UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 0-27802
ARTERIAL VASCULAR ENGINEERING, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3144218
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5355 Skylane Boulevard, Santa Rosa, California 95403
(Address of principal executive offices) (Zip code)
(707) 525-0111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
------------- ------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock.
Class Outstanding
Common Stock, $0.001 par value 30,862,262 as at May 9, 1996
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
<S> <C> <C>
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1996 3
and June 30, 1995
Condensed Consolidated Statements of Operations for the quarters
and nine months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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Page 2
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 30, March 31,
1995 1996
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 2,533 $ 7,396
Trade accounts receivable, net 4,977 9,647
Inventories 920 2,431
Deferred income tax 673 772
Prepaid expenses and other current assets 270 2,492
-------- -------
Total current assets 9,373 22,738
Investments 1,400 1,300
Deferred income tax 415 -
Property and equipment, net 1,252 3,105
Purchased technology and other intangible assets, net 649 537
-------- -------
Total assets $ 13,089 $27,680
======== =======
LIABILITIES
Current liabilities:
Accounts payable $ 352 $ 865
Accrued expenses 1,164 2,257
Customer deposits 1,405 -
Income taxes payable 2,039 -
-------- -------
Total current liabilities 4,960 3,122
-------- -------
STOCKHOLDERS' EQUITY
Common Stock 22 27
Additional paid-in capital 6,820 10,319
Notes receivable for common stock (3,126) (3,126)
Deferred stock compensation (299) (102)
Retained earnings 4,712 17,440
-------- -------
Total stockholders' equity 8,129 24,558
-------- -------
Total liabilities and stockholders' equity $ 13,089 $27,680
======== =======
The accompanying notes are an integral
part of these consolidated financial statements
Page 3
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1995 1996 1995 1996
------ ------ ------ ------
Net sales $ 5,516 $15,589 $10,316 $37,303
Cost of sales 1,357 2,896 2,603 7,814
------- ------- ------- -------
Gross profit 4,159 12,693 7,713 29,489
------- ------- ------- -------
Operating expenses:
Research and development 322 3,783 596 4,988
Selling, general and administrative 591 4,285 1,230 5,542
------- ------- ------- -------
Total operating expenses 913 8,068 1,826 10,530
------- ------- ------- -------
Operating income 3,246 4,625 5,887 18,959
Interest income 128 145 140 404
------- ------- ------- -------
Income before income taxes 3,374 4,770 6,027 19,363
Provision for income taxes 1,051 1,669 1,877 6,635
------- ------- ------- -------
Net income $ 2,323 $ 3,101 $ 4,150 $12,728
======= ======= ======= =======
Net income per share $ 0.09 $ 0.11 $ 0.16 $ 0.46
Shares used in per share calculation 27,214 27,513 27,188 27,347
The accompanying notes are an integral
part of these consolidated financial statements
Page 4
<PAGE>
<TABLE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Nine Months Ended
March 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,150 $12,728
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 148 572
Provision for doubtful accounts 100 146
Amortization of deferred stock compensation 166 197
Income tax reduction relating to stock plans - 2,148
Deferred income taxes (360) 316
Changes in assets and liabilities:
Accounts receivable (4,341) (4,816)
Inventories (591) (1,511)
Prepaids and other current assets (26) (2,222)
Accounts payable (81) 513
Accrued liabilities 26 1,093
Customer deposits (11) (1,405)
Income taxes payable 1,936 (2,039)
--------- --------
Net cash provided by operating activities 1,116 5,720
--------- --------
Cash flows from investing activities:
Proceeds of investments - 100
Acquisition of property and equipment (653) (2,313)
Acquisition of stock in Endovascular Support
Systems, Inc. (108) -
--------- --------
Net cash used in investing activities (761) (2,213)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 100 1,320
Proceeds from exercise of common stock options - 36
Repurchase of common stock (300) -
--------- --------
Net cash provided by (used in) financing activities (200) 1,356
--------- --------
Net increase in cash and cash equivalents 155 4,863
Cash and cash equivalents, beginning of period 1,882 2,533
--------- --------
Cash and cash equivalents, end of period $ 2,037 $7,396
========= ========
<FN>
The accompanying notes are an integral
part of these consolidated financial statements
</FN>
</TABLE>
Page 5
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, in accordance with
generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments)
considered necessary to present fairly the financial position and
results of operations have been included. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements contained in the Company's
Registration Statement on Form S-1, which was declared effective by
the Securities and Exchange Commission on April 2, 1996.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The year-end
balance sheet data was derived from audited financial statements, but
does not include disclosures required by generally accepted
accounting principles.
Operating results for the nine months ended March 31, 1996 are not
necessarily indicative of the results to be expected for any other
interim period or for the full year.
2. Inventories (in thousands):
March 31, June 30,
1996 1995
------------ ------------
Raw materials $ 406 $ 221
Work in process 1,213 269
Finished goods 812 430
------------ ------------
$ 2,431 $ 920
------------ ------------
3. Computation of Net Income Per Share
Net income per share is computed using the weighted average number of
common and common stock equivalent shares outstanding during the
period. Common equivalent shares from stock options are excluded from
the computation if their effect is antidilutive, except that,
pursuant to the requirements of the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common equivalent shares
relating to stock and options issued in the year prior to the date of
the Company's first filing of its registration statement have been
included in the computations for all periods presented that are prior
to this date.
Page 6
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially
from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in
this section, as well as those discussed in the Company's
Registration Statement on Form S-1, which was declared effective by
the Securities and Exchange Commission on April 2, 1996.
The Company anticipates that its results of operations may fluctuate
for the foreseeable future due to several factors, including the
timing of new product introductions or transitions to new products,
competition (including pricing pressures), actions related to
regulatory and third-party reimbursement matters, the Company's
ability to manufacture its products efficiently, the timing of
research and development expenses (including clinical trial-related
expenditures), and seasonal factors impacting the number of elective
angioplasty procedures. In addition, the Company's results of
operations could be affected by the timing of orders from
distributors, expansion of the Company's distributor network
(including expenses in connection with termination of former
distributors), the ability of the Company's distributors to
effectively promote the Company's products and the ability of the
Company to quickly and cost-effectively establish a direct sales
force in targeted countries.
Results of Operations
Three Months Ended March 31, 1996 and 1995
Sales. The Company's third quarter fiscal 1996 sales of $15.6 million
increased 184% over third quarter sales of $5.5 million in fiscal
1995. Sales of stent systems for the current quarter represented
$14.7 million or 94% of sales compared to $4.9 million or 89% of
sales for the comparable quarter of fiscal 1995. Sales of balloon
angioplasty catheters represented $0.9 million or 6% of sales for the
current quarter compared to $0.6 million or 11% of sales for the
comparable quarter of fiscal 1995. The increases in stent systems
sales principally reflected additional unit sales of the Micro Stent
II systems released in certain countries internationally in October
1995. All of the Company's sales have previously been made through
distributors; however, the Company plans to begin selling directly
into Germany and the United Kingdom in the fourth quarter of fiscal
1996.
Page 7
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
Cost of sales. Cost of sales increased to $2.9 million for the third
quarter of fiscal 1996 from $1.4 million for the comparable quarter
of fiscal 1995 and decreased as a percentage of sales to 19% for the
current quarter from 25% for the comparable quarter of fiscal 1995.
The increase in absolute dollars was primarily a result of the
increased volume of products sold and, to a lesser extent, the costs
of additional manufacturing capacity and personnel necessary to
support increased sales volume. The decrease as a percentage of net
sales was primarily the result of leveraging certain fixed overhead
expenses across a higher base of sales, of the change in sales
product mix and, to a lesser extent, from improved operating
efficiencies and continuing cost control measures.
Research and development. Research and development expenses increased
to $3.8 million for the third quarter of fiscal 1996 from $0.3
million for the third quarter of fiscal 1995. A one-time compensation
expense of $2.6 million is included in the third quarter of fiscal
1996 in connection with the termination of certain patent royalty
obligations. Without this charge, research and development expenses
increased in absolute dollars to $1.1 million or 7% of sales for the
current quarter from $0.3 million or 6% of sales for the comparable
quarter of fiscal 1995. This increase was primarily due to the
addition of research and development personnel and increased levels
of spending in connection with clinical trials relating to the
development of the Micro Stent II, Micro Stent 2.5 and Micro Stent II
XL systems. The Company expects research and development expenses to
continue to increase both in absolute dollars and as a percentage of
sales as the Company increases clinical trial activities and pursues
development of next-generation products.
Selling, general and administrative. Selling, general and
administrative expenses increased to $4.3 million for the third
quarter of fiscal 1996 from $0.6 million for the third quarter of
fiscal 1995. A one-time compensation expense of $2.6 million is
included in the third quarter of fiscal 1996 in connection with the
termination of certain patent royalty obligations. Without this
charge, selling, general and administrative expenses increased in
absolute dollars to $1.6 million or 11% of sales for the current
quarter from $0.6 million or 11% of sales for the comparable quarter
of fiscal 1995. The increase in absolute dollars primarily reflected
additional costs of marketing and other personnel necessary to
support the Company's higher level of operations. The Company expects
selling, general and administrative costs to increase in absolute
dollars and as a percentage of sales in the future as the Company's
level of sales increases and as the Company increases its finance and
administrative expenditures to meet the obligations required of it as
a public reporting company.
Interest Income. Interest income for the third quarter of fiscal 1996
was $145,000 as compared to $128,000 for the comparable period of
fiscal 1995.
Page 8
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
Provision for income taxes. For the third quarter of fiscal 1996, the
Company's effective income tax rate was 35%, resulting in a provision
for income taxes of $1.7 million, compared to 31%, resulting in a
provision for income taxes of $1.1 million for the comparable quarter
of fiscal 1995. The increase in the provision is as a result of the
Company's higher earnings during the third quarter of fiscal 1996 and
due to the utilization of net operating loss carryforwards in the
comparable quarter of fiscal 1995.
Net income. The Company had net income of $3.1 million for the third
quarter of fiscal 1996 compared to $2.3 million for the comparable
quarter of fiscal 1995. Earnings per share has increased to $0.11 for
the third quarter of fiscal 1996 from $0.09 for the comparable
quarter of fiscal 1995. Net income excluding the one-time
compensation expense of $5.2 million together with the associated
income tax benefit of $1.8 million, would have been $6.5 million for
the third quarter of fiscal 1996, giving an earnings per share of
$0.24.
Nine Months Ended March 31, 1996 and 1995
Sales. The Company's sales for the nine months ended March 31, 1996
were $37.3 million which represents a 262% increase from the
comparable period of fiscal 1995. Sales of stent systems for the nine
months ended March 31, 1996 represented $31.6 million or 85% of sales
compared to $6.6 million or 64% of sales for the comparable period of
fiscal 1995. Sales of balloon angioplasty catheters for the nine
months ended March 31, 1996 represented $5.7 million or 15% of sales
compared to $3.7 million or 36% of sales for the comparable period of
fiscal 1995. The increase in total sales was due to significant
increases in sales of the Micro Stent family of products,
particularly the Micro Stent II that was released in certain
countries internationally in October 1995.
Cost of sales. Cost of sales as a percentage of sales for the nine
months ended March 31, 1996 was 21% as compared to 25% for the
comparable period of fiscal 1995. This decrease resulted primarily
from the leveraging of certain fixed overhead expenses across a
higher base of sales and as a result of the change in sales mix.
Research and development. Research and development expenses increased
to $5.0 million for the nine months ended March 31, 1996 from $0.6
million for the comparable period of fiscal 1995. A one time
compensation expense of $2.6 million is included in the nine months
ended March 31, 1996 in connection with the termination of certain
patent royalty obligations. Without this charge, research and
development expenses increased in absolute dollars to $2.3 million or
6% of sales for the current period from $0.6 million or 6% of sales
for the comparable period of fiscal 1995. The increase in absolute
dollars was primarily due to the addition of personnel and the
commencement of clinical trials.
Page 9
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ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
Selling, general and administrative. Selling, general and
administrative expenses increased to $5.5 million for the nine months
ended March 31, 1996 from $1.2 million for the comparable period of
fiscal 1995. A one time compensation expense of $2.6 million is
included in the nine months ended March 31, 1996 in connection with
the termination of certain patent royalty obligations. Without this
charge, selling, general and administrative expenses increased in
absolute dollars to $2.9 million or 8% of sales for the current
period from $1.2 million or 12% of sales for the comparable period of
fiscal 1995. The increase in absolute dollars reflected the Company's
higher level of operations.
Interest income. Interest income for the nine months ended March 31,
1996 was $0.4 million as compared to $0.1 million for the comparable
period of fiscal 1995. The increase resulted from a greater average
balance of cash, cash equivalents and notes receivable for the
current period.
Provision for income taxes. The Company's effective tax rate for the
nine months ended March 31, 1996 was 34.3%, resulting in a provision
for income taxes of $6.6 million, compared to 31.0%, resulting in a
provision for income taxes of $1.9 million for the comparable period
of fiscal 1995. The increase was primarily a result of the Company's
higher earnings in the current period and due to the utilization of
net operating costs carryforwards in the comparable period of fiscal
1995.
Net income. The Company had net income of $12.7 million for the nine
months ended March 31, 1996 compared to $4.1 million for the
comparable period of fiscal 1995. Earnings per share increased to
$0.46 in the nine months ended March 31, 1995 from $0.16 in the
comparable period of fiscal 1995. Net income excluding the one-time
compensation expense of $5.2 million together with the associated
income tax benefit of $1.8 million, would have been $16.2 million for
the nine months ended March 31, 1996, giving an earnings per share of
$0.59.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months ended
March 31, 1996 was $5.7 million as compared to $1.1 million for the
comparable period of fiscal 1995. As of March 31, 1996, the Company's
working capital, which consists primarily of cash, cash equivalents
and trade accounts receivable was $19.6 million as compared to $4.4
million at June 30, 1995.
As of the date of this report, the Company has no outstanding debt.
The Company's principal commitments consist of obligations under
operating leases for facilities. Cash paid for income taxes in the
nine months ended March 31, 1996 was $7.1 million as compared to $0.3
million for the comparable period of fiscal 1995.
Page 10
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
In addition to the cash provided by the Company's operating and other
activities, approximately $80 million was received in the Company's initial
public offering on April 2, 1996. The Company believes that the proceeds from
the offering, together with the existing funds and funds expected to be
generated from future operations will be sufficient to meet its projected
working capital and other cash requirements through at least 1997.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.23 Agreement for Sale of Real Property and
Escrow Instructions, dated April 17, 1996,
between the Company and Union Oil Company
of California.
11.1 Statement regarding calculation of net income per
share.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company was not subject to the filing
requirements of the Securities Exchange Act of 1934
during the quarter ended March 31, 1996, hence
there were no reports on Form 8-K filed during that
quarter.
Page 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARTERIAL VASCULAR ENGINEERING, INC.
Date: May 10, 1996 /S/ John D. Miller
--------------------------------------------
John D. Miller
Vice President Finance, Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 12
EXHIBIT 10.23
Escrow No.:
Date Escrow Opened:
Escrow Holder:
AGREEMENT FOR SALE OF
REAL PROPERTY
AND ESCROW INSTRUCTIONS
THIS AGREEMENT is made and entered into this 17th day of April, 1996,
by and between Arterial Vascular Engineering, Inc., a Delaware corporation
("BUYER"), and Union Oil Company of California, a California corporation, doing
business as Unocal ("COMPANY").
R E C I T A L S
A. COMPANY is the owner of certain improved real property in the City
of Santa Rosa, County of Sonoma, State of California, consisting of that certain
real property more particularly described on Exhibit "A" attached hereto and
hereby incorporated herein (the "Land"), the improvements, buildings and
facilities located on the Land (the "Improvements"), and the personal property
listed on Exhibit "B" attached hereto and hereby incorporated herein (the
"Personal Property"). The Land, Improvements and Personal Property are herein
referred to collectively as the "Property."
B. BUYER has offered to purchase and COMPANY has offered to convey the
Property upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements and conditions hereof, the parties agree as follows:
1. Purchase Price
1.1. Sale and Purchase. BUYER hereby agrees to purchase and COMPANY
hereby agrees to convey the Property, upon the terms and conditions contained
herein.
<PAGE>
1.2. Purchase Price. The total purchase price to be paid by BUYER for
the Property is Five Million One Hundred Thousand Dollars ($5,100,000.00) (the
"Purchase Price"). The Purchase Price shall be paid as follows:
1.2.1. Deposit. Upon the opening of escrow, BUYER shall
deposit with Escrow Holder (as such term is hereinafter defined), in
the form of a certified or bank cashier's check, or a confirmed wire
transfer of funds, the sum of Two Hundred Fifty Thousand Dollars
($250,000.00) (the "Deposit"). Upon Escrow Holder's receipt, the
Deposit shall be invested by Escrow Holder in a federally-insured
interest bearing account with all interest accruing thereon credited to
the Purchase Price upon the Close of Escrow (as such term is
hereinafter defined). Upon the expiration of the Contingency
Termination Date (as such term is hereinafter defined), provided BUYER
has not elected to terminate this Agreement and the escrow created
pursuant hereto in strict accordance with Section 2 below, the Deposit
(together with all interest which has then accrued thereon) shall: (i)
be released by Escrow Holder to COMPANY without the need for further
instructions from either BUYER or COMPANY authorizing such release, and
(ii) become non-refundable to BUYER unless a condition to BUYER's
obligations hereunder is not satisfied or waived or unless COMPANY
defaults in its obligations hereunder, but shall be credited towards
the Purchase Price upon the Close of Escrow.
1.2.2. Balance of Purchase Price. At least one (1) business
day prior to the Close of Escrow, BUYER shall deposit into escrow, in
immediately available funds, the balance of the Purchase Price, plus
BUYER's share of closing costs, prorations and charges payable pursuant
to this Agreement.
2. Feasibility Matters.
Until 5:00 p.m. on the date which is the fifteenth (15th) day following
the opening of escrow (the "Contingency Termination Date"), BUYER shall have the
right to review and approve the following matters (collectively, the
"Feasibility Matters"), and BUYER's obligations hereunder shall be conditioned
upon BUYER's approval of and/or satisfaction with said matters, in BUYER's sole
and absolute discretion, on or before said date:
<PAGE>
(a) any physical inspections or testing of the
Property (including, but not limited to, environmental
testing) BUYER may conduct in accordance with Section 3.1
below;
(b) BUYER's review of all studies and documents which
BUYER determines necessary. Until the Contingency Termination
Date, BUYER shall have the right to enter the Property in
accordance with the provisions of Section 3.1 below to review
the files for the Property located at the offices of COMPANY
at the Property during regular business hours; and
(c) the requirements and conditions of governmental
bodies with jurisdiction, including appropriate zoning and
applicable ordinances and parking requirements.
If BUYER fails to approve all of the Feasibility Matters, in a writing
delivered to COMPANY on or prior to the Contingency Termination Date, the
Feasibility Matters shall be deemed disapproved. If BUYER is deemed to have
disapproved the Feasibility Matters as provided above or disapproves any of the
Feasibility Matters in a writing delivered to COMPANY on or prior to the
Contingency Termination Date, then this Agreement shall terminate, in which
event escrow shall be cancelled with no further liability by either party to the
other party (except for the indemnity obligations of BUYER set forth in this
Agreement), the Deposit, together with all interest earned from the investment
thereof, shall be returned by Escrow Holder to BUYER, and BUYER shall pay all
escrow fees. Furthermore, BUYER shall provide to COMPANY, within fifteen (15)
days after such cancellation, copies of all surveys and environmental and
engineering studies generated by or on behalf of BUYER concerning the Property
at no cost or expense to COMPANY.
Notwithstanding anything contained in this Agreement to the contrary,
BUYER acknowledges and agrees that BUYER's ability to obtain financing with
respect to its acquisition and/or improvement of the Property is neither a
Feasibility Matter for purposes of this Section 2 nor a condition to BUYER's
obligations under this Agreement, and in no event shall BUYER have the right to
terminate this Agreement due to an inability to obtain such financing.
<PAGE>
3. Matters During Escrow
3.1. License. From and after the execution of this Agreement by
COMPANY, COMPANY agrees to allow BUYER or its agents, employees, officers,
attorneys and other representatives to enter the Property during the escrow
period at BUYER's expense and risk to inspect the Property, to review the files
for the Property and to conduct such tests as may be required by BUYER. However,
notwithstanding anything in this Agreement to the contrary, should BUYER wish to
enter the Property for any purpose during the term of the escrow, including but
not limited to BUYER's feasibility review, BUYER shall first provide written
notice thereof to COMPANY setting forth in detail BUYER's purpose for entering
onto the Property and the time or times BUYER wishes to make such entry. COMPANY
shall thereupon have the right to approve or disapprove such entry in writing.
Such approval shall not be unreasonably withheld or delayed, but may be
conditioned at the reasonable discretion of COMPANY. Additionally, any
inspections or tests conducted by BUYER shall not damage the Property in any
respect and shall be conducted in such a manner so as not to disturb or disrupt
the business activities of COMPANY. COMPANY reserves the right to have a
representative present during any inspections or test. Upon completion of any
inspections and/or tests of the Property, BUYER shall, at its sole cost and
expense, promptly restore the Property to the condition existing immediately
prior to any such inspections and/or tests.
Notwithstanding anything contained herein to the contrary, if BUYER at
any time during the escrow period desires to enter upon the Property to conduct
merely a visual inspection of the Property or to review the files for the
Property, then BUYER need only provide COMPANY with telephonic notice of such
inspection or review, by calling either of COMPANY's designated representatives,
Kevin Talkington or Ron Hedges, at (707) 545-7600, no less than twenty-four (24)
hours prior to the time the visual inspection or file review is to be conducted,
and the written notice and approval provisions set forth above shall not apply;
provided, however, that COMPANY reserves the right to have a representative
present during any such inspection.
3.2. Insurance. During the escrow period, BUYER, before entering the
Property, and at its own expense, shall procure and maintain during the
performance of its obligations under this Agreement policies of liability
insurance, issued by insurance
<PAGE>
companies duly qualified or licensed to issue policies of insurance in the State
of California reasonably acceptable to COMPANY, which are primary as to any
other existing, valid and collectible insurance insuring BUYER against loss or
liability caused by or in connection with the performance of this Agreement by
BUYER, its agents, servants, employees, invitees, guests, contractors or
subcontractors, in amounts not less than:
(a) Commercial General Liability Insurance Occurrence Form, or
the equivalent, including Blanket Contractual Liability, with a
combined single limit of ONE MILLION DOLLARS ($1,000,000) each
occurrence, TWO MILLION DOLLARS ($2,000,000) aggregate, for Bodily
Injury and Property Damage, including Personal Injury.
(b) Comprehensive Automobile Liability Insurance or Business
Auto Policy covering all owned, hired or otherwise operated non-owned
vehicles, with a minimum combined single limit of ONE MILLION DOLLARS
($1,000,000) each occurrence for Bodily Injury and Property Damage.
(c) Workers' Compensation Insurance as required by law, and
Employers' Liability Insurance with a minimum limit of ONE MILLION
DOLLARS ($1,000,000) each occurrence.
The policies of liability insurance shall name COMPANY and the "Company
Group," as defined in Article Six, as an additional insured and shall not
exclude or restrict coverage based upon alleged or actual negligence of an
additional insured. BUYER shall deliver to COMPANY a certificate evidencing the
policies, that COMPANY and the Company Group are named as an additional insured
under the policies and that coverage will not be cancelled or materially changed
prior to thirty (30) days' advance written notice to COMPANY. Subrogation
against COMPANY and the Company Group shall be waived as respects all of the
insurance policies set forth above (including without limitation policies of any
subcontractor). The insurance required hereunder in no way limits or restricts
the Indemnification under Article Six, nor is the insurance to be carried
limited by any limitation in Article Six nor by any limitation placed on the
indemnity as a matter of law. Any deductible amount, which shall not exceed One
Thousand Dollars ($1,000), is the responsibility of BUYER.
<PAGE>
3.3. Condemnation. In the event that any condemnation or eminent domain
proceedings affecting all or any part of the Property are initiated prior to
Close of Escrow, BUYER or COMPANY may, at any time thereafter, terminate this
Agreement by written notice to the other party and Escrow Holder, and Escrow
Holder shall immediately, upon receipt of such notice, deliver to BUYER or
COMPANY all writings, documents, deposits (including interest earned thereon),
letters of credit or other instruments or funds deposited into escrow to the
party depositing the same, or, alternatively, if neither party elects to
terminate this transaction, such transaction shall be consummated, in which
event COMPANY shall assign to BUYER all of its right, title and interest in and
to any award made or to be made in connection with such proceedings and shall
permit BUYER to conduct all negotiations and enter into all Agreements with
respect thereto.
3.4. Damage or Destruction. Should there occur prior to the Close of
Escrow a casualty resulting in the damage or loss of any material portion of the
Improvements (which, for the purposes of this Agreement, shall mean damage or
loss which will cost greater than $100,000.00 to repair or restore), then BUYER
may terminate this Agreement by written notice to COMPANY and Escrow Holder
prior to the Close of Escrow, in which event Escrow Holder shall return all
funds and documents then held in escrow to the party depositing the same, and
COMPANY shall promptly return any funds and documents paid or delivered to
COMPANY by Escrow Holder; alternatively, if BUYER does not elect to terminate
this transaction, such transaction shall be consummated, in which event COMPANY
shall have no obligation to repair or restore any such damage or loss or to
compensate BUYER in any manner for such damage or loss.
4. Escrow
4.1. Opening of Escrow. BUYER and COMPANY agree that an escrow shall be
opened within five (5) business days after the date hereof, with Chicago Title
Insurance Company, 700 South Flower Street, Suite 900, Los Angeles, CA 90017, as
escrow holder ("Escrow Holder"). Three (3) duplicate originals of this Agreement
shall be deposited in said escrow. Escrow Holder is hereby instructed to fill in
the information on the first page of this Agreement and to send a duplicate
original of this Agreement promptly each to BUYER and COMPANY. This Agreement
and the general provisions attached hereto as Exhibit "C" shall become a part of
the escrow and shall constitute the joint instructions of BUYER and COMPANY to
Escrow Holder. If there is any conflict between the provisions of the body of
this Agreement (including
<PAGE>
all exhibits thereto other than Exhibit "C") and the general provisions attached
hereto as Exhibit "C", the provisions of the body of this Agreement shall
prevail.
4.2. LIQUIDATED DAMAGES CLAUSE. IF BUYER FAILS TO COMPLETE THE PURCHASE
OF THE PROPERTY BY REASON OF A DEFAULT OF BUYER, COMPANY SHALL BE ENTITLED TO
CANCEL THIS ESCROW AND SHALL BE RELEASED FROM ITS OBLIGATION TO SELL THE
PROPERTY TO BUYER, AND COMPANY MAY PURSUE ANY REMEDY IN LAW OR EQUITY THAT IT
MAY HAVE AGAINST BUYER ON ACCOUNT OF SUCH DEFAULT; PROVIDED, HOWEVER, THAT BY
PLACING THEIR INITIALS HERE,
COMPANY /S/John D. Murphy AND BUYER /S/John D. Miller AGREE THAT:
A. IN THE EVENT OF A DEFAULT OR BREACH OF THIS AGREEMENT BY BUYER,
COMPANY WILL BE DAMAGED (INCLUDING BUT NOT LIMITED TO LOSS OF OTHER
POTENTIAL BUYERS, UNRECOVERABLE MARKETING, SALES AND PROCESSING COSTS
AND COSTS OF HOLDING PROPERTY BEYOND TERM OF ESCROW) AND WILL BE
ENTITLED TO COMPENSATION FOR THESE DAMAGES, BUT SUCH DAMAGES WILL BE
EXTREMELY DIFFICULT AND IMPRACTICAL TO ASCERTAIN BECAUSE:
(i) THE DAMAGES TO WHICH THE COMPANY WILL BE ENTITLED IN A
COURT OF LAW WILL BE BASED ON THE DIFFERENCE BETWEEN THE
ACTUAL VALUE OF THE PROPERTY AT THE SCHEDULED CLOSE OF ESCROW
AND THE PURCHASE PRICE FOR THE PROPERTY AS SET FORTH IN THIS
AGREEMENT, WHICH DIFFERENCE MUST BE BASED ON OPINIONS OF VALUE
OF THE PROPERTY, WHICH CAN VARY IN SIGNIFICANT AMOUNTS; AND
(ii) IT IS IMPOSSIBLE TO PREDICT, AS OF THE DATE HEREOF,
WHETHER THE VALUE OF THE PROPERTY WILL INCREASE OR DECREASE AS
OF THE SCHEDULED CLOSE OF ESCROW AND BUYER DESIRES TO LIMIT
THE AMOUNT OF DAMAGES FOR WHICH BUYER MIGHT BE LIABLE AND
BUYER AND COMPANY WISH TO AVOID THE COSTS AND LENGTHY DELAYS
WHICH WOULD RESULT IF THE COMPANY FILED A LAWSUIT TO COLLECT
ITS DAMAGES FOR BREACH OF THIS AGREEMENT.
B. IN THE EVENT OF DEFAULT OR BREACH OF THIS AGREEMENT BY BUYER, (i)
THE AMOUNT OF THE DEPOSIT SHALL CONSTITUTE LIQUIDATED DAMAGES TO
COMPANY; AND (ii) THE PAYMENT OF SUCH LIQUIDATED DAMAGES TO COMPANY
SHALL CONSTITUTE THE EXCLUSIVE REMEDY OF COMPANY ON ACCOUNT OF THE
DEFAULT BY BUYER.
C. AT ANY TIME AFTER BUYER DEFAULTS UNDER THE TERMS OF THIS AGREEMENT,
OR AT ANY TIME AFTER THE DATE PROVIDED HEREIN FOR
<PAGE>
CLOSE OF ESCROW OR ANY EXTENDED DATE FOR CLOSING, COMPANY MAY GIVE
WRITTEN NOTICE THEREOF TO ESCROW HOLDER AND TO BUYER, IN WHICH EVENT,
NO LATER THAN THREE (3) BUSINESS DAYS AFTER RECEIPT OF SUCH NOTICE, (i)
THE DEPOSIT SHALL BE PAID TO (IF NOT OTHERWISE RELEASED BY ESCROW
HOLDER TO COMPANY PURSUANT TO SECTION 1.2.1 ABOVE) AND RETAINED BY
COMPANY; AND (ii) ESCROW HOLDER SHALL CANCEL THE ESCROW.
D. BUYER AND COMPANY EACH AGREES TO INDEMNIFY AND HOLD ESCROW HOLDER
HARMLESS FROM ANY CLAIM BY THE OTHER ARISING OUT OF ANY DISTRIBUTIONS
MADE BY ESCROW HOLDER IN ACCORDANCE WITH AND PURSUANT TO THE PROVISIONS
OF THIS SECTION.
4.3. Title Matters.
4.3.1. Title Condition.
4.3.1.1. Subject to BUYER's right to
terminate this Agreement pursuant to Sections 4.3.1.3 and 4.3.2 below,
title to the Property shall be subject to covenants, conditions,
restrictions, reservations, rights of way, easements and other matters
of record.
4.3.1.2. BUYER acknowledges that COMPANY has
heretofore provided to BUYER a preliminary report dated March 21, 1996
(the "Preliminary Report") prepared by Chicago Title Insurance Company
("Title Company"). BUYER hereby approves and agrees to accept title
subject to item numbers 1 through 17, inclusive, shown in Schedule B of
the Preliminary Report.
4.3.1.3. BUYER shall approve or disapprove
in writing any supplement to the Preliminary Report on or before the
date which is seven (7) days after BUYER's receipt of any such
supplement and copies of any exceptions shown thereon. Failure of BUYER
to approve or disapprove any supplement to the Preliminary Report in
writing within the time specified shall be deemed BUYER's disapproval
thereof. In the event BUYER disapproves in writing, or is deemed to
have disapproved as provided above, any exception appearing in any
supplement to the Preliminary Report, COMPANY shall have the right, but
not the obligation, to notify BUYER in writing that COMPANY intends to
remove such matter on or before Close of Escrow, and in such event this
Agreement shall not be terminated based upon BUYER's disapproval of any
such matter; provided, however, that in the event COMPANY elects not to
remove such matter, or COMPANY is not able to remove such matter on or
<PAGE>
before Close of Escrow, BUYER may elect whether to waive in writing
such disapproval and close escrow or to terminate this Agreement, in
which event all amounts deposited by BUYER in escrow or with COMPANY
shall be immediately returned to BUYER; and provided further that in
the event any lien, encumbrance or other exception to title represents
a security interest relating to an obligation to pay money, such item
shall be disapproved and shall be removed by COMPANY on or before Close
of Escrow notwithstanding anything to the contrary contained herein.
4.3.2. Title Insurance. COMPANY shall instruct Title Company to issue,
and it shall be a condition to BUYER's obligation to purchase the Property that
Title Company commit to issue, a standard policy of title insurance on the
Property in the amount of the Purchase Price in favor of BUYER at Close of
Escrow showing the Property vested in BUYER, subject only to (i) the title
matters which have been approved by BUYER in accordance with the provisions of
Section 4.3.1 above; and (ii) any matters created by BUYER. In the event BUYER
desires an extended coverage policy of title insurance, COMPANY shall reasonably
cooperate with Escrow Holder and BUYER in the preparation and issuance of such
policy, including the execution of such documents as may reasonably be required;
provided, however, that in no event shall any matter involved in the issuance of
an extended coverage title policy delay or extend any times set forth in this
Agreement. If there is a failure of the condition for BUYER's benefit described
in this Section 4.3.2, then BUYER shall have the right to terminate this
Agreement and to receive a refund of the Deposit.
4.4. Deposits Into Escrow. BUYER and COMPANY shall deposit in said
escrow all documents and funds necessary to carry out this Agreement, including:
4.4.1. By COMPANY:
(a) A grant deed in proper form for
recording, which shall be duly executed and acknowledged so as
to convey to BUYER all of the Property in accordance with the
terms of this Agreement. Exact vesting required by BUYER shall
be submitted into escrow by BUYER no later than ten (10)
business days before the scheduled Close of Escrow.
(b) A bill of sale, in the form of Exhibit
"D" attached hereto and incorporated herein, which shall be
duly executed so as to convey to BUYER all of
<PAGE>
COMPANY's right, title and interest in and to the Personal
Property.
(c) A counterpart original of the License
Agreement (as such term is hereinafter defined), duly executed
by COMPANY.
(d) A certificate of its authorized officer
to the effect that, as of the date of the closing, it is not a
foreign person as defined in the Internal Revenue Code of
1986, as amended, and Income Tax Regulations ("FIRPTA
Certificate"), such FIRPTA Certificate to be substantially in
the form described in Treasury Regulation Section
1.1445-2(b)(2)(iii)(B), or otherwise within the requirements
of Section 1.1445-2(b)(2) of that regulation and any
comparable local laws.
(e) A California Form 590 or other evidence
sufficient to establish that BUYER is not required to withhold
any portion of the Purchase Price pursuant to Sections 18805
and 26131 of the California Revenue and Taxation Code.
4.4.2. BY BUYER:
(a) Cash, cashier's check payable to Escrow
Holder, or wire transfer of immediately available funds
representing the Purchase Price, less the Deposit, plus
BUYER'S share of closing costs and prorations, as determined
below.
(b) A counterpart original of the License
Agreement, duly executed by BUYER.
4.5. Costs and Expenses. The cost of recording the grant deed shall be
paid by COMPANY. BUYER shall pay the documentary transfer taxes (including the
documentary transfer taxes payable to each the County of Sonoma and the City of
Santa Rosa) and the title insurance premium for a standard policy of title
insurance, as well as the additional premium for an extended coverage policy of
title insurance, if applicable. BUYER shall also pay the cost of any survey or
title insurance endorsements it may require. Except as otherwise specifically
provided herein, the entire amount of the escrow fee of Escrow Holder shall be
paid by BUYER. All other costs shall be allocated between BUYER and COMPANY in
accordance with customary practice in Sonoma County, California.
<PAGE>
4.6. Prorations. All items of income and expense, including without
limitation real property taxes and assessments, shall be prorated between the
parties as of the date of the Close of Escrow. Real property taxes and
assessments shall be prorated between the parties such that COMPANY shall be
responsible for all real estate taxes and assessments levied against the
Property which are attributable to periods to and including the day prior to the
Close of Escrow (including, without limitation, any supplemental taxes levied
against the Property and assessed after the Close of Escrow to the extent
attributable to any periods prior to the Close of Escrow), and BUYER shall be
responsible for all real estate taxes and assessments levied against the
Property which are attributable to periods after the day prior to the Close of
Escrow (including, without limitation, any supplemental taxes levied against the
Property and assessed after the Close of Escrow to the extent attributable to
any periods on or after the Close of Escrow). COMPANY is currently processing
with the assessor's office an application seeking the refund of a portion of the
real property taxes and assessments paid by COMPANY for the 1995-96 fiscal year.
BUYER acknowledges and agrees that COMPANY shall have the right to pursue the
application and to receive and retain any refund made, provided that COMPANY
shall pay to BUYER the portion of any refund made which is attributable to the
prorated portion of taxes for the 1995-96 fiscal year paid by BUYER upon the
Close of Escrow.
4.7. Closing Date.
4.7.1. Unless extended pursuant to the terms of this
Agreement, escrow shall close on or before the date which is the
thirtieth (30th) day following the opening of escrow (the "Closing
Date"). If escrow fails to close by the Closing Date by reason of a
breach or default hereunder by either party, the non-breaching party
shall have the right to terminate the escrow and receive the return of
all documents and funds deposited by it. Such termination pursuant
hereto shall not be deemed a waiver of such breach, and the
non-breaching party, subject to the liquidated damages provisions set
forth in Section 4.2 above, shall be entitled to all appropriate relief
at law or in equity.
4.7.2. If said escrow terminates because of the
failure of both parties to perform any of their respective material
obligations, then the parties hereto shall each pay one-half (1/2) of
said fees and related charges.
<PAGE>
4.7.3. If said escrow terminates due to the failure
of only one (1) party to perform any of its obligations, such
defaulting party shall pay all such fees and related charges. Such
payment shall not affect other rights between parties.
4.7.4. Escrow can only be extended upon BUYER and
COMPANY agreeing to an extension in writing and signed by both BUYER
and COMPANY.
4.8. Escrow Closing. When all of the conditions and instructions herein
provided for have been satisfied and properly complied with and said escrow is
ready to close in all respects, Escrow Holder shall promptly close same by
recording all appropriate documents and delivering to each of the appropriate
parties all the documents and funds on deposit in said escrow as herein
provided, subject to the payment of the escrow costs and fees in accordance with
Section 4.5 above ("Close of Escrow").
4.9. Possession. Subject to COMPANY's lease of a portion of the
Property from BUYER following the Close of Escrow in accordance with Section 7
below, possession shall be delivered to BUYER at Close of Escrow.
5. Environmental Matters
5.1. The Phase 1 Environmental Report. BUYER acknowledges that it has
received from COMPANY a copy of that certain Preliminary Environmental
Assessment Report dated March 17, 1994 prepared by Hart Crowser, Inc., as
updated by that certain Preliminary Environmental Assessment Report Update dated
August 31, 1995 prepared by Enviros, Inc. (collectively, the "Phase 1"). To
COMPANY's knowledge, the Phase 1 contains all material historical information
concerning the environmental condition of the Property. Notwithstanding the
above, COMPANY makes no, and expressly disclaims any, warranties or
representations concerning the accuracy or completeness of the Phase 1. As used
in this Section 5.1, "to COMPANY's knowledge" means to the knowledge of the
managerial-level employee of COMPANY with the most recent direct responsibility
for the Property, without such employee's having made an independent
investigation of the files concerning the Property with respect to the
environmental matters addressed in the Phase 1.
5.2. No Liability for Contamination. It is the express intent of the
parties that, except as otherwise expressly provided in Sections 5.4 and 6.2
below, (i) the risk of any Contamination on
<PAGE>
or within the Property shall shift to BUYER, and (ii) COMPANY shall have no
obligation for any Contamination, on or within the Property, including but not
limited to any remediation thereof. Expressly, but without limiting the
generality of the foregoing, except as otherwise expressly provided in Sections
5.4 and 6.2 below, COMPANY shall have no liability for remediation of any
Contamination of the Property or for any third-party claims resulting from any
such Contamination. Except with respect to the obligations of COMPANY under
Sections 5.4 and 6.2 below, BUYER expressly waives any claims against COMPANY
for remediation of the Property, or for any response costs it may incur with
respect to the Property, under any existing or future federal, state or local
law, statute, ordinance, regulation, legal cause of action or theory of any
kind, including but not limited to any claim under CERCLA (42 USC 9601 et seq.),
RCRA (42 USC 6901 et seq.) or similar or comparable laws.
5.3. Definition of Contamination. The word "Contamination," as used
herein, shall mean any hazardous or toxic material, substance, chemical or
waste, contaminant, emission, discharge or pollutant or comparable material
listed, identified or regulated pursuant to any federal, state or local law,
ordinance or regulation which has as a purpose the protection of health, safety
or the environment, including but not limited to petroleum or petroleum products
or wastes derived therefrom.
5.4. Remediation of Applicable Contamination by COMPANY. For purposes
of this Section 5, the term "Applicable Contamination" shall mean and refer to
Contamination consisting of chemical wastes which BUYER proves has been
discharged upon the Property by COMPANY. If there is discovered following the
Close of Escrow Applicable Contamination in amounts or concentrations exceeding
the current guidelines (the "Guidelines") of any governmental agency or agencies
with jurisdiction (singly or collectively, the "Agency"), then COMPANY shall
remediate the Applicable Contamination to acceptable levels pursuant to
applicable Guidelines existing as of the Close of Escrow if such remediation is
required by an enforceable order of an Agency or by an enforceable court order
or decree, provided that COMPANY reserves for itself the exclusive right of
response to, negotiations of, and dispute of, any such order or decree. In no
event, however, shall COMPANY be liable for the remediation of any Contamination
that is not Applicable Contamination. Additionally, COMPANY shall not be
obligated for the remediation of any Applicable Contamination to the extent any
member of the Buyer Group (as such term is defined below) has contributed to or
exacerbated the condition, quantity or concentration of such Contamination. If
pursuant to this Section
<PAGE>
5.4 COMPANY is required following the Close of Escrow to remediate any
Applicable Contamination, then, as a condition to COMPANY's obligation to
perform such remediation, BUYER shall deliver to COMPANY a fully executed
license agreement providing for COMPANY's entry onto the Property for such
remediation, which license agreement shall (i) provide that in no event shall
COMPANY be liable for any claims for special, indirect or consequential damages,
including but not limited to claims for loss of use, rents, anticipated profit
or business opportunity, or business interruption, or mental or emotional
distress or fear of injury or disease; and (ii) otherwise be in such form and
content as is reasonably acceptable to COMPANY. It is expressly agreed to by the
parties that BUYER's successors and assigns shall not have the right to enforce
COMPANY's remediation obligations under this Section 5.4.
5.4.1. COMPANY's remediation obligations contained in this Section
5.4 are expressly conditioned upon the following:
(a) In the event BUYER shall identify any matter to which
COMPANY's remediation obligation may apply or shall receive notice or claim from
the Agency or any third party of such matter, it shall immediately, and in every
case within thirty (30) days of said notice or claim, notify COMPANY in writing
of such matter, addressed to the attention of the General Manager of Real Estate
Sales and Development, Union Oil Company of California, 376 S. Valencia Avenue,
Brea, California 92621;
(b) BUYER shall establish that the subject Contamination is
Applicable Contamination; and
(c) BUYER shall cooperate with COMPANY by allowing prompt
access to the Property (and any improvements thereon) by COMPANY, its agents and
consultants for the purpose of investigating any matter to which COMPANY's
remediation obligations may apply, and shall allow all necessary investigation.
<PAGE>
6. Indemnifications.
6.1. Indemnification by BUYER. BUYER shall release, protect, defend,
indemnify, and hold COMPANY, its parent, subsidiary and affiliated companies
(including, but not limited to, Unocal Corporation, a California corporation)
and their respective officers, directors, agents and employees (collectively the
"Company Group"), free and harmless from any and all claims, liability, damages,
demands, costs and causes of action of all kinds, including but not limited to
claims arising from the death or injury of any person or persons including
employees of BUYER, or from the damage or destruction of any property or
properties, caused (i) by or in connection with the exercise of the license
granted pursuant to Section 3.1 above by BUYER or its affiliated companies,
their officers, directors, agents and employees, their agents, servants,
employees, invitees, guests, or by any contractor or subcontractor employed by
BUYER, or by the agents, servants, employees, invitees or guests of any such
contractor or subcontractor (collectively the "Buyer Group"), or (ii) in
connection with the Property after Close of Escrow, including, without
limitation, such matters relating to any Contamination thereof (except with
respect to the obligations of COMPANY under Section 5.4 above and Section 6.2
below), in either event, whether pursuant to (i) or (ii) above, whether COMPANY
is alleged to be negligent actively, passively or not at all, except to the
extent of matters shown by final non-appealable judgment to have been caused by
the gross negligence or willful misconduct of COMPANY or any member of the
Company Group. In the event the indemnity hereunder exceeds that permitted by
applicable law, such indemnity shall be construed so as to preserve the maximum
indemnity permitted thereby. This indemnity shall survive the transfer of title
or any termination of this Agreement; provided, however, that in the event of a
termination of this Agreement without escrow closing, BUYER's obligations
hereunder shall be limited to the indemnity set forth in (i) above.
Notwithstanding anything to the contrary contained in the foregoing, BUYER shall
not be obligated to indemnify COMPANY for any claim resulting from the death or
injury of any person or persons or from the damage or destruction of any
property or properties arising due to the lease of the Property by COMPANY
following the Close of Escrow in accordance with Article 7 below, except to the
extent any such claim arises due to the negligence or willful misconduct of any
member of the Buyer Group.
Indemnification by COMPANY. COMPANY shall protect, defend and indemnify
BUYER and its respective officers, directors, agents
<PAGE>
and employees (collectively, "Buyer Indemnitees") from any and all claims,
liability, demands, costs and causes of action of all kinds arising from claims
asserted against Buyer Indemnitees by third parties (including but not limited
to any Agency) resulting directly from any Applicable Contamination, except to
the extent any such claim, liability, demands, costs or causes of action is
based on or due to the exacerbation of the condition, quantity or concentration
of such Contamination by any Buyer Indemnitees or their respective contractors
or invitees. Notwithstanding anything to the contrary set forth herein, in no
event shall COMPANY's obligations under this Section 6.2 apply or relate to any
claims for special, indirect or consequential damages, including but not limited
to claims for loss of use, rents, anticipated profit or business opportunity, or
business interruption, or mental or emotional distress or fear of injury or
disease.
6.2.1. The indemnity contained in this Section 6.2 is
expressly conditioned upon the following:
(a) In the event BUYER shall identify any matter to which this
Section 6.2 may apply or shall receive notice or claim from any third party of
such matter, it shall immediately, and in every case within thirty (30) days of
said notice or claim, notify COMPANY in writing of such matter, addressed to the
attention of the General Manager of Real Estate Sales and Development, Union Oil
Company of California, 376 S. Valencia Avenue, Brea, California 92621;
(b) BUYER shall establish that the Contamination which is the
subject of any claim asserted against the Buyer Group is Applicable
Contamination; and
(c) BUYER shall cooperate with COMPANY by allowing prompt
access to the Property (and any improvements thereon) by COMPANY, its agents and
consultants for the purpose of investigating any matter to which this Section
6.2 may apply, and shall allow all necessary investigation.
7. Lease-Back
7.1. Lease-Back Term. Upon the Close of Escrow, BUYER shall lease
("Lease-Back") the building situated upon the Land ("Lease-Back Premises") to
COMPANY for a lease term of one hundred five
<PAGE>
(105) days following the Close of Escrow ("Lease-Back Term"), subject to
COMPANY's obligation to vacate the bottom two (2) floors by the dates specified
below. COMPANY shall have the option ("Extension Option") to extend the
Lease-Back Term for an additional period of time chosen by COMPANY; provided,
however, that in no event may the Lease-Back Term be extended beyond September
30, 1996. COMPANY may exercise the Extension Option by the delivery to BUYER of
written notice of said exercise prior to the expiration of the initial
Lease-Back Term. At any time during the Lease-Back Term (as may be extended as
provided herein), COMPANY may terminate the Lease-Back Term by providing to
BUYER no less than five (5) days advance written notice of said early
termination.
COMPANY shall vacate the middle floor of the building by the tenth
(10th) day following the Close of Escrow and shall vacate the bottom floor of
the building by the fortieth (40th) day following the Close of Escrow. Upon
vacation of each of said floors, COMPANY shall deliver possession of said floors
to BUYER, with the understanding that BUYER may commence the renovation of said
floors upon their vacation by COMPANY. Upon their vacation by COMPANY, the
vacated floors shall no longer be considered a part of the Lease-Back Premises.
All of BUYER's demolition and construction activities shall comply with city
codes and regulations, and BUYER shall obtain a demolition permit which
maintains a certificate of occupancy for the Lease-Back Premises during the
Lease-Back Term (as may be extended).
BUYER shall use reasonable efforts to ensure that its renovation
activities do not interfere with COMPANY's use and enjoyment of the remaining
portions of the Lease-Back Premises. Without in any way limiting the generality
of the foregoing, (i) during the hours from 8:00 a.m. to 5:30 p.m., Monday
through Friday (except legal holidays) ("Company's Working Hours"), BUYER shall
ensure that: (a) noise levels resulting from its renovation activities do not
exceed an eight (8) hour time weighted average sound level of 80 decibels
measured on the A scale (slow response), as measured inside the Lease-Back
Premises, and (b) short term noise levels resulting from BUYER's renovation
activities do not exceed a fifteen (15) minute weighted average sound level of
100 decibels measured on the A scale (slow response) more than twice a day
during Company's Working Hours, as measured from the Lease-Back Premises; (ii)
BUYER shall take adequate precautions to ensure that dust from BUYER's
demolition and construction activities does not enter the Lease-Back Premises
through the building's ventilation
<PAGE>
system or by other means; and (iii) there shall be no interference with the
electrical service to the Lease-Back Premises due to BUYER's renovation
activities; provided, however, that, following COMPANY's vacation of the middle
floor, BUYER may switch the existing electrical boxes at the building with
electrical boxes adequate to service COMPANY's electricity needs at the
Lease-Back Premises, provided that: (a) the switch over takes place after
Company's Working Hours, and (b) BUYER shall provide COMPANY with no less than
twenty-four (24) hours advance notice of the switch over, and shall cooperate
with a representative designated by COMPANY in coordinating the switch over with
precautions deemed desirable by COMPANY with regard to its computers and other
electrical equipment at the Leased-Back Premises. To mitigate its damages,
COMPANY shall promptly notify BUYER's construction manager of any continuing
noise which COMPANY discovers is in excess of the permitted noise levels
specified above.
BUYER shall cooperate with COMPANY in implementing security measures to
ensure that access to the Lease-Back Premises during the Lease-Back Term shall
be limited to COMPANY and its employees, agents, contractors, invitees and
guests. Without in any way limiting the generality of the foregoing, (i) BUYER's
ingress and egress to the building shall be restricted to the entrances located
on the floors not comprising the Lease-Back Premises, (ii) except for performing
such maintenance or repairs of the Lease-Back Premises as is requested by
COMPANY, neither BUYER nor any of its employees, agents, contractors, invitees
or guests shall have access to the Lease-Back Premises, (iii) BUYER's use of the
building's elevator shall be limited to the floors not comprising the Lease-Back
Premises, and, if feasible, following COMPANY's vacation of the lower two (2)
floors, the computer for the elevator shall be programmed to "lock-out" the top
floor, (iv) all doors for the outer stairwells leading to the Lease-Back
Premises shall be locked but fitted, at BUYER's expense, with emergency escape
bars or other emergency escape devices which are in compliance with city codes
and regulations, with the understanding that members of the Company Group shall
have at all times during the Lease-Back Term unlimited emergency access through
the stairwells at the ends of the building, and (v) upon COMPANY's vacation of
the lower two (2) floors, BUYER shall, at its cost, cause a contractor
acceptable to COMPANY to install a temporary partition wall in front of the
interior staircase of the building for the purpose of separating the Lease-Back
Premises from the remaining floors of the building. The temporary partition wall
shall be constructed in compliance with all applicable building codes and
regulations, and pursuant to plans and specifications approved by COMPANY. The
timing for the installation of said partition wall shall be coordinated with
<PAGE>
COMPANY's vacation of the lower two (2) floors. COMPANY shall have the right to
use both the interior staircase and the elevator until such time as COMPANY has
completely vacated the lower two (2) floors.
7.2. Rent. The amount of the rent to be paid by COMPANY shall be Fifty
Thousand Dollars ($50,000.00) for each calendar month during the Lease-Back
Term, payable on the last day of each such calendar month. For any partial
calendar month during the Lease-Back Term, rent shall be prorated based on the
actual number of days in said calendar month. The rent amount shall be "gross,"
with the understanding that BUYER shall be responsible for all costs of owning
and operating the Property, including, without limitation, real property taxes
and assessments, property insurance and the cost of utilities. Additionally,
without limiting the generality of the foregoing, BUYER shall, at is sole cost
and expense, maintain the Lease-Back Premises during the Lease-Back Term in good
condition and repair, except that BUYER shall not be responsible for performing
repairs to the Lease-Back Premises necessitated due to the negligence or willful
misconduct of COMPANY, its employees, agents or contractors.
7.3. Building Services. All building services currently being utilized
by COMPANY at the Property, including, without limitation, electricity,
telephone, computer line access, water, air conditioning, heating, trash
services and janitorial services, shall continue to be provided to COMPANY with
respect to the Lease-Back Premises at the cost of BUYER. Additionally, during
the Lease-Back Term, COMPANY shall have the right to use on an exclusive basis,
without charge, no less than seventy-five (75) parking spaces at the existing
parking lot at the Property, which parking spaces shall be in close proximity to
the entrance to the Lease-Back Premises. Notwithstanding the foregoing, BUYER
shall not be liable in damages or otherwise for any failure or interruption of
any utility furnished to the Lease-Back Premises unless such failure is due to
the renovation activities of BUYER or otherwise due to the fault of any member
of the Buyer Group.
7.4. Indemnity by COMPANY. COMPANY shall hold BUYER harmless from any
damage or injury to any person or to the property of any person arising during
the Lease-Back Term from the negligent use of the Lease-Back Premises by COMPANY
or from the negligent operation or conduct of COMPANY's business at the
Lease-Back Premises, or from the willful misconduct, omission or negligence of
COMPANY, its employees or agents at the Lease-Back Premises, and COMPANY hereby
agrees to indemnify BUYER from all liability, loss, costs, claims, expenses and
obligations, including reasonable attorneys' fees, on
<PAGE>
account of or arising out of any such injuries, losses or damages; provided,
however, that the hold harmless and indemnity provisions of this Section 7.4
shall not apply with respect to any injuries, losses, damages, liability, costs,
claims, expenses and obligations to the extent arising from (a) the renovation
activities of BUYER, or (b) the negligence, omission or willful misconduct of
any member of the Buyer Group.
7.5. No Waste. COMPANY shall not cause, maintain or permit any waste in
the Lease-Back Premises.
7.6. Alterations. COMPANY shall not make any alterations or additions
to the Lease-Back Premises without BUYER's prior written consent, which consent
shall not be unreasonably withheld or delayed; provided, however, that COMPANY
shall be permitted to make, without obtaining BUYER's prior consent, such minor
non-structural alterations or additions to the top floor of the building as
COMPANY deems desirable to accommodate the personnel which will be relocated to
the top floor from the lower floors, which alterations or additions shall
include, without limitation, the installation of additional telephone jacks,
electrical and computer cabling and/or wiring, and the installation of temporary
partitions or work stations.
7.7. No Assignment or Subletting. COMPANY shall not assign or sublet
its leasehold interest in the Lease-Back Premises without obtaining the prior
written consent of BUYER.
7.8. Events of Default by COMPANY. The following events shall
constitute events of default by COMPANY with respect to the Lease-Back:
(i) COMPANY fails to pay rent when due for a period of ten
(10) days after COMPANY's receipt of written notice from BUYER of such
failure; or
(ii) COMPANY fails to observe, keep or perform any of the
other covenants or agreements by COMPANY contained in this Section 7
where such failure continues for a period of thirty (30) days after
COMPANY's receipt of written notice thereof from BUYER, provided that
if such default reasonably cannot be cured or corrected within such
thirty (30) day period, then COMPANY shall not be in default if COMPANY
commences the cure or correction of such default within such thirty
(30) day period and diligently pursues such cure to completion.
<PAGE>
In the event of an uncured event of default by COMPANY, BUYER shall
have the right to exercise its remedies at law. Without in any way affecting
BUYER's remedies against COMPANY, if COMPANY fails to vacate any portion of the
Lease-Back Premises when required to by the terms of this Section 7 and COMPANY
remains in possession of said portion without the consent of BUYER, then, in
addition to the rent payable to BUYER pursuant to Section 7.2 above, COMPANY
shall pay to BUYER a penalty equal to Two Thousand Dollars ($2,000.00) for each
day COMPANY remains in possession of said portion beyond the stated vacation
date. COMPANY's continued possession of any portion of the Lease-Back Premises
beyond the vacation dates specified above with respect thereto shall not entitle
BUYER to terminate the Lease-Back with regard to the remainder of the Lease-Back
Premises.
8. License for Antennae
BUYER understands and agrees that the telecommunications system
currently located on the roof of the building as of the date of this Agreement,
including, without limitation, satellite dish and micro-wave antennas (together
with all associated lines and facilities) (collectively, the "Telecommunications
System"), shall remain the separate property of COMPANY following the Close of
Escrow and are not included with the sale of the Property. Prior to the Close of
Escrow, COMPANY and BUYER shall enter into a License Agreement, in the form of
Exhibit "E" attached hereto and incorporated herein by reference (the "License
Agreement"), pursuant to which COMPANY shall be granted a license providing for
the continued operation, maintenance and repair of the Telecommunications System
by COMPANY, its agents, employees and independent contractors, following the
Close of Escrow, which license shall be upon such terms and conditions as are
set forth in the License Agreement.
9. Removal of Certain Fixtures
COMPANY shall have the right to remove from the building the fixtures
and other items listed on Exhibit "F" attached hereto, and, to the extent
COMPANY removes such items from the Property
<PAGE>
prior to COMPANY's vacation of the Lease-Back Premises, such items are not
included with the sale of the Property. Some of the items on the list may more
accurately be classified as personal property as they are merely located under
built-in cabinets or are hanging on walls by hooks or nails; such items are
included on the list merely to avoid any dispute as to whether such items are
actually fixtures. In no event shall the exclusion from the list of other items
of personal property be construed as inferring that such items are included with
the sale of the Property, it being the understanding of the parties that, except
for the Personal Property listed on Exhibit "B" attached hereto, no items of
personal property located at the Property are included with the sale of the
Property.
10. General Provisions
10.1. "AS IS" PURCHASE. BUYER COVENANTS, REPRESENTS AND WARRANTS THAT
(i) BUYER HAS INSPECTED OR WILL INSPECT THE PROPERTY AND ALL MATTERS RELATING
THERETO WHICH BUYER DESIRES; (ii) NEITHER COMPANY NOR ANYONE ON COMPANY'S BEHALF
HAS MADE, OR IS MAKING, ANY WARRANTIES OR REPRESENTATIONS RESPECTING THE
PROPERTY OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT; (iii) WITHOUT
IN ANY WAY AFFECTING ANY RECOURSE BUYER MAY HAVE AGAINST COMPANY ARISING FROM
THE FALSITY OR INACCURACY OF ANY EXPRESS REPRESENTATIONS OR WARRANTIES OF
COMPANY SET FORTH IN THIS AGREEMENT, BUYER IS RELYING SOLELY ON BUYER'S OWN
INVESTIGATION OF THE PROPERTY AND ALL MATTERS PERTAINING THERETO, INCLUDING BUT
NOT LIMITED TO THE ENVIRONMENTAL CONDITION OF THE PROPERTY; AND (iv) EXCEPT AS
EXPRESSLY SET FORTH HEREIN, BUYER IS PURCHASING THE PROPERTY "AS IS."
BUYER ACKNOWLEDGES THAT COMPANY MAKES NO, AND EXPRESSLY DISCLAIMS ANY,
WARRANTIES OR REPRESENTATIONS CONCERNING THE ACCURACY OR COMPLETENESS OF ANY OF
THE REPORTS OR OTHER DOCUMENTS MADE AVAILABLE TO BUYER FOR REVIEW AT THE
PROPERTY OR DELIVERED TO BUYER BY OR ON BEHALF OF COMPANY IN CONNECTION WITH THE
TRANSACTION CONTEMPLATED HEREBY.
COMPANY HEREBY DISCLOSES THE FOLLOWING ITEMS TO BUYER ("DISCLOSURE
ITEMS"):
(i) AN EARTHQUAKE FAULT LINE COMMONLY KNOWN AS THE ROGERS
CREEK FAULT RUNS ALONG THE EASTERN PORTION OF THE PROPERTY, THROUGH THE
EXISTING PARKING LOT, AND THE PROPERTY IS SITUATED WITHIN AN AREA
DESIGNATED AS A SPECIAL STUDIES ZONE PURSUANT TO THE ALQUIST-PRIOLO
SPECIAL STUDIES ZONES ACT OF 1972;
<PAGE>
(ii) THE BUILDING HAS EXPERIENCED LEAKING FROM TIME TO TIME.
THERE HAVE BEEN EPISODES OF LEAKING FROM THE ROOF OF THE BUILDING,
INCLUDING THE OUTSIDE DECKING ON THE TOP TWO (2) FLOORS, AND THE
VERTICAL SEALANT JOINTS LOCATED THROUGHOUT THE BUILDING ARE SUSCEPTIBLE
TO LEAKING DURING HARD-DRIVING HEAVY RAINS. ADDITIONALLY, COMPANY'S
ROOFING CONTRACTOR IS CURRENTLY INVESTIGATING A NEW LEAK DISCOVERED
DURING RECENT RAINS WHICH MAY HAVE ORIGINATED FROM ONE OF THE WINDOW
FRAMES; AND
(iii) MINOR FLOODING HAS OCCURRED FROM TIME TO TIME IN THE
BASEMENT OF THE BUILDING. IT APPEARS THAT THE FLOODING MAY BE CAUSED BY
WATER ENTERING THE BASEMENT FROM A LARGE HORIZONTAL VENT HOLE ALONG ONE
OF THE BASEMENT'S WALLS.
BUYER IS HEREBY ADVISED TO CONDUCT ITS OWN INDEPENDENT INVESTIGATIONS
WITH REGARD TO THE DISCLOSURE ITEMS.
/S/ John D. Miller
------------------
BUYER'S INITIALS
10.2. Assignment. This Agreement shall be personal to BUYER, and BUYER
shall not assign, agree to assign, offer to assign or solicit offers to purchase
BUYER'S interest in or rights to purchase the Property without first obtaining
written approval from COMPANY. Any assignment, agreement, offer or solicitation
by BUYER in violation of the foregoing sentence shall constitute a default under
this Agreement and shall terminate and void this Agreement and any escrow
pursuant hereto. No written consent by COMPANY hereunder shall be deemed a
waiver by COMPANY of any of the provisions hereof except to the extent expressly
provided in such consent.
10.3. No Partnership or Agency. The parties hereto agree that nothing
contained herein shall be construed as creating the relationship of principal
and agent or of partnership or of joint venture or of any other form of legal
association which would impose liability upon one party for the act or failure
to act of another party.
10.4. Approvals. All approvals called for herein shall be in writing
and all time limits, unless otherwise stated, shall commence upon the opening of
escrow which shall be the date that a
<PAGE>
duly executed duplicate original of this Agreement is deposited into escrow
by the parties hereto.
10.5. Commissions. If and only if the transaction contemplated by this
Agreement closes, COMPANY shall pay a real estate brokerage commission with
respect to this transaction to Damon Raike and Company, 100 Pine Street, Suite
1800, San Francisco, California 94111 ("Primary Broker") pursuant to a separate
agreement between COMPANY and Damon Raike. It is understood by and between
COMPANY and BUYER that Keegan & Coppin Company, Inc., 1355 North Dutton Avenue,
Santa Rosa, California 95401-7110 ("Cooperating Broker"), BUYER's broker in this
transaction, shall share in the commission to be paid to the Primary Broker
pursuant to a separate agreement between the Primary Broker and the Cooperating
Broker; provided, however, that COMPANY shall have absolutely no obligation or
responsibility to pay any commission or fee separately to the Cooperating Broker
arising out of this transaction. In the event of a claim for broker's fee,
finder's fee, commission or other similar compensation in connection herewith
other than as set forth above, BUYER, if such claim is based upon any agreement
alleged to have been made by BUYER (including, without limitation, any claim by
the Cooperating Broker arising out of this transaction), hereby agrees to
indemnify and hold COMPANY and the Company Group harmless against any and all
liability, loss, cost, damage or expense (including reasonable attorneys' fees
and costs) which COMPANY may sustain or incur by reason of such claim, and
COMPANY, if such claim is based upon any agreement alleged to have been made by
COMPANY, hereby agrees to indemnify and hold BUYER harmless against any and all
liability, loss, cost, damage or expense (including reasonable attorneys' fees
and costs) which BUYER may sustain or incur by reason of such claim. The
foregoing indemnities shall survive the Close of Escrow and the transfer of
title.
10.6. Notices. Any notices, requests, approvals or elections hereunder
shall be in writing and shall be deemed received when personally served, or the
next business day after being deposited with any nationally recognized overnight
courier service, or three (3) days after mailing by certified or registered
United States mail, return receipt requested, postage prepaid, or when
transmitted by facsimile machine, with transmission and receipt confirmed,
addressed to BUYER as follows:
Arterial Vascular Engineering, Inc.
5345 Skylane Boulevard
Santa Rosa, CA 95403
Attention: John Miller
<PAGE>
FAX: (707) 522-2245
and addressed to COMPANY as follows:
Unocal Corporation
376 South Valencia Avenue
Brea, California 92621
Attention: J. D. Murphy and K. E. Bruton
FAX: (714) 577-2966
10.7. Integration. This instrument and the exhibits hereto contain the
entire agreement between BUYER and COMPANY respecting the Property. Any
agreements or representations covering the Property or the duties of either
BUYER or COMPANY not set forth in this Agreement or its exhibits are of no
effect.
10.8. Survival. All agreements of the parties shall survive the Close
of Escrow and the delivery of any deed.
10.9. Interpretation. Each party has reviewed this Agreement, and any
question of doubtful interpretation shall not be resolved by any rule or
interpretation providing for interpretation against the drafting party. This
Agreement shall be construed pursuant to the laws of the State of California.
The captions and headings contained herein are for convenience only and shall
not affect the meaning or interpretation of this Agreement.
10.10. Waiver. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
10.11. Time. Time is of the essence of each provision of this
Agreement. If any date specified hereunder for the performance of an obligation
by any party falls on Saturday, Sunday or legal holiday, then the date shall be
extended to the next following business day.
10.12. Counterparts. This Agreement may be executed in several
counterparts and all counterparts so executed shall constitute one Agreement
binding on the parties hereto.
10.13. Severability. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or
<PAGE>
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
10.14. FIRPTA. The Foreign Investment in Real Property Tax Act
("FIRPTA"), IRC 1445, requires that every purchaser of U.S. real property must,
unless an exemption applies, deduct and withhold from the seller's proceeds ten
percent (10%) of the gross sales price. The primary exemptions which might be
applicable are (a) the seller provides the buyer with an affidavit under penalty
of perjury that the seller is not a "foreign person" as defined in FIRPTA, or
(b) the seller provides the buyer with a "qualifying statement" as defined in
FIRPTA issued by the Internal Revenue Service. COMPANY and BUYER agree to
execute and deliver, as appropriate, any instrument, affidavit and statement,
and to perform any acts reasonably necessary to carry out the provisions of
FIRPTA and regulations promulgated thereunder, and any comparable state law.
10.15. No Third Party Beneficiaries. Nothing in this Agreement, whether
expressed or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any person other than the parties to it and their
respective successors and assigns, if any, nor shall any provision give any
third parties any right of subrogation or action against any party to this
Agreement.
10.16. Attorneys' Fees. If any legal action or proceeding is brought
for the enforcement or for a declaration of rights and duties under this
Agreement, or because of an alleged dispute, breach or default in connection
with any of the provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs incurred in such
action or proceeding, in addition to any other relief to which such party may be
entitled.
10.17. Successors and Assigns. Subject to the provisions of Section
10.2 hereof, this Agreement, and all surviving terms hereof, shall be binding
upon the parties' respective heirs, administrators, successors and assigns.
10.18. Authority to Enter Agreement. Each of the signators hereto
hereby represents and warrants that he or she has the right, power, legal
capacity and authority to execute into this Agreement
<PAGE>
and to bind the entity he or she represents to this Agreement and the
obligations hereunder.
10.19. Waiver of Jury Trial. Notwithstanding the provisions of Section
10.20 below, each of the parties hereto waives the right to trial by jury in any
action, suit, proceeding or counterclaim of any kind arising out of or related
to this Agreement or any obligation contained herein. However, the parties agree
that the provisions of Section 10.20 take precedence over this provision.
10.20. ARBITRATION OF DISPUTES. ANY DISPUTE UNDER THIS AGREEMENT SHALL
BE DECIDED BY BINDING ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION (THE "AAA") IN EFFECT AS OF THE CLOSE OF ESCROW. SUCH
DISPUTE SHALL BE SUBMITTED TO A PANEL OF THREE (3) ARBITRATORS, SELECTION OF
WHOM SHALL BE MADE AS FOLLOWS:
10.20.1. WITHIN SEVEN (7) CALENDAR DAYS AFTER WRITTEN NOTICE
FOR ARBITRATION BY EITHER PARTY UPON THE OTHER PARTY, AND THE AAA
PURSUANT TO THE AAA RULES, EACH PARTY SHALL DESIGNATE ONE (1) MEMBER TO
THE BOARD OF ARBITRATION ("BOARD"). THE ARBITRATORS SHALL EACH BE
EXPERTS IN THE SUBJECT MATTER OF THE DISPUTE WITH, IF POSSIBLE, NO LESS
THAN FIVE (5) YEARS' SUBSTANTIAL EXPERIENCE ARBITRATING DISPUTES IN THE
COMMERCIAL REAL ESTATE FIELD.
10.20.2. THE TWO ARBITRATORS SHALL THEREUPON ENDEAVOR TO
SELECT A THIRD (3RD) ARBITRATOR MEETING THE QUALIFICATIONS DESCRIBED IN
SECTION 10.20.1 ABOVE. IF THEY ARE UNABLE TO AGREE ON SUCH SELECTION,
THE THIRD (3RD) ARBITRATOR SHALL BE SELECTED FROM A LIST OF NAMES
SUPPLIED BY THE AAA AS MEETING THE QUALIFICATIONS DESCRIBED IN SECTION
10.20.1 ABOVE, OR IF THE AAA DOES NOT SUPPLY SUCH NAMES, THEN THE TWO
(2) SELECTED ARBITRATORS SHALL AGREE ON A LIST OF SEVEN QUALIFIED
NAMES. THE ARBITRATORS SHALL ALTERNATELY STRIKE A NAME FROM SUCH LIST
UNTIL THE LAST REMAINING NAME SHALL BE THE THIRD (3RD) ARBITRATOR. SUCH
SELECTION SHALL BE COMPLETED WITHIN THIRTY (30) CALENDAR DAYS AFTER THE
REQUEST FOR ARBITRATION.
THE PARTIES AGREE THAT THE DETERMINATION OF THE ARBITRATORS
AND AWARD, IF ANY, MAY BE ENTERED WITH ANY COURT HAVING JURISDICTION
AND THE DETERMINATION AND AWARD, IF ANY, MAY THEN BE ENFORCED AMONG THE
PARTIES, WITHOUT FURTHER EVIDENTIARY PROCEEDINGS, AS IF ENTERED BY A
COURT AT THE CONCLUSION OF A JUDICIAL PROCEEDING IN WHICH NO APPEAL WAS
TAKEN.
<PAGE>
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO
HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS
PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT
POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY
INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO
ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF
DISPUTES" PROVISION TO NEUTRAL ARBITRATION.
BY PLACING THEIR INITIALS HERE:
(BUYER /S/John D. Miller; COMPANY /S/John D. Murphy),
------------------ ------------------
THE PARTIES AGREE TO ARBITRATION.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement for
Sale of Real Property and Escrow Instructions to be effective as of the date
first above written.
"COMPANY"
UNION OIL COMPANY OF CALIFORNIA
By: /S/John D. Murphy
--------------------------
Its:
--------------------------
"BUYER"
ARTERIAL VASCULAR ENGINEERING, INC.
By: /S/John D. Miller
--------------------------
Its: V.P. Finance, CFO
--------------------------
EXHIBIT 11.1
<TABLE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ --------------------------
1995 1996 1995 1996
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Primary
Weighted average common shares
outstanding 17,928 25,310 17,898 21,752
Weighted average common equivalent
shares assuming conversion of stock
options under the treasury stock method 5,655 992 5,659 2,771
Common and common equivalent shares
pursuant to Staff Accounting Bulletin No. 83 3,631 1,211 3,631 2,824
----------- ---------- ---------- -----------
Shares used in per share calculation 27,214 27,513 27,188 27,347
----------- ---------- ---------- -----------
Net income $ 2,323 $ 3,101 $ 4,150 $ 12,728
=========== ========== ========== ===========
Net income per share $ 0.09 $ 0.11 $ 0.16 $ 0.46
=========== ========== ========== ===========
<FN>
Net income per share is presented under the Primary basis as the effect of
dilution under the fully diluted basis is less than 3%.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 7,396,000
<SECURITIES> 0
<RECEIVABLES> 12,911,000
<ALLOWANCES> 0
<INVENTORY> 2,431,000
<CURRENT-ASSETS> 22,738,000
<PP&E> 3,951,000
<DEPRECIATION> (846,000)
<TOTAL-ASSETS> 27,680,000
<CURRENT-LIABILITIES> 3,122,000
<BONDS> 0
<COMMON> 27,000
0
0
<OTHER-SE> 24,531,000
<TOTAL-LIABILITY-AND-EQUITY> 27,680,000
<SALES> 37,303,000
<TOTAL-REVENUES> 37,303,000
<CGS> 7,814,000
<TOTAL-COSTS> 7,814,000
<OTHER-EXPENSES> 10,530,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,363,000
<INCOME-TAX> 6,635,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,728,000
<EPS-PRIMARY> .46
<EPS-DILUTED> .00
</TABLE>
