
Underlying Common Stock) or an available exemption from registration under
the 1933 Act, the Shares (and the Underlying Common Stock) must be held
indefinitely. In particular, the Purchaser is aware that the Shares (and
the Underlying Common Stock) may not be sold pursuant to Rule 144
promulgated under the 1933 Act unless all of the conditions of that Rule
are met. Among the conditions for use of Rule 144 is the availability of
current information to the public about the Company. Such information is
not now available and the Company has no present plans to make such
information available. The Purchaser represents that, in the absence of an
effective registration statement covering the Shares (or the Underlying
Common Stock), it will sell, transfer, or otherwise dispose of the Shares
(or the Underlying Common Stock) only in a manner consistent with its
representations set forth herein and then only in accordance with the
provisions of Section 4.3(e) hereof and the provisions of the Rights
Agreement.
(e) Purchaser understands that each certificate representing the
Shares and the Underlying Common Stock will be endorsed with a legend
substantially as follows.
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE
AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
COPIES OF THE AGREEMENTS PROVIDING FOR RESTRICTIONS ON TRANSFER OF THESE
SECURITIES MAY BE OBTAINED UPON WRITTEN REQUEST BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION."
(f) Purchaser represents that it is an "Accredited Investor"
as such term is defined in Rule 501 of Regulation D promulgated under the
1933 Act.
15
4.4 No Public Market. The Purchaser understands that no public market
now exists for any of the securities issued by the Company and that there
is no assurance that a public market will ever exist for the Shares (or
the Underlying Common Stock).
4.5 Government Consents. No consent, approval or authorization of or
designation, declaration or filing with any state, federal, or foreign
governmental authority on the part of the Purchaser because of any special
characteristic of such Purchaser is required in connection with the valid
execution and delivery of this Agreement, the Stock Sale Agreement or the
Rights Agreement by the Purchaser, and the consummation by the Purchaser
of the transactions contemplated hereby and thereby.
4.6 Finders' Fees. The Purchaser (i) represents and warrants that it has
retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) hereby agrees to indemnify and to
hold the Company and the other Purchasers harmless of and from any
liability for any commission or compensation in the nature of a finder's
fee to any broker or other person or firm (and the costs and expenses of
defending against such liability or asserted liability) for which such
Purchaser or any of its employees or representatives are responsible.
5. Conditions to Purchasers' Obligations at Closing. The obligations of the
Purchasers to purchase the Shares at the Closing are subject to the
fulfillment on or before the Closing of each of the following conditions.
5.1 Representations and Warranties. For each Closing other than a CHSI
Additional Closing, the representations and warranties of the Company
contained in Section 3 shall be true on and as of the Closing with the
same force and effect as if they had been made at the Closing.
5.2 Performance. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by it on or before the Closing.
5.3 Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or
of any state that are required prior to and in connection with the lawful
issuance and sale of the Shares pursuant to this Agreement shall have been
duly obtained and shall be effective on and as of the Closing.
5.4 Certificate. The Company shall have duly filed the Certificate with
the Secretary of State of the State of Delaware, which Certificate shall
be in full force and effect at the Closing.
5.5 Opinion of the Company's Counsel. The Purchasers shall have
received from counsel to the Company an opinion letter substantially in
the form attached hereto as Exhibit E, addressed to them, dated the date
of the Closing.
16
5.6 Proceedings and Documents. For each Closing, all corporate and other
proceedings in connection with the transactions contemplated at the
Closing hereby and all documents and instruments incident to such
transactions shall be reasonably satisfactory in substance and form to the
Purchasers and their counsel, and/or the Purchasers and their counsel
shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
5.7 Investor Rights Agreement. The Company shall have executed and
delivered a Rights Agreement.
5.8 Board of Directors. The Company's Board of Directors shall consist of
Rick Barrett, Don Lothrop, Rick Hassett, Terrance McGuire, Steven
Schelhammer, James Strand, Bill McIvor and John Vakoutis.
5.9 Compliance Certificate. There shall have been delivered to the
Purchasers a certificate, dated as of the Closing, signed by the Company's
President certifying that the conditions specified in Sections 5.1, 5.2,
5.3 and 5.4 have been fulfilled; provided that the Company need not
certify that the conditions specified in Section 5.1 have been fulfilled
for any CHSI Additional Closing.
5.10 Minimum Purchase. The Company shall have sold at least 1,000,000
Shares at the Initial Closing.
5.11 Secretary's Certificate. There shall have been delivered to the
Purchasers a certificate, dated as of the Closing, signed by the Company's
Secretary or an Assistant Secretary and in form and substance satisfactory
to Purchasers, that shall certify (i) the names of its officers authorized
to sign this Agreement, the certificates for purchased Shares and the
other documents, instruments or certificates to be delivered pursuant to
this Agreement by the Company or any of its officers, together with true
signatures of such officers; (ii) that the copy of the Certificate
attached thereto is true, correct and complete; (iii) that the copy of the
Bylaws attached thereto is true, correct and complete; and (iv) that the
copy of Board of Directors' resolutions attached thereto evidencing the
approval of this Agreement, the issuance of the purchased Shares and the
other matters contemplated hereby was duly adopted and is in full force
and effect.
5.12 Certificate of Good Standing. There shall have been delivered to the
Purchasers a Certificate of Good Standing for the Company from the
Secretary of State of the State of Delaware and certificates of authority
of the Secretary of State of each state where the Company is qualified to
do business, dated within 10 days of the Closing.
5.13 Stock Sale Agreement. The Company, Steve Schelhammer, the Purchasers
and the other stockholders named therein shall have executed and delivered
a Stock Sale Agreement substantially in the form attached hereto as
Exhibit G.
6. Conditions to the Company's Obligations at Closing.. The obligations of
the Company to issue and sell the Shares at the Closing are subject to the
fulfillment on or before the Closing of each of the following conditions.
6.1 Representations and Warranties. The representations and warranties
made by each Purchaser in Section 4 shall be true on and as of the Closing
with the same force and effect as if they had been made at the Closing.
6.2 Performance. The Purchasers shall have performed and complied with all
agreements and conditions contained in this Agreement required to be
performed or complied with by them on or before the Closing.
6.3 Qualifications. All authorizations, approvals or permits, if any, to
be obtained from any governmental authority or regulatory body of the
United States or of any state that are required
17
prior to and in connection with the lawful issuance and sale of the
Shares pursuant to this Agreement shall have been duly obtained and shall
be effective on and as of the Closing.
6.4 Certificate. The Secretary of State of the State of Delaware shall
have accepted the Certificate for filing, and the Certificate shall be in
full force and effect at the Closing.
6.5 Investor Rights Agreement. Each of the Purchasers shall have executed
and delivered a Rights Agreement.
6.6 Minimum Purchase. The Company shall have sold at least 1,000,000
Shares at the Initial Closing.
6.7 Stock Sale Agreement. The Company, Steve Schelhammer, the Purchasers
and the other stockholders named therein shall have executed and delivered
a Stock Sale Agreement substantially in the form attached hereto as
Exhibit G.
7. Covenants of the Company.
7.1 Use of Proceeds. The Company shall use the proceeds from the sale of
the Series C Preferred Stock for product development and other working
capital purposes consistent with financial budgets approved by the
Company's Board of Directors from time to time.
7.2 Meetings of Board of Directors. The Company shall use its reasonable
efforts to ensure that meetings of its Board of Directors are held not
less than once every calendar quarter. The Company shall reimburse each
director for all direct out-of-pocket expenses reasonably incurred by such
director in attending meeting of the Board of Directors.
7.3 Indemnification. The Company agrees to indemnify and save harmless
each Purchaser and each of its officers, directors, employees and agents
from and against any and all actions, causes of action or suits initiated
against such Purchasers by third parties, and reasonable expenses
(including, without limitation, reasonable attorneys fees and
disbursements) in connection therewith (herein called the "Indemnified
Liabilities") incurred by such Purchaser or any of its officers,
directors, employees or agents as a result of, or arising out of any of
the transactions contemplated hereby, except for any Indemnified
Liabilities arising on account of the gross negligence or willful
misconduct of the Purchaser or any of its officers, directors, employees
or agents, provided that, if and to the extent such agreement to indemnify
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which shall be permissible under applicable law.
8. Miscellaneous
8.1 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or
therein. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon
any third party any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided in this
Agreement.
18
8.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware as applied to agreements among
Delaware residents, made and to be performed entirely within the State of
Delaware.
8.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or
interpreting this Agreement.
8.5 Notices.Any notice required or permitted under this Agreement shall be
given in writing and shall be deemed effectively given upon personal
delivery or upon deposit with the United States
Post Office, by registered or certified mail, postage prepaid, or sent by
confirmed telecopy, addressed (a) if to the Company, at:
Accordant Health Services, Inc.
509-A W. Friendly Avenue
Greensboro, NC 27410
Attention: President
With a copy to:
J. Christopher Lynch, Esquire
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, NC 27607
or at such other address as the Company shall have furnished to the
Purchasers in writing, and (b) if to a Purchaser, at such Purchaser's
address as is set forth on Exhibit A, or at such other address as such
Purchaser shall have furnished to the Company in writing.
8.6 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
Closing. All statements as to factual matters contained in any certificate
or other instrument delivered by or on behalf of the Company pursuant
hereto or in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties made by the Company hereunder
as of the date of such certificate or instrument.
8.7 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to any Purchaser of any one or more of the
provisions of this Agreement, or any part thereof, whether arising by
reason of the law of any such Purchaser's domicile or otherwise, shall in
no way affect or impair the validity, legality or enforceability of this
Agreement with respect to other Purchasers. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the
extent practicable, be modified so as to make it valid, legal and
enforceable and to retain as nearly as practicable the intent of the
parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
8.8 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to the Company or any Purchaser or any subsequent
holder of any Shares upon any breach, default or noncompliance of any
Purchaser, any subsequent holder of any Shares or the Company under this
Agreement or under the Certificate, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach,
default or noncompliance, or any acquiescence therein, or of any similar
breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or
character on the part of the Company or the Purchasers of any breach,
default or noncompliance under this Agreement or under the Certificate or
any waiver on the Company's or the Purchasers' part of any provisions or
conditions of this Agreement must be in writing and shall be effective
only to the extent specifically set forth in such writing and that all
remedies, either under this Agreement or the Certificate, by law, or
otherwise afforded to the Company and the Purchasers, shall be cumulative
and not alternative.
8.9 California Corporate Securities Laws. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE
OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE
SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102
OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF
ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
19
8.10 Amendments and Waivers. Except as otherwise expressly provided
herein, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a
particular instance,either retroactively or prospectively and either for a
specified period of time or indefinitely) with the written consent of the
Company and Purchasers (or their transferees) holding at least 66 2-3% of
Underlying Common Stock issued or issuable upon conversion of the Shares
(excluding shares previously sold to the public), voting together as a
single group; provided, however, that no such amendment or waiver shall
reduce the aforesaid percentage of Underlying Common Stock, the holders of
which are required to consent to any waiver or supplemental agreement,
without the consent of the holders of all of such Shares and Underlying
Common Stock. Any amendment or waiver effected in accordance with this
Section 7.10 shall be binding upon each Purchaser and each transferee of
the Shares and Underlying Common Stock. Upon the effectuation of each such
amendment or waiver, the Company shall promptly give written notice
thereof to the Purchasers (or their transferees) who have not previously
consented thereto in writing. 8.11 Expenses. The Company and each
Purchaser shall bear its own expenses incurred on its behalf with respect
to this Agreement and the transactions contemplated hereby; provided, that
the Company shall pay the reasonable fees and expenses of Dorsey &
Whitney, LLP, counsel to CHSI. Each Purchaser, other than CHSI, hereby
expressly acknowledges and agrees that Dorsey & Whitney LLP have acted
solely as counsel to CHSI and not such Purchaser.
[The next page is the signature page]
20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ACCORDANT HEALTH SERVICES, INC.
/s/ Steven K. Schelhammer
---------------------
Steven K. Schelhammer, President
PURCHASERS:
/s/Rick Barrett
------------
Rick Barrett
CURATIVE HEALTH SERVICES, INC.
By:/s/ John Vakoutis
-------------
John Vakoutis
Title:President, Chief Executive Officer
Delphi Ventures III, L.P.
By: Delphi Management Partners III, L.L.C.
General Partner
By:/s/Don Lothrop
Delphi BioInvestments III, L.P.
By: Delphi Management Partners III, L.L.C.
General Partner
By:/s/Don Lothrop
INSTITUTIONAL VENTURE MANAGEMENT VI
By:/s/James Strand
Title:General Partner
INSTITUTIONAL VENTURE PARTNERS VI
By Its General Partner,
Institutional Venture Management VI
By:/s/James Strand
Title:General Partner
IVP Founders Fund I
By Its General Partner,
Institutional Venture Management VI
By:/s/James Strand
Title:General Partner
INTERSOUTH PARTNERS III, L.P.
By: INTERSOUTH ASSOCIATES III,
General Partner
By:/s/Mitch Mumma
Title:General Partner
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., LLC
its General Partner
By:/s/Terry McGuire
Member
POLARIS VENTURE PARTNERS FOUNDERS'
FUND, L.P.
By: Polaris Venture Management Co., LLC
its General Partner
By:/s/Terry McGuire
Member
Exhibit 10.24
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all of the subsidiaries of the registrant:
1. Wound Care Centers(R) of America Incorporated, organized under the laws of
Delaware.
2. CHS Services, Inc., organized under the laws of Delaware.
Exhibit10.25
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-54880) pertaining to the Curative Health Services, Inc. and
subsidiaries 1991 Stock Option Plan, as amended, in the Registration Statement
(Form S-8 No. 33-19370) pertaining to the Curative Health Services, Inc. and
subsidiaries Director Share Purchase Program and in the Registration Statement
(Form S-8 No. 33-85188) pertaining to the Curative Health Services, Inc. and
subsidiaries Employee 401(k) Savings Plan of our report dated February 16, 1999,
expcept for Note M as to which the date is March 15, 1999, with respect to the
consolidated financial statements and schedule of Curative Health Services, Inc.
and subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
/s/ Ernst & Young LLP
Melville, New York
March 30, 1999