Document:

EXHIBIT 10(a)

 

 

DISTRIBUTOR
AGREEMENT

 

BETWEEN

 

OLYMPUS
AMERICA INC.– MEDICAL SYSTEMS GROUP

 

AND

 

MINNTECH CORPORATION –

MEDIVATORS REPROCESING SYSTEMS

 

 

August
1, 2003

 

 

DISTRIBUTOR
AGREEMENT

 

AGREEMENT
made as of the 1st day of August, 2003 by and between MINNTECH CORPORATION – MEDIVATORS REPROCESSING SYSTEMS,
a company organized and existing under the laws of the State of Minnesota,
having its principal office at 14605 28th Avenue North, Minneapolis,
Minnesota 55147 (the “Company”), and OLYMPUS AMERICA INC.- MEDICAL SYSTEMS GROUP,
a company organized and existing under the laws of the State of New York,
having its principal office at Two Corporate Center Drive, Melville, New York
11747-3157 (“OAI”).

 

W  I  T  N
E  S  S  E  T  H:

 

WHEREAS,
the Company develops, manufactures, and markets a line of automatic endoscope
disinfectors, germicides, and other related products; and

 

WHEREAS,
OAI is a recognized distributor and supplier of medical equipment within the
Territory defined in Section 1.22 and OAI wishes to distribute, market, and
service the Products defined in Section 1.15 on an exclusive basis within the
Territory; and

 

WHEREAS,
OAI wishes to engage in the purchase of the Products from the Company and the
resale and service of the Products within the Territory and wishes to be
appointed by the Company as the exclusive distributor and semi-exclusive (as
set forth in Section 2.5) servicer of the Products within the Territory; and

 

WHEREAS,
the Company is willing to appoint OAI as the exclusive distributor and semi-exclusive
servicer of the Products within the Territory on the terms and conditions
hereinafter set forth;

 

NOW,
THEREFORE, in consideration of the mutual covenants
and promises hereinafter set forth, the parties agree as follows:

 

ARTICLE
1.  DEFINITIONS.

 

1.1                               “Affiliate”
shall mean a corporation or other entity that controls, is controlled by or is
under common control with, the designated party.  “Control” shall mean the ownership, directly or indirectly,
through one or more intermediaries, of at least 49% of the shares of stock
entitled to vote for the election of directors in the case of a corporation (or
comparable officers or representatives of the particular entity), or at least
49% of the interest in profits in the case of a business 

 

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entity other than a
corporation, except that in any country of incorporation or registration where
the maximum permitted by law is less than 49%, such lower maximum permitted
percentage shall be substituted.

 

1.2                               “Agreement”
shall mean this Distributor Agreement, including the Recitals, Schedules, and
Exhibits hereto, as it may be amended or supplemented from time to time in
accordance with its terms.

 

1.3                               “Agreement
Term” shall have the meaning set forth in Section 8.1.

 

1.4                               “Ancillary
Products” shall mean the accessories, consumables, and replacement and
repair parts (each manufactured by or for the Company) to and of the
Disinfectors.  A list of such
accessories, consumables, replacement and repair parts, and Rapicide (with
corresponding prices for the initial year of the Agreement Term) is attached
hereto as Schedule 1.4.

 

1.5                               “Business
Day” shall mean any day which is not a Saturday, Sunday, or bank holiday in
the State of New York.

 

1.6                               Complaint(s)”
shall mean any written, electronic, or oral communication that alleges
deficiencies related to the identity, quality, durability, reliability, safety,
effectiveness, or performance of a device after it is released for
distribution.

 

1.7                               “Design
Validation” shall mean establishing by objective evidence that device
specifications conform with user needs and intended use(s).  (21 C.F.R. Part 820.3(z)(2))

 

1.8                               “Disinfector(s)”
shall mean, collectively, the Company’s disinfector products for endoscopes and
all accompanying standard accessories, a list of which is attached hereto as Schedule
1.8.

 

1.9                               “Equipment”
shall mean Olympus brand endoscopy equipment.

 

1.10                        “FDA”
shall mean the United States Food & Drug Administration.

 

1.11                        “Intellectual
Property” shall have the meaning set forth in Section 7.6.

 

1.12                        “OAI
Enhancements” shall have the meaning set forth in Section 3.16.

 

1.13                        “Post-Agreement
Period” shall mean the seven-year period (or shorter period if OAI opts to
cease its performance of its Product Customer Service functions in accordance
with Section 2.5) following the end of the Agreement Term.

 

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1.14                        “Process
Validation” shall mean establishing, by objective evidence, that a process
consistently produces a result or a product meets its predetermined
specifications. (21 C.F.R. Part 820.3(z)(1))

 

1.15                        “Products”
shall mean, collectively, the Disinfectors, Rapicide, the Ancillary Products,
and all related instruction and service manuals; and Product Changes.

 

1.16                        “Product
Changes” shall mean any changes, improvements, alterations, modifications,
part substitutions, new applications, and additional specifications to or of
the Products or the Products’ labeling that could impact the marketability,
safety, or effectiveness of a Product.

 

1.17                        “Product
Customer Service” shall have the meaning set forth in Section 2.5.

 

1.18                        “Rapicide”
shall mean the liquid chemical germicide marketed and sold by the Company under
the name RapicideTM. See also Schedule 1.4.

 

1.19                        “Recall”
shall have the meaning set forth in Section 3.10.

 

1.20                        “RMA”
shall mean a Return Material Authorization form.

 

1.21                        “SOP”
shall mean Standard Operating Procedure.

 

1.22                        “Territory”
shall mean the United States of America, Puerto Rico, Guam, and the U.S.
Virgin Islands.

 

1.23                        “Verification”
shall mean confirmation by examination and provision of objective evidence that
specified requirements have been fulfilled. 
(21 C.F.R. Section 820.3(aa)).

 

1.24                        “90%
Amount” shall have the meaning set forth in Section 4.1.

 

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ARTICLE
2.  APPOINTMENT OF OAI; PRODUCT
CUSTOMER SERVICE.

 

2.1                               Appointment
and Acceptance.

(a)                                  Subject
to the terms of this Agreement, the Company, to the full extent of its legal
rights, hereby appoints OAI, and OAI hereby accepts appointment, as the
exclusive distributor and semi-exclusive (as set forth in Section 2.5) servicer
of the Products within the Territory during the Agreement Term.  Neither the Company nor the Company’s
Affiliates shall sell the Products, or products that are substantially similar
to or competitive with the Products, directly or indirectly within the
Territory to any person or entity other than OAI, or otherwise provide the
Products to any other entity which it knows or has reason to know will sell or
service the Products within the Territory, provided that OAI is not in default
under this Agreement.  Notwithstanding
the immediately preceding sentence, in the event the Company wishes to
distribute a new product, incorporate a Product Change not relating to or
resulting from a Product Complaint (a “Modified Product”), or distribute an
endoscope disinfection product which is competitive with but not substantially
similar to the Disinfector in design, price, features, and quality (a
“Competitive Product”), the Company shall grant OAI the right of first
negotiation and right of first refusal to become the exclusive distributor of
such new product, Modified Product, or Competitive Product, on substantially
the same terms and conditions as those contained in this Agreement (subject to
good faith negotiation with respect to pricing, purchase projections, and
schedules).  OAI shall have 90 days from
the receipt of a new product proposal, Modified Product proposal, or
Competitive Product proposal, which shall be supported with the Company’s
formal Phase Zero Review Package (as outlined in Schedule 2.1 attached
hereto), to either accept or decline to distribute the proposed new product,
Modified Product, or Competitive Product. 
In the event OAI declines the new product proposal, Modified Product
proposal, or Competitive Product proposal, or fails to provide an affirmative
decision within the stipulated 90-day period, then the Company shall be
entitled to distribute the new product, Modified Product, or Competitive
Product directly or via a third party (but only if the distribution arrangement
with such third party contains terms and conditions not more beneficial than
those offered to OAI therefor).  In the
event OAI accepts the new product proposal, Modified Product proposal, or
Competitive Product proposal, then OAI shall have an additional 90 days from
receipt of a previously agreed-upon Project Commercialization Package (as
outlined in Schedule 2.1 attached hereto), to introduce and fully
commercialize the new product, Modified Product, or Competitive Product.  In the event OAI fails to introduce and
fully commercialize the new product, Modified Product, or Competitive Product
within the stipulated 90-day period, then the Company shall be entitled to
distribute the new product, Modified Product, or Competitive Product directly
or via a third party 

 

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(but only if the distribution
arrangement with such third party contains terms and conditions not more
beneficial than those offered to OAI therefor).

 

(b)                                  The
Company hereby unconditionally and irrevocably grants to OAI and OAI’s
Affiliates, a royalty-free, fully paid-up right and license, including the
right to grant sublicenses, under the Company’s Intellectual Property, to use,
market, demonstrate, promote, sell, rent, lease, service, distribute, and/or
otherwise dispose of (or have others do any of the foregoing on OAI’s behalf)
the Products within the Territory.  OAI
shall (i) have the right to sell and service the Products directly to and for
end users or through subdistributors, dealers, and subservicers (which
subdistributors, dealers, and subservicers will be subject to the Company’s
approval, which approval will not be unreasonably withheld or delayed), (ii)
determine all terms and conditions of sale and service to its customers,
subdistributors, dealers, and subservicers, including but not limited to prices
(except that OAI may not represent and warrant the Products in a manner inconsistent
with the way the Company represents and warrants the Products unless OAI
receives the Company’s consent to do so, which consent shall not be
unreasonably withheld or delayed), (iii) not sell or service the Products
outside of the Territory or authorize its subdistributors, dealers, or
subservicers to sell or service the Products outside of the Territory, and (iv)
not sell the Products to anyone OAI knows or has reason to know will sell the
Products outside of the Territory.  In
the event OAI sells or services the Products through subdistributors, dealers,
and/or subservicers, OAI shall require that such subdistributors, dealers,
and/or subservicers, comply with the provisions of this Agreement pertinent to
subdistributors, dealers, and subservicers.

 

2.2                               Sales
& Service Leads.  The
Company shall forward to OAI any and all sales and service inquiries received
from Product customers or potential Product customers in the Territory.

 

2.3                               OAI
Sales of Substantially Similar Products.  OAI shall not, directly or indirectly, (by itself or with others)
sell or distribute products within the Territory that are substantially
similar, in price, design, features, and quality, to the Products, provided
that the Company is not in default under this Agreement.  Notwithstanding the foregoing or anything
contained in this Agreement to the contrary, if OAI (by itself or with others)
elects to sell or distribute a disinfector that is substantially similar (in
price, design, features, and quality) to a Disinfector, OAI shall provide the
Company with a minimum of nine (9) months’ written notice prior to marketing
such new disinfector. The Company shall have a three (3)-month period,
commencing upon its receipt of OAI’s nine-month notice, during which period the
Company must notify OAI in writing that the Company will either (a) render
OAI’s distribution rights to the 

 

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Products non-exclusive or
(b) terminate the Agreement Term in accordance with Section 8.2(f).  In either event, the restrictions on both
parties set forth in Sections 2.1(a) and 2.3 shall be removed.

 

2.4                               Hiring
of Employees.  Neither OAI nor
the Company shall hire any employee of the other party during, or for a period
of one year after the conclusion of, the employee’s employment with such other
party, unless the other party is subject to a change of Control (as
defined in Section 1.1) or a proceeding in bankruptcy, dissolution, winding up,
reorganization or the arrangement for the appointment of a receiver or trustee.  The foregoing restriction shall remain in
effect during the Agreement Term and the first year thereafter (the “Sunset
Year”).  Notwithstanding the preceding
sentences, upon conclusion of the Sunset Year, OAI and the Company shall be
permitted to immediately hire the other party’s employees (and former
employees, regardless of when such employees’ separated from the other party).

 

2.5                               Product
Customer Service.  OAI and the
Company shall maintain a coordinated and comprehensive customer service and support
mechanism to respond to (i) customer inquiries regarding the use, operation,
and/or maintenance of the Products, and (ii) customer Product service and
repair requirements.  Product Customer
Service shall include, without limitation, the following items:

 

(a)                                  Telephone
Support.  The telephone support
to be provided by the Company is set forth on Schedule 2.5 attached
hereto.

 

(b)                                  Field
Support.                    The
field support to be provided by the Company will include, without limitation,
consultations with OAI field service engineers, OAI technical staff, OAI
customer service personnel, and OAI product management.

 

(c)                                  Support
Documentation System.                  Telephone
and field support will be documented by the Company through use of the Metrix
computer system.  The Metrix computer
system will also serve as the primary vehicle for the dispatch of OAI field
service engineers (dispatch will also be accomplished through e-mail and voice
mail messages).  The Company shall also
record parts requirements and data on the effectiveness of OAI field service
engineer (“FSE”) dispatches (e.g., ensuring the parts delivery is prompt and
accurate, ensuring that dispatch notification is received and confirmed by the
OAI FSE, and validation that the service diagnosis is accurate).

 

(d)                                  Support
Fee.  During the initial six (6)
months of the Agreement Term, the customer telephone and field support
described in Sections 2.5(a), 2.5(b), and 2.5(c) above shall be 

 

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charged to OLYMPUS at a monthly
rate not to exceed $11,000.00.  The
monthly rate paid for such support will be reduced by two percent (2%) for
every one percentage point difference between the actual Service Level and the
targeted Service Level listed on Schedule 2.5. Prior to the end of the
initial six-month period of the Agreement Term, the Company and OAI agree to
establish a per-call support fee structure (and a corresponding amendment to
the rate reduction clause above) that will replace the monthly support rate
upon conclusion of such initial six-month period.

 

(e)                                  Olympus®
Model MV® Endoscope Disinfectors (MV®-1 and MV®-2 by Medivators).  OAI
shall perform all (i) pre-installation, (ii) site evaluation, (iii)
installation, and (iv) in-service customer orientation, of and for the MV
Disinfectors. The Company shall be responsible for performing all
service and repair (in-warranty and out-of-warranty) for the MV Disinfectors.  The
Company’s labor rate for out-of-warranty service and repairs shall be no more
than $145.00 per hour for the initial year of the Agreement Term with increases
thereafter limited to five percent (5%) per Agreement Term year.  In conjunction with the service and repair
of the MV Disinfectors, a “hot swap” program will be in place.  The MV Disinfector “hot swap” program will
entail, without limitation, disconnection and shipment of the MV Disinfector
unit to be repaired, installation of a loaner unit at the customer site,
shipment to and re-installation of the repaired unit at the customer site after
repair, and disconnection and shipment of the loaner unit back to the
Company.  With respect to this “hot
swap” program, the Company shall bear all costs and expenses for MV
Disinfectors that are under warranty, including but not limited to packaging
expenses and those items listed in the prior sentence.  The Company will pay OAI a flat fee of $300
per “hot swap” of an MV Disinfector in which OAI assists the Company.  If OAI is unable to assist the Company in
the “hot swap” program, the Company and OAI will mutually select a third-party
to perform the service, and the Company shall pay the third-party’s fees, up to
the aforementioned $300 flat fee limit per “hot swap” (with the customer to be
billed for any additional third-party fees in excess of such $300 flat fee).  Repairs of MV Disinfectors shall be
warranted for a period of at least 90 days from the date of
re-installation.  If a repaired MV
Disinfector unit fails in any respect within the aforementioned warranty
period, all subsequent repairs, loaners, shipping, (re)installation, and
shipping materials will be at no charge to OAI or the customer.

 

(f)                                    OAI
Functions.  Except as set forth
in Sections 2.5, 2.6, 3.7(b), and 7.9, OAI shall be responsible for in-service
customer orientation, OAI sales and service training, and repair with respect
to and of the Products marketed or sold by OAI within the Territory.  Notwithstanding the foregoing, OAI may
require the Company to perform complicated repairs of OLYMPUS DSD Disinfectors.  During the Post-Agreement Period, OAI shall
have 

 

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the right, at its option, to
either (i) continue to perform these OAI functions for all Product customers
existing prior to the end of the Agreement Term or (ii) cease performing these
OAI functions, provided that if OAI chooses to cease performance, it
must notify the Company of such decision at least 90 days’ prior to the start
of the next year of the Post-Agreement Period.

 

2.6                               Reconditioning
Disinfectors Units.

(a)                                  In the event a
Disinfector unit is returned by a customer due to OAI or customer
administrative error (unrelated to the Company), OAI shall bear the reasonable
costs and expenses required to disconnect, ship, recondition, package, and/or
reinstall such Disinfector unit (collectively, the “Reconditioning
Expenses”).  If a Disinfector unit is
returned because the customer elects not to purchase after an evaluation, OAI
and the Company shall bear the Reconditioning Expenses equally.  (OAI shall inform the Company in advance of
placing a Disinfector unit for evaluation.) 
If a Disinfector unit is returned because it has failed to perform in
accordance with specifications (e.g., component part failure), the Company
shall bear the Reconditioning Expenses. 
The Company shall keep an inventory of all parts required to support the
reconditioning of all Disinfector Units that are less than seven years old when
returned to the Company. The Company may charge OAI a premium of not more than
5% of the existing transfer cost of a part which is unusual or difficult to
acquire.  Reconditioned Disinfector
units shall have the same warranty as the warranty set forth in Section
7.9.  In cases when OAI bears all of the
Reconditioning Expenses for an MV Disinfector unit or if an evaluation MV
Disinfector unit is drawn from OAI’s demonstration pool for sale in connection
with OAI’s normal demonstration pool inventory turnover, a surcharge of $345.00
will be added to the cost of reconditioning to cover the warranty period set
forth in Section 7.9.  In cases when OAI
and the Company share equally the Reconditioning Expenses for an evaluation MV
Disinfector unit drawn from OAI’s new or “Class 2” inventory pools, a surcharge
of $172.50 will be added to the cost of reconditioning to cover the warranty
period set forth in Section 7.9.  The
Company’s hourly reconditioning labor rate for the initial year of the
Agreement Term shall be $100.00. The Company shall only bill OAI for actual
hours worked. The Company may increase this rate by no more than 5% per
year.  Any permitted increases must be
communicated to OAI in writing at least 60 days prior to the start of that
Agreement Term year.  The Company shall
provide OAI with an estimate of the Reconditioning Expenses within five (5)
Business Days of the Company’s receipt of the Disinfector unit.  Within seven (7) Business Days of receipt of
this Reconditioning estimate, OAI will either (i) approve the Reconditioning
Expense and issue a purchase order for the reconditioning, or (ii) communicate
instructions to the Company for disposition of the returned Disinfector
unit.  The Company shall use its best
efforts to complete reconditioning within 15 Business Days after receipt of 

 

8

 

an OAI purchase order covering
the reconditioning of the Disinfector unit. 
The Company shall keep records of the Company employees performing the
reconditioning, specific dates they were assigned to recondition a Product (by
serial number), how long they worked, and what was accomplished during that
period.  The Company will make this
information available to OAI upon request.

 

(b)                                  During
the initial six (6) months of the Agreement Term, the Company will use its best
efforts to design and validate a field repair or replacement kit for major
cracks in Disinfector basins (DSD and SSD models only).  In the event the Company fails to design and
validate the field repair or replacement kit during such six-month period, the
following protocol to rectify cracked basins will apply until such time as the
Company effects a repair kit, retrofit kit, or basin redesign:

 

(i)                                    In-Warranty
DSD/SSD Disinfectors:  Upon
receipt of notice from a customer that an in-warranty DSD or SSD Disinfector
has a cracked basin that has not been caused by inappropriate handling during
shipment, customer abuse, or inappropriate repair/installation by an OAI Field
Service Engineer or local Biomed Engineer, the Company will ship a replacement
unit within two (2) Business Days to the customer from OAI’s segregated new or
reconditioned Disinfector inventory. 
The DSD or SSD Disinfector with the cracked basin will be shipped,
together with a duly-issued RMA from the customer, as instructed by OAI, to the
Company for reconditioning.  In such
case, the Company will bear all Reconditioning Expenses.  Reconditioning shall be completed within 30
days after the Company’s receipt of the DSD or SSD Disinfector with a cracked
basin.  Upon completion of
reconditioning, the reconditioned unit will be placed into OAI’s segregated
reconditioned Disinfector inventory. 
Failure by the customer to submit the RMA with the shipped Disinfector
will not, by itself, void the underlying Disinfector warranty.  In such event, the Company will promptly
notify OAI that an RMA is required and will hold the Disinfector until a
duly-issued RMA is submitted to the Company.

 

(ii)                                Out-of-Warranty
DSD/SSD Disinfectors:  Upon
receipt of notice from a customer than an out-of-warranty DSD or SSD
Disinfector has a cracked basin that has not been caused by inappropriate
handling during shipment, customer abuse, or inappropriate repair/installation
by an OAI Field Service Engineer or local Biomed Engineer, the Company will
ship a replacement unit within two (2) Business Days to the customer from OAI’s
segregated reconditioned Disinfector inventory.  The DSD or SSD Disinfector with the cracked basin, together with
a duly-issued RMA from the customer, as instructed by OAI, will be shipped to
the Company for reconditioning.  In such
case, the Company shall cap all Reconditioning Expenses for a DSD Disinfector
unit with a cracked basin at $2,000 and a SSD 

 

9

 

Disinfector unit with a cracked
basin at $1,000. Reconditioning shall be completed within 30 days after the
Company’s receipt of an OAI purchase order covering the reconditioning of the
DSD or SSD Disinfector with a cracked basin. 
Upon completion of reconditioning, the reconditioned unit will be placed
into OAI’s segregated reconditioned Disinfector inventory.  In the event a DSD or SSD Disinfector with a
cracked basin is shipped to the Company without an RMA, the Company will
promptly notify OAI that an RMA is required and will hold the Disinfector until
a duly-issued RMA is submitted to the Company.

 

2.7                               SOP
for RMA.                Within
60 days after the complete execution of this Agreement, OAI and the Company
shall establish an SOP with respect to RMA issues covered by Sections 2.6(b),
7.9(a) and 7.9(d).

 

ARTICLE
3.  OBLIGATIONS OF THE COMPANY.

 

3.1                               Testing,
Verification, Design Validation, and Process Validation.  The Company shall provide complete
documentation which demonstrates that those Products which require pre-market
notification (“510(k)”) clearance by the FDA have been so cleared.  Such documentation shall include, without
limitation, specifications, performance testing, Verification protocols and
test results, Design Validation protocols and test results, and Process
Validation protocols and test results. 
For those Products deemed by the Company not to require 510(k)
clearance, the Company shall provide to OAI documentation to support the
decision not to file 510(k)s with the FDA. 
With respect to the Disinfectors, the Company shall conduct
Verification, Design Validation, and Process Validation activities to ensure
the performance of the Disinfector, including but not limited to the ability of
the Disinfector to perform high-level disinfection and/or sterilization of the
Equipment and to safely remove all residual cleaning and disinfecting materials
and sterilizing agents from the Equipment. 
With respect to Rapicide, the Company shall continue to conduct
appropriate stability, efficacy, potency, and chemical residual activities to
ensure the performance of Rapicide, including but not limited to the ability of
Rapicide to perform high-level disinfection and/or sterilization of the
Equipment to existing standards and regulations.  Subject to Article 10 (Confidential Information) and requirements
of law, and in order to make certain representations to the FDA, the Company
shall, as and when requested by OAI, provide OAI with the protocols and results
of its testing, Verification, Design Validation, and Process Validation efforts
with respect to the Products.  The
Company shall bear its own direct and indirect costs incurred in the performance
of its activities hereunder.  The
Company shall make all reasonable modifications to the Products to render them
compatible with the Equipment.  OAI
shall have no obligation to render any Equipment compatible with the Products.

 

10

 

3.2                               OAI
Audits.  OAI shall have the
right, at its cost and expense, to perform periodic audits of the Company (not
less than one per annum) with respect to the Products and the quality systems
related thereto (including but not limited to Quality System Regulations, 21
C.F.R. Part 820) to (i) determine compliance with the then current published
Good Manufacturing Practices regulations promulgated by the FDA, (ii) review
in-house bench servicing activities of the Company, and (iii) assess progress
made on corrective/preventive actions arising from previous audits.  Such audits shall be performed during normal
business hours and upon not less than ten days’ prior notice to the Company.  Audit frequency shall be determined by OAI
based upon, but not limited to, trend analysis of Complaints, the proposed
introduction of new products, and/or changes to the Company’s suppliers and/or
manufacturing processes that could impact the marketability, safety, or
effectiveness of a Product. The parties will cooperate with each other to
arrange such visits at mutually convenient times.  In addition, upon not less than ten days’ prior notice, OAI
personnel may periodically travel to the Company’s facilities, at OAI’s cost
and expense, to observe testing, Verification activities, Design Validation
activities, and Process Validation activities, receive information with respect
thereto, and ensure that the Products are being tested in accordance with Good
Laboratory Practices (21 C.F.R. Part 58). 
Should the audit results indicate that corrective/preventive action is
required by the Company, the Company shall use its best efforts to effect
corrective/preventive action(s) in a timely manner.  The progress and effectiveness of the corrective/preventive action(s)
are subject to re-audit by OAI as outlined above.  Notwithstanding anything contained in this Agreement to the
contrary, the (in)frequency of OAI’s audits shall not relieve the Company of
its obligations to comply with Quality System Regulations or any other
requirements under this Agreement.

 

3.3                               Approvals
and Clearances.  The Company
shall ensure that the Products are not sold to OAI before all required
governmental or private approvals and clearances, including without limitation
compliance with UL and §510(k) of the Food, Drug, and Cosmetic Act of 1938 and
Safe Medical Device Act of 1990, each as amended, for the sale, lease,
distribution or marketing of the Products have been obtained.

 

3.4                               Complaints.  The Company shall conduct a complete and documented
investigation and shall use its best efforts to fully resolve Complaints
regarding the Products (whether such Complaints are received by the Company
directly, or via OAI, OAI’s Affiliates, or a third party) in accordance with
the requirements for Complaint handling as defined and promulgated by the FDA
in the then current published Good Manufacturing Practices regulations (21
C.F.R. Part 820) or any other 

 

11

 

applicable law, rule, or
regulation.  OAI shall promptly forward
to the Company all such Product Complaints received by OAI.  Product Complaints received or generated by
OAI shall be communicated by OAI to the Company via telecopy and/or U.S. Mail.  Any and all Medical Device Reports (MDR)
Reportable Events shall be filed with the FDA (with a copy to OAI) by the
Company in accordance with all applicable laws, rules, and regulations
(including but not limited to 21 C.F.R. Part 803).  The Company shall give OAI prompt notice and copies of all Product
Complaints received by the Company directly or via third parties.  All such Complaint investigations shall be
performed and completed promptly but in no event later than 30 days from
receipt of the Complaint by the Company. 
If as a result of the Company’s investigation a Product Change is
necessary, the Company will perform and document such Product Change (i) in
accordance with this Agreement, (ii) at no charge to OAI, and (iii) in
consultation with OAI.  OAI shall have
the right to review all Product Changes and corrective actions resulting from a
Complaint investigation.  If OAI reviews
such Product Changes and/or corrective actions and reasonably determines that
such Product Changes and/or corrective actions will likely result in
incompatibility/ineffectiveness of the Product(s) with respect to the Equipment
and/or the compromise of the Products’ safety, then OAI will give the Company
notice of such findings with an attendant 30 days to develop a plan to resolve
such incompatibility/ineffectiveness.  If the Company fails to develop such a plan during such 30-day
period, OAI may, in addition to all other rights and remedies at law or in
equity or otherwise, unilaterally terminate the Agreement Term and all pending
purchase orders pursuant to Section 8.2(c), provided notice of such
termination is given within 30 days of the end of the 30-day plan development
period.

 

3.5                               Special
Investigations; Inquiries. 
If any government, health or other regulatory authorities or private
standards boards in the Territory require any clinical or other investigations
to be performed with respect to the Products and the quality systems related
thereto (including but not limited to Quality System Regulations, 21 C.F.R.
Part 820), and the Company has not performed such investigations or if, for any
reason, such authorities will not accept the results of the Company’s
investigations, then the Company shall use its best efforts in promptly
undertaking and completing such investigations.  Each Party agrees to notify the other of any formal or informal
inquiries relating to the Products by the FDA or any other regulatory agency,
any private standards board, or any state or Federal government.  Included in such notification shall be a
copy of the Form 483 (in the case of an FDA inquiry) or other similar document
left by or subsequently sent by the inquirer.

 

3.6                               Product
Changes.  The Company shall,
prior to the implementation of a Product Change, promptly obtain all approvals 

 

12

 

and clearances, if any,
required to manufacture the Product(s) and sell the Product(s) (as changed,
modified, or added) within the Territory. 
All Product Changes, regardless of whether initiated by OAI or the
Company and regardless of whether relating to or resulting from a Product
Complaint, shall be implemented in accordance with an SOP which details a
procedure including, without limitation, Engineering Change Requests and
Engineering Change Orders.  The Company
shall decide whether a particular Product Change requires that a Pre-market
Submission be filed with the FDA, including without limitation a 510(k)
notification or PMA application.  A
change of a supplier by the Company shall not constitute a Product Change, provided
that the Company has performed Process Validation and Design Validation (in
accordance with the FDA Guidance document, “Validation and Documentation
Inspection Guide” dated 1993) with respect to the new supplier and the new
materials supplied.  Process changes
that could impact the marketability, safety, or effectiveness of a Product, are
also subject to Process Validation activities. 
The Company shall provide copies of, and OAI shall have the opportunity
to review, all Design Validation and Process Validation protocols (for changes
in supplier and/or process) and test results prior to the implementation of
same by the Company. All Product Changes developed by the Company shall be
owned by the Company.

 

3.7                               Documentation
& Training.  The Company
shall furnish to OAI, without additional charge and for the duration of the
Agreement Term and for a period of two years thereafter, the following:

 

(a)                                  Documentation.  All technical information, documentation and
test data necessary to inventory, market, sell, ship, repair and maintain the
Products within the Territory.  Such
materials shall be consistent with similar information furnished to other
distributors of the Products and/or similar products manufactured by the
Company.  In addition, the Company shall
furnish to OAI, at least two weeks prior to the introduction of a new product,
a complete parts pricing list.  The
Company hereby grants to OAI a fully-paid, non-transferable license for the
Agreement Term to copy or otherwise reproduce all or portions of the Company’s
brochures, or to incorporate portions of the Company-copyrighted material in
Product brochures or advertising material composed by OAI, provided that
(i) OAI shall submit such materials composed by OAI which incorporate the
Company-copyrighted material to the Company for prior written approval, which
approval shall not be unreasonably withheld or delayed, and (ii) OAI uses such
materials solely to fulfill its obligations under this Agreement.  Such reproduction will not apply to
proprietary and confidential information and will be subject to all applicable
copyright laws.

 

13

 

(b)                                  Training.  Periodic in-person training of OAI’s sales,
service and customer support staff at a location selected by OAI.  Field service training will be detailed in a
formal curriculum which must include, without limitation, required testing and
recertification intervals.  Each of the
Company and OAI will bear the costs and expenses of its respective personnel in
connection with such training. 
Notwithstanding the foregoing, the Company shall hire and maintain, at
its sole cost and expense, a Technical Liaison (with a reasonable travel
budget) who will interact with appropriate OAI personnel.

 

3.8                               Noninterference.
The Company covenants that it shall not interfere with OAI’s rights and
obligations as the exclusive distributor and semi-exclusive servicer of the
Products as set forth in Article 2.

 

3.9                               Insurance.  Commencing on the first date of Product
delivery until the expiration of the pertinent statute of limitations, the
Company shall maintain Product Liability insurance and Completed Operations
insurance with an insurance company each in the amount of $2,000,000 per
occurrence, for any injury to persons or property resulting from the
manufacture, testing, demonstration, marketing, sale, lease, rental,
distribution or use of the Product.  OAI
shall be named as additional insured and loss payee under such policy and the
Company shall cause such policy to be endorsed by the Company’s insurance
company and provide evidence of same to OAI. 
Copies of such policy and any notices thereunder shall be forwarded to
OAI along with 30 days’ prior notice of termination or cancellation of such
policy.

 

3.10                        
Recalls.  In the event that
any Product defect or regulatory or governmental action requires a Product’s
recall as defined at 21 CFR Section 7.3(g) and (h), which includes without
limitation a device correction in the field (a “Recall”), or destruction,
withholding from the market, or other action that prevents or limits the
marketing of the Product, the Company shall bear all costs and expenses of such
Recall or other action.  OAI shall
reasonably assist the Company, at the Company’s cost and expense, in carrying
out any such Recall.  OAI shall bear the
costs and expenses of a Recall if such Recall is the direct result of any act
or omission to act attributable principally to OAI.  If a Recall is the direct result of acts or omissions to act
attributable to both the Company and OAI, or should it prove impossible to assign
fault for such Recall, the Company and OAI shall share the costs and expenses
of such Recall equally.

 

3.11                        Ancillary
Products and Rapicide.

(a)                                  During
the Agreement Term and the Post-Agreement Period, the Company agrees to offer
for sale to OAI all Ancillary Products and Rapicide.  During the Post-Agreement Period, OAI will only (i) sell or
provide Ancillary Products and Rapicide in 

 

14

 

connection with Product
Customer Service to Product customers existing prior to the end of the
Agreement Term and (ii) except as provided in the last sentence of Section 4.3,
buy Ancillary Products and Rapicide from the Company or the Company’s dealer,
distributor or reseller.  If OAI ceases
performance of its Product Customer Service functions in accordance with the
last sentence of Section 2.5(f), the Company need not continue to offer the
Ancillary Products and Rapicide for sale to OAI.

 

(b)                                  During
the Post-Agreement Period, the prices charged to OAI for the Ancillary Products
and Rapicide shall be as set forth on Schedule 3.11 attached hereto.

 

(c)                                  The
Company shall use its best efforts to stock sufficient inventory of Ancillary
Products and Rapicide to support the Disinfector units delivered to OAI’s
customers.  If and when necessary, the
Company shall use its best efforts to ship Ancillary Products and Rapicide
overnight, at OAI’s cost (unless overnight shipment is made necessary due to
the fault of the Company), in the event OAI does not have such Ancillary
Product and Rapicide in stock.  In the
event the Company is unable to supply such Ancillary Products and Rapicide and
obtain another source of supply for OAI, then such inability shall be
considered noncompliance with this Section and the Company shall use commercially
reasonable efforts, with neither obligation nor charge to OAI, to provide OAI
with drawings and other documents required to either manufacture or buy such
Ancillary Products and Rapicide and the technical information or any other
rights necessary for OAI to manufacture or obtain such Ancillary Products and
Rapicide from other sources, together with a non-exclusive license to make or
have made such Ancillary Products and Rapicide for the exclusive purpose of
supporting Product customers (and, once the Agreement Term has ended, only
Product customers existing prior to the end of the Agreement Term) within the
Territory.  The technical information
includes, by example and not by way of limitation (i) manufacturing drawings
and specifications of materials and parts comprising the Ancillary Products and
Rapicide and components thereof; (ii) manufacturing drawings and specifications
covering special tooling and operation thereof; (iii) a detailed list of all
commercially available accessories, consumables, parts and components purchased
by the Company on the open market, disclosing the model/part number, name and
location of the supplier and price lists for the purchase thereof; and (iv) one
complete copy of the source code used in the preparation of any software
licensed or otherwise acquired by OAI from the Company, provided, however,
that such source code shall remain the property of the Company (or third-party
owner thereof) and shall be separately licensed to OAI for OAI’s possession and
use exclusively for maintenance of OAI’s customers.  The aforementioned drawings, documents, and technical information
provided to OAI (and all copies thereof) 

 

15

 

shall be returned to the
Company once the Company is able to supply the Ancillary Products and Rapicide.

 

3.12                        Bottling,
Packing, and Marking.  The
Company shall bottle, pack, and mark the Products in accordance with applicable
laws and regulations. The Company shall prominently and permanently affix the
OLYMPUS trade name, trademark, colors, and logo (the “OLYMPUS Marks”) and may
permanently but less prominently (i.e., location, font, color) affix the
Company’s trade name, trademark, and logo (the “Company Marks”) on the
Products, all Product packaging, printed materials, labels, and tags as
mutually agreed between the parties. 
Any use by the Company of the OLYMPUS Marks or any trade name,
trademark, or logo which is similar to an OLYMPUS Mark, and the goodwill of any
business associated with such trade names, trademarks, or logos, shall inure to
the benefit of OAI.  Upon termination or
expiration of the Post-Agreement Period, the Company shall (i) not sell any
product (including the Products) which is bottled, packaged, and/or marked in
materials containing or with the OLYMPUS marks and (ii) immediately cease any
use of the OLYMPUS Marks.  Except as
expressly set forth herein, (a) the Company shall not have any right to use nor
shall the Company acquire any right, title, license, or other interest in the
“OLYMPUS” name, or any trade name, trademark, or logo belonging to OAI,
including but not limited to the OLYMPUS Marks, and (b) OAI shall not have any
right to use nor shall OAI acquire any right, title, license, or other interest
in the “MEDIVATORS” name, or any trade name, trademark, or logo belonging to
the Company, including but not limited to the Company Marks.  The Company hereby grants to OAI the right
and license to use the Company Marks in the Territory only with respect to the
Products and in accordance with this Agreement and, subject to Section 2.3,
such right and license shall be exclusive during the Agreement Term.  The Company shall give OAI a reasonable
opportunity to review and approve all Product marking.

 

3.13                        Labeling.  The Company shall give OAI a reasonable
opportunity to review and approve all Product labeling contained on and
distributed with the Products and such labeling shall comply with all FDA rules
and regulations (including but not limited to 21 C.F.R. Part 801).

 

3.14                        Repair
History.  In the event a repair
to a Product is necessary, the Company shall promptly provide OAI with the
repair history of such Product, upon OAI’s request.  In addition, the Company shall supply to OAI, upon OAI’s request,
an accounting of all Disinfector repair parts shipped or used in order to
service units under warranty.  The
Company shall provide OAI with written monthly reports detailing the Company’s
Product Customer Service functions performed. 
In addition, OAI will provide to the Company, upon the Company’s
request, the repair history of Disinfector units sold during the term of the
prior Distributor 

 

16

 

Agreements between the parties,
dated March 12, 1996 and August 1, 1999, respectively.

 

3.15                        Demonstration
and Training Units.  During the
Agreement Term, OAI will have the right to purchase from the Company a
reasonable number of Disinfector demonstration and training units as OAI
requires, at a price discounted by 30% off of then-current list price.  Such demonstration and training units will
be marked as such and will not be for re-sale, except in connection with
OAI’s normal demonstration pool inventory turnover.

 

3.16                        OAI
Product Enhancements.

(a)                                  The
Company agrees to evaluate and use commercially reasonable efforts to
incorporate OAI’s reasonably conceptualized and documented design changes
and/or enhancements to the Products (“OAI Enhancements”). Any increase or
reduction in the Company’s manufacturing costs (labor and materials) resulting
from OAI Enhancements shall be reflected in reasonable price adjustments. Any
engineering/design costs and delivery dates for OAI Enhancements shall be
quoted to OAI for its approval and payment. Any related tooling purchased by
OAI for the Company’s use in implementing OAI Enhancements shall be owned by
OAI and shall be used exclusively for the benefit of OAI.  Any and all Intellectual Property relating
to OAI Enhancements shall be owned by OAI and the Company shall receive a non-exclusive
license to use such OAI Enhancements on the Products for the balance of the
Agreement Term (on a royalty-free basis) and for a period of nine months
thereafter, provided that (i) use of such license shall not cause the
Company to compete with OAI or any OAI Affiliate during the Agreement Term and
(ii) the Company remits a mutually agreed-upon royalty (based on the enhanced
value of the affected product(s)) to OAI during the nine-month period following
the Agreement Term.  (The license during
the Agreement Term may be granted on a worldwide basis depending on OAI’s
evaluation of its impact on OAI’s Affiliates.) 
The Company shall not use the OAI Enhancements for itself or for any
other party for any purpose other than the performance of its obligations
hereunder. Product design changes and/or enhancements conceived jointly by OAI
and the Company shall be owned by OAI and the Company jointly.

 

(b)                                  OAI’s
audit rights set forth in Section 3.2 shall apply to this Section as well.

 

3.17                        Quality Issues  The Company agrees, in compliance with FDA
regulations, that it will have an effective and timely program in place for
preventing quality problems, identifying and analyzing quality programs,
internally communicating such quality problems that are discovered either
in-house or in the field, and taking appropriate corrective action(s).  This program shall include but not be
limited to: establishing appropriate design controls; analyzing processes, work
operations, quality audit 

 

17

 

reports, quality
records, service records, complaints, returned product and other sources of
quality data to identify existing and potential causes of nonconforming product
or other quality problems; use of appropriate statistical methodology where
necessary to detect recurring quality problems; investigating the cause(s) of
nonconformities relating to product, processes and the quality system;
identifying action(s) needed to correct and prevent recurrence of nonconforming
product and other quality problems; verifying or validating the corrective and
preventive action to ensure that such action is effective and does not
adversely affect the finished device; implementing and recording changes in
methods and procedures needed to correct and prevent identified quality problems;
ensuring that information related to quality problems or nonconforming product
is disseminated to individuals directly responsible for assuring the quality of
such product or the prevention of such problems; submitting relevant
information on identified quality problems, as well as corrective and
preventive actions, for management review; conducting such corrective and
preventive actions including product recalls and market withdrawals; and
adequately documenting all such activities.

 

3.18                        Quality
Dispute Resolution.  Within 60 days after the complete execution
of this Agreement, OAI and the Company shall establish an SOP with respect to
the resolution of disputes that may arise between the parties in connection
with the regulatory and quality issues covered by Sections 2.6, 3.1, 3.2. 3.3,
3.4, 3.5, 3.6, 3.7, 3.10, 3.12, 3.13, 3.14, 3.17, 3.20, 3.21, 7.8(b), 7.10, and
7.12.

 

3.19                        Reports.

(a)                                  Weekly Inventory Status.  During the Agreement Term, the Company shall
submit to OAI’s Manager-Purchasing & Planning (MSG) (with a copy to OAI’s
Vice President-Operations), by the first Business Day of each week, a written
Weekly Inventory Status Report listing the Disinfector units (new and
reconditioned) located in OAI’s segregated section of the Company’s principal shipping
facility.

 

(b)                                 Quarterly Activity.  During the Agreement Term, the Company shall
submit to OAI’s                          CDS
Senior Manager (with a copy to OAI’s Vice President - Marketing) within 30 days
after the end of each calendar quarter, a written report detailing Product
shipments, activities of the Company’s Clinical Specialists (e.g., projected
Disinfector and Rapicide placements for the next calendar quarter), and
competitive activity during the past quarter.

 

3.20                        Rapicide
as a Hazardous Material.  The
Company agrees that it will fully comply with all applicable provisions of 49
C.F.R. Part 171 with respect to all shipments of Rapicide.

 

18

 

3.21                        HIPAA.  Where applicable, the Company agrees to
comply with the Health Insurance Portability and Accountability Act of 1996,
P.L. 104-191 (“HIPAA”) and the rules and regulations implemented
thereunder.  The Company further agrees
to (a) comply with all applicable federal, state, and local laws and
regulations, including without limitation HIPAA, regarding the confidentiality
of patient and/or protected health information (“PHI”), and (b) execute
additional documents as required by the “Covered Entity” as defined under and
in accordance with HIPAA rules and regulations to ensure the safeguarding of
PHI, including but not limited to execution of a Business Associate-Related
agreement that must be executed considering the Company’s receipt and/or use of
PHI in the work that it performs for OAI. 
In the event such documentation is not executed, for any reason
whatsoever, OAI may terminate the Agreement Term pursuant to Section
8.2(c).  The Company agrees to execute
any additional documentation that may be required by HIPAA.

 

ARTICLE
4.  OBLIGATIONS OF OAI.

 

4.1                               Purchase
Projections.  OAI projects that
it will, during each year of the Agreement Term, purchase the dollar volume of
Products corresponding to such year set forth on Schedule 4.1 attached
hereto.  If, at the end of an Agreement
Term year, it is determined that at least 90% of such year’s purchase
projection (the “90% Amount”) has not been met, the Company may terminate the
Agreement Term pursuant to Section 8.2(e) or modify OAI’s distribution rights
to non-exclusive status.  Such decision
to terminate or to remove exclusivity must be made within 60 days after the
close of the particular Agreement Term year. 
If during such 60 day period the Company decides to terminate the
Agreement Term or remove OAI’s exclusivity, the Company shall give OAI 30 days’
prior written notice.   During such 30
day notice period, OAI shall have the right to cure the purchase projection
shortfall, and cancel the Company’s decision to terminate or remove
exclusivity, by remitting to the Company the amount set forth in Section
8.2(e).  Failure by the Company to send
such notice during such 60 day period shall mean OAI’s rights under Section 2.1
shall continue on an exclusive basis for at least the ensuing year of the
Agreement Term.  If the Company elects
to remove OAI’s exclusivity in accordance with this Section and OAI fails to
revive the exclusivity as set forth in this Section 4.1, then the restrictions
on both parties set forth in Section 2.1(a), 2.2, and 2.3 and the foregoing
purchase projections shall be canceled. 
Notwithstanding anything contained herein to the contrary, the
aforementioned purchase projections shall not constitute a commitment by OAI to
purchase such projected amount of Products and OAI shall not have any liability
whatsoever to the Company in the event such projections are not satisfied.

 

19

 

4.2                               Scope
of Responsibility.  During the
Agreement Term, OAI shall, at its own cost and expense, use commercially
reasonable efforts to sell the Products and perform its Product Customer
Service obligations within the Territory. 
OAI shall keep the Company reasonably informed of market information and
OAI’s sales and marketing activities by submitting to the Company, on a
quarterly basis, a written report summarizing sales, marketing, and competitive
activity.  During the Agreement Term,
OAI shall not take any action which would impair or diminish the reputation of
the Company or the Products. The parties agree that OAI’s marketing, sale, or
distribution of changed or improved new products or products substantially
similar to the Products in accordance with the provisions of this Agreement,
shall not constitute impairment to or diminishment of the reputation of
the Company or the Products.

 

4.3                               Alteration
of Products.  During the
Agreement Term and the Post-Agreement Period, OAI shall not alter, modify or
substitute components of the Products (except for Product Customer Service
performed in the ordinary course of business) or specifications relative
thereto without the written consent of the Company, which consent shall not be
unreasonably withheld or delayed.  In
effecting repairs on the Products, OAI shall use only Ancillary Products
purchased from or authorized by the Company. 
However, in the event of an emergency, OAI may purchase Ancillary
Products from a third-party retail source.

 

4.4                               Marketing.  During the Agreement Term, OAI shall, at its
own cost and expense, use commercially reasonable efforts to market the
Products in the Territory.  OAI shall
attend major trade shows relating to the Products.  OAI and the Company shall meet semi-annually to review prior
activity and to plot future strategy.

 

4.5                               Inventory.  OAI shall maintain a working inventory of
the Disinfectors adequate, in OAI’s sole and absolute discretion, to handle the
reasonably anticipated demand and to render satisfactory Product Customer
Service to Disinfector customers.

 

4.6  Prohibited Sales.                            During
the Agreement Term and the Post-Agreement Period, except as expressly agreed by
the Company in writing, OAI shall not (i) sell any Product for resale or for
export out of the Territory; (ii) export any Product from the Territory; or
(iii) sell any Product to any person, firm or company in the Territory which
OAI knows or has reason to believe intends to resell or export the Product out
of the Territory.

 

4.7                               Insurance.  Commencing on the first date of Product
delivery until the expiration of the pertinent statute of limitations, OAI
shall maintain comprehensive general liability and automobile liability
insurance each in the amount of $2,000,000 per occurrence, and workers’
compensation insurance in 

 

20

 

the amount of $1,000,000 per
occurrence, covering its activities hereunder as a distributor and servicer of
the Products.  Evidence of such
insurance shall be provided to the Company upon reasonable request.

 

4.8                               Equipment
Modifications.  OAI will give
the Company at least 90 days’ prior notice of modifications to the Equipment
that will likely result in incompatibility/ineffectiveness of the Products with
respect to the Equipment.  The Company
shall not be in default hereunder if it is unable to conform the Products to
such Equipment modifications.

 

4.9                               HIPAA.  Where applicable, OAI agrees to comply with
the Health Insurance Portability and Accountability Act of 1996, P.L. 104-191
(“HIPAA”) and the rules and regulations implemented thereunder.  OAI further agrees to comply with all
applicable federal, state, and local laws and regulations, including without
limitation HIPAA, regarding the confidentiality of patient and/or protected
health information.

 

4.10                        Sole
Remedy.  Except as set forth in
Sections 4.1 and 9.3, the Company’s sole remedy for the breach by OAI of any of
the obligations contained in Sections 4.1, 4.2, 4.4, 4.5, 4.6 and 4.9 shall be
termination of the Agreement Term in accordance with Section 8.2(b) or (d), as
the case may be.

 

ARTICLE
5.  PURCHASE ORDERS.

 

5.1                               General.  During the Agreement Term and, with respect
to the Ancillary Products and Rapicide, during the Post-Agreement Period as
well, the Company agrees to sell the Products to OAI and OAI may purchase the
Products from the Company (if OAI submits a purchase order therefor) and such
purchases shall be governed by, in accordance with, and subject to the terms
and conditions of this Agreement.  In
each month of the Agreement Term, OAI shall provide the Company with an
estimate of its purchase of Disinfector units for the ensuing three months.  This estimate is not a binding guarantee but
rather a guide to possible upcoming purchases. 
OAI will endeavor to purchase the estimated amount.  OAI will issue a purchase order for each
month by the third Business Day of the month.

 

5.2                               Disinfector
Inventory and Delivery.  Upon
submission by OAI of purchase orders (in accordance with Section 5.5) for
Disinfector units, the Company shall, within 30 days, have such Disinfector
units physically available in a segregated OAI inventory (not commingled with
other product inventory of the Company) at the Company’s principal shipping
facility.  Such segregated OAI inventory
shall be maintained by the Company at no charge to OAI.  Upon receipt of shipping instructions by the
Company from OAI, the Company shall, within five Business Days, 

 

21

 

ship the Disinfector units from
the segregated OAI inventory to the OAI customer(s) within the Territory
designated by such shipping instructions, provided that OAI has sufficient
inventory to cover the order.  OAI shall
bear the initial shipping costs incurred in delivering brand new or
newly-ordered reconditioned Disinfector units to OAI customers.  OAI will also bear the shipping costs
incurred in delivering replacement units to customers that are needed due to
OAI administrative or customer error. 
OAI may cancel shipping instructions and, at its option, either arrange
for pick-up and shipment or receive a credit for Disinfector units whose
delivery is more than ten days past due. If the Company incorrectly ships a new
Disinfector unit to a customer from the segregated OAI inventory in lieu of a
reconditioned Disinfector unit ordered by OAI, the Company shall (provided
that the unit does not exhibit any sign of use by the Customer) bear all costs
of return, quality control release testing, and repackaging as a new unit.  If the unit has been previously used by the
customer, then the Company shall issue a $5,000.00 credit to OAI.  In any event, if the Company incorrectly
ships the wrong class of Product to a Customer, the Company will bear all packing,
(de)installation, and shipping charges incurred in correcting such misshipment.

 

5.3                               Ancillary
Product and Rapicide Delivery.

(a)                                  OAI
will issue a blanket purchase order for Ancillary Products and/or Rapicide. The
Company shall, within 30 days of OAI’s submission of a pick ticket
corresponding to such blanket purchase order, deliver such Ancillary Products
and/or Rapicide to OAI or the OAI customer(s) within the Territory, as
designated by OAI on the pick ticket. 
OAI shall bear the shipping costs incurred by the Company in delivering
the Ancillary Products and/or Rapicide to OAI or OAI’s customers.  If delivery of such pick ticket is more than
30 days past due, OAI may, at its option, either (i) cancel the pick ticket for
Ancillary Products and/or Rapicide or (ii) elect to proceed with the solution
set forth in Section 3.11(c).  If OAI or
OAI’s customer finds any quantity deficiency in the Ancillary Product and/or
Rapicide, OAI may, at its option, (i) require the Company to immediately
deliver the difference by air freight at the Company’s expense, or (ii) reduce
the purchase price specified in the related pick ticket accordingly.  If OAI or OAI’s customer finds an
over-shipment of Ancillary Product and/or Rapicide, OAI and/or the OAI customer
may store the excess units or bottles (as the case may be) or return the excess
units/bottles to the Company, both at the Company’s risk and expense.  The Company shall not ship, and OAI shall be
entitled to reject as “defective”, Rapicide bottles with a remaining shelf life
of three months or less.  During the
initial six (6) months of the Agreement Term, OAI will pay the Company a flat
monthly fee of $8,250.00 in consideration for all order picking, packing,
shipping, and administrative fees associated with the shipment of Ancillary
Products and Rapicide.  Prior to the end
of the initial six-month period of the Agreement 

 

22

 

Term, the Company and OAI agree
to establish a per-pick fee that will replace the flat monthly fee upon
conclusion of such initial six-month period.

 

(b)                                  Upon receipt by OAI
of repair parts request documentation from the Company through Metrix, an OAI
purchase order will be issued authorizing drop shipment to the customer.  OAI shall bear all of the shipping costs
incurred by the Company in shipping of the repair parts except for items
covered under warranty.  All repair
parts invoices sent by the Company must contain the following:  JDE PO#, Metrix Request ID#, Serial # of the
unit, dispatch status, and warranty status. 
The Company agrees not to ship parts to customers that appear on the
customer credit hold list supplied by OAI. 
The repair parts documentation mentioned above includes, but is not
limited to, customer’s purchase order number, repair part requirements,
description of the problem, Company resolution, warranty status, and service
contract status.

 

5.4                               Title;
Risk of Loss.  Title to and risk
of loss for the Products sold to OAI shall pass to OAI upon (i) placement of
the Disinfector units into the segregated OAI inventory at the Company’s
principal shipping facility (with respect to the Disinfectors), and (ii)
receipt of the Ancillary Products and/or Rapicide by the carrier selected by
OAI to deliver the Ancillary Products and/or Rapicide to OAI or OAI’s
customers.

 

5.5                               Conditions
of Sale.  The order terms and
conditions set forth in this Agreement shall govern all orders made under this
Agreement, and any standard printed order forms or other documents of either
party (such as those contained on a quotation, proposal, purchase order, pick
ticket, or invoice) shall have no force or effect with respect to such orders
unless such form or document specifically states that it is an amendment to
this Agreement and is signed by an authorized signatory of each party.
Notwithstanding the foregoing, OAI’s purchase orders and pick tickets may
indicate the following terms which shall govern:  Product quantity, delivery destination and schedule, and a reference
to the applicable pricing.  OAI shall
have no obligation to purchase until it submits a purchase order or pick ticket
(as the case may be) to the Company.  An
OAI purchase order or pick ticket shall be deemed accepted by the Company
unless OAI is notified to the contrary in writing by the Company within seven
days of the Company’s receipt of such purchase order or pick ticket from
OAI.  An appropriate policy/procedure
will be developed to handle special requests.

 

5.6                               Price.  

(a)                                  Pricing.  During the first year of the Agreement
Term, the prices to be charged to OAI for (i) the Disinfectors shall be fixed
as set forth in Schedule 1.8 attached hereto, and (ii) the Ancillary
Products and Rapicide shall be fixed as set 

 

23

 

forth in Schedule 1.4 attached
hereto.  During each of the second and
third years of the Agreement Term, the Company may only increase the prices for
the Products once by no greater than the annual percentage change in the
Producer Price Index (“PPI”) (for Disinfectors, PPI Commodity Grouping code
number WPU11790524 will be used; for Ancillary Products and Rapicide, PPI
Commodity Grouping code number WPU15620101 will be used) per Agreement Term
year, unless the cost of major components increases sufficiently to
warrant price increases above the foregoing percentage change in PPI
limits.  In the event the Company wishes
to increase prices by more than the foregoing percentage change in PPI limits
due to major component increases, the Company shall substantiate and justify
such increases to OAI in writing, and OAI will then have the option to locate
the components from a third-party at a lower price for the Company’s purchase
of such third-party components in order to reduce or eliminate the price
increases to OAI.  Price increases due
to mutually agreed-upon Product additions and/or enhancements will not be
limited by the foregoing percentage change in PPI limits.  Any permitted annual price increases must be
communicated to OAI during the 60 days immediately prior to the start of the
Agreement Term year and shall take effect on the first day of such Agreement
Term year. In the event the Company is 30 days or more past due in delivering
the Products (in accordance with Sections 5.2 and 5.3) the purchase price for
such “late” Products shall be reduced by three percent (3%) for each 15-day
period such delivery is overdue. Product pricing shall only be adjusted in
accordance with this Section 5.6(a) unless otherwise agreed by the
parties.  Instruction manuals shall be
included in the price of the Products. 
OAI shall be free to set its own Product prices charged to its
subdistributors, dealers, and customers.

 

(b)                                  Payment.  OAI shall pay for Disinfector units no
later than 30 days from (i) placement by the Company of the Disinfector units
in OAI inventory AND (ii) the date of the corresponding invoice.  OAI shall pay for all Ancillary Products and
Rapicide received and not rejected (within ten days) by OAI or OAI customers no
later than 30 days from the date of the Company’s invoice corresponding to such
Ancillary Products and Rapicide received and not rejected (within ten
days).  All payments overdue by more
than ten Business Days shall generate a one and one-half percent (11⁄2%) late
payment penalty (or the highest rate permitted by law if less than one and
one-half percent (11⁄2%) per month) for each month such payment is overdue.

 

5.7                               Upon
Termination.  Unless OAI
decides that it does not want a Disinfector purchase order or shipping
instruction filled, any Disinfector purchase order/shipping instruction
submitted by OAI but not shipped by the Company prior to the date that notice
of termination is delivered hereunder or the date that the Agreement Term
otherwise expires, shall be timely delivered to OAI’s segregated inventory at
the Company’s principal shipping 

 

24

 

facility or the destination
points designated by OAI (as the case may be), provided that such
termination did not arise from OAI’s default.

 

ARTICLE
6.  REPRESENTATIONS AND WARRANTIES OF
OAI.

OAI hereby covenants, represents and warrants to the Company, its
successors and permitted assigns that:

 

6.1                               Due
Organization.  OAI is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New York, and has the full power and authority to conduct
all activities conducted by it under this Agreement.

 

6.2                               Authorization
to Execute.  The person
executing this Agreement on behalf of OAI has been duly authorized to do so by
all requisite corporate and other action of OAI, and this Agreement has been
duly executed and delivered to the Company by such person.

 

6.3                               Validity
of Agreement.  This Agreement is
the legal, valid and binding obligation of OAI, enforceable in accordance with
its terms.

 

6.4                               No
Conflict.  To the knowledge of
OAI, the execution, delivery and performance of this Agreement by OAI does not
and will not conflict with or result in a breach of any agreement, instrument
or understanding, oral or written, to which OAI is a party.  There is no litigation, arbitration or
administrative proceeding pending or threatened which would, in any event,
conflict with or result in a breach of this Agreement or interfere with OAI’s
obligations hereunder.

 

6.5                               Compliance.  OAI shall ensure that, in marketing and
selling the Products, it shall (i) comply with all applicable laws and
regulations and (ii) not engage in any deceptive or misleading practices.

 

ARTICLE
7.  REPRESENTATIONS AND WARRANTIES OF
THE COMPANY.

The Company hereby covenants, represents and warrants to OAI, its
successors and permitted assigns, and to OAI’s customers that:

 

7.1                               Due
Organization.  The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Minnesota, and has the full power and authority to conduct
all activities conducted by it under this Agreement.

 

7.2                               Authorization
to Execute.  The person
executing this Agreement on behalf of the Company has been duly authorized to
do so by all requisite corporate and other action of the Company, and this
Agreement has been duly executed and delivered to OAI by such person.

 

25

 

7.3                               Validity
of Agreement.  This Agreement is
the legal, valid and binding obligation of the Company, enforceable in
accordance with its terms.

 

7.4                               No
Conflict.  To the knowledge of
the Company, the execution, delivery and performance of this Agreement by the
Company does not and will not conflict with or result in a breach of any
agreement, instrument or understanding, oral or written, to which the Company
is a party.  There is no litigation,
arbitration or administrative proceeding pending or threatened which would, in
any event, conflict with or result in a breach of this Agreement or interfere
with the Company’s obligations hereunder.

 

7.5                               Right
to Use Technology.  The Company
has the legally enforceable right to use all technology contained within or
related to the Products, whether patented or unpatented, for the purposes
specified in this Agreement, and such use of such technology does not violate
any agreement, instrument or understanding, oral or written, to which the
Company is a party.

 

7.6                               Warranty
of Non-Infringement.  The
Products do not incorporate or infringe upon any copyright, patent, trademark,
service mark, trade name, trade secret, idea, process, know-how, development,
invention, or any other form of intellectual property (collectively
“Intellectual Property”) not owned by or licensed to the Company. The Company
will promptly notify OAI of any alleged or actual infringement by the Company
of any Intellectual Property relating to the Products or their
manufacture.  Nothing in this Agreement
shall be deemed to confer upon either OAI or the Company any right, title,
interest, or license, express or implied, to or in any of the other party’s
current or future Intellectual Property or in the goodwill now or hereafter
associated therewith.

 

7.7                               Right
to Sell for Resale; Ability to Deliver.  The Company has the right to sell the Products to OAI for resale
by OAI in the Territory.  The Company
has and will have the ability to timely deliver all of the Product units
ordered by OAI during the Agreement Term and Post-Agreement Period.  The Company shall not be liable for any
indirect, special, incidental or consequential damages (including but not
limited to lost profits, lost investments, and lost business opportunities)
resulting from its failure to timely deliver any Product.

 

7.8                               Product
Quality.

(a)                                  The
Products to be sold to OAI hereunder shall (i) meet their respective published
specifications during the warranty periods set forth in Section 7.9(b) and (ii)
be new and free from defects in design, materials, and workmanship.

 

26

 

(b)                                  The
Company shall possess a Quality System that adheres to all applicable laws,
rules and regulations, including without limitation the practices and
regulations of the FDA (including but not limited to current Good Manufacturing
Practices as expressed in 21 C.F.R. Part 820). 
In addition, the Company shall hire and maintain sufficient personnel
devoted substantially to process quality control.

 

7.9                               Product
Warranty.

(a)                                  With
respect to each Product unit sold to OAI and delivered to an OAI customer, the
Company shall, at no charge to OAI for parts, labor, and material, replace or
render fully operational any non-conforming or defective Product part or
material by reason of the breach by the Company of the warranty set forth in
Section 7.8(a), provided that any non-conforming or defective Product
part or material is returned to the Company, along with a duly-issued RMA,
within 30 days of field exchange. 
Failure to submit the RMA with the returned Product unit will not, by
itself, void this warranty.  In such
event, the Company will promptly notify OAI that an RMA is required and will
hold the Product until a duly-issued RMA is submitted to the Company.  The Company shall, within 20 days after
receipt by the Company of the non-conforming or defective Product part or
material, reasonably determine whether the Product part or material is
non-conforming or defective, and whether it is covered by this warranty.  OAI shall reimburse the Company for the cost
of any replacement or repair part delivered by the Company in place of a
Product part or material which, within the combined twenty-day period referred
to in the preceding sentence, is reasonably determined by the Company not to be
(i) non-conforming or defective or (ii) covered by this warranty; provided,
that the Company returns to OAI the Product part or material initially sent by
OAI.  OAI will perform the labor itself
or via a third-party service provider with the cost billed back to the Company
at OAI’s per hour labor rate set forth on Schedule 7.9 attached hereto,
for all labor associated with the repair or replacement of defective or
non-conforming Product parts. 
Notwithstanding the foregoing, the labor cost for a DSD
Disinfector in-warranty service call that is not due to a defective or
non-conforming Product part shall be borne by OAI.

 

(b)                                  Except
as otherwise agreed in writing by the parties, the warranty period for all (i)
Disinfectors shall be the earlier of (x) twelve months after the date the
Disinfector unit is installed at the OAI customer’s facility or (y) 15 months
after the shipment date; (ii) Ancillary Products and Rapicide shall be 90 days
commencing on the date of use by the customer, and shall not be longer than
nine (9) months after the shipment date; and (iii) replacement DSD printers
shall be six (6) months commencing on the date of use by the customer, and
shall not be longer than nine (9) months after the shipment date.

 

27

 

(c)                                  Notwithstanding
the foregoing, in the event of failure by the Company to repair or replace non-conforming
or defective Product parts, material or units under warranty within the
respective time periods set forth in Section 7.9(a), (i) OAI may, at its sole
and absolute discretion after informing the Company of its intentions, make
such corrections or replace such Product parts, material, or units and charge
the Company for the reasonable cost incurred by OAI in doing so and (ii) the
Company shall reimburse OAI for any and all reasonable additional costs and
expenses incurred by OAI as a result of such failure to repair or replace,
which costs and expenses would not have been incurred if not for such failure
to repair or replace.  Failure of the
Company to repair or replace within 30 days shall entitle OAI to a full refund
for the affected Product unit(s), provided the affected Product units are
returned to the Company in a timely fashion. 
The foregoing reimbursement plan shall continue until the non-conforming
Product parts, material, or units are repaired, replaced, or refunded.

 

(d)                                  OAI
or the OAI customer must receive an RMA from the Company before returning a
Disinfector or any major defective part to the Company.  OAI will instruct its customers to package,
in a commercially reasonable fashion, the Disinfector units to be returned to
the Company.  Notwithstanding anything
contained in this Agreement to the contrary, shipping costs incurred (i) by OAI
and risk of loss upon return of Product parts, material, or Disinfector units
to the Company for repair or replacement (in accordance with this Section 7.9)
shall be borne by the Company and (ii) by the Company and risk of loss upon
delivery of the repaired or replacement parts, material, or Disinfector units
to OAI shall be borne by the Company.

 

(e)                                  Inspection,
testing, acceptance, or use (or failure to do the same) of the Products on any
occasion shall not affect OAI’s rights and the Company’s obligations under this
Agreement or any other rights or remedies available to OAI whether at law, in
equity, or otherwise, and such warranties, rights, and remedies shall survive
such inspection, testing, acceptance, and use.

 

(f)                                    The
foregoing warranty shall not limit or exclude OAI’s other remedies hereunder,
at law, or in equity.  Notwithstanding
the preceding sentence, in no event shall the Company be liable for indirect,
incidental, consequential, or special damages, including but not limited to
damages for lost profits, lost investments, or lost business opportunities.

 

7.10                        Compliance.  The Company has ensured and shall continue
to ensure that (i) in manufacturing and selling the Products to OAI, it shall
comply with all applicable laws and regulations including, without limitation,
the Food Drug and Cosmetic Act of 1938, as amended (the “Act”), and 21 C.F.R. 

 

28

 

Part 820; (ii) as of the date
of delivery to OAI, the Products shall not be adulterated or misbranded within
the meaning of the Act or any similar federal, state or local laws or
regulations, or be an article that is prohibited for introduction into interstate
commerce under the provisions of the Act; (iii) it will not engage in any
deceptive or misleading practices; and (iv) it will obtain and maintain all
required governmental and private approvals and clearances (including without
limitation compliance with UL and Section 510(k) of the Act).

 

7.11                        Price
Warranty.  MV Disinfector
service contract pricing from the Company to OAI shall be as set forth in Schedule
7.11.  The Company warrants that all
prices referenced in Sections 2.5(d), 2.5(e), 2.6, 5.3(a), and 5.6(a), and Schedules
1.4, 1.8, 3.11, 7.9, and 7.11 shall be complete and no additional charges
of any kind (except for shipping costs) shall be added without OAI’s prior
written consent.  Examples of additional
charges include, but shall not be limited to, packaging, labeling,
(re)stocking, storage, insurance, boxing, or crating.

 

7.12                        California
Proposition 65.  No product
supplied under this Agreement contains chemicals determined by the state of
California, pursuant to the Safe Drinking Water and Toxic Enforcement Act of
1986, California Health and Safety Code Section 25249.5 et seq (“Proposition
65”), to cause cancer or birth defects or other reproductive harm.  Alternatively, if any Product supplied under
this Agreement does include such chemicals, such Product will bear warning
labeling in full compliance with Proposition 65 or, if such chemicals are in
amounts that do not require warning labeling under Proposition 65, the Company
will provide OAI with a certification stating that warning labeling is not
required as well as the test protocol and test results to support such
certification.  The Company shall
indemnify OAI in accordance with Section 9.2 for any breach of this Section
7.12.

 

ARTICLE
8.  TERM AND TERMINATION.

 

8.1                               Term.
 This Agreement shall remain in full
force and effect commencing on the date first above written and expiring on the
third (3rd) anniversary therefrom (the “Agreement Term”) unless
earlier terminated pursuant to Section 8.2. 
Notwithstanding the foregoing, the Agreement Term may be suspended
pursuant to the provisions of Section 11.1 of this Agreement.

 

8.2                               Events of
Termination.  The
Agreement Term may be terminated, without limiting any party’s rights to other
remedies (except as set forth in Section 4.10), as follows:

 

(a)                                  Upon
ten days’ written notice by either party (the “Terminating Party”) to the other
party (the “Breaching Party”):

 

29

 

(i)                                     if the Breaching
Party has not performed or has materially breached its obligations hereunder
and if such nonperformance or breach is incapable of cure; or

 

(ii)                                  if the Breaching
Party shall make an assignment for the benefit of its creditors; or

 

(iii)                               if the Breaching Party
sells or otherwise transfers, singly or in the aggregate, 25% or more of its
ownership or assets without the prior written consent of the Terminating Party;
or

 

(iv)                              in accordance with
Section 11.1 (Force  Majeure).

 

The Breaching Party immediately shall notify the Terminating Party in
writing of the occurrence of any event of the type described in clauses
(a)(ii)and (iii).

 

(b)                                  Immediately
and automatically if any proceeding in bankruptcy, reorganization or
arrangement for the appointment of a receiver or a trustee to take possession
of any party’s assets or any similar proceeding under the law for relief of
creditors shall be instituted by or against such party.

 

(c)                                  By
the Terminating Party upon the expiration of 30 days (or such additional period
as the Terminating Party may authorize) after the Breaching Party’s receipt of
written notice of its material breach or non-performance of its obligations
hereunder and if such breach or non-performance is capable of cure and has not
been cured within such 30-day (or additionally authorized) period.

 

(d)                                  By
OAI upon 30 days’ prior written notice to the Company of the rejection of a
Product Change or corrective action in accordance with Section 3.4.

 

(e)                                  By the Company upon 30 days’ prior written
notice to OAI of OAI’s failure to meet the 90% Amount in accordance with
Section 4.1.  However, OAI shall have
the right, at is option, to remit to the Company the portion of such Agreement
Term year’s shortfall below the 90% Amount attributable to the Company’s
documented gross profit (i.e., Product pricing set forth in Section 5.6(a) less
cost of goods sold) during such 30 day notice period and thus cure and revive
the Agreement Term.

 

30

 

(f)                                    By the Company, upon six (6) months’ prior
written notice, in accordance with Section 2.3.

 

8.3                               Rights
and Obligations upon Termination. 
Upon expiration or earlier termination of the Agreement Term, OAI shall
have the right to (i) sell all Product units ordered by OAI customers, (ii)
within 30 days of the date of termination, sell all Product units in OAI
inventory (whether at OAI’s or the Company’s facility), and (iii) provide
ongoing Product Customer Service to its customers in accordance with this
Agreement.

 

8.4                               Termination
or Expiration Damages. 
Notwithstanding anything contained in this Agreement to the contrary,
neither OAI nor the Company shall be liable to the other, or to any other
business entity or subdistributor, solely by reason of the expiration or
termination of the Agreement Term regardless of the rationale for or propriety
of any termination or expiration.  The
exculpation from liability shall be for any losses or damages of any kind
whatsoever, including, but not limited to, direct, indirect, special,
consequential or incidental damages sustained by reason of such termination,
including but not limited to, any claim for loss of compensation or profits or
for loss of prospective compensation or prospective profits in respect of sales
of any of the Products or on account of any expenditures, investments, leases,
capital improvements or any other commitments made by either party in
connection with their respective businesses made in reliance upon or by virtue
of this Agreement or otherwise.

 

8.5                               Survival.  Sections 2.4, 2.5, 2.6, 3.4, 3.5, 3.7,
3.9, 3.10, 3.11, 3.12 (except for the last sentence only), 3.21, 4.1 (last two
sentences only), 4.3, 4.6, 4.7, 4.9, 4,10, 5.1, 5.2 (but only with respect to
purchase orders submitted prior to the end of the Agreement Term), 5.3, 5.4,
5.5, 5.6(b), 5.7, 6.3, 6.4, 6.5, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8(a), 7.9, 7.10,
7.11, 7.12, 8.3, 8.4, and 8.5, Articles 9, 10, and 11 (except Section 11.6) and
Schedule 3.11 hereof, shall survive the expiration or earlier
termination of the Agreement Term.  In
certain Sections, the survival period will be limited, as applicable, to the
Post-Agreement Period or other time-frame set forth in such Sections.

 

ARTICLE
9.  INDEMNIFICATION.

 

9.1                               Company
Infringement Indemnity.

(a)                                  Should
any aspect of any Product become the subject of any third-party Intellectual
Property infringement claim, action, or proceeding, the Company shall, at its
option and expense, use its best efforts to (i) obtain a license that would
permit OAI to exercise all rights granted to it under this Agreement or (ii)
modify the Product to make it non-infringing. 
During the period of time in which the Company is pursuing the foregoing
remedies, OAI may suspend purchases of the Product from 

 

31

 

the Company without any
liability whatsoever.  Notwithstanding
the foregoing, should the Company fail to accomplish either one of the
foregoing remedies within 60 days, OAI’s remedies shall be limited to (x) the
indemnification received from the Company pursuant to this Article 9, (y) the
right, in OAI’s sole and absolute discretion, to terminate the Agreement Term
without any liability whatsoever, and (z) require the Company to repurchase (at
the price paid by OAI plus shipping costs) any portion of or all ordered
Product units and OAI’s inventory of Products.

 

(b)                                  In
addition to its obligations under subsection (a) above and provided that the
Company receives prompt written notice of any Intellectual Property
infringement claim, action, or proceeding that arises out of, results from, or
relates to a Product, the Company shall at all times defend, indemnify, and
hold harmless OAI, its successors and permitted assigns, and any of its
officers, directors, employees, representatives, and/or agents, or each of
them, from and against any and all claims, liabilities, losses, costs, damages,
and expenses including but not limited to (i) the damages, losses, costs, and
expenses payable to the third party claiming Intellectual Property
infringement, (ii) all of OAI’s reasonable attorneys’ fees and disbursements,
settlement costs, judgments, court costs and expenses incurred by OAI
(attorneys’ fees and disbursements only in the event the Company fails to
defend), (iii) reimbursement for the cost of Product that can no longer be
sold, and (iv) any other direct losses, costs, expenses, and damages incurred
by OAI arising out of or resulting from any Intellectual Property infringement
claim, action, or proceeding between OAI and any third party.  OAI shall give the Company prompt notice
upon learning of an Intellectual Property infringement claim, action, or
proceeding and provide to the Company, at the Company’s expense, reasonable
assistance in connection with a third party Intellectual Property infringement
claim, action, or proceeding. The failure of OAI to give prompt notice shall
not result in the loss of indemnification unless the Company shall have been
materially prejudiced thereby.

 

(c)                                  OAI
shall not be entitled to the foregoing Intellectual Property infringement
indemnity from the Company to the extent that the Intellectual Property
infringement claim, action, or proceeding arises or results solely from changes
to the Product made by OAI without the authorization of the Company.

 

9.2                               Company
Product Liability and Other Damage Indemnity.

(a)                                  The
Company shall at all times defend, indemnify, and hold harmless OAI, its
successors and permitted assigns and any of its officers, directors, employees,
representatives, and/or agents, or each of them, from and against any and all
claims, liabilities, losses, costs, damages, and expenses, including but not
limited to all of OAI’s reasonable attorneys’ fees and disbursements,
settlement costs, judgments, court costs 

 

32

 

and expenses (attorneys’ fees
and disbursements only in the event the Company fails to defend); incurred by
OAI in any action or proceeding between OAI and any third party arising out of
or resulting from (i) a defect or alleged defect in a Product, including
without limitation defects relating to manufacturing, improper testing, or
design, or any breach of warranty regarding the Product or any component
thereof, (ii) misrepresentations made in connection with the promotion,
marketing, sale, distribution, use, safety, or efficacy of the Product based
upon information supplied to OAI by the Company, (iii) the contents of any
labeling, inserts, instruction manuals, or related documentation prepared by
the Company or based upon information supplied to OAI by the Company, or (iv) a
Product Recall or other activity described in Section 3.10.  OAI shall provide to the Company, at the
Company’s expense, reasonable assistance in connection with a third party
action or proceeding of the kind described in this Section 9.2(a).  In no event shall the Company be liable for
indirect, incidental, consequential, or special damages, including but not
limited to damages for lost profits, lost investments, or lost business
opportunities.

 

(b)                                  OAI
shall not be entitled to the foregoing indemnity from the Company to the extent
that the claim, action, or proceeding arises or results solely from (i)
unauthorized representations made by OAI regarding the Product which are
different than or in addition to the representations made by the Company to
OAI, (ii) changes to the Product made by OAI without the authorization of the
Company, or (iii) claims regarding the material compatibility of the Equipment
after being treated with the Product, provided the Product meets
specifications and has not been modified by the Company without OAI’s knowledge
and prior written consent.

 

9.3                               OAI
Product Liability and Other Damage Indemnity.

(a)                                  OAI
shall at all times defend, indemnify, and hold harmless the Company, its
successors and permitted assigns and any of its officers, directors, employees,
representatives, and/or agents, or each of them, from and against any and all
claims, liabilities, losses, costs, damages, and expenses, including but not
limited to all of the Company’s reasonable attorneys’ fees and disbursements,
settlement costs, judgments, court costs and expenses (attorneys’ fees and
disbursements only in the event OAI fails to defend); incurred by the Company
in any action or proceeding between the Company and any third party arising out
of or resulting from (i) misrepresentations by OAI made in connection with the
promotion, marketing, sale, distribution, use, safety, or efficacy of the
Products or (ii) the unauthorized contents of any literature, marketing
materials, or related materials prepared solely by OAI or (iii) modifications
made to the Products by OAI that were not authorized by this Agreement or not
otherwise authorized by the Company. 
The Company shall provide to OAI, at OAI’s expense, 

 

33

 

reasonable assistance in
connection with a third party action or proceeding of the kind described in
this Section 9.3(a).  In no event shall
OAI be liable for indirect, incidental, consequential, or special damages,
including but not limited to damages for lost profits, lost investments, or
lost business opportunities.

 

(b)                                  The
Company shall not be entitled to the foregoing indemnity from OAI to the extent
that the claim, action, or proceeding arises or results solely from (i) a
defect or alleged defect in a Product, including without limitation defects relating
to manufacturing, improper testing, or design, or any breach of warranty
regarding the Product or any component thereof (except a defect resulting from
an unauthorized Product modification made by OAI), (ii) misrepresentations made
in connection with the promotion, marketing, sale, distribution, use, safety,
or efficacy of the Product based upon information supplied to OAI by the
Company, (iii) the contents of any labeling, inserts, instruction manuals, or
related documentation prepared by the Company or based upon information
supplied to OAI by the Company, or (iv) a Product Recall or other activity
described in Section 3.10.

 

ARTICLE
10.  CONFIDENTIAL INFORMATION.

OAI
and the Company each recognizes that documents marked “CONFIDENTIAL” or
“PROPRIETARY” and disclosed by one party to the other hereunder is of
proprietary value to the disclosing party and are to be considered highly
confidential (“Confidential Information”). 
Each party agrees not to disclose such Confidential Information to
others (except its employees who reasonably require the Confidential
Information for the purposes hereof and who are bound to it by a like
obligation of confidentiality), or to use it for purposes outside this
Agreement, without the express prior written consent of the other party (which
consent shall not be unreasonably withheld or delayed), except that
neither party shall be prevented from disclosing that portion of Confidential
Information received from the other which (i) can be demonstrated by written
records to be known to the recipient at the time of receipt; (ii) was
subsequently otherwise legally acquired by such party from a third party having
an independent right to disclose the information; (iii) is now or later becomes
publicly known without breach of this Agreement by either party; (iv) is
required to be disclosed by order of a court, administrative agency, or other
governmental body, provided that the recipient has given reasonable
advance notice to allow the disclosing party the opportunity to seek a protective
order or otherwise prevent or limit such disclosure; or (v) is or has been
independently developed by employees of the recipient without reference to the
Confidential Information.  Each party’s
obligation of confidentiality shall be in force during the Agreement Term and
any extension thereof and shall extend for a period of five (5) 

 

34

 

years
from the expiration or early termination of the Agreement Term.

 

Neither OAI nor the Company shall (i) use or communicate any research
results without the other party’s express written consent, and then only for
the purposes expressly set forth in such consent, (ii) disseminate any
advertisement or other printed material with respect to the Products and the Equipment,
without the prior written consent of the other party, which consent shall not
be unreasonably withheld or delayed, or (iii) disclose the exhibits and
schedules to this Agreement to any third party; unless such use, communication,
production, dissemination, or disclosure is required under operation of law (in
which case the affected party shall be notified in writing in advance and given
an opportunity to seek a protective order). 
Requests for consent under this Article 10 must either be granted or
rejected within five Business Days.

 

ARTICLE
11.  MISCELLANEOUS.

 

11.1                        
Force Majeure.  Each party
hereto shall be excused from the performance of its obligations hereunder in
the event such performance is prevented by force majeure, and such
excuse shall continue for so long as the condition constituting such force
majeure and any consequences resulting from such condition continues.  In addition, in the event the condition
constituting the force majeure causes a substantial inability by either
party hereto to manufacture, deliver, sell or otherwise distribute, as the case
may be, the Products, the Agreement Term may be suspended for the period of
such inability, but not to exceed six months. 
If the inability goes beyond such six-month period, either party may
terminate the Agreement Term in accordance with Section 8.2(a).  For the purposes of this Agreement, force
majeure shall mean causes beyond either party’s control including acts of
God; war, riot or civil commotion; damage to or destruction of production
facilities or materials by fire, earthquake, storm or other disaster; strikes
or other labor disturbances; epidemic; 
failure or default of public utilities or common carriers; and other
similar acts.  Compliance with laws or
government regulations shall not constitute a force majeure event.

 

11.2                        
Representations; Relationship. 
No party is authorized on behalf of the other party to make any
statements, claims, representations or warranties or to act on behalf of the
other party with respect to the Products, or otherwise, except as specifically
authorized by this Agreement or in a writing signed by both parties.  The relationship created between the Company
and OAI by this Agreement shall be that of manufacturer and seller.  Neither OAI nor the Company shall be deemed
an agent, representative, partner, joint venturer, or employee of the other
party.  Neither the Company nor OAI
shall have the right to enter 

 

35

 

into any contracts or
commitments or to make any representations or warranties, whether express or
implied, in the name of or on behalf of the other party, or to bind the other
party in any respect whatsoever, unless agreed to in writing or expressly
permitted in this Agreement.

 

11.3                        
Assignment; Binding Effect.

(a)                                  Neither
party to this Agreement may assign all or any part of its rights and
obligations under this Agreement, except to an Affiliate, without the prior
written consent of the other party.  No
permitted assignment by any party pursuant to this Section 11.3(a) shall result
in any additional expense to the other party. 
Any purported assignment in contravention of this Section 11.3(a) shall,
at the option of the non-assigning party, be null and void and of no effect.

 

(b)                                  Except
as otherwise provided above, this Agreement will be binding upon and inure to
the benefit of the successors and permitted assigns of the parties.

 

(c)                                  Notwithstanding
anything contained in this Agreement to the contrary, all obligations of and
restrictions on the parties set forth in this Agreement shall not be deemed
obligations of and restrictions on any of the parties’ respective Affiliates, except
if this Agreement is assigned to an Affiliate pursuant to Section 11.3(a).

 

11.4                        Notices.
 Any notice, consent, or other
communication required or permitted to be given to either party under this
Agreement shall be given in writing and shall be delivered (i) by hand, or (ii)
by registered or certified mail, postage prepaid and return receipt requested,
or (iii) by confirmed facsimile transmission; addressed to each party at the
following address or such other address as may be designated by such party by
notice pursuant to this Section 11.4:

 

To the Company:                                                    Minntech
Corporation

MediVators Reprocessing Systems

14605 28th Avenue North

Minneapolis, Minnesota 
55447-4822

Fax:  763-553-3387

Attention:  President

 

with a copy to:                 (a)          Dornbush Mensch Mandelstam

   & Schaeffer, LLP

747 Third Avenue

New York, New York  10017

Fax:  212-753-7673

Attention:  Eric W. Nodiff, Esq.

 

and

 

36

 

(b)         Cantel
Medical Corp.

Overlook at Great Notch

150 Clove Road - 9th Floor

Little Falls, New Jersey 07424

Fax:  973-890-7270

Attention:  President

 

To OAI:                                                                                                    Olympus
America Inc.-Medical Systems Group

Two Corporate Center Drive

Melville, New York  11747-3157

Fax:  516-844-5442

Attention:  Group Vice President and, by

separate copy, General Counsel

(Fax: 516-844-5296)

 

Any notice, consent, or other communication given in conformity with
this Section 11.4 shall be deemed effective when received by the addressee, if
delivered by hand or facsimile transmission, and seven days after mailing, if
mailed.  Notwithstanding the foregoing,
all notice, consent, or other communication copies sent hereunder to Cantel
Medical Corp. shall be sent as a courtesy and failure by OAI to send notice,
consent, or other communication to Cantel Medical Corp. shall not be deemed or
construed as defective notice, consent, or other communication hereunder.

 

11.5                        
Governing Law; Submission to Jurisdiction.  This Agreement and any other documents or instruments related
hereto and all transactions hereunder shall be deemed to have been made within
and under the laws of the State of New York, including the Uniform Commercial
Code of the State of New York, and for all purposes shall be governed by and
construed in accordance with the laws of the State of New York without regard
to the conflict of laws rules thereof. 
The parties expressly agree that any controversy, dispute or claim with respect
to any provision of this Agreement shall be adjudicated exclusively by a court
of competent jurisdiction within New York County or Suffolk County, the State
of New York, or the Federal District Court for the Southern District or Eastern
District of New York, applying New York law without regard to the rules of
conflicts of law and the Company and OAI waive any objections either may have
and consent to the personal jurisdiction and the designation of a forum or
venue of the courts set forth herein, including without limitation waiving a
motion to change or transfer venue. 
Notwithstanding the foregoing, either party may, in any jurisdiction,
seek to enforce, collect, or take any other action to effectuate a judgment,
order, or decree obtained from a court in New York County or Suffolk County,
State of New York or the Federal District Court for the Southern District or
Eastern District of New York.

 

37

 

11.6                        Execution
of Additional Documents.  Each
party hereto agrees to execute and deliver such documents as may be necessary
or desirable to carry out the provisions of this Agreement.

 

11.7                        Entire
Agreement.  This Agreement
constitutes the entire agreement between the Company and OAI with respect to
the subject matter hereof.  All prior or
contemporaneous agreements, proposals, understandings, representations, and
communications with respect to the subject matter hereof, whether written or
oral, between or involving the Company and OAI hereby are cancelled and
superseded, including without limitation the Distributor Agreement between the
parties dated August 1, 1999. 
Notwithstanding the foregoing, such Distributor Agreement shall continue
to apply to Products and their corresponding orders shipped by the Company to
OAI prior to August 1, 2003.  Pending
purchase orders placed but not shipped prior to August 1, 2003 shall be
governed by this Agreement and not the 1999 Distributor Agreement.  This Agreement may be amended or modified
only in a writing executed by both parties which states that it is an amendment
or modification to this Agreement.

 

11.8                        
Severability.  If any
provision or part thereof of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions or
parts thereof of this Agreement shall continue in full force without being
impaired or invalidated in any way, to the maximum extent possible consistent
with the intent of the parties in entering into this Agreement.

 

11.9                        Taxes.  Each party shall be responsible for payment
of its own taxes.

 

11.10                 Counterparts.  This Agreement may be executed in duplicate
counterparts, each of which when so executed shall be deemed to be an original
and both of which when taken together shall constitute one and the same
instrument.

 

11.11                 No
Waiver.  No waiver of any right
under this Agreement shall be deemed effective unless contained in a writing
signed by the party charged with such waiver, and no waiver of any breach or
failure to perform shall be deemed to be a waiver of any future breach or
failure to perform or of any other provisions of this Agreement.

 

11.12                 Headings.
 The headings contained herein are
for reference only and are not a part of this Agreement and shall not be used
in connection with the interpretation of this Agreement.

 

11.13                 Rights
and Remedies Cumulative; Direct Damages. 
All rights and remedies hereunder are cumulative and may be enforced
separately or concurrently and from time to time, unless otherwise specifically
stated herein.  The enforcement of any

 

38

 

particular remedy shall not
constitute an election of remedies, and no remedy is exclusive unless
specifically stated herein. Except with respect to Section 9.1 and Article 10,
neither party shall be liable under this Agreement for any indirect, special,
incidental, or consequential damages of any kind, including but not limited to
damages for lost profits, lost investments, or lost business opportunities
(collectively, “Consequential Damages”). 
Except with respect to Section 9.1 and Article 10, OAI and the Company
hereby agree that direct damages shall not include or contain Consequential
Damages.

 

11.14                 Contract
Interpretation.  Each party
hereto acknowledges that it has had ample opportunity to review and comment on
this Agreement.  This Agreement shall be
read and interpreted according to its plain meaning and an ambiguity shall not
be construed against either party.  It
is expressly agreed by the parties that the judicial rule of construction that
a document should be more strictly construed against the draftsperson thereof
shall not apply to any provision of this Agreement.

 

IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed by their
duly authorized representatives as of the date first above written.

 

	
  MINNTECH CORPORATION

  
	
  MEDIVATORS REPROCESSING SYSTEMS

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Roy K. Malkin

  	
   

  
	
  Name:

  	
  Roy K. Malkin

  
	
  Title:

  	
  President and CEO

  
	
   

  
	
   

  
	
  OLYMPUS AMERICA INC.

  
	
  MEDICAL SYSTEMS GROUP

  
	
   

  
	
   

  
	
  By:

  	
  /s/ David McKinley

  	
   

  
	
  Name:

  	
  David McKinley

  
	
  Title:

  	
  Group Vice President

  
						

 

39Exhibit 10.16

 

LEASE

 

THIS LEASE is made and entered into effective
the 15th day of June, 2001, by and between Za’hav, LLC, a Colorado limited
liability company (the “Landlord”) and First Capital Bank of Arizona, an
Arizona corporation (the “Tenant”), who hereby mutually covenant and agree as
follows:

 

I.                                                                                         PREMISES
AND TERM

 

1.1                                 Demise,
Term and Commencement.  Landlord,
for and in consideration of the rents herein reserved and of the covenants and
agreements herein contained on the part of the Tenant herein to be kept,
observed, and performed, demises and leases to the Tenant the real property
situated in the County of Maricopa, State of Arizona, legally described on the
Exhibit A attached hereto and incorporated herein by this reference, and
commonly known and numbered as 12775 West Bell Road, Surprise, Arizona 85374 to
have and to hold the Premises, together with the buildings and improvements
situated thereon and the rights, privileges and appurtenances thereto belonging
or appertaining (collectively hereinafter referred to as the “Leased Premises”)
unto Tenant for and during a term of fifteen (15) years and one-half month
commencing on June 15, 2001 and expiring on June 30, 2016.

 

1.2                                 Condition
of the Leased Premises.  Tenant
accepts the Leased Premises in their “AS IS, WHERE IS” condition and
acknowledges that Landlord has made no representations or warranties of any
nature whatsoever as to the suitability of the Leased Premises for the purpose
set forth in Section 2.1.

 

II.                                                                                     PURPOSE

 

2.1                                 Purpose.  The Leased Premises shall be used and
occupied only for the purpose of a bank and related drive-through facility.

 

2.2                                 Uses
Prohibited.  Tenant shall not permit
the Leased Premises to be used in any manner which would render the insurance
thereon void.  Tenant shall not use or
occupy the Leased Premises, or permit the Leased Premises to be used or
occupied contrary to any statute, rule, order, ordinance, requirement, or
regulation applicable thereto; or in any manner which would violate any
certificate of occupancy affecting the same, or which would cause structural
injury to the improvements or cause the value or usefulness of the Leased
Premises or any part thereof to diminish, or would constitute a public or
private nuisance or waste.

 

III.                                                                                 RENT

 

3.1                                 Rent.  Tenant shall pay to Landlord, as rent (“Base
Rent”) for the Leased Premises, at such place or places as Landlord may
designate in writing from time to time, in the total amount of $1,895,531.64,
payable monthly in advance on or before the first day of each month in the
following installments:

 

1

 

	
  6/15/01 - 6/30/01:

  	
   

  	
  $

  	
  4,355.56

  
	
  7/1/01 - 6/30/02:

  	
   

  	
  $

  	
  8,166.67  per month

  
	
  7/1/02 - 6/30/03:

  	
   

  	
  $

  	
  8,452.50  per month

  
	
  7/1/03 - 6/30/04:

  	
   

  	
  $

  	
  8,748.33  per month

  
	
  7/1/04 - 6/30/05:

  	
   

  	
  $

  	
  9,054.50  per month

  
	
  7/1/05 - 6/30/06:

  	
   

  	
  $

  	
  9,371.42  per month

  
	
  7/1/06 - 6/30/07:

  	
   

  	
  $

  	
  9,699.42  per month

  
	
  7/1/07 - 6/30/08:

  	
   

  	
  $

  	
  10,038.92  per month

  
	
  7/1/08 - 6/30/09:

  	
   

  	
  $

  	
  10,390.25  per month

  
	
  7/1/09 - 6/30/10:

  	
   

  	
  $

  	
  10,753.92  per month

  
	
  7/1/10 - 6/30/11:

  	
   

  	
  $

  	
  11,130.33  per month

  
	
  7/1/11 - 6/30/12:

  	
   

  	
  $

  	
  11,519.92  per month

  
	
  7/1/12 - 6/30/13:

  	
   

  	
  $

  	
  11,923.08  per month

  
	
  7/1/13 - 6/30/14:

  	
   

  	
  $

  	
  12,340.42  per month

  
	
  7/1/14 - 6/30/15:

  	
   

  	
  $

  	
  12,772.33  per month

  
	
  7/1/15 - 6/30/16:

  	
   

  	
  $

  	
  13,219.33  per month

  

 

All payments of rent shall be
made without deduction, set off, discount, or abatement and shall be made in
lawful money of the United States. 
Concurrently with the execution of this Lease, Tenant has paid to
Landlord, the receipt of which is hereby acknowledged by Landlord, the sum of
Four Thousand Three Hundred Fifty-Five and 56/100 ($4,355.56), to be applied
against payment of the rent from June 15, 2001 through June 30, 2001.

 

3.2                                 Late
Charges.  Each and every installment
of rent, and each and every payment of other charges hereunder, which is not
paid within ten (10) days of when it is due, shall be assessed a late charge
which amount shall be the greater of (i) Five Hundred Dollars ($500.00), or
(ii) the amount which is equal to interest at the rate of eighteen percent
(18%) per annum from the date when the same is payable under the terms of this
Lease until the same shall be paid.

 

IV.                                                                                IMPOSITIONS

 

4.1                                 Payment
by Tenant.  Tenant shall pay to
Landlord as additional rent for the Leased Premises all taxes and assessments,
general and special, water and sewer charges and all other impositions,
ordinary and extraordinary, of every kind and nature whatsoever, which may be
levied, assessed, or imposed upon the Leased Premises or upon any improvements
or personal property at any time situated thereon, including, but not limited
to all of the personal property taxes and real property taxes (the
“Impositions”).  Notwithstanding
anything herein to the contrary, Tenant’s obligations under this Section 4.1
shall include the Tenant paying all of the real property taxes for 2001;
provided, however, that Landlord shall make available to Tenant any amount of
Impositions held by Landlord in connection with the acquisition of the Leased
Premises.  All Impositions shall be paid
by Tenant to Landlord within twenty (20) days after Landlord bills Tenant
therefor or, at Landlord’s election, in monthly installments each of which
shall be equal to one-twelfth (1/12) of the estimated

 

2

 

annual real property taxes and assessments pertaining to the Premises,
to be held by Landlord and disbursed by Landlord to pay the taxes before any
penalty or interest shall accrue thereon. 
Estimates are to be made solely by Landlord and payments shall be made
on the first day of the month; provided, however that no escrow shall be
required for as long as the Tenant is the occupant of the Leased Premises
unless (i) Landlord is required to escrow taxes by any lender who holds a deed
of trust or mortgage against the Leased Premises, or (ii) Tenant is in default
under this Lease.  No interest shall be
payable by Landlord on the tax escrow unless, and then only to the extent that,
applicable law shall otherwise require. 
All overpayments to the tax escrow account shall be applied to reduce
future payments to the tax escrow account, if any, or shall be returned to
Tenant, at the sole discretion of Landlord unless otherwise required by other
applicable law.

 

4.2                                 Alternative
Taxes.  If, at any time during the
term of this Lease, the method of taxation prevailing at the commencement of
the term hereof shall be altered so that any new tax, assessment, levy,
imposition, or charge, or any part thereof, shall be measured by or be based in
whole or in part upon the Lease, the Leased Premises, the real estate, the
rent, additional rent, or other income therefrom and shall be imposed upon
Landlord, then all such taxes, assessments, levies, impositions, or charges, or
the part thereof, to the extent that they are so measured or based, shall be
deemed to be included within the meaning of “Impositions” for the purposes
hereof, to the extent that such Impositions would be payable if the Leased
Premises were the only property of Landlord subject to such Impositions as so
defined.  There shall be excluded from
Impositions all municipal, county, state, or federal income taxes, federal
excess profit taxes, franchise, capital stock, and federal or estate
inheritance taxes of Landlord.

 

V.                                                                                    INSURANCE

 

5.1                                 Tenant’s
Insurance.  As additional rent for
the Leased Premises, Tenant further agrees to provide commercial general
liability insurance with bodily injury limits of not less than $1,000,000.00
per each occurrence and a general aggregate of $2,000,000.00, written with a
company having a Best’s key rating of A- or better and a financial size
category of class 10 or better, with deductibles in such amounts as specified
by Landlord in Landlord’s reasonable discretion, and shall name Landlord or its
assigns under said insurance policy as additional insureds.  Tenant shall furnish to Landlord a
certificate of insurance indicating that said policy is in full force and
effect, that Landlord has been named as an additional insured and that said
policy will not be cancelled or materially changed unless thirty (30) days’
prior written notice of the proposed cancellation or material change has been
given to Landlord.  Tenant shall be
responsible for insuring its own personal property.

 

5.2                                 Landlord’s
Insurance.  Landlord shall keep the
Leased Premises insured for the replacement cost of the building on the

 

3

 

insurance industry “special” form of insurance coverage and lost rents,
and at Landlord’s option, insurance for liability, earthquake, and flood.  As additional rent, Tenant shall pay the
cost of the premiums for the said insurance within twenty (20) days after
Landlord bills Tenant therefor or, at Landlord’s election, Tenant shall pay to
Landlord monthly installments each of which shall be equal to one-twelfth
(1/12) of the estimated annual premiums for the said insurance, to be held by
Landlord and disbursed by Landlord to pay the insurance premiums as they become
due; provided, however that no escrow shall be required for as long as the
Tenant is the occupant of the Leased Premises unless (i) Landlord is required
to escrow insurance premiums by any lender who holds a deed of trust or
mortgage against the Leased Premises, or (ii) Tenant is in default under this
Lease.  Estimates are to be made solely
by Landlord and payments shall be made on the first day of the month or such
other day of the month designated by Landlord. No interest shall be payable by
Landlord on the insurance escrow unless, and then only to the extent that,
applicable law shall otherwise require. 
All overpayments to the insurance escrow account shall be applied to
reduce future payments to the insurance escrow account, if any, or shall be
returned to Tenant, at the sole discretion of Landlord unless otherwise
required by other applicable law.

 

5.3                                 Mutual
Waiver of Subrogation Rights. 
Whenever (a) any loss, cost, damage, or expense resulting from fire,
explosion, or any other casualty or occurrence is incurred by either of the
parties to this Lease, or anyone claiming by, through, or under it in
connection with the Leased Premises, and (b) such party is then covered in
whole or in part by insurance with respect to such loss, cost, damage, or
expense or required under this Lease to be so insured, then the party so
insured (or so required) hereby releases the other party from any liability
said other party may have on account of such loss, cost, damage, or expense to
the extent of any amount recovered by reason of such insurance (or which could
have been recovered had such insurance been carried as so required) and waives
any right of subrogation which might otherwise exist in or accrue to any person
on account thereof.  Notwithstanding
anything herein to the contrary, each party shall remain fully liable for the
payment of deductibles under their respective insurance policies.

 

VI.                                                                                DAMAGE
OR DESTRUCTION

 

6.1                                 Replacement of
Building.  In the event the Leased
Premises or a portion thereof shall become untenantable on account of damage by
fire, act of God, or other casualty, Landlord shall be given the option to
correct the deficiency or condition which shall render the Leased Premises
untenantable.  Landlord shall have one
hundred eighty (180) days from the date of its notice to Tenant to effect such
repairs; provided, however, the said time period may be extended if there is an
event of force majeure.  During the
period from Landlord’s receipt of notice from Tenant of damage to the Leased
Premises until the Leased Premises are restored to their

 

4

 

prior condition and possession thereof given
to Tenant, the rent shall abate upon the portion of the Leased Premises that is
untenantable, except that if the Leased Premises become untenantable due to the
actions of the Tenant or its agents, employees or invitees, the rent shall
continue in full force and effect and shall not abate.  Landlord shall not in any case be liable for
any loss of profits or income occasioned to Tenant during such period.  In the event said repair has not been
completed within the period specified, then Tenant may have the option to
cancel this Lease.  If either the
Landlord or the Tenant terminates this Lease as above provided in this section,
any monies due and owing to the Landlord at that date shall be paid by the
Tenant to the date that Tenant vacates the Leased Premises, and all further
obligations on the part of both parties hereto shall cease and Landlord shall
incur no obligation whatsoever from the termination of this Lease.

 

VII.                                                                            CONDEMNATION

 

7.1                                 Taking of Whole.  If the whole of the Leased Premises shall be
taken or condemned for a public or quasi-public use or purpose by a competent
authority, or if such a portion of the Leased Premises shall be so taken that
as a result thereof the balance cannot be used for the same purpose as
expressed in Article II, then in either of such events, this Lease shall
terminate upon delivery of possession to the condemning authority, and any
award, compensation, or damages (hereinafter sometimes called the “Award”),
shall be paid to and be the sole property of Landlord, but nothing herein shall
preclude Tenant from claiming and recovering from the condemning authority, but
not from the Landlord, such compensation as may be separately awarded or
recoverable by Tenant in Tenant’s own right on account of any and all damage to
Tenant’s business by reason of the condemnation and for or on account of any
cost or loss to which Tenant might be put in removing Tenant’s merchandise,
furniture, fixtures, leasehold improvements and equipment.  Tenant shall continue to pay rent until the
Lease is terminated, and any Impositions prepaid by Tenant shall be adjusted
between the parties.

 

7.2                                 Partial Taking.  If only a part of the Leased Premises shall
be so taken or condemned, and, as a result thereof, the balance of the Leased
Premises can be used for the same purpose as expressed in Article II, this
Lease shall not terminate, and Tenant shall repair and restore the Leased
Premises and all improvements thereon at the sole cost and expense of the Tenant;
provided, however, that Landlord shall pay to Tenant, after the Leased Premises
have been repaired and restored, such portion of the Award which has been
specifically allocated for and has been paid to Landlord by the condemning
authority for the repair and restoration of the Leased Premises.  Rent shall be equitably abated following
such taking.  Any Award shall be paid to
and be the sole property of Landlord, but nothing herein shall preclude Tenant
from claiming and recovering from the condemning authority, but not from the
Landlord, such compensation as may be separately awarded or

 

5

 

recoverable by Tenant in Tenant’s own right
on account of any and all damage to Tenant’s business by reason of the condemnation
and for or on account of any cost or loss to which Tenant might be put in
removing Tenant’s merchandise, furniture, fixtures, leasehold improvements and
equipment.  Notwithstanding anything
herein to the contrary, Tenant shall have the right to terminate this Lease if
the partial taking results in there being inadequate parking for the Leased
Premises or the drive thru facilities are taken.

 

VIII.                                                                        MAINTENANCE
AND ALTERATIONS

 

8.1                                 Maintenance.  Tenant shall keep and maintain the parking
lot (including re-striping and re-surfacing as necessary) and landscaping on
the Leased Premises in good order and repair. 
Tenant shall also keep and maintain the balance of the exterior and
entire interior of the Leased Premises including, without limitation, the roof,
exterior walls, electrical, heating, air conditioning systems, and other roof
mounted mechanical equipment, the sprinkler system, lighting fixtures, plumbing
fixtures, boilers and heating apparatus, pipes and conduits, pool and pool
equipment, fire and burglar alarm systems, and personal property, in good
condition and repair including, without limitation, any necessary replacements,
necessary interior painting, window replacement of equal or better quality, and
maintaining and repairing exterior doors and the foundation.  Tenant shall enter into a preventative
maintenance agreement for the HVAC units located on the Leased Premises
providing for quarterly maintenance, Tenant shall pay for such preventative
maintenance agreement as additional rent, and Tenant shall promptly deliver to
Landlord a fully executed copy of the said preventative maintenance
agreement.  Tenant shall, to the extent
possible, keep the Leased Premises from falling temporarily out of repair or
deteriorating.  Tenant shall fully comply
with all health and police regulations in force, and shall conform with the
rules and regulations of fire underwriters or their fire protection
engineers.  Tenant shall promptly remove
any debris left in the parking area or other exterior areas of the Leased
Premises by Tenant, its employees, agents, contractors or invitees.  Notwithstanding anything herein to the
contrary, Landlord shall be responsible for the maintenance and repair of the
foundation and structural walls; provided, however, that Landlord shall not be
responsible for the painting of the structural walls unless such painting is
necessary in connection with the maintenance and repair of the structural
walls.

 

8.2                                 Alterations.  Tenant shall not create any openings in the
roof or exterior walls, nor shall Tenant make any alterations or additions to
the Leased Premises without the prior written consent of the Landlord, which
consent shall not be unreasonably withheld. 
In the event of an improvement or alteration, Landlord shall have the
right to determine (at the time such approval is given) whether it shall be
left or removed at the expiration or termination of the Lease, except as
required by any governmental authority. 
Tenant shall be responsible to make all additions, improvements,
alterations, and repairs on the Leased Premises and

 

6

 

on and to the appurtenances and equipment thereof, required by any
governmental authority or which may be made necessary by the act or neglect of
any person, firm or corporation, private or public, claiming by, through or
under Tenant.  Any improvement or
alteration shall be done in a good and workmanlike manner and in compliance
with all applicable permits and authorizations and building and zoning laws,
and with all other laws, ordinances, rules, regulations, and requirements of
all Federal, State, and municipal governments, departments, commissions,
boards, and officers, and in accordance with the orders, rules, and regulations
of the National Board of Fire Underwriters or any other body exercising similar
functions.  Upon completion of any work
by or on behalf of Tenant, the Tenant shall provide Landlord with such
documents as Landlord may require (including, without limitation, sworn
contractor’s statements and supporting lien waivers) evidencing payment in full
for such work. Tenant shall provide Landlord with sufficient advance written
notice of the commencement of any work which may result in a mechanic’s or
materialman’s lien against the Leased Premises so that the Landlord can post
sufficient notices of non-liability. Tenant shall be responsible to make all
alterations so that the Leased Premises are in full compliance with the
Americans with Disabilities Act.

 

IX.                                                                                ASSIGNMENT
AND SUBLETTING

 

9.1                                 Consent
Required.  Tenant shall not, without
Landlord’s prior written consent, which consent shall not be unreasonably
withheld, (a) assign, convey, or mortgage this Lease or any interest under it;
(b) allow any transfer thereof or any lien upon Tenant’s interest by operation
of law; (c) sublet the Leased Premises or any part thereof; or (d) permit the
use or occupancy of the Leased Premises or any part thereof by anyone other
than Tenant.  No permitted assignment or
subletting shall relieve Tenant of Tenant’s covenants and agreements hereunder,
and Tenant shall continue to be liable as a principal and not as a guarantor or
surety, to the same extent as though no assignment or subletting had been made.

 

9.2                                 Successors and
Assigns.  Except as so restricted
elsewhere in this Lease, the obligations and rights under this Lease shall be
binding upon and inure to the benefit of the heirs, administrators, executors,
successors and assigns of the parties; provided, however, that any assignment
or subletting by the Tenant in violation of the terms of this Lease shall not
vest any rights whatsoever in the assignee or subtenant.

 

X.                                                                                    LIENS
AND ENCUMBRANCES

 

10.1                           Encumbering Title.  Tenant shall not do any act which shall in
any way encumber the title of Landlord in and to the Leased Premises, nor shall
the interest or estate of Landlord in the Leased Premises be in any way subject
to any claim by way of lien or encumbrance, whether by operation of law or by
virtue of any express or implied contract by Tenant.  Any claim to, or lien

 

7

 

upon, the Leased Premises arising from any
act or omission of Tenant shall accrue only against the leasehold estate of
Tenant and shall be subject and subordinate to the paramount title and rights
of Landlord in and to the Leased Premises.

 

10.2                           Liens
and Right to Contest.  Tenant shall
not permit the Leased Premises to become subject to any mechanics’, laborers’,
or materialmen’s lien on account of labor or materials 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 on the Leased Premises
by, or at the direction or sufferance of, Tenant; provided, however, that the
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 such security as may be deemed to be satisfactory to Landlord to
insure payment thereof and to prevent any sale, foreclosure, or forfeiture of
the Leased Premises by reason of non-payment thereof; provided further,
however, 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 judgment satisfied.

 

XI.                                                                                UTILITIES

 

11.1                           Utilities.  Tenant shall purchase all utility services,
including but not limited to fuel, water, sewer and electricity from the
utility or municipality providing such service, and shall pay for such services
when such payments are due.  If such
utilities are not billed directly to Tenant but are billed to Landlord, Tenant
shall reimburse Landlord, as additional rent, within twenty (20) days after
Landlord bills Tenant therefor.

 

XII.                                                                            INDEMNITY
AND WAIVER

 

12.1                           Indemnity.  Tenant shall protect, indemnify and save
harmless Landlord from and against all liabilities, obligations, claims,
damages, penalties, causes of action, claims for relief, costs and expenses
(including, without limitation, reasonable attorneys’ fees and expenses)
imposed upon or incurred by or asserted against Landlord by reason of (a) any
accident, injury to, or death of persons or loss of or damage to property
occurring on or about the Leased Premises or resulting from any act or omission
of Tenant or anyone claiming by, through, or under Tenant; (b) any failure on
the part of Tenant to perform or comply with any of the terms of this Lease; or
(c) performance of any labor or services or the furnishing of any materials or
other property in respect of the Leased Premises or any part thereof.  In case any action, suit, or proceeding is
brought against Landlord by reason of any such occurrence, Tenant will, at
Tenant’s expense, resist and defend such action, suit, or proceeding, or cause
the same to be resisted and defended by counsel approved by Landlord.  Notwithstanding anything herein to the
contrary, Landlord shall protect, indemnify and save harmless Tenant from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, claims

 

8

 

for relief, costs and expenses (including, without limitation,
reasonable attorneys’ fees and expenses) imposed upon or incurred by or
asserted against Tenant by reason of Landlord’s gross negligence or intentional
torts.

 

12.2                           Waiver of Certain Claims.  Tenant waives all claims it may have against
Landlord for damage or injury to person or property sustained by Tenant or any
persons claiming through Tenant or by any occupant of the Leased Premises, or
by any other person, resulting from any part of the Leased Premises or any of
its improvements, equipment, or appurtenances becoming out of repair, or
resulting directly or indirectly from any act or neglect of any tenant or
occupant of any part of the Leased Premises or of any other person, including
Landlord to the extent permitted by law. 
This Section shall include, but not by way of limitation, damage caused
by water, snow, frost, steam, excessive heat or cold, sewage, gas, odors, or
noise, or caused by bursting or leaking of pipes or plumbing fixtures, and
shall apply equally whether any such damage results from the act or neglect of
Tenant or of other tenants, or occupants of any part of the Leased Premises or
of any other person, including Landlord to the extent permitted by law, and
whether such damage be caused by or result from any thing or circumstance above
mentioned or referred to, or to any other thing or circumstance whether of a
like nature or of a wholly different nature.  All personal property belonging to Tenant or any occupant of the
Leased Premises that is in or on any part of the Leased Premises shall be there
at the risk of the Tenant or of such other person only, and Landlord shall not
be liable for any damage thereto or for the theft or misappropriation
thereof.  Notwithstanding anything
herein to the contrary, Tenant does not waive any claims against Landlord which
are due to Landlord’s gross negligence or intentional torts.

 

XIII.                                                                        RIGHTS
RESERVED TO LANDLORD

 

13.1                           Rights
Reserved to Landlord.  Without
limiting any other rights reserved or available to Landlord under this Lease,
at law or in equity, Landlord, on behalf of itself and its agents reserves the
following rights to be exercised at Landlord’s election:

 

(a)                                  To
enter the Leased Premises with reasonable frequency during business hours upon
a minimum of 24 hours notice (or at any time during an emergency) for the
purpose of inspecting the same, and making necessary repairs in the event that
such repairs are not made by Tenant as per the terms of this Lease.

 

(b)                                 Upon
24 hours notice to Tenant, to show the Leased Premises to prospective
purchasers, mortgagees, or other persons having a legitimate interest in
viewing the same, and, at any time during the year prior to expiration of this
Lease, to persons wishing to lease the Leased Premises.

 

(c)                                  During
the last year of the Lease term, to place and maintain “For Rent” or “For Sale”
signs in or on the Leased

 

9

 

Premises.

 

Landlord may enter upon the
Leased Premises for any and all of said purposes and may exercise any and all
of the foregoing rights hereby reserved without being deemed guilty of any
eviction or disturbance of Tenant’s use or possession of the Leased Premises,
and without being liable in any manner to Tenant.  Notwithstanding anything herein to the contrary, provided that
there has been no default under this Lease and provided further that Tenant is
the then tenant under this Lease, Landlord agrees that it will not place a sign
on the Lease Premises unless Tenant (i) ceased its business operations at the
Leased Premises, or (ii) has announced or placed a sign on the Leased Premises
announcing that it is moving to another location.

 

XIV.                                                                       QUIET
ENJOYMENT

 

14.1                           Quiet Enjoyment.  So long as Tenant is not in default under
the covenants and agreements of this Lease, Tenant’s quiet and peaceable
enjoyment of the Leased Premises shall not be disturbed or interfered with by
Landlord or by any person claiming by, through, or under Landlord.

 

XV.                                                                           SUBORDINATION
OR SUPERIORITY

 

15.1                           Subordination or
Superiority.  The rights and
interest of Tenant under this Lease shall be subject and subordinate to any
mortgage or deed of trust that hereafter may be placed upon the Leased Premises
by Landlord and to any and all advances to be made thereunder, and to the
interest thereof, if the mortgagee or trustee named in said mortgage or deed of
trust shall elect to subject and subordinate the rights and interest of Tenant
under this Lease to the lien of its mortgage or deed of trust and shall agree
to recognize this Lease in the event of foreclosure if Tenant is not in default
(which agreement may, at such mortgagee’s option, require attornment by
Tenant).  Any such mortgagee or trustee
may elect to give the rights and interest of Tenant under this Lease priority
over the lien of its mortgage or deed of trust.  In the event of each such election and upon notification by such
mortgagee or trustee to Tenant to that effect, the rights and interest of
Tenant under this Lease shall be deemed to be subordinate to, or have priority
over, as the case may be, the lien of said mortgage or deed of trust, whether
this Lease is dated prior to or subsequent to the date of said mortgage or deed
of trust.  Tenant shall execute and
deliver whatever instruments may be required for such purposes, and in the
event Tenant fails to do so within ten (10) days after demand in writing,
Tenant does hereby make, constitute, and irrevocably appoint Landlord as its
attorney in fact and in its name, place, and stead to do so.

 

10

 

XVI.                                                                       SURRENDER

 

16.1                           Surrender.  Upon the termination of this Lease, whether
by forfeiture, lapse of time, or otherwise, or upon the termination of Tenant’s
right to possession of the Leased Premises, Tenant shall at once surrender and
deliver up the Leased Premises, together will all improvements thereon, to
Landlord in good condition and repair, reasonable wear and tear and loss by
fire or other casualty excepted. Said improvements shall include all plumbing,
lighting, electrical, heating, cooling and ventilating fixtures and equipment,
and other articles of personal property used in the operation of the Leased
Premises.  All additions, hardware, and
all improvements, temporary or permanent, in or upon the Leased Premises placed
there by Tenant shall become Landlord’s property and shall remain upon the
Leased Premises upon such termination of this Lease.   If Landlord so requests removal of said additions, hardware, and
improvements as provided for in Section 8.2 of this Lease, and Tenant does not
make such removal at said termination of this Lease, Landlord may remove and
deliver the same to any other place of business of Tenant or warehouse the
same, and Tenant shall pay the cost of such removal, delivery, and warehousing
to Landlord on demand.

 

16.2                           Removal
of Tenant’s Property.  Upon the
termination of this Lease by lapse of time, Tenant shall remove Tenant’s
property provided, however, that Tenant shall repair any injury or damage to
the Leased Premises which may result from removals.  Notwithstanding anything herein to the contrary, the vault shall
not be removed by Tenant upon the expiration or termination of this Lease and
the vault shall be deemed to be the property of Landlord; provided, however,
that the safety deposit boxes located in the vault shall be removed by Tenant
as Tenant’s property.  If Tenant does
not remove Tenant’s property from the Leased Premises prior to the end of the term,
however ended, Landlord may, at its option, remove the same and deliver the
same to any other place of business of Tenant or warehouse the same, and Tenant
shall pay the cost of such removal (including the repair of any injury or
damage to the Leased Premises resulting from such removal), delivery and
warehousing to Landlord on demand, or Landlord may treat such property as
having been conveyed to Landlord with this Lease as a Bill of Sale, without
further payment or credit by Landlord or Tenant.

 

16.3                           Holding
Over.  If after the expiration of
the term of this Lease, Tenant shall remain in possession of the Leased
Premises and continue to pay rent without any express written agreement as to
such holding over, then such holding over shall be deemed and taken to be a
holding over upon a tenancy from month to month at a monthly rental equivalent
to one hundred twenty-five percent (125%) of the minimum rental hereinabove set
forth for the last year of this Lease, such payments to be made as hereinabove
provided.  In the event of such holding
over, all the terms of this Lease as herein set out are to remain in full force
and effect on said month to month basis.

 

11

 

XVII.                                                                   REMEDIES

 

17.1                           Defaults.  Tenant agrees that any one or more of the
following events shall be considered an event of default as said term is used
herein:

 

(a)                                  Tenant
shall be adjudged an involuntary bankrupt, or a decree or order approving, as
properly filed, a petition or answer filed against Tenant asking reorganization
of Tenant under the Federal bankruptcy laws as now or hereafter amended, or
under the laws of any state, shall be entered, and any such decree or judgment
or order shall not have been vacated or set aside within sixty (60) days from
the date of the entry or granting thereof; or

 

(b)                                 Tenant
shall file or admit the jurisdiction of the court and the material allegations
contained in any petition in bankruptcy or any petition pursuant or purporting
to be pursuant to the Federal bankruptcy laws as now or hereafter amended, or
Tenant shall institute any proceedings or shall give its consent to the
institution of any proceedings for any relief of Tenant under any bankruptcy or
insolvency laws or any laws relating to the relief of debtors, readjustment of
indebtedness, reorganization, arrangements, composition, or extension; or

 

(c)                                  Tenant
shall make any assignment for the benefit of creditors or shall apply for or
consent to the appointment of a receiver for Tenant or any of the property of
Tenant; or

 

(d)                                 The
Leased Premises are levied upon by any revenue officer or similar officer and
Tenant shall fail to contest the validity of the levy and give security to
Landlord to insure payment thereof, or having commenced to contest the same and
having given such security, shall fail to prosecute such contest with
diligence, or shall fail to have the same released and satisfy any judgment
rendered thereon, and such default continues for ten (10) days after notice
thereof in writing to Tenant; or

 

(e)                                  A
decree or order appointing a receiver of the property of Tenant shall be made,
and such decree or order shall not have been vacated or set aside within sixty
(60) days from the date of entry or granting thereof; or

 

(f)                                    Tenant
shall abandon the Leased Premises or vacate the same during the term hereof; or

 

(g)                                 Tenant
shall default in any payment of rent or in any other payment required to be
made by Tenant hereunder when due as herein provided, and such default shall
continue for seven (7) days after notice thereof in

 

12

 

writing to
Tenant; provided, however, that the said seven (7) day period shall be deemed
to be three (3) days in the event that the Tenant assigns this Lease to a
person or entity who is either not owned by Tenant or a parent corporation of
Tenant; or

 

(h)                                 Tenant
shall fail to contest the validity of any lien or claimed lien and give
security to Landlord to insure payment thereof, or having commenced to contest
the same and having given such security, shall fail to prosecute such contest
with diligence, or shall fail to have the same released and satisfy any
judgment rendered thereon, and such default continues for ten (10) days after
notice thereof in writing to Tenant; or

 

(i)                                     Tenant
shall default in keeping, observing, or performing any of the other covenants
or agreements herein contained to be kept, observed, and performed by Tenant,
and such default shall continue for thirty (30) days after notice thereof in
writing to Tenant; or

 

(j)                                     Tenant
shall repeatedly be late in the payment of rent or other charges required to be
paid hereunder or shall repeatedly default in the keeping, observing, or
performing of any other covenants or agreements herein contained to be kept,
observed, or performed by Tenant (provided notice of such payment or other
defaults shall have been given to Tenant, but whether or not Tenant shall have
timely cured any such payment or other defaults of which notice was
given).  For purposes of this paragraph,
the term “repeatedly” shall mean three (3) times in any twelve (12) month
period.

 

The Tenant further covenants
and agrees that, if the rent above reserved, or any part thereof, shall be in
default, or in case of a breach of any of the covenants or agreements herein,
Landlord may declare this Lease terminated, and after the expiration of fifteen
(15) days from the date of receipt of service of a written notice to that
effect, be entitled to the possession of the Leased Premises, either by the
expiration of this Lease or by any termination of said term as herein provided
for.  If the Tenant shall refuse to
surrender and deliver up the possession of the Leased Premises, after the
service of said notice, then and in that event, the Landlord may, without
further notice or demand, enter into and upon said Leased Premises, or any part
thereof, and take possession thereof and repossess the same as of the
Landlord’s former estate, and expel, remove and put out of possession the
Tenant, using such help, assistance and force in so doing as may be needful and
proper, without being liable for prosecution or damages therefor, and without
prejudice to any remedy allowed by law available in such cases.

 

17.2                           Remedies Cumulative.  No remedy herein or otherwise conferred upon
or reserved to Landlord shall be considered to

 

13

 

exclude or suspend any other remedy, but the
same shall be cumulative and shall be in addition to every other remedy given
hereunder, or now or hereafter existing at law or in equity or by statute, and
every power and remedy given by this Lease to Landlord may be exercised from
time to time and so often as occasion may arise or as may be deemed expedient.

 

17.3                           No
Waiver.  No delay or omission of
Landlord to exercise any right or power arising from any default shall impair
any such right or power or be construed to be a waiver of any such default or
any acquiescence therein.  No waiver of
any breach of any of the covenants of this Lease shall be construed, taken, or held
to be a waiver of any other breach, or as a waiver, acquiescence in, or consent
to any further or succeeding breach of the same covenant.  The acceptance by Landlord of any payment of
rent or other charges hereunder after the termination by Landlord of this Lease
or of Tenant’s right to possession hereunder shall not, in the absence of an
agreement in writing to the contrary by Landlord, be deemed to restore this
Lease or Tenant’s right to possession hereunder, as the case may be, but shall
be construed as a payment on account, and not in satisfaction of damages due
from Tenant to Landlord.

 

XVIII.                                                               COMPLIANCE
CLAUSE AND HAZARDOUS MATERIALS

 

18.1                           General Compliance Clause.  Tenant shall comply with all applicable
codes, ordinances and other governmental regulations regarding the use of the
Leased Premises.  Tenant shall install
any and all equipment in accordance with said codes, ordinances and
regulations.

 

18.2                           Definition of Terms.  The term “hazardous material” means (i) any
hazardous or toxic substance, material or waste including, but not limited to,
those substances, materials and waste listed in the United States Department of
Transportation Hazardous Materials Table (49 C.F.R. 172.101) or by the
Environmental Protection Agency as environmental substances (40 C.F.R. part
302) and amendments thereto and replacements therefor; or (ii) such substances,
materials or waste as are regulated by the Resource Conservation and Recovery
Act of 1986 or the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, and any amendments thereto or ordinances, regulations, directions
or requirements thereunder; or (iii) such hazardous or toxic substances,
materials or waste that are or may become regulated under any other applicable
county, municipal, state or federal law, rule, ordinance, direction or
regulation.  The term “claim” shall mean
any claim, demand, investigation, proceeding, action, suit, judgment, award,
fine, lien, loss, damage, expense, charge or cost of any kind or character and
liability (including Lessor’s reasonable attorneys’ fees and court costs).

 

18.3                           General Prohibition.  Tenant shall not use, generate, manufacture,
produce, store, transport, treat, dispose or

 

14

 

permit the escape or release on, under, about
or from the Leased Premises, or any part thereof, of any hazardous
materials.  If Tenant’s permitted use
under this Lease requires the use and/or storage of any hazardous materials on,
under or about the Leased Premises, Tenant shall provide written notice to
Landlord, prior to final execution of this Lease, of the identity of such
materials and Tenant’s proposed plan for the use, storage, and disposal
thereof; such use, storage and disposal shall be subject to Landlord’s approval,
in Landlord’s sole and absolute discretion. 
If Landlord approves such proposed use, storage, and disposal of
specific hazardous materials, Tenant may use and store upon the Leased Premises
only such specifically approved materials and shall comply with any conditions
to such approval as Landlord may impose in its sole and absolute
discretion.  Landlord’s permission
hereunder may be withdrawn or modified at any time in Landlord’s reasonable
discretion.  Tenant shall fully and
promptly comply with all hazardous materials laws at all times during the term
of this Lease, and at the expiration or earlier termination of this Lease,
Tenant shall remove and dispose of all hazardous materials affecting the Leased
Premises resulting from the use or occupancy thereof by Tenant or its agents,
employees, suppliers, contractors, subtenants, successors and assigns
regardless of whether such removal is required by any hazardous materials
law.  Notwithstanding the foregoing, Landlord
consents to Tenant’s above-ground use, storage and off-site disposal of
products containing small quantities of hazardous materials, which products are
a type customarily used in operations specifically mentioned as a permitted use
under this Lease, provided that Tenant shall handle, use, store, and dispose of
such hazardous materials in a safe and lawful manner and shall not allow
hazardous materials to contaminate the Leased Premises.

 

18.4                           Indemnity.  Tenant shall indemnify, protect, defend, and
hold Landlord (and its partners, joint venturers, shareholders, affiliates and
property managers, and their respective officers, directors, employees and
agents) and Landlord’s lender harmless from and against any and all claims
arising out of, in connection with, or directly or indirectly arising out of
the use, generation, manufacture, production, storage, treatment, release,
disposal or transportation of hazardous materials by Tenant, or any successor,
assignee or sublessee of Tenant, or their respective agents, contractors,
employees, licensees, or invitees, on, under, about or from the Leased
Premises, including, but not limited to, all foreseeable and unforeseeable
costs, expenses, and liabilities related to any testing, repair, cleanup,
removal costs, detoxification, decontamination or remediation and the
preparation and implementation of any closure, remedial action, site assessment
costs or other required plans in connection therewith deemed required,
necessary or advisable by Landlord or any governmental entity, and any
foreseeable or unforeseeable consequential damages. Any defense of Landlord,
whether or not a suit is filed, pursuant

 

15

 

to the foregoing indemnity shall be by
counsel reasonably acceptable to Landlord. 
Neither the consent by Landlord to the use, generation, manufacture,
production, storage, treatment, release, disposal or transportation of
hazardous materials, nor Tenant’s strict compliance with all hazardous
materials laws, shall excuse Tenant from Tenant’s indemnification obligations
hereunder. The foregoing indemnity shall be in addition to and not a limitation
of the other indemnification provisions of this Lease.  Tenant’s obligations hereunder shall survive
the termination or expiration of this Lease.

 

18.5                           Reporting.
 Tenant shall notify Landlord in
writing, immediately after any of the following:  (i) Tenant has knowledge, or has reasonable cause to believe,
that any hazardous materials have been released, discharged or located on,
under or about the Leased Premises, whether or not the same is in quantities
that would otherwise be reportable to a public agency, (ii) Tenant receives any
warning, notice of inspection, notice of violation or alleged violation, or
Tenant receives notice or knowledge of any proceeding, investigation, order or
enforcement action under any hazardous materials law concerning the Leased
Premises, or (iii) Tenant becomes aware of any claims made or threatened by any
third party concerning the Leased Premises respecting hazardous materials.

 

XIX.                                                                       MISCELLANEOUS

 

19.1                           Estoppel
Certificates.  Tenant shall at any
time and from time to time upon not less than ten (10) days prior written
request from Landlord execute, acknowledge, and deliver to Landlord, in form
reasonably satisfactory to Landlord and/or Landlord’s mortgagee, a written
statement certifying (if true) that Tenant has accepted the Leased Premises,
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), that the Landlord is not in default hereunder, the
date to which the rental and other charges have been paid in advance, if any,
and such other accurate certification as may reasonably be required by Landlord
or Landlord’s mortgagee, and agreeing to give copies to any mortgagee of
Landlord of all notices by Tenant to Landlord. 
It is intended that any such statement delivered pursuant to this
subsection may be relied upon by any prospective buyer or mortgagee of the Leased
Premises and their respective successors and assigns.

 

19.2                           Landlord’s Right to Cure.  Landlord may, but shall not be obligated to,
cure any default by Tenant (specifically including, but not by way of
limitation, Tenant’s failure to obtain insurance, make repairs, or satisfy lien
claims); and whenever Landlord so elects, all costs and expenses paid by
Landlord in curing such default, including, without limitation, reasonable
attorneys’ fees, shall be so much additional rent due on the next rent date after
such payment together with interest (except in the

 

16

 

case of said attorneys’ fees) at a rate equal
to 18% per annum, from the date of the advance to the date of repayment by
Tenant to Landlord.  Notwithstanding
anything herein to the contrary, Landlord shall not cure any default by Tenant
unless Landlord has given written notice of such default to Tenant and Tenant
has not cured such default within the applicable cure period; provided,
however, that no such notice need be given in the event of an emergency.

 

19.3                           Amendments
Must Be in Writing.  None of the
covenants, terms, or conditions of this Lease, to be kept and performed by
either party, shall in any manner be altered, waived, modified, changed, or
abandoned except by a written instrument, duly signed and delivered by the
other party.

 

19.4                           Notices.    All notices to or demands upon
Landlord or Tenant, desired or required to be given under any of the provisions
hereof, shall be in writing.  Any notices
or demands from Landlord to Tenant shall be deemed to have been duly and
sufficiently given if a copy thereof has been mailed by United States
registered or certified mail in an envelope properly stamped and addressed to
Tenant as follows:

 

First Capital
Bank of Arizona

821 17th Street

Denver,
Colorado  80202

Attn: 
Jon Lorenz

 

or at such other address as
Tenant may hereafter furnish by written notice to Landlord, and any notices or
demands from Tenant to Landlord shall be deemed to have been duly and sufficiently
given if mailed in an envelope properly stamped and addressed to Landlord as
follows:

 

Za’hav, LLC

c/o
Shames-Makovsky Realty Company

1400 Glenarm
Place, Suite 201

Denver,
Colorado  80202

 

or at such other address as
Landlord may hereafter furnish by written notice to Tenant.  The effective date of such notice shall be
one (1) day after delivery of the same to the United States Postal Service.

 

19.5                           Time of Essence.  Time is of the essence in this Lease, and
all provisions herein relating thereto shall be strictly construed.

 

19.6                           Relationship of Parties.  Nothing contained herein shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership, or of joint venture by the
parties hereto, it being understood and agreed that no provision contained in
this Lease, nor any acts of the parties hereto, shall be deemed to create any

 

17

 

relationship other than the relationship of
Landlord and Tenant.

 

19.7                           Captions.  The captions of this Lease are for
convenience only and are not to be construed as part of this Lease and shall
not be construed as defining or limiting in any way the scope or intent of the
provisions hereof.

 

19.8                           Severability.  If any term or provision of this Lease shall
to any extent be held invalid or unenforceable, the remaining terms and
provisions of this Lease shall not be affected thereby, but each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.

 

19.9                           Law Applicable.  This Lease shall be construed and enforced
in accordance with the laws of the State of Arizona.

 

19.10                                             Covenants
Binding on Successors.  All of the
covenants, agreements, conditions, and undertakings contained in this Lease
shall extend and inure to and be binding upon the heirs, executors,
administrators, successors, and permitted assigns of the respective parties
hereto, the same as if they were in every case specifically named, and wherever
in this Lease reference is made to either of the parties hereto, it shall be
held to include and apply to, wherever applicable, the heirs, executors,
administrators, successors, and assigns of such party.  Nothing herein contained shall be construed
to grant or confer upon any person or persons, firm, corporation, or
governmental authority, other than the parties hereto, their heirs, executors,
administrators, successors, and assigns, any right, claim, or privilege by
virtue of any covenant, agreement, condition, or understanding in this Lease
contained.

 

19.11                                             Landlord
Means Owner.  The term “Landlord” as
used in this Lease, so far as covenants or obligations on the part of Landlord
are concerned, shall be limited to mean and include only the owner or owners at
the time in question who hold fee title to the Leased Premises, and in the
event of any transfer or transfers of the title to such fee, Landlord herein
named (and in case of any subsequent transfer or conveyances, the then grantor)
shall be automatically freed and relieved, from and after the date of such
transfer or conveyance, of all liability as respects the performance of any
covenants or obligations on the part of Landlord contained in this Lease
thereafter to be performed; provided that any funds in the hands of such
Landlord or the then grantor at the time of such transfer, in which Tenant has
an interest, shall be turned over to the grantee, and any amount then due and
payable to Tenant by Landlord or the then grantor under any provisions of this
Lease, shall be paid to Tenant.

 

19.12                                             Signs.  Tenant shall install no exterior sign
without Landlord’s prior written approval, which shall not be unreasonably
withheld.  Upon the expiration or
termination of this Lease and upon written demand from Landlord, Tenant shall
remove the exterior sign and return the Leased Premises to its original

 

18

 

condition.

 

19.13                     Legal
Costs and Expenses.  Tenant agrees
to pay Landlord for all costs and expenses, including reasonable attorneys’
fees, in any court action brought by Landlord to recover any rent due and
unpaid under the terms hereof, or for the breach of any of the terms and
conditions herein contained, or to recover possession of the Leased Premises,
whether or not such court action or actions shall proceed to judgment.  Notwithstanding anything herein to the
contrary, in the event Tenant prevails in a court action, Landlord agrees to
pay Tenant’s costs and expenses, including reasonable attorneys’ fees.

 

19.14                     Compliance with Declaration of
Protective Covenants, Conditions and Restrictions and Reciprocal Easements.  Tenant acknowledges that it has read and
reviewed (i) the Declaration of Covenants, Conditions, Restrictions and
Easements for Crossroads Towne Center dated February 21, 1986 which was
recorded on February 21, 1986 as Instrument No. 86-084666 of the official
records of the Maricopa County, Arizona Recorder, as amended by the First
Amendment to Declaration of Covenants, Conditions, Restrictions and Easements
for Crossroads Towne Center dated March 18, 1987 which was recorded on April 2,
1987 as Instrument No. 87-200863 of the official records of the Maricopa
County, Arizona Recorder, and as further amended by the Second Amendment to
Declaration of Covenants, Conditions, Restrictions and Easements for Crossroads
Towne Center dated June 6, 1994 which was recorded on July 6, 1994 as
Instrument No. 94-0523284 of the official records of the Maricopa County,
Arizona Recorder (collectively, the “CCR’s”), (ii) the Declaration of
Reciprocal Easements and Covenants, Conditions and Restrictions dated February
21, 1986 which was recorded on April 25, 1986 as Instrument No. 86-203354 of
the official records of the Maricopa County, Arizona Recorder, and as amended
by the First Amendment to Declaration of Reciprocal Easements and Covenants,
Conditions and Restrictions dated March 18, 1987 which was recorded on March
27, 1987 as Instrument No. 87-181757 of the official records of the Maricopa
County, Arizona Recorder, and as further amended by the Second Amendment to
Declaration of Reciprocal Easements and Covenants, Conditions and Restrictions
dated February 18, 1994 which was recorded on February 28, 1994 as Instrument
No. 94-0167935 of the official records of the Maricopa County, Arizona Recorder
(collectively, the REA”), (iii) the Declaration of Additional Use Restrictions
dated March 24, 1989 which was recorded on March 24, 1989 as Instrument No.
89-134384 of the official records of the Maricopa County, Arizona Recorder (the
“Use Restrictions”), and (iv) the Agreement dated June 22, 1994 which was
recorded on July 8, 1994 as Instrument No. 94-0529802 of the official records
of the Maricopa County, Arizona Recorder (the “Agreement”).  The CCR’s, REA, Use Restrictions, and
Agreement are collectively hereinafter referred to as the “Governing Title
Documents”.  Tenant shall comply with
the Governing Title Documents, and all amendments thereto or substitutions
thereof, and shall also comply with all other documents which are of public
record which affect the Leased Premises. 
As additional rent,

 

19

 

Tenant shall make all payments required to be made pursuant to the
Governing Title Documents, and all amendments thereto or substitutions thereof,
or if billed to Landlord, Tenant shall make such payments within twenty (20)
days after Landlord bills Tenant therefor. 
At Landlord’s election, Tenant shall pay to Landlord monthly installments
each of which shall be equal to one-twelfth (1/12) of the estimated annual
payments, to be held by Landlord and disbursed by Landlord to make the payments
as they become due.  Estimates are to be
made solely by Landlord and payments shall be made on the first day of the
month or such other day of the month designated by Landlord.  No interest shall be payable by Landlord on
the escrow unless, and then only to the extent that, applicable law shall
otherwise require.  All overpayments to
the escrow account shall be applied to reduce future payments to the escrow
account, if any, or shall be returned to Tenant, at the sole discretion of
Landlord unless otherwise required by other applicable law.

 

19.15                     Capacity
of Landlord.  Landlord hereby
discloses to Tenant that Landlord is entering into this Lease individually and
as nominee for Nisan 4, a joint venture (“Nisan 4”), that all rent payments are
to be made to Landlord and that Landlord shall be responsible for distributing
rent to Nisan 4.

 

IN WITNESS
WHEREOF, Landlord and Tenant have executed this Lease the day and year first
above written.

 

	
   

  	
   

  	
  TENANT:

  	
   

  	
  LANDLORD:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FIRST
  CAPITAL BANK OF

  	
   

  	
  ZA’HAV, LLC,
  a Colorado

  
	
   

  	
   

  	
  ARIZONA, an
  Arizona

  	
   

  	
  limited
  liability company

  
	
   

  	
   

  	
  corporation

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Richard
  Dalton,

  	
   

  	
  Evan
  Makovsky, Manager

  
	
   

  	
   

  	
  Executive
  Vice President

  	
   

  	
   

  
						

 

20

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