-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IuiH2g+lwEaOTSrRA9HPV2suHZ6Ha4k4BnVAFPXwJwdssZflaVJWO2xopd9D4xEV Yx/6hmareFm2XFEKW7jWgg== 0000950124-00-001816.txt : 20000331 0000950124-00-001816.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950124-00-001816 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCKWELL MEDICAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0001041024 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 383317208 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-23661 FILM NUMBER: 586419 BUSINESS ADDRESS: STREET 1: 28025 OAKLAND OAKS DR CITY: WIXOM STATE: MI ZIP: 48393 BUSINESS PHONE: 2484493353 MAIL ADDRESS: STREET 1: 28025 OAKLAND OAKES DR CITY: WIXOM STATE: MI ZIP: 48393 10KSB 1 FORM 10KSB 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 000-23-661
------------------------ ROCKWELL MEDICAL TECHNOLOGIES, INC. (Name of Small Business Issuer in Its Charter) MICHIGAN 38-3317208 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 28025 OAKLAND OAKS DRIVE WIXOM, MICHIGAN 48393 (Address of Principal (Zip Code) Executive offices)
(248) 449-3353 ------------------------ (Issuer's Telephone Number, including Area Code) Securities registered pursuant to Section 12(b) of the Exchange Act: NONE Securities registered pursuant to Section 12(g) of the Exchange Act: COMMON SHARES, NO PAR VALUE (TITLE OF CLASS) COMMON SHARE PURCHASE WARRANTS (TITLE OF CLASS) ------------------------ Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year: $6,688,914 State the aggregate market value of the voting and non voting common equity held by non-affiliates: $13,084,794 as of March 24, 2000. Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: 4,854,397 Common Shares outstanding and 3,625,000 Common Share Purchase Warrants outstanding as of March 24, 2000. Documents incorporated by reference: Portions of the Registrant's definitive Proxy Statement pertaining to the 2000 Annual Meeting of Shareholders (the "Proxy Statement") filed pursuant to Regulation 14A are herein incorporated by reference. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL Rockwell Medical Technologies, Inc. (the "Company") is a Michigan corporation, incorporated on October 25, 1996. From October 25, 1996 through February 18, 1997 the Company had no operations and incurred only legal and consulting expenses. On February 19, 1997, the Company acquired substantially all of the assets of Rockwell Medical Supplies, L.L.C. and of Rockwell Transportation, L.L.C. (collectively, the "Predecessor Company") used in connection with the business of manufacturing hemodialysis concentrates and dialysis kits and distributing and delivering these and other products to hemodialysis clinics. The Predecessor Company began operations in January 1996. Rockwell Medical Technologies, Inc. manufactures hemodialysis concentrates and dialysis kits, and sells, distributes and delivers such concentrates and dialysis kits, as well as other ancillary hemodialysis products, to hemodialysis providers in the United States. Hemodialysis is a process which is able to duplicate kidney function in patients whose kidneys have failed to function properly. Without properly functioning kidneys, the patient's body cannot rid itself of excess water and waste nor regulate the amount of electrolytes in the patient's blood. Long-term dialysis treatments are essential for these patients' survival. INDUSTRY BACKGROUND The Company provides products used in the treatment of patients with end-stage renal disease ("ESRD"). In 2000 there are an estimated 300,000 ESRD patients in the United States, whose permanent kidney failure requires long-term dialysis for survival. According to the United States Department of Health and Human Services ("DHHS"), the ESRD patient population has increased, on average, 7.9% per year for the five years preceding 1998. Incidence of kidney failure is increasing as a by-product of the aging population, an increasing occurrence of diabetes and hypertension, and increased use of prescription drugs. ESRD patients are essentially treated as chronic patients, with repeated dialysis treatments replacing their nonfunctioning kidneys. Most patients undergoing hemodialysis treatments generally receive three treatments per week or 156 treatments per year, although the amount of weekly treatments may vary. Hemodialysis patients generally receive their treatments at hospitals or independent hemodialysis clinics. A hemodialysis provider, such as a hospital or a freestanding clinic, uses a dialysis station to treat patients. A dialysis station contains a dialysis machine that takes a concentrate solution and certain chemical powders, such as the Company's solutions and powders, and accurately dilutes them with purified water. The resulting solution, known as dialysate, is then pumped through a device known as a dialyzer (artificial kidney), while at the same time the patient's blood is pumped through a membrane within the dialyzer. Excess water and chemicals from the patient's blood pass through the membrane and are carried away in the dialysate while certain chemicals in the dialysate penetrate the membrane and enter the patient's blood to maintain proper chemical levels in the body. Dialysate generally contains dextrose, sodium, calcium, potassium, magnesium, chloride and acetic acid. The patient's physician chooses the formula required for each patient based on each particular patient's needs, although most patients receive one of eight common formulations. In addition to using concentrate solutions and chemical powders (which must be replaced for each use for each patient) a dialysis station requires various other ancillary products such as on-off kits, sterile subclavian dressing change trays, arterial and venous blood tubing lines, fistula needles, intravenous administration sets, transducer protectors, dialyzers and various other ancillary products, many of which the Company sells. INDUSTRY TRENDS The dialysis industry has experienced steady patient population growth based on statistics complied by the DHHS, with the patient population increasing between 7-11% each year over the last ten years. ESRD is an irreversible deterioration of kidney function. Population segments with the highest incidence of ESRD are also the fastest growing within the U.S. population including the elderly, Hispanic and African-American 1 3 population segments. More than 60% of new ESRD cases are attributed to either diabetes or hypertension, while glomerulonephritis is the primary factor behind nearly 11% of treated cases. Hemodialysis providers are generally either independent clinics or hospitals. According to the DHHS, since 1973 the total number of hemodialysis providers in the United States has more than quintupled from 606 in 1973 to over 3,586 in December 1998. Independent providers comprised 2,723 of such providers, hospitals comprised 628 of such providers and kidney transplant centers comprised 235 of such providers at the end of 1998 according to the DHHS. The Company currently supplies over 300 hemodialysis providers in over 22 states across the United States. The number of patients receiving hemodialysis has also grown substantially in recent years. According to the last published statistics by the DHHS, in 1997 more than 228,000 patients were treated in Medicare-approved renal facilities as compared to 68,390 patients in 1985. According to the DHHS, from 1985 to 1998, the number of hemodialysis stations, which are areas equipped to provide adequate and safe dialysis therapy, grew from 17,845 stations to 53,983 stations. The number of Medicare-approved dialysis machines increased by 3,130 stations or 6.2% between 1997 and 1998 based on the latest published statistics by the DHHS. STRATEGY The Company's long term objectives are to increase its market share, expand its product line offering, extend its geographical coverage and improve its profitability by implementing the following strategies: - Acting as a Single Source Supplier. The Company has positioned itself as an independent "one-stop-shop" to its customers for the concentrates, chemicals and supplies necessary to support a hemodialysis provider's operation. Some of the Company's competitors for concentrates do not offer a full line of hemodialysis products requiring customers to do business with a number of suppliers in order to purchase necessary supplies. Rockwell offers a full line of hemodialysis supplies. - Increasing Revenue Through Sales of New Products. The Company introduced two new product lines in 1999; Dri-Sate(TM) Dry Acid Concentrate and SteriLyte(TM) Liquid Bicarbonate. The Company believes that these are superior to competitors' product offerings. The Company successfully introduced the Dri-Sate(TM) product line in 1999 and it has grown to represent a significant share of the Company's acid concentrate sales in its first year. The Company anticipates Dri-Sate(TM) will continue to capture market share and will allow the Company to achieve its gross margin objectives. The Company also anticipates that its SteriLyte(TM) Liquid Bicarbonate product line will gain market share in the acute care market segment due to its higher quality and longer shelf life. - Increasing Revenue Through Ancillary Product Line Expansion. The Company believes that the market potential for ancillary products and supplies used by hemodialysis providers is equivalent to or greater than the market for dialysis concentrates. The Company's strategy is to offer cost effective ancillary products that include ancillary products such as specialized kits, fistula needles, gloves, chemicals, sterile dressings and blood tubing. Many of these ancillary items are purchased based on price and are generally acquired from various suppliers. The Company believes that as it continues to gain market share that it will increasingly be able to procure these ancillary items on a cost effective basis and will provide its customers with convenience from a single supply source at a highly competitive price level. - Offering a Higher Level of Delivery/Customer Service. By using its own delivery vehicles and drivers, the Company believes that it can offer a higher level of customer service to hemodialysis providers than if it relied primarily on the use of common carriers to distribute its products. The Company's drivers perform services for customers that are generally not available from common carriers, such as stock rotation, non-loading-dock delivery and drum pump-offs. A drum pump-off requires the driver to pump hemodialysis concentrates from a 55 gallon drum into larger holding tanks within the hemodialysis clinic. The Company believes that its main competitors generally use common carriers for delivery of their products. The Company believes it offers a higher level of distribution service to its customers through the use of its own delivery vehicles and drivers. 2 4 - Expanding Market Share in Target Regions. Because of the costs associated with transporting and delivering hemodialysis concentrates, the Company believes that it has a competitive cost advantage with certain clinics that are located within a reasonable proximity to the Company's manufacturing facility over other manufacturers outside of such proximity. The Company also believes that it can add additional manufacturing sites in certain geographic regions that will provide it with a competitive cost advantage and with superior customer service levels due to their proximity to the customer. The Company intends to leverage its existing customer relationships to expand into geographic areas where it currently has a minor or negligible presence. PRODUCTS The Company manufactures hemodialysis concentrates and sells, distributes and delivers such products, as well as a full line of ancillary hemodialysis products to hemodialysis providers and distributors located in more than 22 states as well as several foreign countries. Hemodialysis concentrates are comprised of two primary product types, which are generally described as acid dialysate and bicarbonate. "Acidified Dialysate Concentrate" Acid dialysate generally contains sodium chloride, dextrose and electrolyte additives such as magnesium, potassium, and calcium. Acid products are manufactured in three basic series to reflect the dilution ratios used in dialysis machines which are manufactured by various companies. The Company supplies all three product series and currently manufactures approximately 60 different formulations. The Company supplies liquid acid concentrate in both 55 gallon drums and in cases with 4 - 1 gallon containers. "Bicarbonate" Bicarbonate is generally sold in powder form and each clinic generally mixes bicarbonate on site as required. The company offers approximately 20 bicarbonate products covering all three series of manufacturers' bicarbonate dilution ratios. "Ancillary Products" The Company offers a wide range of ancillary products including fistula needles, gloves, kits, dressings, cleaning agents, filtration salts and other supplies used by hemodialysis providers. NEW PRODUCTS In June of 1998 and June of 1997, the Company obtained 510(k) clearance from the FDA to manufacture and market two new products, Dri-Sate(TM) Dry Acid Concentrate and SteriLyte(TM) Liquid Bicarbonate. These products enhance the Company's previous product offerings of acid concentrate in a liquid form and bicarbonate in a powder form. "Dri-Sate(TM) Dry Acid Concentrate" The Company's Dri-Sate(TM) Dry Acid Concentrate allows a clinic to mix its acid concentrate on-site. The clinical technician, using a specially designed mixer, adds pre-measured packets of the necessary ingredients to 50 or 100 gallons of purified water (AMII standard). Once mixed, the product is similar to the acid provided to the clinic in liquid form. By using Dri-Sate(TM) Dry Acid Concentrate numerous advantages are realized by the clinics including lower cost per treatment, increased storage space, reduced number of deliveries and more flexibility in scheduling. The Company believes it will attain increased profit margins due to the reduction in freight cost associated with shipping the dry product as compared to the liquid form. The Company also believes it will generate increased back-haul revenue due to the elimination of returning empty drums to the Company's facility, thus allowing its trucks to obtain increased back-haul revenue from third parties. 3 5 "SteriLyte(TM) Liquid Bicarbonate" The Company's SteriLyte(TM) Liquid Bicarbonate, which is used primarily in acute care settings, is currently the only liquid bicarbonate on the market manufactured utilizing a process called gamma irradiation. Historically, other manufacturers have been required to recall product due to excess levels of molds and bacteria in their product. Gamma irradiation is a process that minimizes the presence of mold and bacteria in the product thereby providing a higher quality product to the customer. The Company's SteriLyte(TM) Liquid Bicarbonate, by utilizing gamma irradiation, offers the dialysis community a high-quality product and provides the clinic a safe and uninterrupted supply source. DISTRIBUTION AND DELIVERY OPERATIONS The majority of the distribution of the Company's products is provided by the Company's subsidiary, Rockwell Transportation, Inc. Rockwell Transportation, Inc. leases and operates a fleet of twelve trucks which are used to deliver products to the Company's customers. A minor portion of the Company's deliveries, primarily to medical products distributors, is provided by common carriers contracted by the Company on a competitive rate basis. Rockwell Transportation, Inc. currently employs twelve drivers to operate its truck fleet, one dispatcher, and an individual to manage its trucking operations. The Company's liquid acid concentrates are generally packaged in 55-gallon re-usable drums weighing approximately 550 pounds each. The Company performs services for customers that are generally not available from common carriers, such as stock rotation, non-loading-dock delivery and drum pump-offs. The Company's primary competitors generally use common carriers and/or do not perform the same services for delivery of their products. The Company believes it offers a higher level of service to its customers through the use of its own delivery vehicles and drivers. As the Company continues to grow and migrate its product mix to its Dri-Sate(TM) Dry Acid Concentrate the Company anticipates that it will achieve distribution efficiencies from its truck fleet as a result of reduced frequency of deliveries, increased end user sales volume per truckload and increased back-haul revenue. The Company's trucking operations are and will continue to be subject to various state and federal regulations, which if changed or modified, could adversely affect the Company's business, financial condition and results of operations. SALES AND MARKETING The Company primarily sells its products directly to domestic hemodialysis providers through three independent sales representative companies and two direct salespeople employed by the Company. In addition, the President and Chief Executive Officer of the Company leads and directs the sales efforts to the Company's major accounts. The Company also utilizes two independent distributors in the United States. Certain international customers are sold through sales agents. The Company's sales and marketing initiatives are directed at purchasing decision makers at both large for profit national and regional hemodialysis chains and toward independent hemodialysis service providers. The Company's marketing efforts include advertising in trade publications, distribution of product literature and attendance at industry trade shows and conferences. Targeted audiences of the Company's sales and marketing efforts include clinic administrators, purchasing professionals, nurses, hospital administrators and nephrologists. COMPETITION The Company competes against larger more established competitors with substantially greater financial, technical, manufacturing, marketing, research and development and management resources than those of the Company. The Company competes against three major competitors, of which its two largest competitors are primarily in the business of operating hemodialysis clinics. The two largest providers of hemodialysis concentrates are Fresenius Medical Care, Inc. ("Fresenius") and Gambro Healthcare, Inc. ("Gambro") who 4 6 the Company believes also have the first and third largest ESRD patient base in the United States. These companies produce and sell a more comprehensive line of dialysis equipment, supplies and services. Fresenius treats an estimated 59,000 dialysis patients in the United States and operates an estimated 800 clinics. It also has a renal products business that manufactures a broad array of equipment including dialysis machines, dialyzers (artificial kidneys), concentrates and other supplies used in hemodialysis. In addition to its captive customer base in its own clinics, Fresenius also serves other clinic chains and independent clinics with its broad array of products. The Company believes that Fresenius sources its concentrate manufacturing through two of its own manufacturing facilities (California and New Jersey) and through a private label manufacturer in the eastern United States. Fresenius operates an extensive warehouse network in the United States serving its captive customer base and other independent clinics. Gambro treats an estimated 35,000 dialysis patients in the United States and operates approximately 475 clinics. Gambro manufactures and sells hemodialysis machines and other ancillary supplies. Gambro sells its concentrate solutions to both its own captive clinic base and to other clinic chains and independent clinics. The Company believes that Gambro operates one manufacturing facility in Central Florida and additionally sources concentrate through a private label manufacturer in the eastern United States. The Company also imports products from its European manufacturing facilities. The Company believes that Gambro engages a third party trucking company to deliver its products throughout the United States directly from the point of manufacture. Gambro serves the independent clinic market with concentrate products used by its brand of dialysis machines as well as those machines manufactured by its competitors in that segment. The Company also competes against the Renal Systems division of Minntech Corporation ("Minntech"). In its Renal Systems division, Minntech primarily sell concentrates and Renalin, a specialty reuse agent for dialyzers and does not offer the full breadth of products offered by the Company. The Company believes that Minntech has one domestic manufacturing facility located in Minnesota and a distribution center in Camp Hill, Pennsylvania. The Company believes that Minntech largely uses its own vehicles for delivery of product to customers. QUALITY ASSURANCE AND CONTROL The U.S. Food and Drug Administration ("FDA") has expanded the regulatory requirements governing manufacturers of medical devices effective January 1, 2000. The Company has revised its operational manuals and quality system to conform with the new regulations. To assure quality and consistency of the Company's concentrates, the Company conducts specific analytical tests during the manufacturing process for each type of product that it manufactures. The Company's quality control laboratory conducts analytical tests to verify that the chemical properties of the mix comply with the specifications required by industry standards. Upon verification that a batch meets those specifications, the Company then packages those concentrates. The Company also tests packaged concentrates at the beginning and end of each production run to assure product consistency during the filling process. Each batch is assigned a lot number for tracking purposes and becomes available for shipment subsequent to verification that all product specifications have been met. The Company utilizes automated testing equipment in order to assure quality and consistency in the manufacture of its concentrates. The equipment allows the Company to analyze the materials used in the hemodialysis concentrate manufacturing process, to assay and adjust the in-process hemodialysis concentrate, and to assay and certify that the finished products are within the chemical and biological specifications required by industry regulations. The Company's testing equipment provides it with high degree of accuracy and efficiency in performing the necessary testing. GOVERNMENT REGULATION The testing, manufacture and sale of the Company's hemodialysis concentrates and the ancillary products distributed by the Company are subject to regulation by numerous governmental authorities, principally the United States Food and Drug Administration ("FDA") and corresponding state and foreign agencies. 5 7 Pursuant to the Federal Food, Drug and Cosmetic Act (the "FDA Act"), and the regulations promulgated thereunder, the FDA regulates the pre-clinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant pre-market clearance or pre-market approval for devices, withdrawal of marketing clearances or approvals and criminal prosecution. A medical device may be marketed in the United States only with prior authorization from the FDA unless it is subject to a specific exemption. Devices classified by the FDA as posing less risk than class III devices are categorized as class I (general controls) or class II (general and specific controls) and are eligible to seek "510(k) clearance." Such clearance generally is granted when submitted information establishes that a proposed device is "substantially equivalent" in intended use to a class I or II device already legally on the market or to a "pre-amendment" class III device (i.e., one that has been in commercial distribution since before May 28, 1976) for which the FDA has not called for pre-market approval ("PMA") applications. The FDA in recent years has been requiring a more rigorous demonstration of substantial equivalence than in the past, including requiring clinical trial data in some cases. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new 510(k) submissions. The Company believes that it now usually takes from one to four months from the date of submission to obtain 510(k) clearance, but it can take substantially longer. The Company's hemodialysis concentrates, liquid bicarbonate and other ancillary products are categorized as class II devices. A device requiring prior marketing authorization that does not qualify for 510(k) clearance is categorized as class III, which is reserved for devices classified by FDA as posing the greatest risk (e.g., life-sustaining, life-supporting or implantable devices), or devices that are not substantially equivalent to a legally marketed class I or class II device. A class III device generally must receive approval of a PMA application, which requires proving the safety and effectiveness of the device to the FDA. The process of obtaining PMA approval is expensive and uncertain. The Company believes that is usually takes from one to three years after filing, but it can take longer. If human clinical trials of a device are required, whether for a 510(k) submission or a PMA application, and the device presents a "significant risk," the sponsor of the trial (usually the manufacturer or the distributor of the device) will have to file an investigational device exemption ("IDE") application prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and laboratory testing. If the IDE application is approved by the FDA and one or more appropriate Institutional Review Boards ("IRBs"), human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a "non-significant risk" to the patient, a sponsor may begin the clinical trial after obtaining approval for the study by one or more appropriate IRBs without the need for FDA approval. Any devices manufactured or distributed by the Company pursuant to FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA and certain state agencies. Manufacturers of medical devices for marketing in the United States are required to adhere to applicable regulations setting forth detailed Good Manufacturing Practice ("GMP") requirements, which include testing, control and documentation requirements. Manufacturers and distributors must also comply with Medical Device Reporting ("MDR") requirements that a firm report to the FDA any incident in which its product may have caused or contributed to a death or serious injury, or in which its product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses. The Company is subject to routine inspection by the FDA and certain state agencies for compliance with GMP requirements and other applicable Quality System regulations. The Company also is subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing 6 8 practices, environmental protection, fire hazard control, transportation and disposal of hazardous or potentially hazardous substances. The Company has 510(k) clearance from the FDA to market hemodialysis concentrates in both liquid and powder form. In addition, the Company has received 510(k) clearance for its Dri-Sate Dry Acid Concentrate Mixer. The Company's retention of such 510(k) clearances is also dependent upon its compliance with the FDA Act and related laws and regulations, including GMP regulations. There can be no assurance that the Company will maintain its 510(k) authority from the FDA to manufacture and distribute its products. Failure to do so could result in the need to cease manufacturing and/or distributing the Company's products, which would have a material adverse effect on the Company's business, financial condition and results of operations. If any of the Company's FDA clearances are denied or rescinded, sales of the Company's products in the United States would be prohibited during the period the Company does not have such clearances. TRADEMARKS & PATENTS The Company has several trademarks and or service marks used on its products and in its advertising of such products, and has applied for U.S. registration of such marks. The Company has applied for U.S. and international patents on its Dri-Sate(TM) Dry Acid Concentrate method and apparatus for preparing liquid dialysate. The Company has no other patents. SUPPLIERS The Company believes that the raw materials for the Company's hemodialysis concentrates, the components for the Company's hemodialysis kits and the ancillary hemodialysis products distributed by the Company are generally available from several potential suppliers. Principal suppliers include Morton Salt Company, Church & Dwight Co. Inc., and Ashland, Inc. CUSTOMERS The Company operates in one market segment which involves the manufacture and distribution of hemodialysis concentrates, dialysis kits and ancillary products used in the dialysis process to hemodialysis clinics. For the year ended December 31, 1999, the Company had sales in excess of 10% of revenue with two customers representing approximately 25% of total sales. For the year ended December 31, 1998, one customer in the United States accounted for approximately 15% of total revenue. EMPLOYEES As of March 23, 2000, the Company had approximately fifty five employees, of which two were salespeople, four were laboratory technicians, twelve were truck drivers and eight were engaged in corporate management and administration. The remaining employees were hourly workers including clerical and plant employees. The Company's arrangements with its employees are not governed by any collective bargaining agreement. Employees are employed on an "at-will" basis with the exception of Mr. Thomas E. Klema, the Company's Vice President, Chief Financial Officer and Secretary. The employment agreement of Mr. Robert L. Chioini, Chairman, President and Chief Executive Officer, expired February 19, 2000 and he is currently in negotiation with the Board of Directors with respect to a new employment agreement. The Company intends to add personnel to staff a second manufacturing facility. In addition, if the Company's sales volumes increase, the Company expects to add additional production, distribution, and administrative resources. OTHER The Company does not engage in any significant research and development activity. The Company does not anticipate any significant cost or impact from compliance with environmental laws. 7 9 ITEM 2. DESCRIPTION OF PROPERTY. The Company leases a 34,500 square foot facility located in Wixom, Michigan, which is comprised of manufacturing, warehouse, office and laboratory space. The Company is party to a lease (the "Lease") covering such facility that expires on December 15, 2000 and provides for a monthly rental payment of $19,771, plus a monthly escrow deposit of $ 3,323 to fund real estate taxes. This facility was formerly leased by the Predecessor Company, and the Lease was assigned to the Company in connection with the acquisition of the Predecessor Company's business. In connection with such assignment of the Lease, the landlord required the Company to deposit into escrow $178,000 which is to be applied against future lease payments and as additional security deposit in accordance with the assignment agreement. At December 31, 1999 $59,313 remained in the escrow account to be used against future payments with the balance to be held as a security deposit refundable at lease termination subject to certain conditions. On March 12, 2000 the Company entered into an agreement to lease a 51,000 square foot facility in Grapevine, Texas with occupancy anticipated in the second quarter of 2000. The lease agreement commences upon completion of modifications to the facility by the lessor. The principal provisions under the five year lease term include base monthly rental payments of $17,521 and payment of common area maintenance costs by the lessee. The Company believes that these facilities are suitable and adequate to meets its production and distribution requirements. However, should the Company's business continue to expand, the Company may require additional capacity to meet its requirements. ITEM 3. LEGAL PROCEEDINGS. The Company is not a party to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. 8 10 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The Company's Common Shares and Common Share Purchase Warrants are traded on the Nasdaq SmallCap Market under the symbols RMTI and RMTIW, respectively. The Common Shares and Common Share Purchase Warrants began trading on the Nasdaq SmallCap Market on January 26, 1998 at an initial public offering price of $4.00 per Common Share and $0.10 per Common Share Purchase Warrant. The prices below are the high and low bid prices as reported by Nasdaq in each quarter since the Company's securities began trading on January 26, 1998. The below prices reflect inter-dealer prices, without retail mark-up, mark down or commission and may not represent actual transactions.
BID PRICE INFORMATION ---------------- QUARTER ENDED HIGH LOW ------------- ---- --- March 31, 1998.............................................. $5.375 $1.375 June 30, 1998............................................... 3.000 1.063 September 30, 1998.......................................... 3.875 2.188 December 31, 1998........................................... 2.750 1.375 March 31, 1999.............................................. 3.625 1.906 June 30, 1999............................................... 4.313 3.125 September 30, 1999.......................................... 4.750 2.625 December 31, 1999........................................... 4.063 1.938
As of March 10, 2000 there were 37 record holders of the Common Shares and 35 record holders of the Common Share Purchase Warrants. DIVIDENDS The payment of dividends by the Company is within the discretion of its Board of Directors and depends in part upon the Company's earnings, capital requirements, financial condition and requirements, future prospects, restrictions in future financing agreements, business conditions and other factors deemed relevant by the Board. Since its inception, the Company has not paid any cash dividends on its Common Shares and does not anticipate paying such dividends in the foreseeable future. The Company intends to retain earnings, if any, to finance the development and expansion of its operations. ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The Company was formed for the purpose of acquiring substantially all the assets of Rockwell Medical Supplies, L.L.C., and a related entity, Rockwell Transportation, L.L.C. (collectively the "Predecessor Company"). The Company acquired the Predecessor Company on February 19, 1997 for an adjusted purchase price of approximately $2.1 million. The Company funded the initial payment of $525,000 related to the purchase from the proceeds of a private placement of 495,000 of the Company's Common Shares (the "First Prior Financing"). The balance of the $1.2 million in net proceeds raised in the First Prior Financing was used to fund the Company's net losses and capital equipment purchases. In May through July, 1997, the Company sold 520,000 Common Shares and 520,000 Common Share Purchase Warrants (the "Second Prior Financing") for net proceeds of approximately $1.3 million of which $500,000 was used to further reduce the obligation related to the purchase of the Predecessor Company. The balance of the funds raised in the Second Prior Financing was used to fund the Company's continued net losses and for capital equipment expenditures. The remaining purchase obligation related to the Predecessor Company was converted into 1,095,915 Series A Preferred Shares. 9 11 On January 26, 1998 the Company sold 1,800,000 Common Shares and 3,105,000 Common Share Purchase Warrants pursuant to a registration statement filed with the Securities and Exchange Commission (the "IPO") for net proceeds of $5.8 million. The proceeds were used to redeem all of the Series A Preferred Shares and reduce other liabilities as stated in the prospectus. The remaining cash of approximately $3.3 million was available to fund the future growth of the Company including working capital and capital expansion. RESULTS OF OPERATIONS For the year ended December 31, 1999 compared to the year ended December 31, 1998 For the year ended December 31, 1999, sales were $6.7 million as compared to sales of $5.3 million for 1998. Rockwell Medical Technologies, Inc. continued to have success in 1999 at attracting new customers with revenue increasing by 27% over 1998. Sales increased in 1999 due to combination of factors including new products, new business and improved pricing, which was partially offset by a reduction in lower margin distributor sales volume. The Company increased the sales revenue of its concentrate products by $1.4 million in 1999 compared to 1998. The Company's freight revenue which represented 4% of total revenue, increased by 17% in 1999 compared to 1998 while ancillary product sales decreased by 2%. New products sales represented a 20% increase over 1998. The Company's concentrate sales, which represented 88% of the Company's 1999 revenue, increased by 31% in 1999 over 1998 due to new products, improved customer mix and increased business volume. During 1999, Rockwell signed supply agreements with several multi-unit chains of hemodialysis providers that contributed to the Company's increased revenue. The Company believes that customers are attracted to its product offering due to its high quality products, its broad range of products and formulations and its high level of delivery and customer service. The Company successfully introduced two new product lines in 1999 which were its Dri-Sate(TM) Dry Acid Concentrate and its SteriLyte(TM) Liquid Bicarbonate product lines. New product sales represented 24% of the total 31% increase in concentrate revenue in 1999 over 1998. As a result of changes to customer mix, changes to product mix and improved pricing, the Company's actual average selling prices on its concentrate products increased by 8.6% in 1999 over 1998. Dri-Sate(TM) Dry Acid Concentrate was the primary catalyst behind the Company's increased sales in 1999. Dri-Sate is a concentrated powder form of the Company's liquid acid concentrate products. Customers are attracted to Dri-Sate(TM) due to its convenience of use compared to 55 gallon drums, its reduced frequency of deliveries, reduced space requirements, the high level of the product quality and ease of use of the Company's mixing system. Dri-Sate(TM), which was rolled out to the market in early 1999, represented 25% of total acid sales in 1999. In addition to sales growth in its customer base, the Company also realized increased sales revenue in the fourth quarter of 1999 from customers electing to purchase and store product that was surplus to normal operating requirements as a risk management measure in anticipation of the possibility of a Year 2000 related disruption to their product supply chain. Subsequently, no such problems were experienced by the Company and the Company believes no such problems were experienced by its suppliers or its customers. The Company estimates that approximately 2-3% of its 1999 sales represented additional stocking by customers in excess of normal supply requirements. These additional purchases in 1999 are expected to diminish purchase requirements in 2000. The Company's freight revenue, derived primarily from increased back-haul revenue on the Company's truck fleet, increased by $38,000 in 1999 over 1998. Ancillary product revenue consisting of a wide range of ancillary supplies decreased approximately 2%. Ancillary sales represented 8% of revenue in 1999 compared to approximately 11% in 1998. Gross profit increased by $1.1 million on a sales increase of $1.4 million, reaching $911,000 in 1999 from a deficit of ($171,000) in 1998. Contributing to the Company's improved profitability has been an increase in higher margin direct ship customers with a more favorable product mix. The Company has gained distribution efficiencies through the sale of its Dri-Sate(TM) Dry Acid Concentrate product line. Gross profit margins as a 10 12 percentage of sales improved to 13.6% in 1999 from a deficit of 3.2% in 1998. The Company's gross profit margins increased by 16.8% to sales in 1999 over 1998 due to increased sales volumes, improved customer mix and improved product mix. Selling, General and Administrative Costs aggregated $2,043,000 in 1999 compared to $1,871,000 in 1998 or an increase of $172,000. Cost increases were incurred primarily to support increased business activities and for the marketing introduction and sales of new product lines. The Company rolled out product launches in 1999 for its Dri-Sate(TM) Dry Acid Concentrate and SteriLyte(TM) Liquid Bicarbonate product. Sales and marketing expenses increased $80,000 over 1998. Personnel costs increased $100,000 compared to 1998. The Company paid consulting fees to the firm of Wall Street Partners, Inc. in both 1999 and 1998 aggregating $240,000 and $290,000 respectively. As of January 1, 2000, the Company elected not to renew its consulting agreement with Wall Street Partners, Inc. Interest Income aggregated $61,000 in 1999 compared to $113,600 in 1998. The decrease in interest income was due to reduced funds available for investment. The Company incurred a loss of ($1,071,000) for 1999 which represented a reduction of $857,000 from its loss in 1998 which was ($1,928,000). The Company has not recorded a federal income tax benefit from its current or prior losses given a lack of assurance of realization of the carryforward benefit of those losses. Net Loss per share decreased to ($.22) in 1999 from ($.41) in 1998. Of the $.19 improvement in the loss per share, nearly all of the improvement was from improvement in operating results due to increased sales and improving gross profit margins. An increase in average shares outstanding in 1999 contributed $.005, or less than one half of one cent, of the improvement in loss per share. For the year ended December 31, 1998 compared to the year ended December 31, 1997 Results of operations for the year ended December 31, 1997 include the transactions of the business from the purchase date of February 19, 1997 through December 31, 1997 or approximately a ten and one-half month period. Because of this short period of operations in 1997 the period is not directly comparable to the year ended December 31, 1998. The one and one-half months of operation of the Predecessor Company from January 1, 1997 through February 19, 1997 must be considered to make appropriate comparisons. For the year ended December 31, 1998, sales were approximately $5.3 million as compared to sales of $3.3 million for the short period of 1997 or $3.7 million after adjusting for the Predecessor Company. The 1998 sales represent an increase of 44% over the pro forma 1997 sales levels. The net increase of $1.6 million on a pro forma basis is attributable to new business of $1.7 million, price increases realized in 1998 of approximately $300,000, and was partially offset by a decrease in export sales of $400,000. For the year ended December 31, 1998, sales of acid concentrate accounted for 54% of sales and bicarbonate accounted for 30% of sales as compared to 54% and 23% of sales, respectively, in 1997. These two product lines, which are the critical components of dialysate used by the Company's customers comprised the majority of the Company's sales in both 1998 and 1997. Ancillary products accounted for 11% of total sales in 1998 compared to 14% of sales in 1997. Revenue generated from the Company's trucking subsidiary for trucking services provided to non-affiliated third parties accounted for approximately 5% of total sales in 1998 as compared to 9% of sales in 1997. The Company incurred a gross margin deficit of ($171,000) for the period ended December 31, 1998 as compared to a deficit of ($448,000) for the short period of 1997 and ($613,000) for the year ended December 31, 1997 after considering the results of the Predecessor Company. The improvement in the gross deficit of $442,000 in 1998 as compared to the adjusted 1997 deficit is partially attributable to the increased selling prices achieved in 1998 totaling $300,000 for the period. In addition, reduced vendor prices on material, use of less expensive alternative production materials, labor productivity improvements, and more efficient routings of company trucks comprised total cost reductions of $223,000 in 1998 as compared to the adjusted 1997 period. Lower gross profit from reduced export sales partially offset these improvements by $81,000. These factors occurred principally during the last six months of 1998 and the Company ended the year with a positive gross margin of 5% in the fourth quarter of 1998. 11 13 Selling, general and administrative expense was $1.9 million in the year ended December 31, 1998 as compared to $1.4 million for the short period of 1997 or $1.6 million after adjusting to include the Predecessor Company's expenses to reflect the full year of 1997. Approximately one half of this increase is due to expenses associated with public company matters including investor relations consulting, publications and communications. The balance of the increased selling, general and administrative expense is due to higher administrative salaries including the non-cash expense related to employee stock options. Interest income in the year ended 1998 was $113,000 as compared to $66,000 of expense in the short period of 1997. The difference is directly attributable to using the proceeds from the IPO to reduce interest bearing obligations and the investment of the remaining cash on hand in short term securities. The Company has reported losses for the period ended December 31, 1998 of ($1.9) million which was approximately the same as the short period in 1997 and representing a $300,000 improvement over 1997 on a proforma basis after adding the Predecessor Company's results to reflect a full year of operations. The Company has not recorded a federal income tax benefit given the continued losses and the lack of assurance of realization of the loss carried forward. The loss per share was ($.41) in the year ended December 31, 1998 as compared to ($.64) in the period since the purchase through December 31, 1997 or a loss of ($.76) per share after adjustment for the full year. The improvement of $.35 cents per share from the adjusted 1997 results to the actual 1998 results is primarily attributable to the increased shares outstanding from the IPO. The additional shares accounted for $.29 cents per share of the improvement. The lower net loss in 1998 as compared to the 1997 adjusted net loss resulted in a $.06 per share improvement. YEAR 2000 ISSUES AND CONSEQUENCES The Company has experienced no adverse consequences from Year 2000 computer problems internally or externally with its vendors or customers. No problems have been experienced with the Company's other operating systems and equipment. Prior to Year 2000, the Company completed its review of both its information technology based systems and non-information technology based systems. During 1999, the Company reviewed and tested its computer software for Year 2000 compatibility. The Company satisfied itself that it would not experience any Year 2000 information technology problems with its internal computers and software. No Year 2000 problems were experienced by the Company as of March 24, 2000. The Company also reviewed its vendors and suppliers during 1999 to evaluate their readiness for Year 2000. The Company was satisfied that its vendors and suppliers were prepared for Year 2000 and that it was unlikely that there would be any disruption to the Company's supply chain. The Company has not experienced any Year 2000 problems or product supply interruptions from its vendors as of March 24, 2000. LIQUIDITY AND CAPITAL RESOURCES The Company made significant progress in 1999 at improving its operations and reducing its operating loss which thereby served to reduce its cash requirements. The Company experienced declining cash requirements each quarter during 1999. In the second half of 1999, the Company used $30,000 in cash as compared to $810,000 in the first half of 1999. However, the Company continues to have an ongoing requirement for cash to fund its operations and execute its business strategy. The Company attempts to prudently manage its cash resources to support its growth strategy. As of December 31, 1999 the Company had $1.1 million dollars in cash to fund its future operating cash flow requirements. Its net working capital was $1,650,000 at December 31, 1999. As of December 31, 1999 the Company had no long term debt other than operating lease obligations for its facility and vehicles used in its distribution subsidiary. The Company had capital expenditures of $27,000 in 1999. In 1999, the Company utilized approximately $840,000 in cash. As of December 31, 1999, the Company had cash on hand of approximately $1.1 million to fund future operations and business development efforts. 12 14 The Company anticipates that it will continue to improve its operating performance in 2000. The Company also believes that on the basis of its business performance in the second half of 1999 that it has sufficient liquidity and cash resources to fund its current operations structure and cash requirements during 2000. However, in order to expand its operations and execute its growth strategy the Company anticipates that it will require additional funds. The Company's long term strategy is to expand its operations to serve its customers throughout North America. The Company anticipates that as a result of its existing supply agreements and customer relationships that it has the capability to capture sufficient market share to support additional manufacturing locations. The Company has plans to add a second manufacturing facility during 2000. In order to fund the working capital and capital expenditure requirements to add a second leased facility and to continue to execute its growth strategy, the Company anticipates that it will require additional financing. The Company believes that it will be able to raise the capital required to expand its operations through either debt or equity financing arrangements. However, there can be no assurance that the Company will be successful in raising additional funds through either equity or debt financing arrangements. If additional funds become required or if the Company is not successful in raising additional funds, the Company may be required to alter its growth strategy, curtail its expansion plans or take other measures to conserve its cash resources. ITEM 7. FINANCIAL STATEMENTS The Consolidated Financial Statements of the Registrant and the Combined Financial Statements of the Predecessor Company required by this item are set forth on pages F-1 through F-14. 13 15 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Incorporated herein by reference to Rockwell Medical Technologies, Inc. definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-KSB with respect to its Annual Meeting of Shareholders to be held on May 17, 2000. ITEM 10. EXECUTIVE COMPENSATION. Incorporated herein by reference to Rockwell Medical Technologies, Inc. definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-KSB with respect to its Annual Meeting of Shareholders to be held on May 17, 2000. ITEM 11. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated herein by reference to Rockwell Medical Technologies, Inc. definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-KSB with respect to its Annual Meeting of Shareholders to be held on May 17, 2000. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated herein by reference to Rockwell Medical Technologies, Inc. definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-KSB with respect to its Annual Meeting of Shareholders to be held on May 17, 2000. 14 16 ITEMS 13. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 3(i).1 Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i).1 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 3(i).2 Certificate of Amendment to Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i).2 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 3(i).3 Certificate of Correction to Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i).3 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 3(i).4 Certificate of Amendment to Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i).4 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 3(ii) Bylaws of the Company, incorporated by reference to Exhibit 3(ii) to the Company's Registration Statement on Form SB-2, File No. 333-31991. 4.1 Form of Warrant Agreement, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 4.2 Form of Underwriters Warrant Agreement, incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 4.3 Registration Rights Agreement among the Company and the holders of certain of the Company's Common Share Purchase Warrants, incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 4.4 Form of Lock-up Agreement, incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.1 Rockwell Medical Technologies, Inc. 1997 Stock Option Plan, incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.2 Employment Agreement dated as of February 19, 1997 between the Company and Robert L. Chioini, incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.3 Consulting and Financial Advisory Services Agreement dated as of February 19, 1997 between the Company and Wall Street Partners, Inc., incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.4 Asset Purchase Agreement dated as of November 1, 1996 by and among the Predecessor Company, the Family Partnerships (as defined therein), the Members (as defined therein) and the Company (formerly known as Acquisition Partners, Inc.), incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.5 First Amendment to Asset Purchase Agreement dated as of January 31, 1997 by and among the Predecessor Company, the Family Partnerships, the Members and the Company (formerly known as Acquisition Partners, Inc.), incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.6 Second Amendment to Asset Purchase Agreement dated as of February 19, 1997 by and among the Predecessor Company, the Family Partnerships, the Members and the Company (formerly known as Acquisition Partners, Inc.), incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.7 Letter Agreement dated April 4, 1997 among the parties to the Asset Purchase Agreement concerning the conversion of the promissory note payable to the Supply Company, incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form SB-2, File No. 333-31991.
15 17 10.8 Lease Agreement dated as of September 5, 1995 between the Supply Company, as tenant, and Oakland Oaks, L.L.C., as landlord, incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.9 Assignment and First Amendment to Wixom Building Lease dated as of February 19, 1997 among the Supply Company, as assignor, the Company, as assignee, and Oakland Oaks, L.L.C., as landlord, incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.10 Letter Agreement dated November 21, 1997 among the parties to the Asset Purchase Agreement to confirm the reduction of the purchase price of the Asset Purchase Agreement, incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.11 Employment Agreement dated as of January 12, 1999 between the Company and Thomas E. Klema. 10.12 Lease Agreement dated March 12, 2000 between the Company and DFW Trade Center III Limited Partnership. 21.1 List of Subsidiaries. 27.1 Financial Data Schedule for the Company
(b) Reports on Form 8-K None 16 18 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized. ROCKWELL MEDICAL TECHNOLOGIES, INC. (Registrant) By: /s/ ROBERT L. CHIOINI ------------------------------------ Robert L. Chioini President and Chief Executive Officer In accordance with Section 13 or 15(d) of the Exchange Act, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT L. CHIOINI President, Chief Executive Officer March 30, 2000 - --------------------------------------------- and Director (Principal Executive Robert L. Chioini Officer) /s/ THOMAS E. KLEMA Vice President of Finance, Chief March 30, 2000 - --------------------------------------------- Financial Officer, Treasurer and Thomas E. Klema Secretary (Principal Financial Officer and Principal Accounting Officer)
17 19 INDEX TO FINANCIAL STATEMENTS
PAGE ---- I. Consolidated Financial Statements for Rockwell Medical Technologies, Inc. and Subsidiary Report of Independent Accountants for the years ended December 31, 1999 and 1998............................. F-1 Consolidated Balance Sheets at December 31, 1999 and December 31, 1998...................................... F-2 Consolidated Income Statement for the years ended December 31, 1999 and 1998...................................... F-3 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1999 and 1998......... F-4 Consolidated Statements of Cash Flow for the years ended December 31, 1999 and 1998............................. F-5 Notes to the Consolidated Financial Statements............ F-6 - F-14
18 20 [PLANTE & MORAN, LLP LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Rockwell Medical Technologies, Inc. and Subsidiary: We have audited the consolidated balance sheet of Rockwell Medical Technologies, Inc. and Subsidiary as of December 31, 1999 and 1998 and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 Rockwell Medical Technologies, Inc. and Subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has incurred substantial losses from operations since inception that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Plante & Moran, LLP Southfield, Michigan February 4, 2000, except for Notes 7 and 11 as to which the date is March 14, 2000 F-1 21 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 (WHOLE DOLLARS)
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ ASSETS Cash and Cash Equivalents................................... $ 1,093,293 $ 1,933,197 Accounts Receivable, net of a reserve of $53,000 in 1999 and $56,000 in 1998........................................... 980,689 708,688 Inventory................................................... 413,240 222,095 Other Current Assets........................................ 30,618 25,476 ----------- ----------- TOTAL CURRENT ASSETS................................... 2,517,840 2,889,456 Property and Equipment, net................................. 699,233 925,614 Other Noncurrent Assets..................................... 138,396 177,937 Excess of Purchase Price over Fair Value of Net Assets Acquired, net............................................. 1,118,437 1,275,147 ----------- ----------- TOTAL ASSETS........................................... $ 4,473,906 $ 5,268,154 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable............................................ $ 527,290 $ 528,708 Accrued Liabilities......................................... 341,022 173,348 ----------- ----------- TOTAL CURRENT LIABILITIES.............................. 868,312 702,056 SHAREHOLDERS' EQUITY: Common Share, no par value, 4,854,397 and 4,830,450 shares issued and outstanding.................................... 8,762,941 8,652,175 Common Share Purchase Warrants, 3,625,000 shares issued and outstanding............................................... 251,150 251,150 Accumulated Deficit......................................... (5,408,497) (4,337,227) ----------- ----------- TOTAL SHAREHOLDER'S EQUITY............................. 3,605,594 4,566,098 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 4,473,906 $ 5,268,154 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-2 22 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (WHOLE DOLLARS)
1999 1998 ---- ---- SALES....................................................... $ 6,688,914 $ 5,272,698 Cost of Sales............................................... 5,778,154 5,443,790 ----------- ----------- GROSS PROFIT (DEFICIT)................................. 910,760 (171,092) Selling, General and Administrative......................... 2,043,098 1,871,104 ----------- ----------- OPERATING LOSS......................................... (1,132,338) (2,042,196) Interest Income (Expense), net.............................. 61,068 113,613 ----------- ----------- LOSS BEFORE INCOME TAXES............................... (1,071,270) (1,928,583) Income Tax Expense.......................................... ----------- ----------- NET LOSS............................................... $(1,071,270) $(1,928,583) =========== =========== Basic And Diluted Loss Per Share............................ $ (.22) $ (.41)
The accompanying notes are an integral part of the consolidated financial statements. F-3 23 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (WHOLE DOLLARS)
COMMON SHARES PURCHASE WARRANTS TOTAL ----------------------- ---------------------- ACCUMULATED SHAREHOLDERS' SHARES AMOUNT WARRANTS AMOUNT DEFICIT EQUITY ------ ------ -------- ------ ----------- ------------- Balance as of December 31, 1997............... 3,015,000 $2,623,374 520,000 $(1,913,644) $ 709,730 Issuance of Common Shares, no par value and Warrants, Initial Public Offering........ 1,800,000 5,543,764 3,105,000 251,150 5,794,914 Issuance of Additional Common Shares, no par value to Shareholders in First Prior Financing.............. 123,750 495,000 (495,000) Repurchase of Common Shares................. (108,300) (164,359) (164,359) Compensation related to Stock Options.......... 154,396 154,396 Net Loss................. (1,928,583) (1,928,583) --------- ---------- ---------- -------- ----------- ---------- Balance as of December 31, 1998............... 4,830,450 $8,652,175 3,625,000 $251,150 $(4,337,227) $4,566,098 Issuance of Common Shares................. 23,947 35,778 35,778 Compensation related to Stock Options.......... 74,988 74,988 Net Loss................. (1,071,270) (1,071,270) --------- ---------- ---------- -------- ----------- ---------- Balance as of December 31, 1999............... 4,854,397 $8,762,941 3,625,000 $251,150 $(5,408,497) $3,605,594 ========= ========== ========== ======== =========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-4 24 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (WHOLE DOLLARS)
1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss.................................................. $(1,071,270) $(1,928,583) Adjustments To Reconcile Net Loss To Net Cash Used For Operating Activities: Depreciation and Amortization.......................... 410,104 403,890 Compensation Recognized For Stock Options.............. 74,988 154,396 ----------- ----------- Changes in Working Capital: Increase in Accounts Receivable...................... (272,001) (321,424) (Increase) Decrease in Inventory..................... (191,145) 71,624 Decrease in Other Assets............................. 34,399 30,958 (Decrease) in Accounts Payable....................... (1,418) (509,127) Increase (Decrease) in Other Liabilities............. 167,674 (210,682) ----------- ----------- Net change in Working Capital..................... (262,491) (938,651) ----------- ----------- CASH USED IN OPERATING ACTIVITIES................. (848,669) (2,308,948) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Equipment..................................... (27,013) (467,566) Redemption of Certificate of Deposit...................... 25,000 ----------- ----------- CASH USED IN INVESTING ACTIVITIES................. (27,013) (442,566) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Common Shares and Purchase Warrants........... 35,778 5,794,914 Repurchase of Common Shares............................... (164,359) Redemption of Series A Preferred Shares................... (1,095,915) Repayment Of Notes Payable................................ (200,000) Costs Of Initial Public Offering.......................... 286,729 ----------- ----------- CASH PROVIDED BY FINANCING ACTIVITIES............. 35,778 4,621,369 INCREASE (DECREASE) IN CASH................................. (839,904) 1,869,855 CASH AT BEGINNING OF PERIOD................................. 1,933,197 63,342 ----------- ----------- CASH AT END OF PERIOD....................................... $ 1,093,293 $ 1,933,197 =========== ===========
Supplemental Cash Flow disclosure:
1999 1998 ---- ---- Interest Paid............................................... None $82,225
The accompanying notes are an integral part of the consolidated financial statements. F-5 25 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS Rockwell Medical Technologies, Inc.(the "Company") manufactures, sells and distributes hemodialysis concentrates and other ancillary medical products and supplies used in the treatment of patients with End Stage Renal Disease "ESRD". The Company supplies medical service providers who treat patients with kidney disease. The Company's products are used to cleanse patients blood and replace nutrients lost during the kidney dialysis process. The Company primarily sells its products in the United States. The Company is regulated by the Federal Food and Drug Administration under the Federal Drug and Cosmetics Act, as well as by other federal, state and local agencies. Rockwell Medical Technologies, Inc. has received 510(k) approval from the FDA to market hemodialysis solutions and powders. The Company also has 510(k) approval to sell its Dri-Sate(TM) Dry Acid Concentrate product line and its Dri-Sate Mixer that were introduced during 1999. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements of the Company include the accounts of Rockwell Medical Technologies, Inc. and its wholly owned subsidiary, Rockwell Transportation, Inc. All intercompany balances and transactions have been eliminated. REVENUE RECOGNITION The Company recognizes revenue at the time of transfer of title to the buyer of the Company's products consistent with generally accepted accounting principles. CASH AND CASH EQUIVALENTS The Company considers cash on hand, certificates of deposit and short term marketable securities as cash and cash equivalents. Such cash equivalents have maturities of less than ninety days. INVENTORY Inventory is stated at the lower of cost or net realizable value. Cost is determined on the first-in first-out (FIFO) method. PROPERTY AND EQUIPMENT Property and Equipment are recorded at cost. Expenditures for normal maintenance and repairs are charged to expense as incurred. Property and equipment are depreciated using the straight-line method over their useful lives, which range from three to eight years. EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF ASSETS ACQUIRED The excess of the price paid by the Company over the fair value of the net assets acquired has been recorded as an intangible asset and is being amortized on a straight line basis over an estimated useful life of 10 years. Accumulated amortization of this asset was $448,662 and $291,952 at December 31, 1999 and 1998, respectively. The Company assesses the recoverability of the asset based on estimated future discounted cash flows of the business. Based upon the Company's analysis no impairment of the asset exists at December 31, 1999. F-6 26 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INCOME TAXES A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the year. Deferred tax liabilities or assets are recognized for the estimated future tax effects of temporary differences between book and tax accounting and operating loss and tax credit carryforwards. STOCK OPTIONS Options granted to employees are accounted for using the intrinsic value method, under which compensation expense is recorded at the amount by which the market price of the underlying stock at the date of the grant exceeds the exercise price of the option. Stock options granted to non-employees are recorded at the fair value of the awards at the date of the grant. ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. NET LOSS PER SHARE Basic and Diluted net loss per share for the years ended December 31, 1999 and December 31, 1998 were calculated based on the weighted average shares outstanding of 4,844,149 and 4,734,312, respectively The dilutive effect of stock options have not been included in the average shares outstanding for the calculation of diluted loss per share as the effect, considering the Company's net loss, would be antidilutive. At December 31, 1999 potentially dilutive securities comprised 619,401 stock options exercisable at prices from $1.44 to $3.00 per share, 3,625,000 Common Share Purchase Warrants exercisable at $4.50 per Common Share; and Underwriter's Warrants which are comprised of an option to purchase 95,000 Common Shares at a price of $6.60 per share and 142,500 warrants to purchase shares at $7.43 per share. At December 31, 1998 potentially dilutive securities comprised 407,450 stock options exercisable at prices from $1.44 to $3.00 per share; 3,625,000 Common Share Purchase Warrants exercisable at $4.50 per Common Share; and Underwriter's Warrants which are comprised of an option to purchase 95,000 Common Shares at a price of $6.60 per share and 142,500 warrants to purchase shares at $7.43 per share. 3. MANAGEMENT'S PLAN OF OPERATION Rockwell Medical Technologies, Inc. is engaged in the manufacture, sale and distribution of hemodialysis concentrates and kits to various clinics primarily in the United States. The Company provides hemodialysis solutions and supplies to leading national hemodialysis provider chains along with a number of independently operated regional and local clinics. The Company has established relationships with the a number of the leading hemodialysis treatment providers to supply its hemodialysis solutions and other hemodialysis supplies. The Company manufactures hemodialysis solutions and delivers those directly to its customers through its distribution subsidiary, Rockwell Transportation, Inc. The Company has followed a strategy of developing market share through a differentiated value proposition to its customers including new products, superior delivery and customer service, and tailoring product line offerings to match customer requirements, including offering a full line of formulations and supplies. In 1999, the Company successfully grew its revenue by $1.4 million or 27% over 1998. The Company anticipates that it will continue to increase its revenue and to increase its market share. The Company successfully introduced its dry acid concentrate product line in 1999. Dri-Sate(TM) revenue increased rapidly F-7 27 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) after introduction and represented 14% of total company sales in 1999. The Company expects continued growth in its business and the Company anticipates that it will continue to require cash to fund the working capital requirements associated with future sales increases. STRATEGY The Company's long term objectives are to increase its market share, expand its product line offering, extend its geographical coverage and improve its profitability by implementing the following strategies: - Acting as a Single Source Supplier. The Company has positioned itself as an independent "one-stop-shop" to its customers for the concentrates, chemicals and supplies necessary to support a hemodialysis provider's operation. Some of the Company's competitors for concentrates do not offer a full line of hemodialysis products requiring customers to do business with a number of suppliers in order to purchase necessary supplies. Rockwell offers a full line of hemodialysis supplies. - Increasing Revenue Through Sales of New Products. The Company introduced two new product lines in 1999; Dri-Sate(TM) Dry Acid Concentrate and SteriLyte(TM) Liquid Bicarbonate. The Company believes that these are superior to competitors' product offerings. The Company successfully introduced the Dri-Sate(TM) product line in 1999 and it has grown to represent a significant share of the Company's acid concentrate sales in its first year. - Increasing Revenue Through Ancillary Product Line Expansion. The Company believes that the market potential for ancillary products and supplies used by hemodialysis providers is equivalent to or greater than the market for dialysis concentrates. The Company's strategy is to offer cost effective ancillary products that include ancillary products such as specialized kits, fistula needles, gloves, chemicals, sterile dressings and blood tubing. - Offering a Higher Level of Delivery/Customer Service. By using its own delivery vehicles and drivers, the Company believes that it can offer a higher level of customer service to hemodialysis providers than if it relied primarily on the use of common carriers to distribute its products. The Company's drivers perform services for customers that are generally not available from common carriers, such as stock rotation, non-loading-dock delivery and drum pump-offs. - Expanding Market Share in Target Regions. Because of the costs associated with transporting and delivering hemodialysis concentrates, the Company believes that it has a competitive cost advantage with certain clinics that are located within a reasonable proximity to the Company's manufacturing facility over other manufacturers outside of such proximity. The Company also believes that it can add additional manufacturing sites in certain geographic regions that will provide it with a competitive cost advantage and with superior customer service levels due to their proximity to the customer. The Company intends to leverage its existing customer relationships to expand into geographic areas where it currently has a minor or negligible presence. CASH RESOURCES & LIQUIDITY The Company has utilized cash since its inception and anticipates that it will continue to utilize cash to fund its development and operating requirements. On February 20, 1997 the Company acquired the operations of a predecessor company for approximately $2.1 million. The Company has incurred operating losses since inception. The initial purchase of the predecessor company coupled with subsequent operating losses have been funded from the proceeds generated through the issuance of common shares and common share purchase warrants pursuant to two private equity financing arrangements and an initial public offering in January of 1998. F-8 28 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In 1999, the Company utilized approximately $840,000 in cash. As of December 31, 1999, the Company had cash on hand of approximately $1.1 million to fund future operations and business development efforts. The Company anticipates that it will continue to improve its operating performance in 2000. The Company also believes that on the basis of its business performance in the second half of 1999 that it has sufficient liquidity and cash resources to fund its current operations structure and cash requirements during 2000. However, in order to expand its operations and execute its growth strategy the Company anticipates that it will require additional funds. The Company's long term strategy is to expand its operations to serve its customers throughout North America. The Company anticipates that as a result of its existing supply agreements and customer relationships that it has the capability to capture sufficient market share to support additional manufacturing locations. The Company has plans to add a second manufacturing facility during 2000. In order to fund the working capital and capital expenditure requirements to add a second leased facility and to continue to execute its growth strategy, the Company anticipates that it will require additional financing. The Company believes that it will be able to raise the capital required to expand its operations through either debt or equity financing arrangements. However, there can be no assurance that the Company will be successful in raising additional funds through either equity or debt financing arrangements. If additional funds become required or if the Company is not successful in raising additional funds, the Company may be required to alter its growth strategy, curtail its expansion plans or take other measures to conserve its cash resources. There can be no assurance that the Company will be able to achieve the planned efficiencies and increase its sales levels and market share to sustain its operations. There can be no assurance that the Company has sufficient funds should the business plans not yield the expected results. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 4. SIGNIFICANT MARKET SEGMENTS The Company operates in one market segment which involves the manufacture and distribution of hemodialysis concentrates, dialysis kits and ancillary products used in the dialysis process to hemodialysis clinics. For the year ended December 31, 1999, the Company had sales in excess of 10% of revenue with two customers representing approximately 25% of total sales. For the year ended December 31, 1998, one customer in the United States accounted for approximately 15% of total sales. 5. INVENTORY Components of inventory as of December 31, 1999 and 1998 are as follows:
1999 1998 ---- ---- Raw Materials............................................ $124,233 $142,598 Finished Goods........................................... 289,007 79,497 -------- -------- Total............................................... $413,240 $222,095 ======== ========
F-9 29 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. PROPERTY AND EQUIPMENT Major classes of Property and Equipment, stated at cost, as of December 31, 1999 and 1998 are as follows:
1999 1998 ---- ---- Leasehold Improvements................................ $ 36,232 $ 30,130 Machinery and Equipment............................... 908,715 898,623 Office Furniture and Equipment........................ 136,046 126,876 Laboratory Equipment.................................. 135,893 135,893 Vehicles, including trailers.......................... 104,784 103,136 ---------- ---------- 1,321,670 1,294,658 Accumulated Depreciation............................ (622,437) (369,044) ---------- ---------- Net Property and Equipment............................ $ 699,233 $ 925,614 ========== ==========
7. LEASES The Company leases a facility for production and administrative offices as well as transportation equipment used by the Company's subsidiary, Rockwell Transportation, Inc. The lease terms are three to five years. These leases have been accounted for as operating leases. Lease payments under all operating leases were $515,513 and $552,147 for the years ended December 31, 1999 and 1998, respectively. In accordance with the assignment of the facility lease from the Predecessor Company, the landlord required a deposit in escrow. The escrow deposit was applied against lease payments of $39,542 in the year ending December 31, 1999. The escrow deposit is to be applied against future lease payments of $59,313 in the year ending December 31, 2000 with the balance to be held as a security deposit refundable at lease termination subject to certain conditions. In the instance of early termination, the transportation equipment leases require the Company to pay the excess of the purchase price for such vehicles (determined in accordance with the terms of the lease) over the equipment's fair market value. A five year lease arrangement for a second manufacturing facility was entered into by the Company on March 12, 2000. The Company anticipates that the lease will become effective in the second quarter of 2000 upon satisfactory completion of occupancy requirements by the lessor. Future minimum rental payments under these lease agreements are as follows: Year ending December 31, 2000............................... 550,141 Year ending December 31, 2001............................... 362,100 Year ending December 31, 2002............................... 355,900 Year ending December 31, 2003............................... 326,827 Year ending December 31, 2004............................... 207,012
8. INCOME TAXES The Company recorded no income tax expense or benefit for the years ended December 31, 1999 and 1998 due to the Company incurring net operating losses in each of those years. As a result, the Company has recorded a valuation allowance against its net deferred tax assets. F-10 30 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of income tax expense at the statutory rate to income tax expense at the Company's effective tax rate is as follows:
1999 1998 ---- ---- Tax Recovery Computed at 34% of Pretax Loss............... $ (364,000) $ (656,000) Effect of Permanent Difference Principally Related to Stock Compensation Expense............................. 8,000 54,000 Effect of Change in Valuation Allowance................... 356,000 602,000 ----------- ----------- Total Income Tax Benefit.................................. $ -0- $ -0- =========== ===========
The details of the net deferred tax asset are as follows:
1999 1998 ---- ---- Total Deferred Tax Assets................................. $ 1,580,000 $ 1,217,000 Total Deferred Tax Liabilities............................ (25,000) (18,000) Valuation Allowance Recognized for Deferred Tax Assets.... (1,555,000) (1,199,000) ----------- ----------- Net Deferred Tax Asset.................................... $ -0- $ -0- =========== ===========
Deferred income tax liabilities result primarily from the use of accelerated depreciation for tax reporting purposes. Deferred income tax assets result primarily from net operating loss carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the Company's history of operating losses, management has placed a full valuation allowance against the net deferred tax asset at December 31, 1999. For tax purposes, the Company has net operating loss carryforwards of approximately $4,389,000 that expire between 2012 and 2019. 9. CAPITAL STOCK The authorized capital stock of the Company consists of 20,000,000 Common Shares, no par value per share, of which 4,854,397 shares were outstanding at December 31, 1999; 2,000,000 Preferred Shares, none issued or outstanding, and 1,416,664 of 8.5% non-voting cumulative redeemable Series A Preferred Shares, $1.00 par value (the "Series A Preferred Shares"), of which none were outstanding as of December 31, 1999. On January 26, 1998 the Company issued 1,800,000 Common Shares and 3,105,000 Common Share Purchase Warrants pursuant to a Registration Statement filed with the Securities and Exchange Commission in an Initial Public Offering (the "IPO"). Net proceeds from the IPO were $5.8 million of which approximately $1.2 million was used to redeem $1.4 million of Series A Preferred Shares, $1.1 million was used to reduce Accounts Payable and Accrued Expenses, and $200,000 was used to pay other indebtedness. The balance of the proceeds was available for capital equipment purchases and to fund working capital requirements. Effective January 26, 1998 the Company issued 123,750 Common Shares to shareholders pursuant to certain share price conditions in the First Prior Financing. These incremental shares to participants of the First Prior Financing have been accounted for as a stock dividend valued at the IPO offering price of $4.00 per share. F-11 31 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On March 19, 1998, the Company's Board of Directors approved the repurchase of up to 250,000 Common Shares at prices deemed to represent a favorable return on investment. During 1998 the Company repurchased 108,300 shares at a cost of $164,359 including transaction fees. COMMON SHARES Holders of the Common Shares are entitled to one vote per share on all matters submitted to a vote of shareholders of the Company and are to receive dividends when and if declared by the Board of Directors. The Board is authorized to issue additional Common Shares within the limits of the Company's Articles of Incorporation without further shareholder action. WARRANTS Holders of the Common Share Purchase Warrants ("Warrants"), are entitled to purchase one Common Share at the exercise price of $4.50 per share for a period of three years commencing January 26, 1999 and expiring January 26, 2002. The exercise price and the number of Common Shares to be issued upon the exercise of each Warrant are subject to adjustment in the event of share split, share dividend, recapitalization, merger, consolidation or certain other events. At December 31, 1999 there were 3,625,000 Warrants issued and outstanding. Under certain conditions, the Warrants may be redeemed by the Company at a redemption price of $.10 per Warrant upon not less than 30 days prior written notice to the holders of such Warrants, provided the closing bid price of the Common Shares has been at least $7.00 for 20 consecutive trading days ending on the third day prior to the date the notice of redemption is given. UNDERWRITERS' WARRANTS In conjunction with the IPO, the Underwriters' of the offering were entitled to warrants ("the Underwriters' Warrants") which provided them the option to purchase 180,000 Common Shares for a purchase price of $6.60 per share and 270,000 warrants for a purchase price of $.165 per warrant. Each underlying warrant entitled the Underwriter to purchase a Common share at a purchase price of $7.43 per share, exercisable at any time from January 26, 1999 to January 26, 2003. At December 31, 1999, 95,000 of the Underwriters' options to purchase Common Shares and 142,500 underlying warrants remained outstanding of the Underwriters' Warrants. 10. STOCK OPTIONS The Board of Directors approved the Rockwell Medical Technologies, Inc., 1997 Stock Option Plan on July 15, 1997 (the "Plan"). The Stock Option Committee as appointed by the Board of Directors administers the Plan, which provides for grants of nonqualified or incentive stock options to key employees, officers, directors, consultants and advisors to the Company. As of May 10, 1999, the Shareholders of the Company adopted an amendment to the stock option plan to increase the number of options available to be granted to 900,000 from 450,000. Under the amendment to the Plan, the Company may grant up to 900,000 options to purchase Common Shares. Exercise prices, subject to certain plan limitations, are at the discretion of the Committee. Options granted normally expire 10 years from the date of grant or upon termination of employment. The Committee determines vesting rights on the date of grant. Options awarded in 1999 and 1998 generally vest over a three year period from the date of grant. Employee stock options awarded in July and November of 1997 had an exercise price of $3.00, which is less than the deemed fair market value of the stock at the date of grant as determined by the Company as $4.00. On April 13, 1998 these option holders, excluding the President -- CEO and members of the Board of Directors, were offered the alternative of receiving new stock options in the same quantity as previously F-12 32 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) awarded but at an exercise price of $1.4375, the closing price on the Nasdaq SmallCap Market on the date of the offer. Vesting rights on the new options began to accrue on the date of the offer. Under the provisions of APB No. 25, compensation expense on these employee stock options is recognized over the vesting period and is determined as the difference between the IPO price of $4.00 per share (the deemed fair value of the shares on the date of the award), and the exercise price, as adjusted on April 13, 1998. Compensation expense related to stock options for the years ended December 31, 1999 and 1998 was $74,988 and $154,396, respectively. A summary of the status of the Company's Employee Stock Option Plan is as follows:
SHARES PRICE ------ ----- Outstanding at Beginning of Period.......................... -- -- Granted................................................... 311,650 $3.00 Exercised................................................. -- -- Cancelled................................................. 16,150 3.00 ------- Outstanding at December 31, 1997............................ 295,500 $3.00 Granted................................................... 136,000 $1.75 Exercised................................................. -- -- Cancelled................................................. 24,050 1.44 ------- Outstanding at December 31, 1998............................ 407,450 $2.14 Granted................................................... 336,250 2.16 Exercised................................................. 23,947 1.49 Cancelled................................................. 100,352 2.10 ------- Outstanding at December 31, 1999............................ 619,401 $2.18 =======
OPTIONS EXERCISABLE OPTIONS OUTSTANDING -------------------- ---------------------- WEIGHTED NUMBER REMAINING WEIGHTED NUMBER AVERAGE RANGE OF OF CONTRACTUAL EXERCISE OF EXERCISE EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE - --------------- ------- ----------- -------- ------- -------- $1.44 to $2.19 482,468 9.5 yrs $1.95 143,739 $1.83 $2.25 to $3.00 136,933 7.7 yrs $2.98 111,011 $2.99 -------- ------- Total 619,401 9.1 yrs $2.18 254,750 $2.34
Had compensation expense for the employee stock options been determined based on the fair value of the option at the grant dates of the awards, consistent with the provisions of SFAS No. 123, the Company's net loss and loss per share would have been increased to the pro forma amounts as follows:
1999 1998 ---- ---- Net loss As reported....................................... $(1,071,270) $(1,928,583) Pro forma......................................... $(1,315,833) $(2,106,015) Basic and Diluted loss per share As reported....................................... $ (.22) $ (.41) Pro forma......................................... $ (.27) $ (.44)
The per share weighted average fair values at the date of grant for the options granted during the years ended December 31, 1999 and 1998 were $1.90 and $1.51 respectively. For the period ending December 31, 1999 the fair value was determined using the Black Scholes option pricing model using the following assumptions: dividend yield of 0.0 percent, risk free interest rate of 6.25 percent, volatility of 133% and F-13 33 ROCKWELL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) expected lives of 5.0 years. For the year ended December 31, 1998, the fair value was estimated using the following assumptions: dividend yield of 0.0 percent, risk free interest rate of 5.50 percent, volatility of 120% and expected lives of 6.0 years. 11. RELATED PARTY TRANSACTIONS During the years ended December 31, 1999 and 1998, the Company paid or accrued fees to the consulting firm of Wall Street Partners, Inc. for financial and management services of $240,000 and $290,000 respectively. Effective January 1, 2000, the consulting agreement with Wall Street Partners, Inc. expired and therefore, the Company has no obligation to make further payments to the consulting firm. For the period January 1, 1998 through October 31, 1998 the two principals of the consulting firm were shareholders of the Company and members of the Board of Directors. As of October 31, 1998, Mr. Gary L. Lewis was the sole remaining principal of the firm. Mr. Lewis is a shareholder and served as Chairman of the Board of Directors of the Company until March 14, 2000. F-14 34 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- 3(i).1 Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i).1 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 3(i).2 Certificate of Amendment to Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i).2 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 3(i).3 Certificate of Correction to Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i).3 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 3(i).4 Certificate of Amendment to Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i).4 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 3(ii) Bylaws of the Company, incorporated by reference to Exhibit 3(ii) to the Company's Registration Statement on Form SB-2, File No. 333-31991. 4.1 Form of Warrant Agreement, incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 4.2 Form of Underwriters Warrant Agreement, incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 4.3 Registration Rights Agreement among the Company and the holders of certain of the Company's Common Share Purchase Warrants, incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 4.4 Form of Lock-up Agreement, incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.1 Rockwell Medical Technologies, Inc. 1997 Stock Option Plan, incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.2 Employment Agreement dated as of February 19, 1997 between the Company and Robert L. Chioini, incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.3 Consulting and Financial Advisory Services Agreement dated as of February 19, 1997 between the Company and Wall Street Partners, Inc., incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.4 Asset Purchase Agreement dated as of November 1, 1996 by and among the Predecessor Company, the Family Partnerships (as defined therein), the Members (as defined therein) and the Company (formerly known as Acquisition Partners, Inc.), incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.5 First Amendment to Asset Purchase Agreement dated as of January 31, 1997 by and among the Predecessor Company, the Family Partnerships, the Members and the Company (formerly known as Acquisition Partners, Inc.), incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.6 Second Amendment to Asset Purchase Agreement dated as of February 19, 1997 by and among the Predecessor Company, the Family Partnerships, the Members and the Company (formerly known as Acquisition Partners, Inc.), incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form SB-2, File No. 333-31991.
35
EXHIBIT NO. DESCRIPTION ------- ----------- 10.7 Letter Agreement dated April 4, 1997 among the parties to the Asset Purchase Agreement concerning the conversion of the promissory note payable to the Supply Company, incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.8 Lease Agreement dated as of September 5, 1995 between the Supply Company, as tenant, and Oakland Oaks, L.L.C., as landlord, incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.9 Assignment and First Amendment to Wixom Building Lease dated as of February 19, 1997 among the Supply Company, as assignor, the Company, as assignee, and Oakland Oaks, L.L.C., as landlord, incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.10 Letter Agreement dated November 21, 1997 among the parties to the Asset Purchase Agreement to confirm the reduction of the purchase price of the Asset Purchase Agreement, incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form SB-2, File No. 333-31991. 10.11 Employment Agreement dated as of January 12, 1999 between the Company and Thomas E. Klema. 10.12 Lease Agreement dated March 12, 2000 between the Company and DFW Trade Center III Limited Partnership. 21.1 List of Subsidiaries. 27.1 Financial Data Schedule for the Company
EX-10.12 2 LEASE AGREEMENT DATED MARCH 12, 2000 1 EXHIBIT 10.12 INDUSTRIAL LEASE AGREEMENT THIS LEASE AGREEMENT (the "Lease") is made as of the "Lease Date" (as defined in Section 37 herein) by and between DFW Trade Center III Limited Partnership, a Texas limited partnership ("Landlord"), and Rockwell Medical Technologies, Inc., a Michigan corporation ("Tenant") (the words "Landlord" and "Tenant" to include their respective legal representatives, successors and permitted assigns where the context requires or permits). W I T N E S S E T H: 1. Basic Lease Provisions. The following constitute the basic provisions of this Lease: (a) Demised Premises Address: 4051 Freeport Parkway Grapevine, Texas 76051 (b) Demised Premises Square Footage: approximately 51,113 sq. ft. (c) Building Square Footage: approximately 252,776 sq. ft. (d) Annual Base Rent: Lease Years 1-5 $207,012.00 (e) Monthly Base Rent Installments: Lease Years 1-5 $17,251.00 (f) Lease Commencement Date: The date that Landlord achieves "Substantial Completion" (as hereinafter defined) with respect to the Demised Premises and delivers the Demised Premises to Tenant, which is estimated to be April 15, 2000. (g) Base Rent Commencement Date: The Lease Commencement Date. (h) Expiration Date: Sixty (60) months after the Lease Commencement Date. (i) Primary Term: Five (5) years. (j) Tenant's Operating Expense Percentage: 20.22% (k) Security Deposit: $150,000.00 Irrevocable Letter of Credit (l) Permitted Use: Warehouse, distribution and administrative uses, and such other uses as are customary in connection with the operation of a dialystate manufacturing business in the Demised Premises. (m) Address for notice: Landlord: DFW Trade Center III Limited Partnership c/o Industrial Developments International, Inc. 3424 Peachtree Road, N.E., Suite 1500 Atlanta, Georgia 30326 Attn: Manager - Lease Administration Tenant: Rockwell Medical Technologies, Inc. 28025 Oakland Oaks Court, Wixom, Michigan 48393 Attn: Rob Chioini (n) Address for rental payments: DFW Trade Center III Limited Partnership c/o IDI Services Group, Inc. 3424 Peachtree Road, N.E., Suite 1500 Atlanta, Georgia 30326 (o) Broker(s): CB Richard Ellis 5400 LBJ Freeway, Suite 1100 Dallas, Texas 75240 Attn: Chuck Finney 2 2. Demised Premises. For and in consideration of the rent hereinafter reserved and the mutual covenants hereinafter contained, Landlord does hereby lease and demise unto Tenant, and Tenant does hereby hire, lease and accept, from Landlord all upon the terms and conditions hereinafter set forth the following premises, referred to as the "Demised Premises", as outlined on Exhibit A attached hereto and incorporated herein: approximately 51,113 square feet of space, approximately 4,000 square feet of which is office space, having an address as set forth in Section 1(a), located within Building H (the "Building"), which contains a total of approximately 127,620 square feet and is located within DFW Trade Center (the "Project"), located in Grapevine, Texas. 3. Term. To have and to hold the Demised Premises for a preliminary term (the "Preliminary Term") commencing on the Lease Date and ending on the Lease Commencement Date as set forth in Section 1(f), and a primary term (the "Primary Term") commencing on the Lease Commencement Date and terminating on the Expiration Date as set forth in Section 1(h), as the Lease Commencement Date and the Expiration Date may be revised pursuant to Section 17 (the Preliminary Term, the Primary Term, and any and all extensions thereof, herein referred to as the "Term"). The term "Lease Year", as used in this Lease, shall mean the 12-month period commencing on the Base Rent Commencement Date, and each 12-month period thereafter during the Term; provided, however, that (i) the first Lease Year will include the period between the Lease Commencement Date and the Base Rent Commencement Date and (ii) if the first Lease Year begins on a day other than the first day of a calendar month, the first Lease Year shall include the period between the Base Rent Commencement Date and the end of the calendar month in which the Base Rent Commencement Date occurs and shall extend through the end of the twelfth (12th) full calendar month following the Base Rent Commencement Date. 4. Base Rent. Tenant shall pay to Landlord at the address set forth in Section 1(n), as base rent for the Demised Premises, commencing on the Base Rent Commencement Date and continuing throughout the Term in lawful money of the United States, the annual amount set forth in Section 1(d) payable in equal monthly installments as set forth in Section 1(e) (the "Base Rent"), payable in advance, without demand and without abatement, reduction, set-off or deduction, on the first day of each calendar month during the Term. If the Base Rent Commencement Date shall fall on a day other than the first day of a calendar month, the Base Rent shall be apportioned pro rata on a per diem basis (i) for the period between the Base Rent Commencement Date and the first day of the following calendar month (which pro rata payment shall be due and payable on the Base Rent Commencement Date), and (ii) for the last partial month of the Term, if applicable. No payment by Tenant or receipt by Landlord of rent hereunder shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or any letter accompanying any check or payment of rent shall be deemed an accord and satisfaction, and Landlord may accept such check as payment without prejudice to Landlord's right to recover the balance of such installment or payment of rent or pursue any other remedies available to Landlord. 5. Security Deposit. Upon Tenant's execution of this Lease, Tenant will deliver to Landlord an Irrevocable Letter of Credit in the amount set forth in Section 1(k)(the "Security Deposit"), in the form attached hereto as Exhibit "F" and from a financial institution acceptable to Landlord, and shall cause the same to be maintained in full force and effect throughout the Term, as may be extended, and during the thirty (30) day period after the later of (a) the Expiration Date or (b) the date that Tenant delivers possession of the Demised Premises to Landlord, as security for the full and faithful performance by Tenant of each and every term, covenant and condition of this Lease. The acceptance by Landlord of the Security Deposit paid by Tenant shall not render this Lease effective unless and until Landlord shall have executed and delivered to Tenant a fully executed copy of this Lease. The Security Deposit may be commingled with Landlord's other funds or held by Landlord in a separate interest bearing account, with interest paid to Landlord, as Landlord may elect. In the event that Tenant is in default under this Lease, Landlord may retain the security Deposit for the payment of any sum due Landlord or which Landlord may expend or be required to expend by reason of Tenant's default or failure to perform; provided, however, that any such retention by Landlord shall not be or be deemed to be an election of remedies by Landlord or viewed as liquidated damages, it being expressly understood and agreed that Landlord shall have the right to pursue any and all other remedies available to it under the terms of this Lease or otherwise. In the event all or any portion of the Security Deposit is so retained by Landlord, Tenant shall, within five (5) days of demand therefor from Landlord, replenish the Security Deposit to the full amount set forth in Section 1(k). In the event that Tenant shall comply with all of the terms, covenants and conditions of this Lease, the security deposit shall be returned to Tenant within thirty (30) days after the later of (a) the Expiration Date or (b) the date that Tenant delivers possession of the Demised Premises to Landlord. In the event of a sale of the Building, Landlord shall have the right to transfer the security deposit to the purchaser, and upon acceptance by such purchaser, Landlord shall be released from all liability for the return of the security deposit. Tenant shall not assign or encumber the money deposited as security, and neither Landlord nor its successors or assigns shall be bound by any such assignment or encumbrance. Notwithstanding anything to the contrary contained herein, if, at the beginning of the second (2nd) Lease Year, no Event of Default has occurred and is then continuing, the Letter of Credit will automatically reduce by $30,000.00, to $120,000.00. Landlord will accept an amendment of the Letter of Credit which reflects the reduction in the amount of the Letter of Credit. The amount of the Letter of Credit will likewise reduce by the sum of $30,000.00 on the first day of each of the third (3rd), fourth (4th) and fifth (5th) Lease Years, subject to the condition that no Event of Default has occurred and is continuing on the date a reduction is scheduled to occur. The Letter of Credit may never reduce pursuant to this -2- 3 Section 5 so long as an Event of Default has occurred and is continuing. The Letter of Credit will never reduce below $30,000.00, unless Tenant provides Landlord with evidence satisfactory to Landlord that Tenant's Tangible Net Worth exceeds $10,000,000.00, in which case Tenant shall have the right to terminate the Letter of Credit. 6. Operating Expenses and Additional Rent. (a) Tenant agrees to pay as Additional Rent (as defined in Section 6(b) below) its proportionate share of Operating Expenses (as hereinafter defined). "Operating Expenses" shall be defined as all reasonable expenses for operation, repair, replacement and maintenance as necessary to keep the Building and the common areas, driveways, and parking areas associated therewith (collectively, the "Building Common Area") in good order, condition and repair, including but not limited to, utilities for the Building Common Area, expenses associated with the driveways and parking areas (including sealing and restriping, and snow, trash and ice removal), security systems, fire detection and prevention systems, lighting facilities, landscaped areas, walkways, painting and caulking, directional signage, curbs, drainage strips, sewer lines, all charges assessed against or attributed to the Building pursuant to any applicable easements, covenants, restrictions, agreements, declaration of protective covenants or development standards, property management fees, all real property taxes and special assessments imposed upon the Building, the Building Common Area and the land on which the Building and the Building Common Area are constructed, all costs of insurance paid by Landlord with respect to the Building and the Building Common Area, and costs of improvements to the Building and the Building Common Area required by any law, ordinance or regulation applicable to the Building and the Building Common Area generally (and not because of the particular use of the Building or the Building Common Area by a particular tenant), which cost shall be amortized on a straight line basis over the useful life of such improvement, as reasonably determined by Landlord. Operating Expenses shall not include expenses for the costs of any maintenance and repair required to be performed by Landlord at its own expense under Section (10)(b). Further, Operating Expenses shall not include the costs for capital improvements unless such costs are incurred for the purpose of causing a material decrease in the Operating Expenses of the Building or the Building Common Area or are incurred with respect to improvements made to comply with laws, ordinances or regulations as described above. The proportionate share of Operating Expenses to be paid by Tenant shall be a percentage of the Operating Expenses based upon the proportion that the square footage of the Demised Premises bears to the total square footage of the Building (such figure referred to as "Tenant's Operating Expense Percentage" and set forth in Section 1(j)). Prior to or promptly after the beginning of each calendar year during the Term, Landlord shall estimate the total amount of Operating Expenses to be paid by Tenant during each such calendar year and Tenant shall pay to Landlord one-twelfth (1/12) of such sum on the first day of each calendar month during each such calendar year, or part thereof, during the Term. Within a reasonable time after the end of each calendar year, Landlord shall submit to Tenant a statement of the actual amount of Operating Expenses for such calendar year, and the actual amount owed by Tenant, and within thirty (30) days after receipt of such statement, Tenant shall pay any deficiency between the actual amount owed and the estimates paid during such calendar year, or in the event of overpayment, Landlord shall credit the amount of such overpayment toward the next installment of Operating Expenses owed by Tenant or remit such overpayment to Tenant if the Term has expired or has been terminated and no Event of Default exists hereunder. The obligations in the immediately preceding sentence shall survive the expiration or any earlier termination of this Lease. If the Lease Commencement Date shall fall on other than the first day of the calendar year, and/or if the Expiration Date shall fall on other than the last day of the calendar year, Tenant's proportionate share of the Operating Expenses for such calendar year shall be apportioned prorata. (b) Any amounts required to be paid by Tenant hereunder (in addition to Base Rent) and any charges or expenses incurred by Landlord on behalf of Tenant under the terms of this Lease shall be considered "Additional Rent" payable in the same manner and upon the same terms and conditions as the Base Rent reserved hereunder except as set forth herein to the contrary. Any failure on the part of Tenant to pay such Additional Rent when and as the same shall become due shall entitle Landlord to the remedies available to it for non-payment of Base Rent. Tenant's obligations for payment of Additional Rent shall begin to accrue on the Lease Commencement Date regardless of the Base Rent Commencement Date. (c) If applicable in the jurisdiction where the Demised Premises are located, Tenant shall pay and be liable for all rental, sales, use and inventory taxes or other similar taxes, if any, on the amounts payable by Tenant hereunder levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid Landlord by Tenant under the terms of this Lease. Such payment shall be made by Tenant directly to such governmental body if billed to Tenant, or if billed to Landlord, such payment shall be paid concurrently with the payment of the Base Rent, Additional Rent, or such other charge upon which the tax is based, all as set forth herein. 7. Use of Demised Premises. (a) The Demised Premises shall be used for the Permitted Use set forth in Section 1(l) and for no other purpose. -3- 4 (b) Tenant will permit no liens to attach or exist against the Demised Premises, and shall not commit any waste. (c) The Demised Premises shall not be used for any illegal purposes, and Tenant shall not allow, suffer, or permit any vibration, noise, odor, light or other effect to occur within or around the Demised Premises that could constitute a nuisance or trespass for Landlord or any occupant of the Building or an adjoining building, its customers, agents, or invitees. Upon notice by Landlord to Tenant that any of the aforesaid prohibited uses are occurring, Tenant agrees to promptly remove or control the same. (d) Tenant shall not in any way violate any law, ordinance or restrictive covenant affecting the Demised Premises, and shall not in any manner use the Demised Premises so as to cause cancellation of, prevent the use of, or increase the rate of, the fire and extended coverage insurance policy required hereunder. Landlord makes no (and does hereby expressly disclaim any) covenant, representation or warranty as to the Permitted Use being allowed by or being in compliance with any applicable laws, rules, ordinances or restrictive covenants now or hereafter affecting the Demised Premises, and any zoning letters, copies of zoning ordinances or other information from any governmental agency or other third party provided to Tenant by Landlord or any of Landlord's agents or employees shall be for informational purposes only, Tenant hereby expressly acknowledging and agreeing that Tenant shall conduct and rely solely on its own due diligence and investigation with respect to the compliance of the Permitted Use with all such applicable laws, rules, ordinances and restrictive covenants and not on any such information provided by Landlord or any of its agents or employees. (e) In the event insurance premiums pertaining to the Demised Premises, the Building, or the Building Common Area, whether paid by Landlord or Tenant, are increased over the least hazardous rate available due to the nature of the use of the Demised Premises by Tenant, Tenant shall pay such additional amount as Additional Rent. 8. Insurance. (a) Tenant covenants and agrees that from and after the Lease Commencement Date or any earlier date upon which Tenant enters or occupies the Demised Premises or any portion thereof, Tenant will carry and maintain, at its sole cost and expense, the following types of insurance, in the amounts specified and in the form hereinafter provided for: (i) Liability insurance in the Commercial General Liability form (including Broad Form Property Damage and Contractual Liabilities or reasonable equivalent thereto) covering the Demised Premises and Tenant's use thereof against claims for bodily injury or death, property damage and product liability occurring upon, in or about the Demised Premises, such insurance to be written on an occurrence basis (not a claims made basis), to be in combined single limits amounts not less than $2,000,000.00 and to have general aggregate limits of not less than $5,000,000.00 for each policy year. The insurance coverage required under this Section 8(a)(i) shall, in addition, extend to any liability of Tenant arising out of the indemnities provided for in Section 11 and, if necessary, the policy shall contain a contractual endorsement to that effect. (ii) Insurance covering (A) all of the items included in the leasehold improvements constructed in the Demised Premises by or at the expense of Landlord (collectively, the "Improvements"), including but not limited to demising walls and the heating, ventilating and air conditioning system and (B) Tenant's trade fixtures, merchandise and personal property from time to time in, on or upon the Demised Premises, in an amount not less than one hundred percent (100%) of their full replacement value from time to time during the Term, providing protection against perils included within the standard form of "all-risks" fire and casualty insurance policy, together with insurance against sprinkler damage, vandalism and malicious mischief. Any policy proceeds from such insurance relating to the Improvements shall be used solely for the repair, construction and restoration or replacement of the Improvements damaged or destroyed unless this Lease shall cease and terminate under the provisions of Section 20. (b) All policies of the insurance provided for in Section 8(a) shall be issued in form reasonably acceptable to Landlord by insurance companies with a rating of not less than "A," and financial size of not less than Class XII, in the most current available "Best's Insurance Reports", and licensed to do business in the state in which the Building is located. Each and every such policy: (i) shall name Landlord, Lender (as defined in Section 24), and any other party reasonably designated by Landlord, as an additional insured. In addition, the coverage described in Section 8(a)(ii)(A) relating to the Improvements shall also name Landlord as "loss payee"; (ii) shall be delivered to Landlord, in the form of an insurance certificate acceptable to Landlord as evidence of such policy, prior to the Lease Commencement Date and thereafter within thirty (30) days prior to the expiration of each such policy, and, as often as any such policy shall expire or terminate. Renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent; -4- 5 (iii) shall contain a provision that the insurer will give to Landlord and such other parties in interest at least thirty (30) days notice in writing in advance of any material change, cancellation, termination or lapse, or the effective date of any reduction in the amounts of insurance; and (iv) shall be written as a primary policy which does not contribute to and is not in excess of coverage which Landlord may carry. (c) In the event that Tenant shall fail to carry and maintain the insurance coverages set forth in this Section 8, Landlord may upon thirty (30) days notice to Tenant (unless such coverages will lapse in which event no such notice shall be necessary) procure such policies of insurance and Tenant shall promptly reimburse Landlord therefor. (d) Landlord and Tenant hereby waive any rights each may have against the other on account of any loss or damage occasioned to Landlord or Tenant, as the case may be, their respective property, the Demised Premises, its contents or to the other portions of the Building, arising from any risk covered by all risks fire and extended coverage insurance of the type and amount required to be carried hereunder, provided that such waiver does not invalidate such policies or prohibit recovery thereunder. The parties hereto shall cause their respective insurance companies insuring the property of either Landlord or Tenant against any such loss, to waive any right of subrogation that such insurers may have against Landlord or Tenant, as the case may be. 9. Utilities. During the Term, Tenant shall promptly pay as billed to Tenant all rents and charges for water and sewer services and all costs and charges for gas, steam, electricity, fuel, light, power, telephone, heat and any other utility or service used or consumed in or servicing the Demised Premises and all other costs and expenses involved in the care, management and use thereof. To the extent reasonably possible, such utilities shall be separately metered and billed to Tenant. Any utilities which are not separately metered shall be billed to Tenant by Landlord at Landlord's actual cost. In the event Tenant's use of any utility not metered is in excess of the average use by other tenants, Landlord shall have the right to install a meter for such utility, at Tenant's expense, and bill Tenant for Tenant's actual use. If Tenant fails to pay any utility bills or charges, Landlord may, at its option and upon reasonable notice to Tenant, pay the same and in such event, the amount of such payment, together with interest thereon at the Interest Rate as defined in Section 32 from the date of such payment by Landlord, will be added to Tenant's next due payment as Additional Rent. 10. Maintenance and Repairs. (a) Tenant shall, at its own cost and expense, maintain in good condition and repair the interior of the Demised Premises, including but not limited to the heating, air conditioning and ventilation systems, glass, windows and doors, sprinkler, all plumbing and sewage systems, fixtures, interior walls, floors (including floor slabs), ceilings, storefronts, plate glass, skylights, all electrical facilities and equipment including, without limitation, lighting fixtures, lamps, fans and any exhaust equipment and systems, electrical motors, and all other appliances and equipment (including, without limitation, dock levelers, dock shelters, dock seals and dock lighting) of every kind and nature located in, upon or about the Demised Premises, except as to such maintenance and repair as is the obligation of Landlord pursuant to Section 10(b). During the Term, Tenant shall maintain in full force and effect a service contract for the maintenance of the heating, ventilation and air conditioning systems with an entity reasonably acceptable to Landlord. Tenant shall deliver to Landlord (i) a copy of said service contract prior to the Lease Commencement Date, and (ii) thereafter, a copy of a renewal or substitute service contract within thirty (30) days prior to the expiration of the existing service contract. Tenant's obligation shall exclude any maintenance and repair required because of the act or negligence of Landlord, its employees, contractors or agents, which shall be the responsibility of Landlord. (b) Landlord shall, at its own cost and expense, maintain in good condition and repair the roof, foundation (beneath the floor slab) and structural frame of the Building. Landlord's obligation shall exclude the cost of any maintenance or repair required because of the act or negligence of Tenant or Tenant's agents, contractors, employees and invitees (collectively, "Tenant's Affiliates"), the cost of which shall be the responsibility of Tenant. (c) Unless the same is caused solely by the negligent action or inaction of Landlord, its employees or agents, and is not covered by the insurance required to be carried by Tenant pursuant to the terms of this Lease, Landlord shall not be liable to Tenant or to any other person for any damage occasioned by failure in any utility system or by the bursting or leaking of any vessel or pipe in or about the Demised Premises, or for any damage occasioned by water coming into the Demised Premises or arising from the acts or neglects of occupants of adjacent property or the public. 11. Tenant's Personal Property; Indemnity. All of Tenant's personal property in the Demised Premises shall be and remain at Tenant's sole risk. Landlord, its agents, employees and contractors, shall not be liable for, and Tenant hereby releases Landlord from, any and all liability for theft thereof or any damage thereto occasioned by any act of God or by any acts, omissions or negligence of any persons, other than Landlord. Landlord, its agents, employees and contractors, shall not be liable for any injury to the person or property of Tenant or other persons in or about the Demised Premises, Tenant expressly agreeing to indemnify and save Landlord, its agents, employees and contractors, harmless, in all such cases, except -5- 6 to the extent caused by the negligence of Landlord, its agents, employees and contractors. Tenant further agrees to indemnify and reimburse Landlord for any costs or expenses, including, without limitation, attorneys' fees, that Landlord reasonably may incur in investigating, handling or litigating any such claim against Landlord by a third person, unless such claim arose from the negligence of Landlord, its agents, employees or contractors. The provisions of this Section 11 shall survive the expiration or earlier termination of this Lease with respect to any damage, injury or death occurring before such expiration or termination. 12. Tenant's Fixtures. Tenant shall have the right to install in the Demised Premises trade fixtures required by Tenant or used by it in its business, and if installed by Tenant, to remove any or all such trade fixtures from time to time during and upon termination or expiration of this Lease, provided no Event of Default, as defined Section 22, then exists; provided, however, that Tenant shall repair and restore any damage or injury to the Demised Premises (to the condition in which the Demised Premises existed prior to such installation) caused by the installation and/or removal of any such trade fixtures. 13. Signs. No sign, advertisement or notice shall be inscribed, painted, affixed, or displayed on the windows or exterior walls of the Demised Premises or on any public area of the Building, except in such places, numbers, sizes, colors and styles as are approved in advance in writing by Landlord, and which conform to all applicable laws, ordinances, or covenants affecting the Demised Premises. Any and all signs installed or constructed by or on behalf of Tenant pursuant hereto shall be installed, maintained and removed by Tenant at Tenant's sole cost and expense. 14. Landlord's Lien. Notwithstanding any other provision hereof to the contrary, Tenant does hereby grant to Landlord, and Landlord shall have at all times, a security interest in and a valid first lien upon all of the personal property and trade fixtures of Tenant situated in and upon the Demised Premises to secure the obligations of Tenant for all Base Rent, Additional Rent and other sums to become due hereunder and the performance by Tenant of each and all of Tenant's other covenants and obligations hereunder. The security interest and lien granted herein may be foreclosed in the manner and form provided by law for the foreclosure of chattel mortgages or in any other manner provided or permitted by law. 15. Governmental Regulations. Tenant shall promptly comply throughout the Term, at Tenant's sole cost and expense, with all present and future laws, ordinances, orders, rules, regulations or requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof (collectively, "Governmental Requirements") relating to (a) all or any part of the Demised Premises, and (b) to the use or manner of use of the Demised Premises and the Building Common Area. Tenant shall also observe and comply with the requirements of all policies of public liability, fire and other policies of insurance at any time in force with respect to the Demised Premises. Without limiting the foregoing, if as a result of one or more Governmental Requirements it is necessary, from time to time during the Term, to perform an alteration or modification of the Demised Premises (a "Code Modification") which is made necessary as a result of the specific use being made by Tenant of the Demised Premises, then such Code Modification shall be the sole and exclusive responsibility of Tenant in all respects; any such Code Modification shall be promptly performed by Tenant at its expense in accordance with the applicable Governmental Requirement and with Section 18 hereof. If as a result of one or more Governmental Requirements it is necessary from time to time during the Term to perform a Code Modification which (i) would be characterized as a capital expenditure under generally accepted accounting principles and (ii) is not made necessary as a result of the specific use being made by Tenant of the Demised Premises (as distinguished from an alteration or modification which would be required to be made by the owner of any warehouse-office building comparable to the Building irrespective of the use thereof by any particular occupant), then (a) Landlord shall have the obligation to perform the Code Modification at its expense, (b) the cost of such Code Modification shall be amortized on a straight-line basis over the useful life of the item in question, as reasonably determined by Landlord, and (c) Tenant shall be obligated to pay (as Additional Rent, payable in the same manner and upon the same terms and conditions as the Base Rent reserved hereunder) for the portion of such amortized costs attributable to the remainder of the Term, including any extensions thereof. Tenant shall promptly send to Landlord a copy of any written notice received by Tenant requiring a Code Modification. 16. Environmental Matters. (a) For purposes of this Lease: (i) "Contamination" as used herein means the presence of or release of Hazardous Substances (as hereinafter defined) into any environmental media from, upon, within, below, into or on any portion of the Demised Premises, the Building, the Building Common Area or the Project so as to require remediation, cleanup or investigation under any applicable Environmental Law (as hereinafter defined). (ii) "Environmental Laws" as used herein means all federal, state, and local laws, regulations, orders, permits, ordinances or other requirements, which exist now or as may exist hereafter, concerning protection of human health, safety and the environment, all as may be amended from time to time. -6- 7 (iii)"Hazardous Substances" as used herein means any hazardous or toxic substance, material, chemical, pollutant, contaminant or waste as those terms are defined by any applicable Environmental Laws (including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. ("CERCLA") and the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ["RCRA"]) and any solid wastes, polychlorinated biphenyls, urea formaldehyde, asbestos, radioactive materials, radon, explosives, petroleum products and oil. (b) Landlord represents that, except as revealed to Tenant in writing by Landlord, to Landlord's actual knowledge, Landlord has not treated, stored or disposed of any Hazardous Substances upon or within the Demised Premises, nor, to Landlord's actual knowledge, has any predecessor owner of the Demised Premises. (c) Tenant covenants that all its activities, and the activities of Tenant's Affiliates (as defined in Section 10(b)), on the Demised Premises, the Building, or the Project during the Term will be conducted in compliance with Environmental Laws. Tenant warrants that it is currently in compliance with all applicable Environmental Laws and that there are no pending or threatened notices of deficiency, notices of violation, orders, or judicial or administrative actions involving alleged violations by Tenant of any Environmental Laws. Tenant, at Tenant's sole cost and expense, shall be responsible for obtaining all permits or licenses or approvals under Environmental Laws necessary for Tenant's operation of its business on the Demised Premises and shall make all notifications and registrations required by any applicable Environmental Laws. Tenant, at Tenant's sole cost and expense, shall at all times comply with the terms and conditions of all such permits, licenses, approvals, notifications and registrations and with any other applicable Environmental Laws. Tenant warrants that it has obtained all such permits, licenses or approvals and made all such notifications and registrations required by any applicable Environmental Laws necessary for Tenant's operation of its business on the Demised Premises. (d) Tenant shall not cause or permit any Hazardous Substances to be brought upon, kept or used in or about the Demised Premises, the Building, or the Project without the prior written consent of Landlord, which consent shall not be unreasonably withheld; provided, however, that the consent of Landlord shall not be required for the use at the Demised Premises of cleaning supplies, toner for photocopying machines and other similar materials, in containers and quantities reasonably necessary for and consistent with normal and ordinary use by Tenant in the routine operation or maintenance of Tenant's office equipment or in the routine janitorial service, cleaning and maintenance for the Demised Premises. For purposes of this Section 16, Landlord shall be deemed to have reasonably withheld consent if Landlord determines that the presence of such Hazardous Substance within the Demised Premises could result in a risk of harm to person or property or otherwise negatively affect the value or marketability of the Building or the Project. (e) Tenant shall not cause or permit the release of any Hazardous Substances by Tenant or Tenant's Affiliates into any environmental media such as air, water or land, or into or on the Demised Premises, the Building or the Project in any manner that violates any Environmental Laws. If such release shall occur, Tenant shall (i) take all steps reasonably necessary to contain and control such release and any associated Contamination, (ii) clean up or otherwise remedy such release and any associated Contamination to the extent required by, and take any and all other actions required under, applicable Environmental Laws and (iii) notify and keep Landlord reasonably informed of such release and response. (f) Regardless of any consents granted by Landlord pursuant to Section 16(d) allowing Hazardous Substances upon the Demised Premises, Tenant shall under no circumstances whatsoever cause or permit (i) any activity on the Demised Premises which would cause the Demised Premises to become subject to regulation as a hazardous waste treatment, storage or disposal facility under RCRA or the regulations promulgated thereunder, (ii) the discharge of Hazardous Substances into the storm sewer system serving the Project or (iii) the installation of any underground storage tank or underground piping on or under the Demised Premises. (g) Tenant shall and hereby does indemnify Landlord and hold Landlord harmless from and against any and all expense, loss, and liability suffered by Landlord (except to the extent that such expenses, losses, and liabilities arise out of Landlord's own negligence or willful act), by reason of the storage, generation, release, handling, treatment, transportation, disposal, or arrangement for transportation or disposal, of any Hazardous Substances (whether accidental, intentional, or negligent) by Tenant or Tenant's Affiliates or by reason of Tenant's breach of any of the provisions of this Section 16. Such expenses, losses and liabilities shall include, without limitation, (i) any and all expenses that Landlord may incur to comply with any Environmental Laws; (ii) any and all costs that Landlord may incur in studying or remedying any Contamination at or arising from the Demised Premises, the Building, or the Project; (iii) any and all costs that Landlord may incur in studying, removing, disposing or otherwise addressing any Hazardous Substances; (iv) any and all fines, penalties or other sanctions assessed upon Landlord; and (v) any and all legal and professional fees and costs incurred by Landlord in connection with the foregoing. The indemnity contained herein shall survive the expiration or earlier termination of this Lease. -7- 8 17. Construction of Demised Premises. (a) Within thirty (30) days after the Lease Date, Landlord shall prepare, at Landlord's sole cost and expense, and submit to Tenant a set of plans and specifications and/or construction drawings (collectively, the "Plans and Specifications") based on the preliminary plans and specifications and/or preliminary floor plans set forth on Exhibit B attached hereto and incorporated herein, covering all work to be performed by Landlord in constructing the Improvements (as defined in Section 8(a)(ii)). Tenant shall have five (5) days after receipt of the plans and specifications in which to review and to give to Landlord written notice of its approval of the plans and specifications or its requested changes to the Plans and Specifications. Tenant shall have no right to request any changes to the plans and specifications which would materially alter either the Demised Premises or the exterior appearance or basic nature of the Building, as the same are contemplated by the preliminary Plans. If Tenant fails to approve or request changes to the Plans and Specifications by five (5) days after its receipt thereof, then Tenant shall be deemed to have approved the Plans and Specifications and the same shall thereupon be final. If Tenant requests any changes to the Plans and Specifications, Landlord shall make those changes which are reasonably requested by Tenant and shall within ten (10) days of its receipt of such request submit the revised portion of the Plans and specifications to Tenant. Tenant may not thereafter disapprove the revised portions of the Plans and specifications unless Landlord has unreasonably failed to incorporate reasonable comments of Tenant and, subject to the foregoing, the Plans and specifications, as modified by said revisions, shall be deemed to be final upon the submission of said revisions to Tenant. Tenant shall at all times in its review of the plans and specifications, and of any revisions thereto, act reasonably and in good faith. After Tenant has approved the Plans and Specifications or the Plans and Specifications have otherwise been finalized pursuant to the procedures set forth hereinabove, any subsequent changes to the Plans and Specifications requested by Tenant shall be at Tenant's sole cost and expense and subject to Landlord's written approval, which approval shall not be unreasonably withheld, conditioned or delayed. If after the Plans and specifications have been finalized pursuant to the procedures set forth hereinabove Tenant requests any further changes to the Plans and specifications and, as a result thereof, Substantial Completion (as hereinafter defined) of the Improvements is delayed, then for purposes of establishing the Lease Commencement Date, Substantial Completion shall, be deemed to mean the date when Substantial Completion would have been achieved but for such Tenant delay. (b) Within thirty (30) days after the Plans and Specifications have been finalized pursuant to the procedures set forth above, Landlord shall solicit bids from no less than three (3) reputable general contractors, which bids shall set forth the price, terms, conditions and time schedule that such general contractor would require if chosen to construct the Demised Premises. Such bids must be received within fourteen (14) days after the date hereof to be considered. Landlord shall, within seven (7) days after the receipt of such bids and after consulting with Tenant, select a general contractor to construct the improvements to the Demised Premises. All other factors being equal, Landlord will choose the general contractor that submits the lowest bid unless Tenant selects a general contractor other than the low bidder. Landlord shall use reasonable speed and diligence to Substantially Complete the Improvements, at Landlord's sole cost and expense, and have the Demised Premises ready for occupancy on or before the Lease Commencement Date set forth in Section 1(f). If the Demised Premises are not Substantially Complete on that date, such failure to complete shall not in any way affect the obligations of Tenant hereunder except that the Lease Commencement Date, the Base Rent Commencement Date, and the Expiration Date shall be postponed one day for each day Substantial Completion is delayed until the Demised Premises are Substantially Complete, unless the delay is caused by Tenant's failure to approve the Plans and Specifications as set forth in Section 17(a) or by change orders requested by Tenant after approval of the Plans and Specifications. No liability whatsoever shall arise or accrue against Landlord by reason of its failure to deliver or afford possession of the Demised Premises, and Tenant hereby releases and discharges Landlord from and of any claims for damage, loss, or injury of every kind whatsoever as if this Lease were never executed. (c) Upon Substantial Completion of the Demised Premises, a representative of Landlord and a representative of Tenant together shall inspect the Demised Premises and generate a punchlist of defective or uncompleted items relating to the completion of construction of the Improvements (the "Punchlist"). Landlord shall, within a reasonable time after the Punchlist is prepared and agreed upon by Landlord and Tenant, complete such incomplete work and remedy such defective work as is set forth on the Punchlist. All construction work performed by Landlord shall be deemed approved by Tenant in all respects except for items of said work which are not completed or do not conform to the Plans and Specifications and which are included on the Punchlist. (d) Upon Substantial Completion of the Demised Premises and the creation of the Punchlist, Tenant shall execute and deliver to Landlord a letter of acceptance in which Tenant (i) accepts the Demised Premises subject only to Landlord's completion of the items listed on the Punchlist and (ii) confirms that the Lease Commencement Date, the Base Rent Commencement Date and the Expiration Date remain as set forth in Section 1, or if revised pursuant to the terms hereof, setting forth such dates as so revised. (e) Landlord hereby warrants to Tenant, which warranty shall survive for the one (1) year period following the Lease Commencement Date, that (i) the materials and equipment furnished by Landlord's contractors in the completion of the Improvements will be of good quality and new, and (ii) such materials and equipment and the work of such contractors shall be free from defects not inherent in -8- 9 the quality required or permitted hereunder. This warranty shall exclude damages or defects caused by Tenant or Tenant's Affiliates, improper or insufficient maintenance, improper operation, or normal wear and tear under normal usage. (f) For purposes of this Lease, the term "Substantial Completion" (or any variation thereof) shall mean completion of construction of the Improvements in accordance with the Plans and Specifications, subject only to Punchlist items established pursuant to Section 17(c), so that Tenant can lawfully occupy and conduct its business at the Demised Premises, as established by the delivery by Landlord to Tenant of a certificate of occupancy (or temporary certificate of occupancy or its equivalent) for the Demised Premises issued by the appropriate governmental authority, if a certificate is so required by a governmental authority. In the event Substantial Completion is delayed because of a delay caused by Tenant, then Substantial Completion shall, for the purpose of establishing the Lease Commencement Date, be deemed to mean the date when Substantial Completion would have been achieved but for such delay. 18. Tenant Alterations and Additions. (a) Tenant shall not make or permit to be made any alterations, improvements, or additions to the Demised Premises (a "Tenant's Change"), without first obtaining on each occasion Landlord's prior written consent (which consent Landlord agrees not to unreasonably withhold) and Lender's prior written consent (if such consent is required). As part of its approval process, Landlord may require that Tenant submit plans and specifications to Landlord, for Landlord's approval or disapproval, which approval shall not be unreasonably withheld. All Tenant's Changes shall be performed in accordance with all legal requirements applicable thereto and in a good and workmanlike manner with first-class materials. Tenant shall maintain insurance reasonably satisfactory to Landlord during the construction of all Tenant's Changes. If Landlord at the time of giving its approval to any Tenant's Change notifies Tenant in writing that approval is conditioned upon restoration, then Tenant shall, at its sole cost and expense and at Landlord's option upon the termination or expiration of this Lease, remove the same and restore the Demised Premises to its condition prior to such Tenant's Change. No Tenant's Change shall be structural in nature or impair the structural strength of the Building or reduce its value. Tenant shall pay the full cost of any Tenant's Change and shall give Landlord such reasonable security as may be requested by Landlord to insure payment of such cost. Except as otherwise provided herein and in Section 12, all Tenant's Changes and all repairs and all other property attached to or installed on the Demised Premises by or on behalf of Tenant shall immediately upon completion or installation thereof be and become part of the Demised Premises and the property of Landlord without payment therefor by Landlord and shall be surrendered to Landlord upon the expiration or earlier termination of this Lease. (b) To the extent permitted by law, all of Tenant's contracts and subcontracts for such Tenant's Changes shall provide that no lien shall attach to or be claimed against the Demised Premises or any interest therein other than Tenant's leasehold interest in the Demised Premises, and that all subcontracts let thereunder shall contain the same provision. Whether or not Tenant furnishes the foregoing, Tenant agrees to hold Landlord harmless against all liens, claims and liabilities of every kind, nature and description which may arise out of or in any way be connected with such work. Tenant shall not permit the Demised Premises to become subject to any mechanics', laborers' or materialmen's lien on account of labor, material or services furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed for the Demised Premises by, or at the direction or sufferance of Tenant and if any such liens are filed against the Demised Premises, Tenant shall promptly discharge the same; provided, however, that Tenant shall have the right to contest, in good faith and with reasonable diligence, the validity of any such lien or claimed lien if Tenant shall give to Landlord, within fifteen days after demand, such security as may be reasonably satisfactory to Landlord to assure payment thereof and to prevent any sale, foreclosure, or forfeiture of Landlord's interest in the Demised Premises by reason of non-payment thereof; provided further that on final determination of the lien or claim for lien, Tenant shall immediately pay any judgment rendered, with all proper costs and charges, and shall have the lien released and any judgment satisfied. If Tenant fails to post such security or does not diligently contest such lien, Landlord may, without investigation of the validity of the lien claim, discharge such lien and Tenant shall reimburse Landlord upon demand for all costs and expenses incurred in connection therewith, which expenses shall include any attorneys' fees, paralegals' fees and any and all costs associated therewith, including litigation through all trial and appellate levels and any costs in posting bond to effect a discharge or release of the lien. Nothing contained in this Lease shall be construed as a consent on the part of Landlord to subject the Demised Premises to liability under any lien law now or hereafter existing of the state in which the Demised Premises are located. 19. Services by Landlord. Landlord shall be responsible for providing for maintenance of the Building Common Area, and, except as required by Section 10(b) hereof, Landlord shall be responsible for no other services whatsoever. Tenant, by payment of Tenant's share of the Operating Expenses, shall pay Tenant's pro rata share of the expenses incurred by Landlord hereunder. 20. Fire and Other Casualty. In the event the Demised Premises are damaged by fire or other casualty insured by Landlord, Landlord agrees to promptly restore and repair the Demised Premises at Landlord's expense, including the Improvements to be insured by Tenant but only to the extent Landlord receives insurance proceeds therefor, including the proceeds from the insurance required to be carried by Tenant on the Improvements. Notwithstanding the foregoing, in the event that the Demised Premises are (i) in the reasonable opinion of Landlord, so destroyed that they cannot be repaired or rebuilt within two -9- 10 hundred seventy (270) days after the date of such damage; or (ii) destroyed by a casualty which is not covered by Landlord's insurance, or if such casualty is covered by Landlord's insurance but Lender or other party entitled to insurance proceeds fails to make such proceeds available to Landlord in an amount sufficient for restoration of the Demised Premises, then Landlord shall give written notice to Tenant of such determination (the "Determination Notice") within sixty (60) days of such casualty. Either Landlord or Tenant may terminate and cancel this Lease effective as of the date of such casualty by giving written notice to the other party within thirty (30) days after Tenant's receipt of the Determination Notice. Upon the giving of such termination notice, all obligations hereunder with respect to periods from and after the effective date of termination shall thereupon cease and terminate. If no such termination notice is given, Landlord shall, to the extent of the available insurance proceeds, make such repair or restoration of the Demised Premises to the approximate condition existing prior to such casualty, promptly and in such manner as not to unreasonably interfere with Tenant's use and occupancy of the Demised Premises (if Tenant is still occupying the Demised Premises). Base Rent and Additional Rent shall proportionately abate during the time that the Demised Premises or any part thereof are unusable by reason of any such damage thereto. 21. Condemnation. (a) If all of the Demised Premises is taken or condemned for a public or quasi-public use, or if a material portion of the Demised Premises is taken or condemned for a public or quasi-public use and the remaining portion thereof is not usable by Tenant in the reasonable opinion of Landlord, this Lease shall terminate as of the earlier of the date title to the condemned real estate vests in the condemnor or the date on which Tenant is deprived of possession of the Demised Premises. In such event, the Base Rent herein reserved and all Additional Rent and other sums payable hereunder shall be apportioned and paid in full by Tenant to Landlord to that date, all Base Rent, Additional Rent and other sums payable hereunder prepaid for periods beyond that date shall forthwith be repaid by Landlord to Tenant, and neither party shall thereafter have any liability hereunder, except that any obligation or liability of either party, actual or contingent, under this Lease which has accrued on or prior to such termination date shall survive. (b) If only part of the Demised Premises is taken or condemned for a public or quasi-public use and this Lease does not terminate pursuant to Section 21(a), Landlord shall, to the extent of the award it receives, restore the Demised Premises to a condition and to a size as nearly comparable as reasonably possible to the condition and size thereof immediately prior to the taking, and there shall be an equitable adjustment to the Base Rent and Additional Rent based on the actual loss of use of the Demised Premises suffered by Tenant from the taking. (c) Landlord shall be entitled to receive the entire award in any proceeding with respect to any taking provided for in this Section 21, without deduction therefrom for any estate vested in Tenant by this Lease, and Tenant shall receive no part of such award. Nothing herein contained shall be deemed to prohibit Tenant from making a separate claim, against the condemnor, to the extent permitted by law, for the value of Tenant's moveable trade fixtures, machinery and moving expenses, provided that the making of such claim shall not and does not adversely affect or diminish Landlord's award. 22. Tenant's Default. (a) The occurrence of any one or more of the following events shall constitute an "Event of Default" of Tenant under this Lease: (i) if Tenant fails to pay Base Rent or any Additional Rent hereunder within five (5) days after such rent becomes due and such failure shall continue for more than five (5) days after Landlord gives written notice to Tenant of such failure; (ii) if Tenant fails to pay Base Rent or any Additional Rent on time more than three (3) times in any period of twelve (12) months, notwithstanding that such payments have been made within the applicable cure period; (iii)if the Demised Premises become vacant, deserted, or abandoned for more than ten (10) consecutive days or if Tenant fails to take possession of the Demised Premises on the Lease Commencement Date or promptly thereafter; (iv) if Tenant permits to be done anything which creates a lien upon the Demised Premises and fails to discharge or bond such lien, or post security with Landlord acceptable to Landlord within thirty (30) days after receipt by Tenant of written notice thereof; (v) if Tenant fails to maintain in force all policies of insurance required by this Lease and such failure shall continue for more than ten (10) days after Landlord gives Tenant written notice of such failure; (vi) if any petition is filed by or against Tenant or any guarantor of this Lease under any present or future section or chapter of the Bankruptcy Code, or under any similar law or statute of the United States or any state thereof (which, in the case of an involuntary proceeding, is not permanently discharged, dismissed, stayed, or vacated, as the case may be, within sixty (60) days of -10- 11 commencement), or if any order for relief shall be entered against Tenant or any guarantor of this Lease in any such proceedings; (vii) if Tenant or any guarantor of this Lease becomes insolvent or makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors; (viii) if a receiver, custodian, or trustee is appointed for the Demised Premises or for all or substantially all of the assets of Tenant or of any guarantor of this Lease, which appointment is not vacated within sixty (60) days following the date of such appointment; or (ix) if Tenant fails to perform or observe any other term of this Lease and such failure shall continue for more than thirty (30) days after Landlord gives Tenant written notice of such failure, or, if such failure cannot be corrected within such thirty (30) day period, if Tenant does not commence to correct such default within said thirty (30) day period and thereafter diligently prosecute the correction of same to completion within a reasonable time. (b) Upon the occurrence of any one or more Events of Default, Landlord may, at Landlord's option, without any demand or notice whatsoever (except as expressly required in this Section 22): (i) Terminate this Lease by giving Tenant notice of termination, in which event this Lease shall expire and terminate on the date specified in such notice of termination and all rights of Tenant under this Lease and in and to the Demised Premises shall terminate. Tenant shall remain liable for all obligations under this Lease arising up to the date of such termination, and Tenant shall surrender the Demised Premises to Landlord on the date specified in such notice; or (ii) Terminate this Lease as provided in Section 22(b)(i) hereof and recover from Tenant all damages Landlord may incur by reason of Tenant's default, including, without limitation, an amount which, at the date of such termination, is calculated as follows: (1) the value of the excess, if any, of (A) the Base Rent, Additional Rent and all other sums which would have been payable hereunder by Tenant for the period commencing with the day following the date of such termination and ending with the Expiration Date had this Lease not been terminated (the "Remaining Term"), over (B) the aggregate reasonable rental value of the Demised Premises for the Remaining Term (which excess, if any shall be discounted to present value at the "Treasury Yield" as defined below for the Remaining Term); plus (2) the costs of recovering possession of the Demised Premises and all other expenses incurred by Landlord due to Tenant's default, including, without limitation, reasonable attorney's fees; plus (3) the unpaid Base Rent and Additional Rent earned as of the date of termination plus any interest and late fees due hereunder, plus other sums of money and damages owing on the date of termination by Tenant to Landlord under this Lease or in connection with the Demised Premises. The amount as calculated above shall be deemed immediately due and payable. The payment of the amount calculated in subparagraph (ii)(1) shall not be deemed a penalty but shall merely constitute payment of liquidated damages, it being understood and acknowledged by Landlord and Tenant that actual damages to Landlord are extremely difficult, if not impossible, to ascertain. "Treasury Yield" shall mean the rate of return in percent per annum of Treasury Constant Maturities for the length of time specified as published in document H.15(519) (presently published by the Board of Governors of the U.S. Federal Reserve System titled "Federal Reserve Statistical Release") for the calendar week immediately preceding the calendar week in which the termination occurs. If the rate of return of Treasury Constant Maturities for the calendar week in question is not published on or before the business day preceding the date of the Treasury Yield in question is to become effective, then the Treasury Yield shall be based upon the rate of return of Treasury Constant Maturities for the length of time specified for the most recent calendar week for which such publication has occurred. If no rate of return for Treasury Constant Maturities is published for the specific length of time specified, the Treasury Yield for such length of time shall be the weighted average of the rates of return of Treasury Constant Maturities most nearly corresponding to the length of the applicable period specified. If the publishing of the rate of return of Treasury Constant Maturities is ever discontinued, then the Treasury Yield shall be based upon the index which is published by the Board of Governors of the U.S. Federal Reserve System in replacement thereof or, if no such replacement index is published, the index which, in Landlord's reasonable determination, most nearly corresponds to the rate of return of Treasury Constant Maturities. In determining the aggregate reasonable rental value pursuant to subparagraph (ii)(1)(B) above, the parties hereby agree that, at the time Landlord seeks to enforce this remedy, all relevant factors should be considered, including, but not limited to, (a) the length of time remaining in the Term, (b) the then current market conditions in the general area in which the Building is located, (c) the likelihood of reletting the Demised Premises for a period of time equal to the remainder of the Term, (d) the net effective rental rates then being obtained by landlords for similar type space of similar size in similar type buildings in the general area in which the Building is located, (e) the vacancy levels in the general area in which the Building is located, (f) current levels of new construction that will be completed during the remainder of the Term and how this construction will likely affect vacancy rates and rental rates and (g) inflation; or (iii) without terminating this Lease, declare immediately due and payable the sum of the following: (1) the present value (calculated using the "Treasury Yield") of all Base Rent and Additional Rent due and coming due under this Lease for the entire remaining Term (as if by the terms of this Lease they were payable in advance), plus (2) the cost of recovering and reletting the Demised Premises and all other expenses incurred by Landlord in connection with Tenant's default, plus (3) any -11- 12 unpaid Base Rent, Additional Rent and other rentals, charges, assessments and other sums owing by Tenant to Landlord under this Lease or in connection with the Demised Premises as of the date this provision is invoked by Landlord, plus (4) interest on all such amounts from the date due at the Interest Rate, and Landlord may immediately proceed to distrain, collect, or bring action for such sum, or may file a proof of claim in any bankruptcy or insolvency proceedings to enforce payment thereof; provided, however, that such payment shall not be deemed a penalty or liquidated damages, but shall merely constitute payment in advance of all Base Rent and Additional Rent payable hereunder throughout the Term, and provided further, however, that upon Landlord receiving such payment, Tenant shall be entitled to receive from Landlord all rents received by Landlord from other assignees, tenants and subtenants on account of said Demised Premises during the remainder of the Term (provided that the monies to which Tenant shall so become entitled shall in no event exceed the entire amount actually paid by Tenant to Landlord pursuant to this subparagraph (iii)), less all costs, expenses and attorneys' fees of Landlord incurred but not yet reimbursed by Tenant in connection with recovering and reletting the Demised Premises; or (iv) Without terminating this Lease, in its own name but as agent for Tenant, enter into and upon and take possession of the Demised Premises or any part thereof. Any property remaining in the Demised Premises may be removed and stored in a warehouse or elsewhere at the cost of, and for the account of, Tenant without Landlord being deemed guilty of trespass or becoming liable for any loss or damage which may be occasioned thereby unless caused by Landlord's negligence. Thereafter, Landlord may, but shall not be obligated to, lease to a third party the Demised Premises or any portion thereof as the agent of Tenant upon such terms and conditions as Landlord may deem necessary or desirable in order to relet the Demised Premises. The remainder of any rentals received by Landlord from such reletting, after the payment of any indebtedness due hereunder from Tenant to Landlord, and the payment of any costs and expenses of such reletting, shall be held by Landlord to the extent of and for application in payment of future rent owed by Tenant, if any, as the same may become due and payable hereunder. If such rentals received from such reletting shall at any time or from time to time be less than sufficient to pay to Landlord the entire sums then due from Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for any such previous default provided same has not been cured; or (v) Without terminating this Lease, and with or without notice to Tenant, enter into and upon the Demised Premises and, without being liable for prosecution or any claim for damages therefor, maintain the Demised Premises and repair or replace any damage thereto or do anything or make any payment for which Tenant is responsible hereunder. Tenant shall reimburse Landlord immediately upon demand for any expenses which Landlord incurs in thus effecting Tenant's compliance under this Lease and Landlord shall not be liable to Tenant for any damages with respect thereto; or (vi) Without liability to Tenant or any other party and without constituting a constructive or actual eviction, suspend or discontinue furnishing or rendering to Tenant any property, material, labor, utilities or other service, wherever Landlord is obligated to furnish or render the same so long as an Event of Default exists under this Lease; or (vii) With or without terminating this Lease, allow the Demised Premises to remain unoccupied and collect rent from Tenant as it comes due; or (viii) Pursue such other remedies as are available at law or equity. (c) If this Lease shall terminate as a result of or while there exists an Event of Default hereunder, any funds of Tenant held by Landlord may be applied by Landlord to any damages payable by Tenant (whether provided for herein or by law) as a result of such termination or default. (d) Neither the commencement of any action or proceeding, nor the settlement thereof, nor entry of judgment thereon shall bar Landlord from bringing subsequent actions or proceedings from time to time, nor shall the failure to include in any action or proceeding any sum or sums then due be a bar to the maintenance of any subsequent actions or proceedings for the recovery of such sum or sums so omitted. (e) No agreement to accept a surrender of the Demised Premises and no act or omission by Landlord or Landlord's agents during the Term shall constitute an acceptance or surrender of the Demised Premises unless made in writing and signed by Landlord. No re-entry or taking possession of the Demised Premises by Landlord shall constitute an election by Landlord to terminate this Lease unless a written notice of such intention is given to Tenant. No provision of this Lease shall be deemed to have been waived by either party unless such waiver is in writing and signed by the party making such waiver. Landlord's acceptance of Base Rent or Additional Rent in full or in part following an Event of Default hereunder shall not be construed as a waiver of such Event of Default. No custom or practice which may grow up between the parties in connection with the terms of this Lease shall be construed to waive or lessen either party's right to insist upon strict performance of the terms of this Lease, without a written notice thereof to the other party. (f) If an Event of Default shall occur, Tenant shall pay to Landlord, on demand, all expenses incurred by Landlord as a result thereof, including reasonable attorneys' fees, court costs and expenses actually incurred. -12- 13 23. Landlord's Right of Entry. Tenant agrees to permit Landlord and the authorized representatives of Landlord and of Lender to enter upon the Demised Premises at all reasonable times for the purposes of inspecting the Demised Premises and Tenant's compliance with this Lease, and making any necessary repairs thereto; provided that, except in the case of an emergency, Landlord shall give Tenant reasonable prior notice of Landlord's intended entry upon the Demised Premises. Nothing herein shall imply any duty upon the part of Landlord to do any work required of Tenant hereunder, and the performance thereof by Landlord shall not constitute a waiver of Tenant's default in failing to perform it. Landlord shall not be liable for inconvenience, annoyance, disturbance or other damage to Tenant by reason of making such repairs or the performance of such work in the Demised Premises or on account of bringing materials, supplies and equipment into or through the Demised Premises during the course thereof, and the obligations of Tenant under this Lease shall not thereby be affected; provided, however, that Landlord shall use reasonable efforts not to disturb or otherwise interfere with Tenant's operations in the Demised Premises in making such repairs or performing such work. Landlord also shall have the right to enter the Demised Premises at all reasonable times to exhibit the Demised Premises to any prospective purchaser, mortgagee or tenant thereof. 24. Lender's Rights. (a) For purposes of this Lease: (i) "Lender" as used herein means the holder of a Mortgage; (ii) "Mortgage" as used herein means any or all mortgages, deeds to secure debt, deeds of trust or other instruments in the nature thereof which may now or hereafter affect or encumber Landlord's title to the Demised Premises, and any amendments, modifications, extensions or renewals thereof. (b) This Lease and all rights of Tenant hereunder are and shall be subject and subordinate to the lien and security title of any Mortgage. Tenant recognizes and acknowledges the right of Lender to foreclose or exercise the power of sale against the Demised Premises under any Mortgage. (c) Tenant shall, in confirmation of the subordination set forth in Section 24(b) and notwithstanding the fact that such subordination is self-operative, and no further instrument or subordination shall be necessary, upon demand, at any time or times, execute, acknowledge, and deliver to Landlord or to Lender any and all instruments requested by either of them to evidence such subordination. (d) At any time during the Term, Lender may, by written notice to Tenant, make this Lease superior to the lien of its Mortgage. If requested by Lender, Tenant shall, upon demand, at any time or times, execute, acknowledge, and deliver to Lender, any and all instruments that may be necessary to make this Lease superior to the lien of any Mortgage. (e) If Lender (or Lender's nominee, or other purchaser at foreclosure) shall hereafter succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease, Tenant shall, if requested by such successor, attorn to and recognize such successor as Tenant's landlord under this Lease without change in the terms and provisions of this Lease and shall promptly execute and deliver any instrument that may be necessary to evidence such attornment, provided that such successor shall not be bound by (i) any payment of Base Rent or Additional Rent for more than one month in advance, except prepayments in the nature of security for the performance by Tenant of its obligations under this Lease, and then only if such prepayments have been deposited with and are under the control of such successor, (ii) any provision of any amendment to the Lease to which Lender has not consented, (iii) the defaults of any prior landlord under this Lease, or (iv) any offset rights arising out of the defaults of any prior landlord under this Lease. Upon such attornment, this Lease shall continue in full force and effect as a direct lease between each successor landlord and Tenant, subject to all of the terms, covenants and conditions of this Lease. (f) In the event there is a Mortgage at any time during the Term, Landlord shall use reasonable efforts to cause the Lender to enter into a subordination, nondisturbance and attornment agreement with Tenant reasonably satisfactory to Tenant and consistent with this Section 24. 25. Estoppel Certificate. Landlord and Tenant agree, at any time, and from time to time, within fifteen (15) days after written request of the other, to execute, acknowledge and deliver a statement in writing in recordable form to the requesting party and/or its designee certifying that: (i) 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), (ii) the dates to which Base Rent, Additional Rent and other charges have been paid, (iii) whether or not, to the best of its knowledge, there exists any failure by the requesting party to perform any term, covenant or condition contained in this Lease, and, if so, specifying each such failure, (iv) (if such be the case) Tenant has unconditionally accepted the Demised Premises and is conducting its business therein, and (v) and as to such additional matters as may be requested, it being intended that any such statement delivered pursuant hereto may be relied upon by the requesting party and by any purchaser of title to the Demised Premises or by any mortgagee or any assignee thereof or any party to any sale-leaseback of the Demised Premises, or the landlord under a ground lease affecting the Demised Premises. -13- 14 26. Landlord Liability. No owner of the Demised Premises, whether or not named herein, shall have liability hereunder after it ceases to hold title to the Demised Premises. Neither Landlord nor any officer, director, shareholder, partner or principal of Landlord, whether disclosed or undisclosed, shall be under any personal liability with respect to any of the provisions of this Lease. In the event Landlord is in breach or default with respect to Landlord's obligations or otherwise under this Lease, Tenant shall look solely to the equity of Landlord in the Building for the satisfaction of Tenant's remedies. It is expressly understood and agreed that Landlord's liability under the terms, covenants, conditions, warranties and obligations of this Lease shall in no event exceed the loss of Landlord's equity interest in the Building. 27. Notices. Any notice required or permitted to be given or served by either party to this Lease shall be deemed given when made in writing, and either (i) personally delivered, (ii) deposited with the United States Postal Service, postage prepaid, by registered or certified mail, return receipt requested, or (iii) delivered by licensed overnight delivery service providing proof of delivery, properly addressed to the address set forth in Section 1(m) (as the same may be changed by giving written notice of the aforesaid in accordance with this Section 27). If any notice mailed is properly addressed with appropriate postage but returned for any reason, such notice shall be deemed to be effective notice and to be given on the date of mailing. 28. Brokers. Tenant represents and warrants to Landlord that, except for those parties set forth in Section 1(o) (the "Brokers"), Tenant has not engaged or had any conversations or negotiations with any broker, finder or other third party concerning the leasing of the Demised Premises to Tenant who would be entitled to any commission or fee based on the execution of this Lease. Tenant hereby further represents and warrants to Landlord that Tenant is not receiving and is not entitled to receive any rebate, payment or other remuneration, either directly or indirectly, from the Brokers, and that it is not otherwise sharing in or entitled to share in any commission or fee paid to the Brokers by Landlord or any other party in connection with the execution of this Lease, either directly or indirectly. Tenant hereby indemnifies Landlord against and from any claims for any brokerage commissions (except those payable to the Brokers, all of which are payable by Landlord pursuant to a separate agreement) and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, for any breach of the foregoing. The foregoing indemnification shall survive the termination of this Lease for any reason. 29. Assignment and Subleasing. (a) Tenant may not assign, mortgage, pledge, encumber or otherwise transfer this Lease, or any interest hereunder, or sublet the Demised Premises, in whole or in part, without on each occasion first obtaining the prior express written consent of Landlord, which consent Landlord shall not unreasonably withhold. Any change in control of Tenant resulting from a merger, consolidation, stock transfer or asset sale shall be considered an assignment or transfer which requires Landlord's prior written consent. For purposes of this Section 29, by way of example and not limitation, Landlord shall be deemed to have reasonably withheld consent if Landlord determines (i) that the prospective assignee or subtenant is not of a financial strength similar to Tenant as of the Lease Date, (ii) that the prospective assignee or subtenant has a poor business reputation, (iii) that the proposed use of the Demised Premises by such prospective assignee or subtenant (including, without limitation, a use involving the use or handling of Hazardous Substances) will negatively affect the value or marketability of the Building or the Project or (iv) that the prospective assignee or subtenant is a current tenant in the Project or is a bona-fide third-party prospective tenant. (b) If Tenant desires to assign this Lease or sublet the Demised Premises or any part thereof, Tenant shall give Landlord written notice no later than forty-five (45) days in advance of the proposed effective date of any proposed assignment or sublease, specifying (i) the name and business of the proposed assignee or sublessee, (ii) the amount and location of the space within the Demised Premises proposed to be subleased, (iii) the proposed effective date and duration of the assignment or subletting and (iv) the proposed rent or consideration to be paid to Tenant by such assignee or sublessee. Tenant shall promptly supply Landlord with financial statements and other information as Landlord may reasonably request to evaluate the proposed assignment or sublease. Landlord shall have a period of thirty (30) days following receipt of such notice and other information requested by Landlord within which to notify Tenant in writing that Landlord elects: (i) to terminate this Lease as to the space so affected as of the proposed effective date set forth in Tenant's notice, in which event Tenant shall be relieved of all further obligations hereunder as to such space, except for obligations under Sections 11 and 28 and all other provisions of this Lease which expressly survive the termination hereof; or (ii) to permit Tenant to assign or sublet such space; provided, however, that, if the rent rate agreed upon between Tenant and its proposed subtenant is greater than the rent rate that Tenant must pay Landlord hereunder for that portion of the Demised Premises, or if any consideration shall be promised to or received by Tenant in connection with such proposed assignment or sublease (in addition to rent), then one half (1/2) of such excess rent and other consideration (after payment of brokerage commissions, attorneys' fees and other disbursements reasonably incurred by Tenant for such assignment and subletting if acceptable evidence of such disbursements is delivered to Landlord) shall be considered Additional Rent owed by Tenant to Landlord, and shall be paid by Tenant to Landlord, in the case of excess rent, in the same manner that Tenant pays Base Rent and, in the case of any other consideration, within ten (10) business days after receipt thereof by Tenant; or (iii) to refuse, in Landlord's reasonable discretion (taking into account all relevant factors including, without limitation, the factors set forth in the Section 29(a) above), to consent to Tenant's assignment or subleasing -14- 15 of such space and to continue this Lease in full force and effect as to the entire Demised Premises. If Landlord should fail to notify Tenant in writing of such election within the aforesaid thirty (30) day period, Landlord shall be deemed to have elected option (iii) above. Tenant agrees to reimburse Landlord for reasonable legal fees and any other reasonable costs incurred by Landlord in connection with any requested assignment or subletting, and such payments shall not be deducted from the Additional Rent owed to Landlord pursuant to subsection (ii) above. Tenant shall deliver to Landlord copies of all documents executed in connection with any permitted assignment or subletting, which documents shall be in form and substance reasonably satisfactory to Landlord and which shall require such assignee to assume performance of all terms of this Lease on Tenant's part to be performed. (c) No acceptance by Landlord of any rent or any other sum of money from any assignee, sublessee or other category of transferee shall be deemed to constitute Landlord's consent to any assignment, sublease, or transfer. Permitted subtenants or assignees shall become liable directly to Landlord for all obligations of Tenant hereunder, without, however, relieving Tenant of any of its liability hereunder. No such assignment, subletting, occupancy or collection shall be deemed the acceptance of the assignee, tenant or occupant, as Tenant, or a release of Tenant from the further performance by Tenant of Tenant's obligations under this Lease. Any assignment or sublease consented to by Landlord shall not relieve Tenant (or its assignee) from obtaining Landlord's consent to any subsequent assignment or sublease. 30. Termination or Expiration. (a) No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period prior to termination thereof. (b) At the expiration or earlier termination of the Term of this Lease, Tenant shall surrender the Demised Premises and all improvements, alterations and additions thereto, and keys therefor to Landlord, clean and neat, and in the same condition as at the Lease Commencement Date, excepting normal wear and tear, condemnation and casualty other than that required to be insured against by Tenant hereunder. (c) If Tenant remains in possession of the Demised Premises after expiration of the Term, with or without Landlord's acquiescence and without any express agreement of the parties, Tenant shall be a tenant-at-sufferance at the greater of (i) one hundred fifty percent (150%) of the then current fair market base rental value of the Demised Premises or (ii) one hundred fifty percent (150%) of the Base Rent in effect at the end of the Term. Tenant shall also continue to pay all other Additional Rent due hereunder, and there shall be no renewal of this Lease by operation of law. In addition to the foregoing, Tenant shall be liable for all damages, direct and consequential, incurred by Landlord as a result of such holdover. No receipt of money by Landlord from Tenant after the termination of this Lease or Tenant's right of possession of the Demised Premises shall reinstate, continue or extend the Term or Tenant's right of possession. 31. Relocation. Upon sixty (60) days advance written notice from Landlord to Tenant and with Tenant's consent, which shall not be unreasonably withheld or delayed, Tenant agrees to relocate to other space in the Building or Project designated by Landlord (the "New Space"), provided: (i) the New Space is of similar size and similar configuration to the Demised Premises; (ii) Landlord shall pay all reasonable out-of-pocket expenses in moving Tenant, its property and equipment into the New Space, and Landlord shall pay for all actual and reasonable loss of business income associated with such relocation, provided Tenant delivers evidence of such loss to Landlord; and (iii) Landlord shall, at its sole cost, renovate or alter the New Space to conform substantially with the Demised Premises. If Landlord moves Tenant to the New Space, every term and condition of this Lease shall remain in full force and effect, except the Base Rent and Additional Rent shall be adjusted pro rata to reflect any decrease or increase in the square footage of the Demised Premises, and the New Space shall thereafter be deemed to be the Demised Premises as though Tenant had entered into an express written amendment of this Lease with respect thereto. 32. Late Payments. In the event any installment of rent, inclusive of Base Rent, or Additional Rent or other sums due hereunder, if any, is not paid (i) within five (5) days after Tenant's receipt of written notice of such failure to pay on the first occasion during any twelve (12) month period, or (ii) as and when due with respect to any subsequent late payments in any twelve (12) month period, Tenant shall pay an administrative fee (the "Administrative Fee") equal to five percent (5%) of such past due amount, plus interest on the amount past due at the lesser of (i) the maximum interest rate allowed by law or (ii) a rate of fifteen percent (15%) per annum (the "Interest Rate") to defray the additional expenses incurred by Landlord in processing such payment. The Administrative Fee is in addition to, and not in lieu of, any of the Landlord's remedies hereunder. 33. Rules and Regulations. Tenant agrees to abide by the rules and regulations set forth on Exhibit D attached hereto, as well as other rules and regulations reasonably promulgated by Landlord from time to time, so long as such rules and regulations are uniformly enforced against all tenants of Landlord in the Building. -15- 16 34. Quiet Enjoyment. So long as Tenant has not committed an Event of Default hereunder, Landlord agrees that Tenant shall have the right to quietly use and enjoy the Demised Premises for the Term. 35. Miscellaneous. (a) The parties hereto hereby covenant and agree that Landlord shall receive the Base Rent, Additional Rent and all other sums payable by Tenant hereinabove provided as net income from the Demised Premises, without any abatement (except as set forth in Section 20 and Section 21), reduction, set-off, counterclaim, defense or deduction whatsoever. (b) If any clause or provision of this Lease is determined to be illegal, invalid or unenforceable under present or future laws effective during the Term, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and that in lieu of such illegal, invalid or unenforceable clause or provision there shall be substituted a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. (c) All rights, powers, and privileges conferred hereunder upon the parties hereto shall be cumulative, but not restrictive to those given by law. (d) TIME IS OF THE ESSENCE OF THIS LEASE. (e) No failure of Landlord or Tenant to exercise any power given Landlord or Tenant hereunder or to insist upon strict compliance by Landlord or Tenant with its obligations hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's or Tenant's rights to demand exact compliance with the terms hereof. (f) This Lease contains the entire agreement of the parties hereto as to the subject matter of this Lease and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force and effect. The masculine (or neuter) pronoun, singular number shall include the masculine, feminine and neuter gender and the singular and plural number. (g) This contract shall create the relationship of landlord and tenant between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has a usufruct, not subject to levy and sale, and not assignable by Tenant except as expressly set forth herein. (h) Under no circumstances shall Tenant have the right to record this Lease or a memorandum thereof. (i) The captions of this Lease are for convenience only and are not a part of this Lease, and do not in any way define, limit, describe or amplify the terms or provisions of this Lease or the scope or intent thereof. (j) This Lease may be executed in multiple counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement. (k) This Lease shall be interpreted under the laws of the State where the Demised Premises are located. (l) The parties acknowledge that this Lease is the result of negotiations between the parties, and in construing any ambiguity hereunder no presumption shall be made in favor of either party. No inference shall be made from any item which has been stricken from this Lease other than the deletion of such item. 36. Special Stipulations. The Special Stipulations, if any, attached hereto as Exhibit C, are incorporated herein and made a part hereof, and to the extent of any conflict between the foregoing provisions and the Special Stipulations, the Special Stipulations shall govern and control. 37. Lease Date. For purposes of this Lease, the term "Lease Date" shall mean the later date upon which this Lease is signed by Landlord and Tenant. 38. Authority. If Tenant is not a natural person, Tenant shall cause its corporate secretary or general partner, as applicable, to execute the certificate attached hereto as Exhibit E. Tenant is authorized by all required corporate or partnership action to enter into this Lease and the individual(s) signing this Lease on behalf of Tenant are each authorized to bind Tenant to its terms. 39. No Offer Until Executed. The submission of this Lease to Tenant for examination or consideration does not constitute an offer to lease the Demised Premises and this Lease shall become effective, if at all, only upon the execution and delivery thereof by Landlord and Tenant. -16- 17 [Remainder of Page Intentionally Left Blank] -17- 18 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands under seals, the day and year first above written. LANDLORD: Date: March 12, 2000 DFW TRADE CENTER III LIMITED PARTNERSHIP, a Texas limited partnership By: DFW GP III, LLC, a Texas limited liability company, its sole general partner By: DFW Trade Center I Limited Partnership, a Texas limited partnership, its sole member By: ID International (Texas), Inc., a Georgia corporation, its Managing General Partner By: /s/ Timothy Gunter -------------------------- Name: Timothy Gunter ------------------------ Title: Chief Financial Officer ----------------------- Attest: ---------------------- Name: ----------------------- Title: ---------------------- [CORPORATE SEAL] TENANT: Date: March 12, 2000 ROCKWELL MEDICAL TECHNOLOGIES, INC., a Michigan corporation By: /s/ Robert L. Chioini ------------------------------------- Name: Robert L. Chioini -------------------------------- Title: Chief Executive Officer and President ------------------------------- Attest: /s/ Thomas E. Klema --------------------------------- Name: Thomas E. Klema ---------------------------- Title: Vice President and Chief Financial Officer -------------------------- [CORPORATE SEAL] -18- 19 ATTESTATION Landlord - Partnership: STATE OF --------------------- COUNTY OF -------------------- BEFORE ME, a Notary Public in and for said County, personally appeared and , known to me to be the person(s) who, as and , respectively, of ID International (Texas), Inc., a Georgia corporation, the managing general partner of DFW Trade Center I Limited Partnership, a Texas limited partnership, the sole member of DFW GP III, LLC, a Texas limited liability company, the sole general partner of Landlord, signed the same, and acknowledged to me that they did so sign said instrument in the name and upon behalf of said corporation, in its capacity as general partner of Landlord, that the same is their free act and deed and they were duly authorized thereunto by the corporation and the partnership. IN TESTIMONY WHEREOF, I have hereunto subscribed my name, and affixed my official seal, this day of , 2000. ----------------------------------------- Notary Public My Commission Expires: Tenant - Corporation: STATE OF -------------------- COUNTY OF ------------------- BEFORE ME, a Notary Public in and for said County, personally appeared and , known to me to be the person(s) who, as and , respectively, of Rockwell Medical Technologies, Inc., the corporation which executed the foregoing instrument in its capacity as Tenant, signed the same, and acknowledged to me that they did so sign said instrument in the name and upon behalf of said corporation as officers of said corporation, that the same is their free act and deed as such officers, respectively, and they were duly authorized thereunto by its board of directors; and that the seal affixed to said instrument is the corporate seal of said corporation. IN TESTIMONY WHEREOF, I have hereunto subscribed my name, and affixed my official seal, this day of , 2000. ----------------------------------- Notary Public My Commission Expires: -19- 20 LEASE INDEX ----------- Section Subject ------- ------- 1 Basic Lease Provisions 2 Demised Premises 3 Term 4 Base Rent 5 Security Deposit 6 Operating Expenses and Additional Rent 7 Use of Demised Premises 8 Insurance 9 Utilities 10 Maintenance and Repairs 11 Tenant's Personal Property; Indemnity 12 Tenant's Fixtures 13 Signs 14 Landlord's Lien 15 Governmental Regulations 16 Environmental Matters 17 Construction of Demised Premises 18 Tenant Alterations and Additions 19 Services by Landlord 20 Fire and Other Casualty 21 Condemnation 22 Tenant's Default 23 Landlord's Right of Entry 24 Lender's Rights 25 Estoppel Certificate 26 Landlord's Liability 27 Notices 28 Brokers 29 Assignment and Subleasing 30 Termination or Expiration 31 Relocation 32 Late Payments 33 Rules and Regulations 34 Quiet Enjoyment 35 Miscellaneous 36 Special Stipulations 37 Lease Date 38 Authority 39 No Offer Until Executed 40 Radon Disclosure Exhibit "A" Demised Premises Exhibit "B" Preliminary Plans and Specifications/Work Exhibit "C" Special Stipulations Exhibit "D" Rules and Regulations Exhibit "E" Certificate of Authority Exhibit "F" Form of Irrevocable Letter of Credit Exhibit "G" Form of Subordination, Non-Disturbance and Attornment Agreement 21 VERSION 4/98 INDUSTRIAL LEASE AGREEMENT BETWEEN DFW TRADE CENTER III LIMITED PARTNERSHIP AS LANDLORD AND ROCKWELL MEDICAL TECHNOLOGIES, INC. AS TENANT 22 EXHIBIT A DEMISED PREMISES a-1 23 EXHIBIT B PRELIMINARY PLANS AND SPECIFICATIONS/WORK b-1 24 EXHIBIT C SPECIAL STIPULATIONS The Special Stipulations set forth herein are hereby incorporated into the body of the lease to which these Special Stipulations are attached (the "Lease"), and to the extent of any conflict between these Special Stipulations and the preceding language, these Special Stipulations shall govern and control. 1. Construction of Demised Premises. (a) Notwithstanding the provisions of Section 17 of this Lease, Landlord shall be responsible for the cost of the construction of the Improvements (as defined in Section 8(a)(ii) of the Lease) only up to an amount equal to $200,000.00 (the "Tenant Allowance"). Upon substantial completion of the Improvements, Landlord shall deliver to Tenant a bill for all amounts in excess of the Tenant Allowance. Tenant agrees to pay such bill in full to Landlord within ten (10) calendar days following receipt of such bill. (b) For purposes of this Special Stipulation, the cost of the construction of the Improvements shall be deemed to include, but not be limited to, the cost of the Plans and Specifications, permits and all tenant buildout, including, without limitation, demising walls, utilities, the heating, ventilating and air conditioning system. (c) Notwithstanding the provisions of Special Stipulation 1(a) of this Lease, Landlord shall be responsible for the cost of installing air-conditioning in the warehouse portion of the Demised Premises in such capacity as to provide a twenty (20) degree differential from the outside temperature. The cost of such installation shall not be credited against the Tenant Allowance. 2. Option to Extend Term. (a) Landlord hereby grants to Tenant one (1) option to extend the Term for a period of five (5) years, such option to be exercised by Tenant giving written notice of its exercise to Landlord in the manner provided in this Lease at least one hundred eighty (180) days prior to (but not more than two hundred ten (210) days prior to) the expiration of the Term, as it may have been previously extended. No extension option may be exercised by Tenant if an Event of Default has occurred and is then continuing or any facts or circumstances then exist which, with the giving of notice or the passage of time, or both, would constitute an Event of Default either at the time of exercise of the option or at the time the applicable Term would otherwise have expired if the applicable option had not been exercised. (b) If Tenant exercises its option to extend the Term, Landlord shall, within thirty (30) days after the receipt of Tenant's notice of exercise, notify Tenant in writing of Landlord's reasonable determination of the prevailing market rent for the Demised Premises for the extended Term taking into account all relevant factors for space of this type in the Grapevine, Texas area. Tenant shall have thirty (30) days from its receipt of Landlord's notice to notify Landlord in writing that Tenant does not agree with Landlord's determination of the Base Rent and therefore that Tenant elects to retract its option to extend the Term, in which case the Term, as it may have been previously extended, shall expire on its scheduled expiration date and Tenant's option to extend the Term shall be void and of no further force and effect. If Tenant does not notify Landlord of such retraction within thirty (30) days of its receipt of Landlord's notice, Base Rent for the Demised Premises for the applicable extended term shall be the Base Rent set forth in Landlord's notice to Tenant. (c) Except for the Base Rent, which shall be determined as set forth in subparagraph (b) above, leasing of the Demised Premises by Tenant for the applicable extended term shall be subject to all of the same terms and conditions set forth in this Lease, including Tenant's obligation to pay Tenant's share of Operating Expenses as provided in this Lease; provided, however, that any improvement allowances, termination rights, rent abatements or other concessions applicable to the Demised Premises during the initial Term shall not be applicable during any such extended term, nor shall Tenant have any additional extension options unless expressly provided for in this Lease. Landlord and Tenant shall enter into an amendment to this Lease to evidence Tenant's exercise of its renewal option. If this Lease is guaranteed, it shall be a condition of Landlord's granting the renewal that Tenant deliver to Landlord a reaffirmation of the guaranty in which the guarantor acknowledges Tenant's exercise of its renewal option and reaffirms that the guaranty is in full force and effect and applies to said renewal. 3. SNDA. Simultaneously with the execution of this Lease, Landlord and Tenant shall execute a Subordination, Non-Disturbance and Attornment Agreement in the form attached hereto as Exhibit "G". c-1 25 EXHIBIT D RULES AND REGULATIONS These Rules and Regulations have been adopted by Landlord for the mutual benefit and protection of all the tenants of the Building in order to insure the safety, care and cleanliness of the Building and the preservation of order therein. 1. The sidewalks shall not be obstructed or used for any purpose other than ingress and egress. No tenant and no employees of any tenant shall go upon the roof of the Building without the consent of Landlord. 2. No awnings or other projections shall be attached to the outside walls of the Building. 3. The plumbing fixtures shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags or other substances, including Hazardous Substances, shall be thrown therein. 4. No tenant shall cause or permit any objectionable or offensive odors to be emitted from the Demised Premises. 5. The Demised Premises shall not be used for lodging or sleeping or for any immoral or illegal purposes. 6. No tenant shall make, or permit to be made any unseemly or disturbing noises, sounds or vibrations or disturb or interfere with tenants of this or neighboring buildings or premises or those having business with them. 7. Each tenant must, upon the termination of this tenancy, return to the Landlord all keys of stores, offices, and rooms, either furnished to, or otherwise procured by, such tenant, and in the event of the loss of any keys so furnished, such tenant shall pay to the Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such change. 8. Canvassing, soliciting and peddling in the Building and the Project are prohibited and each tenant shall cooperate to prevent such activity. 9. Landlord will direct electricians as to where and how telephone or telegraph wires are to be introduced. No boring or cutting for wires or stringing of wires will be allowed without written consent of Landlord. The location of telephones, call boxes and other office equipment affixed to the Demised Premises shall be subject to the approval of Landlord. 10. Parking spaces associated with the Building are intended for the exclusive use of passenger automobiles. Except for intermittent deliveries, no vehicles other than passenger automobiles may be parked in a parking space without the express written permission of Landlord. Trucks and tractor trailers may only be parked at designated areas of the Building. Trucks and tractor trailers shall not block access to the Building. 11. No tenant shall use any area within the Project for storage purposes other than the interior of the Demised Premises. d-1 26 EXHIBIT E CERTIFICATE OF AUTHORITY CORPORATION The undersigned, Secretary of Rockwell Medical Technologies, Inc., a Michigan corporation ("Tenant"), hereby certifies as follows to DFW Trade Center III Limited Partnership, a Texas limited partnership ("Landlord"), in connection with Tenant's proposed lease of premises in Building H, at DFW Trade Center, Grapevine, Texas (the "Premises"): 1. Tenant is duly organized, validly existing and in good standing under the laws of the State of Michigan, and duly qualified to do business in the State of Texas. 2. That the following named persons, acting individually, are each authorized and empowered to negotiate and execute, on behalf of Tenant, a lease of the Premises and that the signature opposite the name of each individual is an authentic signature:
- ------------------------ ------------------------- ------------------------------ (name) (title) (signature) - ------------------------ ------------------------- ------------------------------ (name) (title) (signature) - ------------------------ ------------------------- ------------------------------ (name) (title) (signature)
3. That the foregoing authority was conferred upon the person(s) named above by the Board of Directors of Tenant, at a duly convened meeting held , 2000. ------------------------------- Secretary [CORPORATE SEAL] d-3 27 EXHIBIT F IRREVOCABLE LETTER OF CREDIT DFW Trade Center III Limited Partnership c/o Industrial Developments International, Inc. 3424 Peachtree Road N.E. Suite 1500 Atlanta, Georgia 30326 Attention: ---------------- Ladies and Gentlemen: At the request and on the instructions of our customer, Rockwell Medical Technologies, Inc. (the "Applicant"), we hereby establish this Irrevocable Letter of Credit No. (the "Letter of Credit") in the amount of $ in your favor. This Letter of Credit is effective immediately and expires on , 2000. Funds under this Letter of Credit will be made available to you against receipt by us of (1) a sight draft in the form of Annex A attached hereto and (2) your drawing certificate in the form of Annex B attached hereto, in each case appropriately completed and purportedly signed by one of your authorized officers. Presentation of any such sight draft and drawing certificate shall be made at our office located at [PRESENTATION OFFICE ADDRESS], Attention: , telecopy number ( ) , during our banking hours of a.m., Eastern Standard Time to p.m., Eastern Standard Time. Presentation hereunder may also be made in the form of facsimile transmission of the appropriate sight draft and drawing certificate to the preceding address and telecopy number. If a sight draft and drawing certificate are presented hereunder by sight or by facsimile transmission as permitted hereunder, by 11:00 a.m., Eastern Standard Time, and provided that such sight draft and drawing certificate conform to the terms and conditions of this Letter of Credit, payment shall be made to you, or to your designee, of the amount specified, in immediately available funds, not later than 2:00 p.m., Eastern Standard Time, on the same day. If a sight draft and a drawing certificate are presented by you hereunder after the time specified above, and provided that such sight draft and drawing certificate conform to the terms and conditions of this Letter of Credit, payment shall be made to you, or to your designee, of the amount specified, in immediately available funds, not later than 2:00 p.m., Eastern Standard Time, on the next business day. If a demand for payment made by you hereunder does not, in any instance, conform to the terms and conditions of this Letter of Credit, we shall give you notice within one business day that the demand for payment was not effected in accordance with the terms and conditions of this Letter of Credit, stating the reasons therefor and that we will upon your instructions hold any documents at your disposal or return the same to you. Upon being notified that the demand for payment was not effected in conformity with this Letter of Credit, you may attempt to correct any such non-conforming demand for payment to the extent that you are entitled to do so and within the validity of this Letter of Credit. Partial drawings are allowed under this Letter of Credit. Any drawing under this Letter of Credit will be paid from our general funds and not directly or indirectly from funds or collateral deposited with or for our account by the Applicant, or pledged with or for our account by the Applicant. This Letter of Credit is transferable and notwithstanding Article 48 of the Uniform Customs (as defined below), this Letter of Credit may be successively transferred. Transfer of this Letter of Credit to a transferee shall be effected only upon the presentation to us of the original of this Letter of Credit accompanied by a certificate in the form of Annex C. Upon such presentation we shall transfer the same to your transferee or, if so requested by your transferee, issue a letter of credit to your transferee with provisions consistent with, and substantially the same as, this Letter of Credit. This Letter of Credit shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (the "Uniform Customs"), which is incorporated into the text of this Letter of Credit by this reference. This Letter of Credit shall be deemed to be issued under the laws of the State of Georgia and shall be governed by and construed in accordance with the law of the State of Georgia with respect to matters not governed by the Uniform Customs and matters on which the Uniform Customs and the laws of the State of Georgia are inconsistent. Very truly yours, [ISSUING BANK] By: -------------------------------- Name: ---------------------------- Title: --------------------------- F-1 28 ANNEX A SIGHT DRAFT [Date] At Sight Pay to the order of DFW Trade Center III Limited Partnership the sum of and /100 Dollars ($ ) drawn on [ISSUING BANK], as issuer of its Irrevocable Letter of Credit No. dated , 2000. DFW TRADE CENTER III LIMITED PARTNERSHIP, a Texas limited partnership By: DFW GP III, LLC, a Texas limited liability company, its sole general partner By: DFW Trade Center I Limited Partnership, a Texas limited partnership, its sole member By: ID International (Texas), Inc., a Georgia corporation, its Managing General Partner By: ------------------------------- Name: -------------------------- Title: ------------------------- Attest: ---------------------------- Name: ----------------------- Title: ---------------------- [Corporate Seal] d-5 29 ANNEX B DRAWING CERTIFICATE [Date] [ISSUING BANK] [ADDRESS] Attention: Re: Irrevocable Letter of Credit No. (the "Letter of Credit") For the Account of Rockwell Medical Technologies, Inc. (the "Applicant") Ladies and Gentlemen: The undersigned, DFW Trade Center III Limited Partnership (the "Beneficiary") hereby certifies that: 1) The Beneficiary is the lessor under that certain Industrial Lease Agreement] dated , 2000, as amended, between the Beneficiary, as lessor, and the Applicant, as lessee (the "Lease"). 2) The Beneficiary is entitled to payment under the Letter of Credit in the amount of $ by reason of the following condition (mark only one): --- The Applicant has defaulted under the Lease. --- The expiration date of the Letter of Credit is less than [30] days from the date of this Certificate. 3) Please direct payment under the Letter of Credit by wire transfer to: [Depository Bank] [Depository Bank Address] ABA No. ---------------------- Acct. No. --------------------- IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Certificate. DFW TRADE CENTER III LIMITED PARTNERSHIP, a Texas limited partnership By: DFW GP III, LLC, a Texas limited liability company, its sole general partner By: DFW Trade Center I Limited Partnership, a Texas limited partnership, its sole member By: ID International (Texas), Inc., a Georgia corporation, its Managing General Partner By: ---------------------- Name: ----------------- Title: ---------------- Attest: ------------------ Name: ----------------- Title: ---------------- [Corporate Seal] d-6 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1,093,293 0 1,033,689 53,000 413,240 2,517,841 1,321,670 622,437 4,473,906 868,312 0 0 0 8,762,941 251,150 4,473,906 6,688,914 6,688,914 5,778,154 5,778,154 2,043,098 0 0 (1,071,270) 0 (1,071,270) 0 0 0 (1,071,270) (.22) (.22)
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