<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1996
Transition Report under Section 13 (a) or 15 (d) of the Securities Exchange Act
of 1934 ( No fee Required)
001-11835
---------
Commission file number
THE AMERICAN MATERIALS & TECHNOLOGIES
CORPORATION
(Name of small business issuer in its charter)
---------------------
DELAWARE 2295 33-0659916
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification Number)
Classification
Code Number)
5915 RODEO ROAD, LOS ANGELES, CALIFORNIA 90016
---------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(310) 841-5200
--------------
(Issuer's Telephone Number Including Area Code)
<PAGE> 2
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR THE PACIFIC STOCK EXCHANGE INCORPORATED
VALUE PER SHARE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR PAST 90 DAYS. YES [X] NO [ ]
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB [ ]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR: $22,410,718
THE AGGREGATE MARKET VALUE OF THE SHARES OF COMMON STOCK HELD BY NON-AFFILIATES
OF THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION, BASED ON THE AVERAGE
CLOSING BID AND ASKED PRICES AS REPORTED BY NASDAQ ON MARCH 20, 1997 WAS
$14,758,816. THERE WERE 4,393,554 SHARES OF COMMON STOCK, $0.01 PAR VALUE PER
SHARE, OUTSTANDING AS OF MARCH 20, 1997.
---------------------
2
<PAGE> 3
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The American Materials & Technologies Corporation ("AMT," and together
with its subsidiaries, the "Company"), was incorporated in Delaware in March
1995. AMT had no material operations until December 19, 1995, when it acquired
Structural Polymer Systems, Inc. (renamed Culver City Composites Corporation)
("CCC"), from a subsidiary of Montedison S.p.A., an Italian multinational
conglomerate, for $5,687,154. On November 22, 1996, the Company acquired control
of Carbon Design Partnership Limited, located in Totnes, Devon, UK ("Carbon
Design"), buying 51% of Carbon Design's authorized shares for approximately
$590,000. On February 27, 1997, the Company purchased all of the assets of
Grafalloy L.P. ("Grafalloy"), for cash and stock totaling approximately $9.6
million, including acquisition costs, and the assumption of certain liabilities.
THE COMPANY
The Company manufactures and sells advanced composites and products made
therefrom. Advanced composites are a combination of high performance
reinforcement fabrics or fibers (such as fiberglass, carbon, or aramid) and a
polymer (such as epoxy, phenolic, or polyimide). The combination of high
performance reinforcement fabrics or fibers with polymers forms an advanced
composite with exceptional structural properties. The Company both provides raw
materials to parts manufacturers and manufactures finished parts. Neither of the
Company's finished parts manufacturers, Carbon Design, acquired November 22,
1996, or Grafalloy, acquired February 27, 1997, contributed materially to sales
or net income in fiscal 1996.
The Company believes that increased aircraft build rates, coupled with the
decrease in available capacity caused by other companies' plant shutdowns
during the past few years, will lead to increased demand for product from the
remaining advanced composite manufacturing companies. The Company believes that
it can employ its significant excess production capacity to achieve greater
sales and profitability as a result of this expected increased demand. Also,
the Company plans to acquire additional companies in the advanced materials or
technologies industries which the Company believes will enable it to continue
to expand its customer base, reduce costs, and offer new products. The Company
believes that many companies with annual sales under $50 million that supply or
utilize advanced materials and technologies in their manufacturing operations
are potentially available for purchase and consolidation by the Company.
BUSINESS
Prepreg Business
The Company coats or impregnates a variety of fabrics or fibers with
polymers to produce a "prepreg," an advanced composite which is molded into
parts for use in a variety of aerospace, defense, industrial and recreational
products. The Company specializes in three major product lines and in a variety
of specialized products. These lines include aircraft interiors, high
temperature resin systems used in aircraft engines, and ablative products used
in rockets. The Company believes that it is a leader in sales of advanced
composites containing the high temperature resin system PMR-15 for jet engine
applications, and a leading supplier of advanced composites used in aircraft
interiors.
Markets and Products
--------------------
The Company estimates that industry sales to the aerospace and defense
advanced composites markets in which it competes totaled approximately $800
million worldwide in 1995, with approximately $450 million of those sales in
North America. The Company believes that the market growth rate for advanced
composites of the type produced by its prepreg business has, in the past, been
closely correlated to the overall build rate of commercial and military aircraft
because these customers constitute by far the largest source of demand. The
Company believes this will continue to be the case for the next several years.
The Company believes that the advantages of lower weight and resulting fuel
economy will cause aircraft manufacturers to use increasing
<PAGE> 4
amounts of advanced composite materials, particularly in newer models and
development programs. For example, recently developed military aircraft such as
the stealth fighter and the B-2 bomber and commercial aircraft such as the
Boeing 777 contain a higher percentage by weight of advanced composites than the
older aircraft they replace.
Orders for aerospace materials generally lag behind the award of contracts
for new aircraft by a considerable period. Thus, the level of new aircraft
procurement normally will not have an impact on aerospace orders received by the
Company for about one to three years.
In the defense and aerospace markets, manufacturers of advanced composites
generally are selected to supply a particular advanced composite material often
a year or two ahead of its actual use in production by the customer. Typically,
a lengthy development and testing process is required before the advanced
composite is deemed "qualified" in meeting the customer's specifications. In
aircraft production, this process can require approval of finished parts by the
Federal Aviation Administration. The Company has qualified its advanced
composites to meet over 200 specifications for use in the defense, aerospace and
communications markets.
The Company sells its prepreg products to the aerospace, communications,
defense, and recreation markets. Major customers include: The Boeing Company,
General Electric Company, Lockheed Martin Corporation, McDonnell Douglas
Corporation, de Havilland Inc., the Aerojet division of GenCorp Inc. and
Daimler-Benz AG.
Key materials produced by the Company include:
S-2(R) and E-Type Fiberglass prepregs. These materials are low-cost and
lightweight, exhibit high strength, and are used in overhead bins, seats,
lavatories, and other items in aircraft and train interiors.
Carbon fiber based prepregs. These materials exhibit superior
strength-to-weight ratios compared to glass materials, and are used in interior
applications such as floor panels which require greater strength
characteristics, aircraft engine components where both strength and heat
resistance are key attributes, and in secondary structure applications.
Aramid, Quartz, and Ceramic prepregs. Aramid fiber is exceptionally
resistant to impact and is used in aircraft and various armor protection
applications. Quartz and ceramic fibers are resistant to extremely high
temperatures and are used in various aerospace and general industrial
applications including engine and missile components.
Approximately 30% of the Company's annual prepreg sales in 1996 and 1995
were derived from contracts where the Company is the sole source supplier.
Sales to the prepreg business's two largest customers, Boeing and General
Electric, accounted for 31% and 30% of prepreg business sales in 1996 and 1995,
respectively. The Company believes that the loss of any of its principal prepreg
customers could have a materially adverse effect on the Company.
The Company advertises in trade magazines, provides press releases and
publicity for trade newsletters, solicits business through both domestic
employee sales personnel and independent domestic and foreign sales
representatives, and attends and exhibits at major trade shows as means of
developing existing and new business. In cases where two or more companies are
qualified on a given product, business is generally obtained through competitive
bidding.
Status of New Products
----------------------
The Company has agreements with two other companies to develop and
commercialize certain new resin systems for prepreg applications. One,
Superimide 800(TM), is designed to exhibit superior high temperature resistance
in aerospace and military applications. The second, Siloxirane(TM), is designed
to exhibit superior chemical, abrasion and high temperature resistance for use
in aerospace, military and industrial applications. These polymers are currently
in the development stage and have not been introduced to the market.
Design & Fabrication Business
<PAGE> 5
The Company, principally through its recently acquired subsidiary, Carbon
Design Partnership Limited, performs design engineering and custom manufacture
of advanced composite parts using a variety of proprietary manufacturing
processes and technologies. The Company produces a wide variety of custom
designed parts for industrial, sporting and recreational uses. Its principal
customers include companies in the sporting goods, engineering, industrial
construction and film-making industries. The Company will continue to seek
customers with advanced composite parts requirements which are suited to the
particular manufacturing capabilities of the Company. Design and fabrication
business accounted for less than 1% of the Company's revenues for 1996.
Subsequent Event - Acquisition of Grafalloy L.P.
On February 27, 1997, the Company acquired all of the assets and assumed
certain liabilities of Grafalloy L.P., a manufacturer of graphite golf shafts.
Grafalloy specializes in the development of high performance, high quality
shafts and manufactures a wide variety of graphite shaft models for players of
various ages and skill levels. More players used Grafalloy's ultralight driver
shaft to win tournaments on both the PGA and Senior PGA tours in 1996 than any
other driver shaft model.
Grafalloy manufactures and distributes several lines of golf shafts,
ranging from light and flexible shafts that provide ultralight weight and high
trajectory for senior players to stiff, low torsion shafts with low balance
point and exceptional clubhead feel for professional and experienced players.
Grafalloy has been able to develop market leader positions in some notable
categories. The Company's ProLite(TM) shaft had the most wins on the PGA and
Senior PGA tours in 1996. Additionally, the Company believes that the
ProLite(TM) 35 shaft was the top selling ultralight shaft among clubmakers in
1996. The Company intends to use both tour usage and innovations in shaft
design, such as ultralight weight and low balance point, to build brand
awareness and customer preference.
The Company distributes its golf shaft products to two market segments:
the original equipment manufacturers segment, which consists of companies who
specialize in the design, assembly, and marketing of golf clubs, and the
components segment, which consists of individual professional clubmakers and
hobbyists who purchase and assemble golf club components for sale or their
personal use. The Company uses catalog distributors, such as Golfsmith, to
distribute its standard product line of branded shafts to the components
market. Demand in the original equipment market is primarily influenced by
price and unique club design, while demand in the component segment is
influenced by brand strength, shaft performance, quality, and price.
Grafalloy's sales for fiscal 1996 were evenly split among these two markets,
with OEM business growing at a significantly greater rate than the components
market.
COMPETITION
The Company's CCC subsidiary operates in a highly competitive industry.
CCC's competitors, Hexcel Corporation, Fiberite, Inc. and Cytec, Inc., are
considerably larger than the Company in size and financial resources. A
consolidation of one or more of CCC's larger competitors could have a material
adverse effect on CCC's business.
To the Company's knowledge, in the aerospace and defense markets, it is the
fourth-largest manufacturer of advanced composite prepregs. Depending upon the
material and markets, relevant competitive factors in the prepreg business
include price, delivery, service, quality, and product performance. The
Company's ability to compete effectively in the prepreg business will depend on
its products' functional features and upon the ability of the Company to attract
and retain qualified personnel, to maintain and expand its technological
capabilities, to sell existing products to new customers, to develop new
products for existing customers, to service its products, and to further develop
its sales force or enter into satisfactory arrangements for the marketing of its
products.
U.S. graphite golf shaft companies compete, both domestically and
internationally, with Japanese, Korean, Taiwanese, and Chinese companies for
sales to U.S. OEMs. Japanese and U.S. companies compete primarily on
performance, quality and service, while Korean, Chinese and Taiwanese companies
compete
<PAGE> 6
primarily on price. The Company competes in the golf shaft business with Aldila,
Inc., Unifiber Corporation, Horizon Sports Technologies and other makers of
graphite shafts, as well as makers of steel shafts. Many of the Company's
competitors in the golf shaft business have significant financial resources,
have achieved lower cost structures than the Company's and have superior product
development and manufacturing capabilities. In order to complete successfully in
the golf shaft industry, the Company intends to invest in increasing its
marketing, product development and manufacturing capabilities.
SOURCES OF SUPPLY
Worldwide aircraft production has increased substantially over the past two
years and is expected to remain at these increased levels until at least the
year 2000. Increased production is expected to further increase demand for
glass, carbon and other fibers. There are a limited number of worldwide
suppliers of aerospace grade and other advanced composite fibers, including
Owens Corning Fiberglass Corporation and PPG Industries, Inc. for fiberglass,
Hexcel Corporation, Amoco Performance Products, Inc., Toho Carbon Fibers, Inc.,
Toray International, Inc. and certain licensees of these companies for carbon,
and E.I. du Pont de Nemours & Co. and Akzo Nobel for aramid fibers. All of these
companies supply fiber which goes into the Company's products. Due to increased
aircraft manufacture and an increasing use of advanced composite materials in
other industrial and recreational products, there can be no assurance that
future supplies of these fibers will be adequate to meet overall industry demand
or that prices will remain stable in the industry. In fact, the price of
fiberglass, since December 31, 1994, has increased 16% and supply has been
adversely impacted at times by demand in the electronics and other markets.
Carbon fiber is currently in a worldwide shortage and is being allocated to
certain markets by suppliers. Capacity increases for carbon fiber have been
announced, and are expected to result in increased availability beginning in
1998.
The Company is dependent on a consistent supply of carbon fiber/epoxy
("CF/E") tape to make golf shafts. In order to ensure an adequate supply of CF/E
tape to meet golf shaft customer demand, the Company has entered into a two-year
supply agreement for CF/E tape with a major supplier. Pricing is based on
current market conditions. The Company believes that the terms of this agreement
are adequate to ensure sufficient supplies of this material will continue to be
available to the Company at competitive pricing.
The Company purchases woven fabric, principally for the prepreg business,
from a number of manufacturers including Clark Schwebel, Inc., Hexcel
Corporation, JPS Glass Fabrics, Inc. and BGF Industries, Inc. One supplier
accounted for over 70% of total fabric supply for the prepreg business in the
years ended December 31, 1996 and 1995. The Company believes it has a
satisfactory relationship with that supplier, and that if that supplier were
unable to supply the Company, it would be able to obtain fabric from other
suppliers. However, there is no assurance that such other suppliers would offer
fabric on terms as favorable as those presently available.
The Company's polymers include epoxy, phenolic and polyimide resins. Most
resins have been developed internally and others, such as PMR-15, are licensed
from other organizations. In many cases, multiple qualified sources of woven and
raw fiber, packaging and other product constituents exist. The Company has
several sole source suppliers, including suppliers of various resins, which the
Company believes to be stable sources of supply or capable of replacement at
limited additional cost.
Although the Company believes that it has adequate supplies of key
materials to supply existing products and customers, there exists the
possibility that the limited number of suppliers, including the Company's sole
source suppliers, could experience a disruption in manufacturing or supply
capability which would adversely affect the Company's ability to supply products
to its customers. Substitutes for certain materials might not be readily
available and an inability to obtain essential materials, if prolonged, could
materially adversely affect the Company's business.
<PAGE> 7
RESEARCH AND DEVELOPMENT
The Company's research and development activities provide a variety of
services including qualification support; research and development of new
resins, substrates and combinations thereof; process support for the production
group; engineering of customers' parts; and the design of innovative golf
shafts. In the years ended December 31, 1996 and 1995, combined research and
development expenditures for the Company's current subsidiaries were $1,047,750
and $719,374, respectively. Budgeted research and development expenditures for
1997 are approximately $1,600,000.
PATENTS, TRADEMARKS AND TECHNOLOGY
Most of the Company's prepreg resin systems are based on proprietary
formulations and represent the cumulative effects of over 50 years of
formulation technology and qualifications in this industry. The Company licenses
the formulation for the PMR-15 resin from the National Aeronautics and Space
Administration and licenses other technologies from other companies. Most
manufacturing processes and design capabilities developed and currently held by
the Company are also proprietary in nature. The Company intends to protect its
proprietary technology through applications for patents when and where
appropriate. The Company currently holds no patents.
The Company's trademarks include AMT(TM), CULVER CITY COMPOSITES(TM),
GRAFALLOY(R), GRAFALLOY LADY CLASSIC(R), LADY CLASSIC(R), SENIOR CLASSIC(R),
CLASSIC LITE(TM), ATTACKLITE(TM), PRO M29 ATTACK(TM), and others. The Company
holds licenses for the marks SUPERIMIDE(TM) POWERCOIL(R) and PROLITE(R).
ENVIRONMENTAL MATTERS
Environmental control regulations have not had a significant adverse effect
on the overall operations of the Company. The Company believes that it is in
compliance in all material respects with all applicable environmental laws and
regulations.
An environmental site assessment authorized by Montecatini U.S.A., Inc., a
subsidiary of Montedison S.p.A. and the former owner of CCC, determined that
there had been a leak of acetone into the ground at the Culver City
manufacturing facility. Although acetone is not on the federal hazardous
substances list, it is on California's hazardous substances list. The Company
removed the source of the leak and is currently monitoring the dissipation of
the acetone.
PERSONNEL
The Company had 173 full-time, permanent employees and approximately 125
temporary production employees on March 21, 1997. Of the permanent employees,
132 were in manufacturing and the remainder were administrative, sales,
engineering, marketing, and clerical employees. A total of 49 employees are
represented by the Stove, Furnace, and Allied Appliance Workers Division,
International Brotherhood of Boilermaker, Iron Ship Builders, Blacksmiths,
Forgers and Helpers, under a contract that expires April 30, 1997. Management
believes labor relations to be generally good.
Subsequent Event - AIK Industrie GmbH
On March 19, 1997, the Company announced that it had signed a letter of intent
with AIK Industries GmbH ("AIK"), a German company, to form a company that would
be owned 51% by the Company and 49% by AIK. The new company would sell advanced
composites in Europe and other selected markets.
<PAGE> 8
Except for historical facts contained herein, the foregoing Business
section contains statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors set
forth under the caption "Risk Factors" in Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2, filed with the Securities and
Exchange Commission on December 27, 1996.
ITEM 2: DESCRIPTION OF PROPERTY:
The Company leases the following properties:
1. a 40,000 square foot corporate headquarters, research and development and
manufacturing facility in Los Angeles, California, and a 37,000 square foot
manufacturing facility located nearby in Culver City, California. These
leases expire in 2005 and 2006, respectively, and each may be extended for
another ten years at the Company's option.
2. a 6,000 square foot manufacturing and administrative facility in Devon,
England. The lease for this facility expires in December 1997.
3. a 21,000 square foot manufacturing and administrative facility in El Cajon,
California. The lease for this property expires in December 1997, and may
be extended for three years at the Company's option.
ITEM 3: LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation from claims
arising from its operations in the normal course of business. As of the date of
this Form 10-KSB, the Company is not a party to any legal proceedings the
outcome of which, in the opinion of management, would have a material adverse
effect on the Company's results of operations or financial condition.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to vote of the Company's stockholders during the
quarter ended December 31, 1996.
<PAGE> 9
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
The Company's Common Stock has traded on the Nasdaq Small Cap Market under
the symbol "AMTK" and on the Pacific Stock Exchange under the symbol "MTK,"
since the Company's initial public offering on July 5, 1996. The table below
sets forth the quarterly high and low sales prices as reported on the Stock
Market.
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 HIGH LOW
<S> <C> <C>
Third Quarter 8 4
Fourth Quarter 6 5/8 3 1/2
</TABLE>
The above figures represent interdealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
As of December 31, 1996, the Company had approximately 1600 stockholders,
including those whose shares are held in brokerage accounts.
The Company has never paid any dividends on its Common Stock and currently
intends to retain any earnings for use in its business; therefore, the Company
does not anticipate paying cash dividends in the foreseeable future. CCC's
revolving credit agreement contains certain restrictions on the timing and
amounts of dividends which might adversely affect the Company's ability to pay
dividends in the future.
RECENT SALES OF UNREGISTERED SECURITIES.
Registrant has sold and issued the following unregistered securities:
ISSUANCES OF COMMON STOCK
<TABLE>
<CAPTION>
NUMBER PURCHASE
NAME OF SHARES PRICE DATE SOLD
- ---- --------- -------- ---------
<C> <C> <C> <C>
1. Steven Georgiev................................. 521,623 $ 4,500 4/10/95
2. Paul W. Pendorf................................. 521,623 4,500 4/10/95
3. Palomar Medical Technologies, Inc............... 173,874 1,500 4/10/95
4. William A. Timmerman............................ 173,874 1,500 4/10/95
5. Joyce A. Huber.................................. 10,818 93 12/08/95
6. Edward M. Giles................................. 16,228 10,500 12/08/95
7. Celide S. Hogan................................. 7,728 5,000 12/08/95
8. C.F. Stone III.................................. 11,592 7,500 12/08/95
9. Edoardo B. Fornaro.............................. 30,911 20,000 12/08/95
10. Mercury, L.P.................................... 38,638 25,000 12/08/95
11. Haviland and Associates(1) ..................... 9,999 34,504 12/10/95
12. Advanced Polymer Sciences, Inc.................. 25,000 100,000 4/02/96
13. Robert V. Glaser................................ 11,364 50,002 7/30/96
14. Palomar Medical Technologies, Inc............... 289,790 375,000 10/16/96
15. Advanced Polymer Sciences, Inc.................. 75,000 (2) 1/1/97
16. Grafalloy L.P. ................................. 179,492 (3) 2/27/97
Total................................. 2,097,554
</TABLE>
- ----------
(1) Also received an option to purchase 9,999 shares of Common Stock at an
exercise price of $1.50 per share on December 22, 1995.
(2) Issued in consideration for the extension of an exclusive license granted
pursuant to a Joint Venture Agreement dated March 20, 1996.
(3) Issued as partial consideration for the purchase of the assets of Grafalloy
L.P.
The sales and issuance of securities in the above-described
transactions were deemed to be exempt from registration under the Securities Act
of 1933 by virtue of Section 4(2) thereof. Appropriate legends restricting
transferability are affixed to the stock certificates issued in each of the
above-described transactions. All recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
10
<PAGE> 10
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
OVERVIEW
AMT was incorporated in Delaware on March 29, 1995 and operates in the
advanced materials and technologies industries. AMT is a holding company whose
activities for the period March 29, 1995 (inception) to December 19, 1995
produced no revenue and were limited to the acquisition of CCC. For most of
1996, its sole operating subsidiary was Culver City Composites Corporation
("CCC"). In November 1996, AMT acquired a majority interest in a second
operating subsidiary, Carbon Design Partnership Limited ("Carbon Design"), for
which AMT paid a purchase price of approximately $590,000. Carbon Design
accounted for less than 1% of the Company's revenues and net income for fiscal
1996. The following discussion reviews the financial results of the Company for
the year ended December 31, 1996, compared to the financial results of CCC
combined with AMT for the year ended December 31, 1995.
<TABLE>
The following table presents a comparison of the 1996 and 1995 results to
be discussed below:
<CAPTION>
Historical
Combined The
CCC AMT AMT & CCC Company
Period
Period March 29,
January 1, 1995 Year
1995 to (inception) to Ended Year ended
December 19, December 31, December 31, December 31,
1995 1995 1995 1996
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $15,300 $616 $15,916 $22,411
Cost of sales 13,040 518 13,558 16,750
Gross margin 2,260 98 2,358 5,661
Operating expenses:
Selling, general and 2,424 350 2,774 3,621
administrative
Research and development 331 7 338 535
Income (loss) from operations (495) (259) (754) 1,505
Interest expense, net 585 18 603 303
Extraordinary loss on early - - - 29
extinguishment of debt, net of tax
Income tax expense - - - 239
Net income (loss) (1,080) (277) (1,357) 934
Net income (loss) per common shares (0.18) .32
Weighted average number of 1,517 2,956
common shares
Other Data
Depreciation expense 1,214 43 1,257 601
Earnings (loss) before 719 (216) 503 2,077
interest, taxes, depreciation
and amortization (EBITDA)
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 (COMBINED)
The Company's net sales were $22,411,000 for fiscal 1996 compared to
$15,916,000 for fiscal 1995, an increase of $6,495,000 or 41%. The Company
estimates that volume increases accounted for over three-quarters of the
increase and price increases accounted for the remainder. The primary reason for
volume increases was a recovery in the commercial aircraft industry due to
increased aircraft orders. The acquisition of Carbon Design accounted for less
than 1% of 1996 revenues. Boeing and GE remained as the Company's largest
customers together accounting for approximately 31% of sales.
For fiscal 1996, the Company realized costs of sales of $16,750,000 and a
gross margin of $5,661,000 or 25% of sales, compared to fiscal 1995 cost of
sales of $13,558,000 and gross margin of $2,358,000 or 15% of sales. Fiscal
1996 costs of sales increased $3,192,000 or 24% while gross margin increased
$3,303,000 or 140% over fiscal 1995. The improvement was a result of a
continued decrease in fixed manufacturing costs and reductions in variable
costs of manufacturing which more than offset an increase in materials,
particularly in fiberglass fabrics.
Selling, general and administrative expenses were $3,621,000 for fiscal
1996 compared to $2,774,000 for fiscal 1995, an increase of $847,000 or 31%, as
the Company added additional experienced staff in sales, sales support, investor
relations, and administration and increased marketing efforts and customer
contact.
Research and development expenses were $535,000 for fiscal 1996 compared to
$338,000 for fiscal 1995, an increase of $197,000 or 58%. The Company intends to
continue to expand these activities to develop new products (including the
Siloxirane(TM) and Superimide 800(TM) resin systems) and to qualify its products
for additional aerospace and commercial uses.
Interest expense was $434,000 for fiscal 1996 compared to $603,000 for
fiscal 1995, a decrease of $169,000. Debt levels in the first half of 1996 were
approximately 50% what they were in 1995, although the interest rate was
substantially higher. The decrease was principally due to the reduction of debt
in July, 1996 when the Company used the proceeds from its initial public
offering ("IPO") to
11
<PAGE> 11
repay all interest-bearing debt except for the term loan, which was
approximately $476,000. During the second half of 1996, the Company earned
$131,000, principally on investments in commercial paper with the Company's
bank by investing the remaining proceeds of the IPO.
Income from operations was $1,505,000 for fiscal 1996 compared to a loss of
$(754,000) in fiscal 1995, an increase of $2,259,000. Increased volumes,
reductions in costs per production unit and targeted spending on sales and
qualifications, along with stable administrative headcounts, all contributed to
the increase.
As of December 31, 1996, the Company had net operating loss carryforwards
for federal income tax purposes. Due to the change-in-ownership provisions of
Section 382 of the Internal Revenue Code, the amount available to offset future
taxable income of the Company is limited. The Company believes that the amounts
available in future years will approximate $500,000 per year for the next
fourteen years. Income tax expense was $239,000 in 1996, an increase of
$239,000. 1995 was a loss year for both book and tax purposes.
The extraordinary loss of $28,586 after tax is for the early retirement of
a loan made by an affiliate of the Company.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1996, cash used in operations was $379,000,
as cash generated (including a $546,000 decrease in inventory due to lower
levels of both raw materials and work in process) was not sufficient to fund
(a) the increase in receivables ($1,138,000) resulting from the increase in
sales, (b) a decrease of $886,000 in accounts payable and (c) a decrease of
$159,000 in accrued liabilities to bring suppliers to their credit terms and
favorably settle an outstanding workers' compensation claim. The $238,000
increase in prepaid expenses and other current assets consists to a large extent
of insurance prepaid at the end of the second quarter. The increase in other
non-current assets of $336,000 principally represents costs incurred on numerous
acquisition activities which the Company is pursuing.
Capital expenditures were $365,000 for the year ended December 31, 1996.
The Company plans to spend in excess of $800,000 (of which $443,000 is committed
at March 20, 1997) to install three new liquid bulk storage tanks, modify its
resin mixing facilities, purchase additional testing equipment and to make a
number of other investments in facilities and infrastructure. These additions
are expected to be financed principally through cash flows of the Company and
drawings on its revolving line of credit. Additional expenditures are planned
for adding new equipment for new business initiatives which may require
additional financing. Should additional funding be sought, the Company may
choose to finance some of the current projects also.
On November 22, 1996, the Company used approximately $590,000 to acquire a
majority of the authorized capital shares of Carbon Design Partnership Limited.
On July 5, 1996 the Company completed an initial public offering for the
sale of 2,000,000 shares of its common stock at $5.50 per share. Subsequently,
on July 26, 1996, the underwriter exercised its option to purchase an additional
296,000 shares at $5.50 per share. The proceeds were used to repay the
outstanding loans under the Company's revolving credit facility and repay loans
of $3,150,000 and interest of $172,000 to an affiliate. The Company may reborrow
as needed under the revolving facility. The remaining funds were invested in
short term investment grade securities pending their use to fund the
acquisitions of the majority interest in Carbon Design Partnership Limited on
November 22, 1996 and the acquisition of the assets of Grafalloy L.P. on
February 27, 1997. These acquisitions were financed with a combination of the
Company's invested proceeds from the IPO ($4,600,000), drawings from the
revolving line of credit ($2,500,000) and internal cash flow ($400,000).
The Company used $5,657,546 to acquire CCC on December 19,1995. The Company
financed the purchase of CCC with loans aggregating $3,150,000 from an affiliate
and borrowings under its revolving credit agreement. The revolving credit
agreement consists of a $560,000 term loan and a $4,440,000 revolving facility,
with borrowing levels tied to a formula based on inventory and accounts
receivable. The borrowings under the revolving credit agreement are secured by
all the assets of the Company. The Company paid approximately $4,900,000 to
purchase the shares of CCC and approximately $700,000 with respect to closing
and pre-closing expenses.
Subsequent Event
- ----------------
On February 27, 1997, the Company acquired all of the assets and assumed
certain liabilities of Grafalloy L.P. (the "Seller"), a manufacturer of graphite
golf shafts. The purchase price of approximately $9.6 million included a cash
payment to the Seller of approximately $6.4 million, a cash payment of
approximately $500,000 to the Seller's principal lender, and acquisition costs
of approximately $315,000. In addition, the Company issued 179,492 shares of
common stock to the Seller, and issued three notes to the Seller in the
aggregate principal amount of approximately $1.7 million, of which $747,254
bears interest of the rate of 12% and the remainder bears interest at the rate
of 7%. An $800,000 note is due 13 months after the date of the acquisition. A
$747,254 note is due as follows: $300,000 is due in May 1997 and the balance is
due in equal installments 9 and 18 months after the date of the acquisition,
respectively. A $175,000 note is due as follows: $5,000 is due per month, with
a final balloon payment due 6 months after the date of the acquisition.
12
<PAGE> 12
To pay for the acquisition, the Company used all of its available cash and
borrowed approximately $2.5 million under its revolving line of credit. As a
result, the Company's remaining availability under the revolving line of credit
was approximately $1.2 million following the acquisition.
The Company believes that current financing, together with available
borrowings under the Company's revolving credit agreement and cash flows from
operations will be sufficient to meet currently projected needs for working
capital and capital expenditures for the next fiscal year. These needs do not
include the impact of any acquisition the Company may make after March 28, 1997.
Except for historical facts contained therein, the foregoing paragraphs
contain statements of a forward-looking nature relating to future events or the
future financial performance of the Company. Prospective investors are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors set forth under the
caption "Risk Factors" in Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form SB-2, filed with the Securities and Exchange
Commission on December 27, 1996.
The Company's common stock is traded on both the Nasdaq SmallCap Market
(symbol "AMTK") and the Pacific Stock Exchange (symbol "MTK").
ITEM 7: FINANCIAL STATEMENTS
See pages F-1 through F-31
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
13
<PAGE> 13
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information set forth under the captions "Directors and Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on May 30, 1997, which is to be filed with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year
ended December 31, 1996 (the "Definitive Proxy Statement"), is incorporated
herein by reference.
ITEM 10: EXECUTIVE COMPENSATION
The information set forth under the caption "Compensation of Executive
Officers and Directors" in the Definitive Proxy Statement is incorporated by
reference.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Definitive Proxy Statement is
incorporated by reference.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" in the
Definitive Proxy Statement is incorporated by reference.
ITEM 13: EXHIBITS, LIST AND REPORTS ON FORM 8-K
EXHIBITS:
Exhibit No. Description
---------- -----------
3.1* Restated Certificate of Incorporation of the Company
3.2* Amended and Restated By-Laws of the Company
4.1* Specimen certificate for the Common Stock of the
Company
4.2* Form of Representative's Warrant
1.5* Form of Lock-Up Agreement
10.2* Consulting Agreement with Steven Georgiev, dated
April 15, 1995
10.3* Employment Agreement with Paul W. Pendorf, as amended
10.3.1* Option Agreement for Paul W. Pendorf
10.4* Employment Agreement with William A. Timmerman, as
amended
10.4.1* Option Agreement for William A. Timmerman
10.5* Employment Agreement with Philip D. Cunningham
10.6* Employment Agreement with Lesley Jay Cohen, Ph.D.
10.7* Purchase Agreement between the Company and
Montecatini U.S.A., Inc., dated November 16, 1995.
10.8* Assignment and Assumption Agreement between the
Company and AMT Sub, Inc. dated December 19, 1995
10.9* Lease Agreement dated March 1, 1996 with respect to
real property located at 5915 Rodeo Road, Los
Angeles, California, between Rodeo Properties, Inc.
as lessor and the Company as lessee
10.10* Lease Agreement dated December 20, 1995 with respect
to real property located at 5610 Helms Avenue, Culver
City, California, between Sybel Heller
14
<PAGE> 14
Revocable Trust as lessor and the Company as lessee
10.11* Lease Agreement dated December 8, 1988 with respect
to real located at 8592 National Boulevard, Culver
City, California, between Lawrence Greener, trustee
of the Lawrence and Rosemary Greener Trust, as lessor
and the Company as lessee, together with Amendments
#1-4 thereto
10.12* Lease Agreement dated October 31, 1994 with respect
to real property located at 3517 Schaeffer Street,
Culver City, California, between Bostwick & Newman as
lessor and the Company as lessee, together with
Amendment #1 thereto
10.13* Loan and Security Agreement between Culver City
Composites Corporation and LaSalle Business Credit,
Inc., dated December 19, 1995
10.14* $560,000 Term Note of the Company dated December 19,
1995 in favor of LaSalle Business Credit, Inc.
10.15* $4,400,000 Revolving Note of the Company dated
December 19, 1995 in favor of LaSalle Business
Credit, Inc.
10.16* Guaranty of the Company in favor of LaSalle Business
Credit, Inc., dated December 19, 1995
10.17* Stock Pledge Agreement between the Company and
LaSalle Business Credit, Inc., dated December 19,
1995
10.18* Warrant for the purchase of 250,000 shares of common
stock, $0.01 par value per share, of the Company, at
an price of $1.50 per share, issued to Palomar
Medical Technologies, Inc., dated December 19, 1995
10.19* Joint Venture Agreement dated March 20, 1996 between
the Company and Advanced Polymer Systems, Inc.
10.20* 1996 Incentive and Nonqualified Stock Option Plan
10.21.1* Form of Option Agreement -- Incentive Stock Option
10.21.2* Form of Option Agreement -- Nonqualified Stock Option
10.22* Agreement dated as of July 10, 1995 between
Structural Polymer Systems, Inc. and the Stove,
Furnace, and Allied Appliance Workers Division,
International Brotherhood of Boilermaker, Iron Ship
Builders, Blacksmiths, Forgers and Helpers, AFL-CIO,
CFL, Local Lodge No. S230
10.23* Retirement Plan for Hourly-Rate Employees of
Structural Polymer Systems, Inc., effective as of
August 1, 1994
10.24* Amended and Restated Assignment Agreement with Steven
Georgiev, dated June 25, 1996
10.25* Amended and Restated Assignment Agreement with
William A. Timmerman, dated June 25, 1996
10.26* Amended and Restated Assignment Agreement with Paul
W. Pendorf, dated June 25, 1996
10.27* Form of Underwriting Agreement between the Company
and H.J. Meyers & Co., Inc.
10.28* Form of Financial Consulting Agreement between the
Company and H.J. Meyers & Co., Inc.
10.29* Form of Merger and Acquisition Agreement between the
Company and H.J. Meyers & Co., Inc.
10.30** Consulting Agreement with Steven Georgiev, dated July
30, 1996
10.31** Form of Indemnity Agreement for Directors of Company
10.32** Agreement among the Company, Carbon Design
Partnership Limited, Steradian Advanced Composites
GmbH, Brian P. Key, Didier Balcou, Titanic Holdings
Limited, Stuart A. Lewis, J. Mark Crouchen and
Michael W. Commander, dated November 22, 1996
10.33** Consulting Agreement with MapleWood, Inc. dated July
1, 1996
10.34 Asset Purchase Agreement dated February 27, 1997 by
and among the Company, Grafalloy Acquisition
Corporation, Grafalloy L.P. and Grafalloy, Inc.
10.35 Employment Agreement between Grafalloy Acquisition
Corporation and William C. Gerhart, dated February
27, 1997
10.36 Guaranty of the Company, dated February 27, 1997
10.37 Lease Agreement between Grafalloy, Inc. and Robert
Campbell and Alice C. Campbell, dated July 21, 1993,
together with addendum and amendments thereto
21.1 Subsidiaries of the Company
15
<PAGE> 15
24.1 Power of Attorney (attached to signature page)
* Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-3836, as originally filed with the Securities and Exchange
Commission on April 19, 1996 and thereafter amended.
** Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-11755, as originally filed with the Securities and Exchange
Commission on September 11, 1996 and thereafter amended.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K for the quarter ended
December 31, 1996.
16
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS
PAGE
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION AND SUBSIDIARIES:
Independent Auditors' Report................................... F-2
Consolidated Balance Sheet at December 31, 1996 and 1995 ...... F-3
Consolidated Statement of Operations for the year ended
December 31, 1996 and the period March 29, 1995 (inception)
to December 31, 1995 ......................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)
for the year ended December 31, 1996, and
for the period March 29, 1995 (inception) to
December 31, 1995 ............................................ F-5
Consolidated Statement of Cash Flows for the year ended
December 31, 1996 and the period March 29, 1995 (inception)
to December 31, 1995.......................................... F-6
Notes to Consolidated Financial Statements .................... F-7
CULVER CITY COMPOSITES CORPORATION:
Independent Auditors' Report................................... F-17
Consolidated Balance Sheet at December 19, 1995 ............... F-18
Consolidated Statement of Operations for the
period January 1, 1995 to December 19, 1995 .................. F-19
Consolidated Statement of Stockholders' Equity (Deficit)
for the period January 1, 1995 to December 19, 1995............ F-20
Consolidated Statement of Cash Flows for the period
January 1, 1995 to December 19, 1995 .......................... F-21
Notes to Consolidated Financial Statements .................... F-22
17
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
and Stockholders of
The American Materials & Technologies Corporation and Subsidiaries
We have audited the accompanying balance sheet of The American Materials &
Technologies Corporation and Subsidiaries as of December 31, 1996 and 1995, and
the related statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1996 and for the period March 29, 1995 (Inception)
to December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The American Materials &
Technologies Corporation and Subsidiaries as of December 31, 1996 and 1995 and
the results of its operations and its cash flows for the year ended December 31,
1996 and for the period March 29, 1995 (Inception) to December 31, 1995 in
conformity with generally accepted accounting principles.
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
March 26, 1997
18
F-2
<PAGE> 18
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
<CAPTION>
ASSETS 1996 1995
------ ----------- ----------
<S> <C> <C>
Current assets
Cash and short term investments $ 4,655,229 $ $ 173,517
Accounts receivable, net of allowance of
$123,056 and $104,000, respectively. 3,824,448 2,427,605
Inventories 1,456,152 1,969,310
Prepaid expenses and other current assets 519,490 311,265
----------- ----------
Total current assets 10,455,319 4,881,697
Property and equipment, less accumulated depreciation
and amortization of $644,101 and $42,904, respectively 4,359,409 4,403,440
Goodwill 517,494
Other assets 362,627 144,251
----------- ----------
$15,694,849 $9,429,388
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 1,956,703 $2,591,357
Notes payable-affiliate - 3,071,757
Accrued liabilities 1,393,701 1,555,517
Current portion of term loan-bank 112,000 112,000
Taxes payable 218,499 -
----------- ----------
Total current liabilities 3,680,903 7,330,631
----------- ----------
Term loan-bank 336,000 448,000
Revolving credit facility-bank - 1,715,696
----------- ----------
Total liabilities 4,016,903 9,494,327
----------- ----------
Minority Interest 70,281
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares; none issued
and outstanding
Common stock, par value $0.01 per share,
authorized 15,000,000; issued and
outstanding 4,139,062 in 1996 and
1,516,908 in 1995 41,391 15,169
Additional paid-in capital 10,909,735 197,167
Retained earnings (deficit) 656,539 (277,275)
----------- ----------
Total stockholders' equity 11,607,665 (64,939)
----------- ----------
$15,694,849 $9,429,388
=========== ==========
</TABLE>
19
See notes to the financial statements.
F-3
<PAGE> 19
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Period March 29,
Year Ended 1995 (inception)
December 31, to
1996 December 31, 1995
----------- -----------------
<S> <C> <C>
Net sales $22,410,718 $ 616,372
Costs and expenses
Materials 11,174,735 307,799
Fixed and variable manufacturing 5,575,032 210,396
Selling, general and administrative 3,621,074 350,418
Research and development 534,522 6,760
----------- ----------
20,905,363 875,373
----------- ----------
Income (loss) from operations 1,505,355 (259,001)
Interest income 130,708
Interest expense 434,463 18,274
----------- ----------
Income (loss) before income taxes 1,201,600 (277,275)
Provision for income taxes 239,200 -
----------- ----------
Income (loss) before extraordinary item 962,400 (277,275)
Extraordinary loss on early extinguishment
of debt, net of tax 28,586 -
----------- ----------
Net income (loss) $ 933,814 $ (277,275)
=========== ==========
Per share:
Income (loss) before extraordinary loss $ .33 $ (.18)
Extraordinary loss $ (.01) $ -
Net Income (loss) $ .32 $ (.18)
Weighted average number of common shares 2,955,521 1,516,900
</TABLE>
See notes to the financial statements.
20
F-4
<PAGE> 20
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the year ended December 31, 1996 and the Period
March 29, 1995 (Inception) to December 31, 1996
<CAPTION>
Common
Shares Total
Outstanding Additional Retained Stockholders'
par value Paid-in Earnings Equity
$.01 Amount Capital (Deficit) (Deficit)
----------- ------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance - March 29, 1995 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock 1,516,908 15,169 118,924 134,093
Issuance of warrant 78,243 78,243
Net loss (277,275) (277,275)
--------- ------- ----------- -------- -----------
Balance - December 31,1995 1,516,908 15,169 197,167 (277,275) (64,939)
Issuance of common stock 2,332,364 23,324 10,341,637 10,364,961
Exercise of warrant by affiliate 289,790 2,898 370,931 373,829
Net income - 933,814 933,814
--------- ------- ----------- -------- -----------
Balance - December 31, 1996 4,139,062 $41,391 $10,909,735 $656,539 $11,607,665
========= ======= =========== ======== ===========
</TABLE>
21
See notes to the financial statements.
F-5
<PAGE> 21
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Period March 29,
Year Ended 1995 (inception) to
December 31, 1996 December 31, 1995
----------------- -------------------
<S> <C> <C>
Cash provided by (used for) operations:
Net income (loss) $ 933,814 $ (277,275)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 601,197 42,904
Non-cash interest expense 78,243 -
(Increase) decrease in current assets and
liabilities net of business acquisition:
Accounts receivable (1,138,766) (51,305)
Inventory 546,307 (42,558)
Prepaid expenses and other current assets (237,595) 4,958
Accounts payable (885,996) 763,395
Accrued liabilities (159,349) 9,029
Taxes payable 218,499 -
Increase (decrease) in other assets (335,765) 802
----------- ----------
Net cash provided by (used for) operating activities: (379,411) 449,950
----------- ----------
Cash used for investing activities:
Capital expenditures (365,392) (4,376)
Acquisition of SPS Holdings, Inc. and
subsidiary net of cash acquired of $29,608 - (5,657,546)
Acquisition of Carbon Design Partnership Limited
Net of cash acquired of $57,013 (534,579) -
----------- ----------
Net cash used for investing activities (899,971) (5,661,922)
----------- ----------
Cash provided by (used for) financing activities:
Repayment of Note-payable affiliate (3,150,000)
Borrowing under note payable affiliate 3,150,000
Borrowings under revolving credit 21,848,466 2,275,696
Repayments under revolving credit (23,564,162) -
Payment of term loan-bank (112,000) -
Loan origination costs (174,300)
Proceeds from exercise of affiliate's warrant 373,829 -
Proceeds from issuance of common stock 10,364,961 134,093
----------- ----------
Net cash provided by financing activities 5,761,094 5,385,489
----------- ----------
Net increase (decrease) in cash 4,481,712 173,517
Cash at beginning of period 173,517 -
----------- ----------
Cash at end of period $ 4,655,229 $ 173,517
=========== ==========
Supplementary Information
Cash paid for interest $ 434,463 $ -
Cash paid for taxes $ 20,701 $ -
</TABLE>
22
See notes to the financial statements.
F-6
<PAGE> 22
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF THE COMPANY AND NATURE OF OPERATIONS:
The American Materials & Technologies Corporation (the "Company"), a
holding company, was incorporated in the State of Delaware on March 29, 1995 to
acquire and manage businesses in the advanced materials and technologies
industries. As more fully described in Note 3, the Company has completed two
acquisitions. The first acquisition of Culver City Composites Corporation
("CCC"), (formerly known as SPS Holdings, Inc. and subsidiary) occurred on
December 19, 1995 and these financial statements contain the results of
operations subsequent to that date. The acquisition of Carbon Design
Partnership, Limited (formerly Carbon Design, Ltd.) occurred November 22, 1996.
The results of operations from December 1, 1996 forward are included in these
financial statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash
- ----
The Company maintains its operating cash in demand deposit accounts which,
at times, may exceed federally insured limits. The Company also invests in
commercial paper with its commercial bank on a short term basis up to 30 days.
These investments are not insured. The Company has not experienced any losses in
such bank accounts or short-term investments.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined
based on actual costs.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method of depreciation over the estimated useful lives of the
assets which range from three to seven years. Leasehold improvements are
amortized on a straight line basis over the shorter of the useful life of the
improvement or the term of the lease (including tenant options). Expenditures
for maintenance and repairs are expensed when incurred; expenditures for
betterments are capitalized. Assets which are believed to have been impaired are
written down to realizable values as required in statement of Financial
Accounting Standard No 121 "Accounting for the Impairment of Long Lived Assets
to be Disposed of ". Application of this statement had no material affect in
1996.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company,
Culver City Composites Corporation, its wholly owned subsidiary, and Carbon
Design Partnership Ltd., a 51% owned subsidiary, from the dates of acquisition.
All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
- -------------------
Revenues are recognized at the time of shipment when the earnings process
is considered complete. Allowances are maintained to reflect the estimated
exposure to product returns.
24
F-7
<PAGE> 23
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109 (FAS109) - Accounting for Income Taxes.
SFAS No. 109 requires a company to recognize deferred tax liabilities and assets
for the expected future income tax consequences of events that have been
recognized in the company's financial statements. Under this method, deferred
tax liabilities and assets are determined based on the temporary differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. See Note 11 for
additional information.
Foreign Currency
- ----------------
The functional currency for the Company's foreign subsidiary is the Pound
Sterling. The translation from applicable foreign currencies to U.S. Dollars is
performed for balance sheet accounts using current exchanges rates and for
revenue and expense accounts using a weighted average exchange rate during the
period. Gains and losses, net of applicable, deferred income taxes, were
insignificant at December 31, 1996.
The company conducts business in a number of different countries, which
was, in all material respects, denominated in U.S. dollars.
Earnings (Loss) per Common Share
- --------------------------------
Earning (Loss) per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period and
includes the effect of stock options and warrants in those periods where the
effect is dilutive.
Stock Based Compensation
- ------------------------
The Company accounts for stock options in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees." In accordance with Statement No.
123 of the Financial Accounting Standards Board, "Accounting for Stock Based
Compensation", the Company intends to continue to apply APB Opinion No. 25 for
purposes of determining net income and has adopted the pro forma disclosure
requirements of Statement No. 123 in its annual financial statements for 1996.
For purposes of the financial statements the differences between amounts
calculated under SFAS 123 and APB 25 are not significant and therefore pro forma
information is not required.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from estimates.
Environmental Remediation Costs
- -------------------------------
The Company's policy is to accrue remediation liabilities when it is
probable that a liability exists and the costs can be reasonably estimated. The
Company's estimates of these costs are based on existing technology, current
enacted laws and regulations and the Company's current legal obligations
regarding remediation and site-specific costs. These liabilities are adjusted
when the effect of new facts or changes in law or technology are determinable.
The Company's liability for environmental remediation totaled $30,000
25
F-8
<PAGE> 24
at December 31, 1996 and 1995.
Research and Development
- ------------------------
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.
Fair Value of Financial Instruments
- -----------------------------------
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value Financial
Instrument", which requires disclosure of fair value information about financial
instruments whether or not recognized in the balance sheet. The carrying amounts
reported in the balance sheet for cash, trade receivablees, accounts payable and
accrued expenses approximate fair value based on the short-term maturity of
these instruments.
NOTE 3 - INITIAL PUBLIC OFFERING
On July 5, 1996 the Company completed an initial public offering for the
sale of 2,000,000 shares of its common stock at $5.50 per share. Subsequently,
on July 26, 1996, the underwriter exercised an IPO related option to purchase an
additional 296,000 shares at $5.50 per share. The proceeds were used to repay
the outstanding loans under the Revolving Facility and repay loans of $3,150,000
and interest of $172,000 to an affiliate. The Company may reborrow as needed
under the Revolving Facility. The remaining funds were invested in short term
investment grade securities pending their use to fund the acquisitions of a 51%
interest in Carbon Design Partnership Ltd. on November 22, 1996 and the
acquisition of the assets of Grafalloy L.P. on February 27, 1997.
NOTE 4 - BUSINESS ACQUISITIONS
On December 19, 1995, the Company's wholly owned subsidiary AMT Sub, Inc.,
acquired all of the outstanding stock of SPS Holdings, Inc., a company whose
wholly owned subsidiary, Structural Polymer Systems, Inc., manufactured and
marketed advanced composite materials for the aerospace, and defense industries
utilizing both proprietary and non-proprietary resin systems. The purchase price
of $5,687,154, which included direct acquisition costs of $669,180, included a
$4,917,974 cash payment to Montecatini USA, Inc. (the "Seller"), SPS Holdings,
Inc.'s owner and parent. The purchase was financed in part from proceeds
received by the Company from the sale of its common stock, loans obtained from
an affiliated party and a bank line of credit and term loan (Notes 7 and 9.) The
purchase agreement provides for certain indemnifications by the Seller.
Following the acquisition, SPS Holdings, Inc. and its subsidiary merged with AMT
Sub, Inc. and AMT Sub, Inc., changed its name to Culver City Composites
Corporation. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the operating results of Culver City Composites
Corporation have been included in the Company's consolidated financial
statements since the date of acquisition.
The purchase agreement provides for certain indemnification by the seller.
Certain of these indemnifications are contractual indemnifications made by a
third party to the seller and survive the ownership change.
On November 22, 1996, the Company acquired 51% of the outstanding stock of
Carbon Design Ltd., a company which manufactures and markets composite parts for
recreational and industrial uses. The purchase price of $589,936 which includes
direct acquisition costs of $87,135, included a cash payment to the owners. The
cash payment was financed through the cash flow of the Company. Following the
acquisition, the name of Carbon Design Ltd. was changed to Carbon Design
Partnership Ltd. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the operating results of Carbon Design Partnership
Ltd. have been included in the Company's consolidated financial statements since
December 1, 1996.
26
F-9
<PAGE> 25
<TABLE>
The purchases described above include, at fair value, the following assets
and liabilities.
<CAPTION>
SPS Holdings, Inc. Carbon Design Ltd.
<S> <C> <C>
Current Assets $4,575,000 $346,000
Property Plant and Equipment 4,346,000 185,000
Other Assets 46,000 -
Liabilities Assumed 2,869,000 388,000
</TABLE>
Subsequent Event
- ----------------
On February 27, 1997, the Company acquired all of the assets and assumed
certain liabilities of Grafalloy L.P. (the "Seller"), a manufacturer of graphite
golf shafts. The purchase price of approximately $9.6 million included a cash
payment to the Seller of approximately $6.4 million, a cash payment of
approximately $500,000 to the Seller's principal lender, and acquisition costs
of approximately $315,000. In addition, the Company issued 179,492 shares of
Common Stock to the Seller, and issued three notes to the Seller in the
aggregate principal amount of approximately $1.7 million, of which $747,254
bears interest at the rate of 12% and the remainder bears interest at the rate
of 7%. An $800,000 note is due 13 months after the date of the acquisition. A
$747,254 note is due as follows: $300,000 is due in May 1997 and the balance is
due in equal installments 9 and 18 months after the date of the acquisition,
respectively. A $175,000 note is due as follows: $5,000 is due per month, with a
final balloon payment due 6 months after the date of the acquisition. To pay for
the acquisition, the Company used all of its available cash and borrowed
approximately $2.5 million under its existing revolving line of credit.
The following unaudited condensed balance sheet is given to reflect the
acquisition of Grafalloy as if the combination had occurred on December 31,
1996:
<TABLE>
<CAPTION>
(000)
<S> <C>
Cash $ 208
Other current assets 7,319
Property, plant and equipment, net 5,785
Intangible assets and other 8,560
-------
Total Assets $21,872
=======
Current Liabilities $ 5,455
Long-term debt and other 4,091
Stockholders' equity 12,326
-------
$21,872
=======
</TABLE>
Following a full evaluation by management of the fair value of all of the
assets and liabilities acquired, certain reallocations with respect to the
above values may be made.
The acquisition will be accounted for by the purchase method from the date
of acquisition and, accordingly, the financial statements presented do not
contain any amounts related to the acquisition.
<TABLE>
The following table presents the pro forma unaudited information for 1996
and 1995 as if Carbon Design and Grafalloy L.P. had been acquired at January 1
of each year. Certain pro forma adjustments were made to determine the following
pro forma information including increased interest expense assuming the
acquisition and related capital contribution and the issuance of acquisition
debt at the beginning of the period, new compensation agreements affected after
the close of the transaction and revisions to the useful lives and depreciable
bases of the assets.
<CAPTION>
Year Ended Year Ended
000's December 31, December 31,
1996 1995
------------ -------------
<S> <C> <C>
Net Sales $33,841 $ 23,043
Net Income (Loss) 1,385 (2,519)
Earnings (Loss)
per Common Share $ 0.44 $ (1.49)
</TABLE>
NOTE 5 - STOCK DIVIDEND
On February 5, 1996, the Company issued a stock dividend of 1.1591612 new
shares for each old share. All references to amounts per share and number of
shares have been adjusted to give retroactive effect to this transaction.
27
F-10
<PAGE> 26
NOTE 6 - INVENTORIES
<TABLE>
Inventories consist of the following at December 31,
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw Materials $ 978,122 $1,166,801
Work-in-process 478,030 802,509
---------- ----------
$1,456,152 $1,969,310
========== ==========
</TABLE>
Because manufactured product is shipped to the customer upon completion of
the manufacturing process, no substantial inventory of finished goods is
maintained.
NOTE 7 - PROPERTY AND EQUIPMENT:
<TABLE>
Property and equipment consists of the following at December 31,
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Machinery and equipment 3,206,285 2,856,669
Leasehold improvements 1,485,486 1,453,288
Construction in progress 249,007 31,483
Computers 62,732 104,904
---------- ----------
5,003,510 4,446,344
Less accumulated depreciation and amortization 644,101 42,904
---------- ----------
$4,359,409 $4,403,440
========== ==========
</TABLE>
NOTE 8- NOTE PAYABLE - STOCKHOLDER
From December 19, 1995 to July 5, 1996, the Company was obligated under a
promissory note to a company in which the Company's Chairman is an officer and
director (the "Lender") in the amount of $3,000,000. The interest rate on the
note was 10% per annum. The note, together with accrued interest thereon, was
paid without premium or penalty on July 5, 1996. From December 19,1995 to July
5, 1996, the Company was also obligated under a $150,000 promissory note to a
company in which the Company's chairman was an officer and director. The
interest rate on the note was 10% per annum. This note was paid in full with no
penalty on July 5, 1996.
In conjunction with the $3,000,000 note, on December 19, 1995, the Company
issued a warrant to purchase 289,790 shares of the Company's stock at $1.29 per
share to a Company in which the Company's chairman is an officer and director.
The warrant was exercised for the full number of shares on September 30, 1996. A
value of $78,243 was assigned to the warrant when issued. The Company amortized
the discount as a component of interest expense until July 5, 1996 when the note
was paid in full and the loss on early extinguishment of debt was recognized for
the unamortized portion.
The interest charged to operations for these notes for the year ended
December 31, 1996 and the period March 29, 1996 (inception) to December 31, 1995
was $201,153 and $9,675, respectively.
NOTE 9 - ACCRUED LIABILITIES
<TABLE>
Amounts in accrued liabilities at December 31:
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Amounts due to employees $ 599,731 $ 481,451
Liability for idle facilities 31,500 267,471
Amounts due others 762,470 646,595
Amounts due to affiliates 160,000
---------- ----------
$1,393,701 $1,555,517
========== ==========
</TABLE>
28
F-11
<PAGE> 27
NOTE 10 - CREDIT FACILITIES
On December 19, 1995 Culver City Composites Corporation entered into a Loan
and Security Agreement providing for a revolving credit facility of $4,440,000
and a term loan in the amount of $560,000. The credit facility's original term
runs to December 19, 1998 and is automatically renewable from year to year
thereafter. Interest is charged on the revolving note at the rate of 1 1/2%
above the prime rate. The revolving credit facility also provides for Letters of
Credit aggregating up to $750,000. A fee of 1% per annum is to be paid on the
aggregate undrawn face amount of all outstanding Letters of Credit. A fee of 1/2
of 1% per annum is charged on the unused portion of the revolving credit
facility. The Loan and Security Agreement requires, among other things, the
company to maintain certain financial covenants including tangible net worth,
interest coverage, debt service coverage ratios, and restrictions on capital
expenditures. The credit facility is secured by substantially all of the assets
of the Company. Closing costs charged by the bank in connection with the credit
facility of $67,000 are included in loan origination costs on the Company's
balance sheet and are amortized over a period of three years. For the year ended
December 31, 1996 and for the period December 20, 1995 to December 31, 1995 the
amount of interest charged to operations was $233,310 and $8,599.
As mentioned above, the credit facility provides for a term loan of
$560,000. The term note bears interest at the annual rate of 1 1/2% above the
prime rate and is payable in successive monthly installments on the first day of
each month based on an amortization schedule of sixty equal and level payments.
The entire unpaid principal balance of the term loan is due upon the expiration
of the original term of the Loan and Security Agreement or upon the expiration
of the renewal period. Should expiration occur at the 36th or 48th month, the
Company is to pay eleven monthly installments equal to the amounts paid during
the original term followed by a final installment payable equal to the then
unpaid principal balance upon the renewal date. The Company guarantees to the
bank the amounts borrowed under the credit facility and under the terms of a
Stock Pledge Agreement with the bank, has pledged the stock and all additional
shares of stock or other securities at any time issued by CCC.
<TABLE>
Annual maturities of this term loan are as follows:
<S> <C>
1997 $112,000
1998 112,000
1999 and thereafter 224,000
</TABLE>
The effective annual interest rates on the term and revolving notes for the
year ended December 31, 1996 and the period December 20 to December 31, 1995
were 9.75% and 10.25% and 10% and 10.5%, respectively.
As a result of the Company's acquisition of Grafalloy, referred to in Note
4, the Company's remaining availability under the Loan and Security Agreement
was approximately $1.2 million after the acquisition.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Operating Leases
- ----------------
The Company leases its principal manufacturing and office facilities under
non-cancelable operating leases with lease terms of up to ten years expiring
through the year 2006. The leases generally provide for the lessee to pay taxes,
maintenance, insurance, and certain other operating costs of the leased
property. The leases on most of the properties contain renewal provisions and
certain base rents are subject to annual increases determined by indexing.
<TABLE>
Minimum future lease payments on operating lease commitments are
approximately:
<S> <C>
1997 $ 660,798
1998 622,626
1999 622,071
2000 587,304
2001 583,504
Thereafter 2,183,676
</TABLE>
29
F-12
<PAGE> 28
Rent expense for the year ended December 31, 1996 and for the period March
29, 1995 through December 31, 1995 amounted to approximately $682,683 and
$18,467, respectively. Included in commitments are lease payments of $26,250 for
1997, which were accrued as part of the loss on idle facility..
Employment Agreements
- ---------------------
The Company has entered into employment agreements with certain of its
executive officers expiring on March 24, 1998. The agreements provide for
aggregate annual base compensation of $262,650 per year as well as for incentive
bonuses which are payable upon the attainment of specified management goals.
In addition, the agreements entered into on March 25, 1995 provide for the
issuance of stock options for the purchase of an aggregate of 133,303 shares of
the Company's common stock, which grants will vest in three equal installments
on the first, second and third anniversaries of the effective date of the
initial public offering. The options are exercisable for a period expiring ten
years after issuance. The purchase price is $0.86 per share, subject to
adjustment in the event of stock dividends, stock splits, or other adjustment
events.
In 1996, the Company entered into additional employment contracts with key
employees which expire at various dates. The agreements provide for annual base
compensation of an aggregate of $358,000 per annum as well as incentive
bonuses. The agreements provide for the issuance of 37,000 stock options with
exercise prices of $1.00 to $4.00 per share, vesting in equal increments over
a four year period.
Other Matters
- -------------
Culver City Composites Corporation is involved in certain litigation and
other legal matters which are being defended and handled in the ordinary course
of business. While the ultimate results of the matters described above cannot be
determined, management does not expect that they will have a material adverse
effect on the Company's results of operations or financial position.
NOTE 12 - INCOME TAXES:
The Company adopted SFAS 109, which permits the recognition of a deferred
tax asset if it is more likely than not that the future tax benefit will be
realized. The Company does not recognize a deferred tax asset except to the
extent that future years' deductible items will offset future years' taxable
items or will, as loss carrybacks, generate a refund in the current and two
previous years.
Income tax expense (benefit) is comprised of the following:
<TABLE>
The income tax provisions (benefit) for the periods presented are
summarized as follows:
<CAPTION>
March 29, 1995
(Inception)
Year Ended to
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Current $ $
U.S. federal 203,200 -
State 36,000 -
Deferred
U.S. federal - -
State - -
-------- ---------
Total Income Tax Expense $239,200 $ -
======== =========
</TABLE>
30
F-13
<PAGE> 29
<TABLE>
Deferred tax assets and liabilities are comprised of the following:
<CAPTION>
March 29, 1995
Year Ended (Inception)
December 31, 1996 to
December 31, 1995
----------------- -----------------
<S> <C> <C>
Depreciation $ 618,346 $ 184,291
---------- ----------
Gross deferred tax liabilities 618,346 184,291
Net operating loss carryforwards 3,360,000 1,632,000
Inventory valuation 140,968 166,000
Deferred Compensation 100,444
Expense accruals 91,930 92,458
Allowance for bad debts 49,222 64,000
Allowance for loss on idle facility 12,600 69,905
Uniform capitalization costs 7,269 12,400
Pensions 5,029 4,793
---------- ----------
Gross deferred tax assets 3,767,462 2,041,556
---------- ----------
Deferred tax asset valuation allowance 3,149,116 1,857,265
---------- ----------
Net Deferred Tax Asset $ - $ -
========== ==========
</TABLE>
The following table reconciles the Federal statatory tax rate of 34% to
the Company's effective tax rate for each of the following years:
December 31,
1996 1995
---- ----
U.S. Federal statuatory
tax rate............................... 34% (34%)
State income taxes (benefit)
net of U.S. Federal income
tax benefit............................ 6 (6)
Benefits of operating
loss carryforwards..................... (20)
Losses for which no
tax benefit is provided................ - 40
-- --
Effective Tax Rate 20% 0%
== ==
At December 31, 1995, the Company had generated net operating loss
carryforwards of approximately $200,000 for federal tax purposes. To the extent
not utilized, the federal net operating loss carryforwards will expire in 2010.
In addition, as the result of the acquisition of Culver City Composites
Corporation on December 19, 1995, the Company had at December 31, 1996 and 1995,
approximately $32,165,000 and $32,665,000, respectively, of net operating loss
carryforwards for federal income tax purposes which will be expire beginning in
fiscal year 2002. The utilization of these operating losses is limited to
approximately $500,000 each year as a result of an "ownership change" (as
defined by Section 382 of the Internal Revenue Code of 1986, as amended) which
occurred on December 19, 1995.
NOTE 13 - EMPLOYEE BENEFIT PLANS:
Defined Benefit Plan
- --------------------
The Company maintains a defined benefit pension plan covering all
bargaining unit employees which provide for monthly benefit payments upon
retirement. The benefits are based on a fixed monthly payment for each year of
credited service. Plan contributions are made in accordance with ERISA
regulations. The plan maintains investments in various pooled funds at a bank.
Net periodic pension costs and net pension liability for the years ended
December 31, 1996 and 1995 amounted to $23,003 and $38,285, and $31,568 and
$11,982, respectively. The funded status of the plan and amounts recognized in
the consolidated balance sheets at December 31, 1996 and December 31, 1995, were
based on a valuation date of August 1.
Defined Contribution Plan
- -------------------------
Substantially all non-bargaining unit employees of the Company participate
in a defined contribution plan. The plan contains a matched savings provision
that permits both pretax and after tax employee contributions. Participants can
contribute up to 12% of their annual salary and receive a matching contribution
from the employer according to the provisions of the plan document. The
31
F-14
<PAGE> 30
defined contribution plan expense for the year ended December 31, 1996 and for
the period December 20, 1995 through December 31, 1995 was $65,608 and $2,200,
respectively.
Because the acquisition of CCC occurred on December 19, 1995, no expense
for the plan was recorded by the Company in its financial statements at December
31, 1995. The information presented below is intended to assist the reader in
identifying the size, scope and range of costs for the plan.
<TABLE>
The components of net pension costs are as follows:
<CAPTION>
Period January
December 31, 1, 1995 to
1996 December 19, 1995
----------- -----------------
<S> <C> <C>
Service cost for benefits earned $24,533 $23,343
Interest cost on projected benefit obligation 70,809 62,195
Expected return on plan assets (78,659) (56,924)
Prior service cost amortization 8,639 8,639
Net actuarial (gain) loss assumption (10,319) (5,685)
Expenses 8,000
------- -------
Net pension costs $23,003 $31,568
======= =======
</TABLE>
<TABLE>
The following table sets forth the funded status of the plan and amounts
recognized in the consolidated balance sheet at December 19, 1995 and December
31, 1994, based on a valuation date of August 1:
<CAPTION>
December 31, 1996 December 19, 1995
----------------- -----------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation $899,249 $788,440
Non-vested benefit obligation 1,552 416
-------- --------
Projected benefit obligation $900,801 $788,856
Plan assets at fair value 862,516 776,874
-------- --------
Plan assets less than projected benefit (38,285) (11,982)
obligation
Unrecognized net (gain) loss 8,660 (8,305)
Unrecognized prior service cost 71,199 79,838
Adjustment to recognized minimum liability (79,859) (71,513)
-------- --------
Net pension liability recognized in the
consolidated balance sheets $(38,285) $(11,962)
======== ========
Assumptions used (August 1 measurement date):
Discount rate 8% 8%
Long term rate of return on plan assets 9% 9%
</TABLE>
NOTE 14 - CONCENTRATIONS OF FINANCIAL INSTRUMENTS
The Company's financial instruments subject to credit risk are primarily
trade accounts receivable and cash. Cash is held in a
32
F-15
<PAGE> 31
United States bank or in short term commercial paper with the Company's bank.
Generally, the Company does not require collateral or other security to support
customer receivables. The majority of the Company's business is conducted with
major aerospace and defense companies, and their subcontractors.
NOTE 15 - STOCK OPTIONS
On February 6, 1996, the Company approved and adopted The American
Materials & Technologies Corporation's 1996 Incentive and Nonqualified Stock
Option Plan (the "1996 Plan"). The total number of shares that may be issued
pursuant to options granted under the 1996 Plan shall not exceed 350,000 shares
of common stock.
On March 7, 1997 the Company's directors adopted The American Materials &
Technologies Corporation's 1997 Stock Option Plan. The 1997 Stock Option Plan
will be submitted for the approval of the stockholders at the Company's 1997
annual meeting of stockholders. The total number of shares that may be issued
pursuant to options granted under the 1997 Stock Option Plan shall not exceed
350,000 shares of common stock.
<TABLE>
Whenever any outstanding option under either plan expires, is canceled or
is otherwise terminated (other than by exercise), the shares of common stock
allocated to the unexercised portion of such portion may again be the subject of
options under such plan.
<CAPTION>
Range of Number of
exercise prices shares
--------------- -------
<S> <C> <C>
Balance at February 6, 1996 0
Granted $1.00 - $5.50 151,400
Exercised 0
Canceled $4.00 4,800
------------- ----------
Balance at December 31, 1996 $1.00 - $5.50 146,600
============= ==========
</TABLE>
At December 31, 1996, there were 203,400 shares available for future grants
under the 1996 Plan. 2,500 options were exercisable as of December 31, 1996.
Incentive stock options under the plans may be granted only to officers and
other employees of the Company or its subsidiaries, and to consultants or other
persons who provide services to the Company or its subsidiaries. No incentive
Stock Option shall be granted to an individual who owns more than 10% of the
combined power of all classes of stock of the Company or its subsidiaries unless
the Incentive Stock Option provides that (i) the purchase price per share shall
not be less than 110% of the fair market value of the common stock at the time
such option is granted and (ii) that such option shall not be exercisable to any
extent after the expiration of five years from the date it was granted. The
purchase price per share under each option, other than for a greater than 10%
stockholder, shall be determined by the Board or Committee at the time of the
option is granted. Each option agreement is subject to its own terms.
Additionally, prior to the Company's initial public offering, the Company
issued options to purchase 133,303 shares of common stock at an exercise price
of $.86 per share to certain officers of the Company. These options become
exercisable in three equal installments on June 27, 1997, 1998 and 1999. The
Company also issued an option to purchase 9,999 shares of common stock to a
consultant to the Company at an exercise price of $1.50 per share. This option
becomes exercisable in equal installments on each of the first four
anniversaries of the date of the grant, December 22, 1995.
In connection with the Company's initial public offering on July 5, 1996,
the Company issued a warrant to purchase 200,000 shares of common stock to the
representative of the underwriters. The warrant is exercisable at $8.80 per
share for a four-year period commencing June 27, 1997.
33
F-16
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Culver City Composites Corporation (formerly known as SPS Holdings, Inc.) and
Subsidiary
We have audited the accompanying consolidated balance sheet of Culver City
Composites Corporation (formerly known as SPS Holdings, Inc.) and Subsidiary as
of December 19, 1995 and December 31, 1994, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
period January 1, 1995 to December 19, 1995 and the year ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Culver City Composites
Corporation and Subsidiary as of December 19, 1995 and December 31, 1994, and
the results of its operations and its cash flows for the period January 1, 1995
to December 19, 1995 and the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
By: /s/ FELDMAN RADIN & CO., P.C.
------------------------------
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, New York
February 9, 1996
34
F-17
<PAGE> 33
CULVER CITY COMPOSITES CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
ASSETS DECEMBER 19, 1995
<S> <C>
Current assets
Cash...................................................... $ 29,608
Accounts receivable, net of allowance for
doubtful accounts of $104,000 and $500,000,
respectively............................................ 2,376,300
Inventories............................................... 1,926,752
Prepaid expenses and other current assets................. 242,482
-----------
Total current assets................................... 4,575,142
Property and equipment, net of accumulated depreciation
and amortization of $5,415,983 and $4,201,934,
respectively................................................. 4,328,005
Other assets................................................... 45,736
-----------
$ 8,948,883
===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities
Accounts payable.......................................... $ 2,258,438
Line of credit-- parent company........................... --
Accrued liabilities....................................... 840,423
-----------
Total current liabilities............................ 3,098,861
-----------
Commitments and contingencies Stockholder's equity (deficit)
Common stock, par value $.01 per share, authorized 1,000
shares; issued and outstanding 116 shares.................... 1
Additional paid-in capital................................... 61,622,591
Deficit...................................................... (55,772,569)
-----------
Total stockholder's equity (deficit)................... 5,850,022
-----------
$ 8,948,883
===========
</TABLE>
35
See notes to the financial statements.
F-18
<PAGE> 34
CULVER CITY COMPOSITES CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
PERIOD
JANUARY 1, 1995 TO
DECEMBER 19, 1995
------------------
<S> <C>
Net sales.................................. $15,299,977
-----------
Costs and expenses Materials............... 7,351,665
Fixed and variable manufacturing...... 5,688,480
Selling, general and administrative... 2,424,354
Research and development.............. 330,694
-----------
15,795,193
-----------
Loss from operations....................... (495,216)
Interest expense........................... 584,500
-----------
Loss before income taxes................... (1,079,716)
-----------
Provision for income taxes................. --
Net loss................................... $(1,079,716)
===========
</TABLE>
36
See notes to the financial statements.
F-19
<PAGE> 35
CULVER CITY COMPOSITES CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
<CAPTION>
COMMON SHARES ADDITIONAL TOTAL
OUTSTANDING PAID-IN STOCKHOLDER'S
PAR VALUE EQUITY
AMOUNT CAPITAL DEFICIT (DEFICIT)
------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1994 116 $1 49,283,511 (54,692,853) (5,409,341)
Net loss.......... (1,079,716) (1,079,716)
Capital contribution 12,339,079 -- 12,339,079
--- --- ----------- ------------ -----------
BALANCE -- DECEMBER 19, 1995 116 $1 $61,622,590 $(55,772,569) $ 5,850,022
=========================================================
</TABLE>
See notes to the financial statements.
37
F-20
<PAGE> 36
CULVER CITY COMPOSITES CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
PERIOD
JANUARY 1, 1995 TO
DECEMBER 19, 1995
------------------
<S> <C>
Cash used in operations:
Net loss................................................... $(1,079,716)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization .......................... 1,214,049
Decrease (increase) in current assets:
Accounts receivable, net ............................. (182,622)
Inventories .......................................... (631,980)
Prepaid expenses and other current assets ............ 451,208
Note receivable ...................................... --
Other assets ......................................... (5,126)
Increase (decrease) in current liabilities:
Accounts payable ..................................... 165,959
Accrued liabilities .................................. (564,242)
Assets held for sale ................................. --
Accrued loss on disposal ............................. --
-----------
Net cash used in operating activities .......................... (632,470)
-----------
Cash provided by (used in) investment activities:
Capital expenditures ...................................... (162,823)
Proceeds from sale of property and equipment .............. --
Loss on sale of assets .................................... --
-----------
(162,823)
-----------
Cash provided by financing activities:
Borrowings under line of credit -- parent company ........ 695,794
Repayments of borrowings under line of
credit -- parent company ................................. (290,297)
Capital contribution ...................................... 309,818
-----------
715,315
-----------
Net increase (decrease) in cash ................................ (79,978)
Cash at beginning of period .................................... 109,586
-----------
Cash at end of period .......................................... $ 29,608
-----------
</TABLE>
See notes to the financial statements.
38
F-21
<PAGE> 37
CULVER CITY COMPOSITES CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF THE COMPANY AND NATURE OF OPERATIONS
Culver City Composites Corporation (the "Company"), a wholly owned
subsidiary of Montecatini USA, Inc., until December 19, 1995, was incorporated
in the State of Delaware in June, 1991 to acquire the assets of the Composites
Division of Ferro Corporation. The Company develops, manufactures and markets
advanced composite materials for the aerospace, defense and transportation
industries utilizing both proprietary and non-proprietary resin systems. The
Company's products are sold both in the United States and in various foreign
countries. On December 19, 1995, all of the Company's outstanding stock was
acquired for cash by The American Materials & Technologies Corporation.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
- ----
The Company maintains its cash in demand deposit accounts at a bank which,
at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts. The Company does not have any cash equivalents.
Inventories
- -----------
Inventories are stated at the lower of average cost or market. Cost is
determined by the weighted average method.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method of depreciation over the estimated useful lives of the
assets which range from three to seven years. Leasehold improvements are
amortized on a straight line basis over the shorter of the useful life of the
improvement or the term of the lease (including tenant options). Expenditures
for maintenance and repairs are expensed when incurred; expenditures for
betterments are capitalized.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company
and Structural Polymer Systems, Inc., its wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
- -------------------
Revenues are recognized at the time of shipment when the earnings process
is considered complete. Reserves are maintained to reflect the estimated
exposure to product returns.
Foreign Currency Transactions
- -----------------------------
The Company conducts business in a number of different countries which is,
in all material respects, denominated in U.S. dollars.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109) -- Accounting for Income
Taxes. SFAS 109 requires a company to recognize deferred tax liabilities and
assets for the expected future income tax consequences of events that have been
recognized in the company's financial statements.
Under this method, deferred tax liabilities and assets are determined based
on the temporary differences between the financial statement carrying amounts
and the tax bases of assets and liabilities using enacted tax rates in effect in
the years in which the temporary
39
F-22
<PAGE> 38
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment. See Note 7 for additional
information.
For the period January 1, 1995 to December 19, 1995, the Company was a
participant in the filing of the Montecatini USA, Inc. consolidated federal tax
return.
New Accounting Pronouncement
- ----------------------------
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" which requires impairment costs to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the asset's carrying amount. The Company will adopt Statement No. 121 in the
first quarter of 1996 and, based on current circumstances, it does not believe
the effect of adoption will be material.
Research and Development
- ------------------------
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from estimates.
Environmental Remediation Costs
- -------------------------------
The Company's policy is to accrue environmental remediation liabilities
when it is probable that a liability exists and the costs can be reasonably
estimated. The Company's estimates of these costs are based on existing
technology, current enacted laws and regulations, its current legal obligations
regarding remediation and site-specific costs. These liabilities are adjusted
when the effect of new facts or changes in law or technology are determinable.
The Company's liability for environmental remediation totaled $30,000 at
December 19, 1995.
NOTE 3 -- INVENTORIES
<TABLE>
Inventories consist of the following:
<CAPTION>
DECEMBER 19, 1995
-----------------
<S> <C>
Raw Materials $1,092,659
Work-in-process 834,093
==========
$1,926,752
----------
</TABLE>
Because manufactured product is shipped to the customer upon completion of
the manufacturing process, no substantial inventory of finished goods is
maintained.
40
F-23
<PAGE> 39
Note 4 -- PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consists of the following:
<CAPTION>
DECEMBER 19, 1995
-----------------
<S> <C>
Machinery and equipment ............................ $7,110,777
Leasehold improvements ............................. 2,351,894
Computers .......................................... 176,414
Construction in Progress ........................... 104,903
----------
9,743,988
Less accumulated depreciation and amortization ..... 5,415,983
----------
$4,328,005
----------
</TABLE>
NOTE 5 -- ACCRUED LIABILITIES
<TABLE>
Amounts in accrued liabilities at December 19, 1995 were as follows:
<CAPTION>
DECEMBER 19, 1995
-----------------
<S> <C>
Amounts due to employees $384,795
Liability for idle facility 267,471
Amounts due others 188,157
Due to affiliates --
========
$840,423
--------
</TABLE>
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Operating leases
- ----------------
The Company leases its principal manufacturing and office facilities under
non-cancelable operating leases with lease terms of up to ten years expiring
through the year 2005. The leases generally provide for the lessee to pay taxes,
maintenance, insurance and certain other operating costs of the leased property.
The leases on most of the properties contain renewal provisions and certain base
rents are subject to annual increases determined by indexing.
<TABLE>
Minimum future lease payments on operating lease commitments are
approximately:
<S> <C>
1996 ............... $756,619
1997 ............... 625,551
1998 ............... 578,768
1999 ............... 573,072
2000 ............... 573,072
Thereafter ......... 3,014,384
</TABLE>
Rent expense for the period January 1, 1995 through December 19, 1995
amounted to approximately $653,043. Included in commitments are lease payments
of $170,856 and $42,714 for 1996 and 1997, respectively, which were accrued as
part of the loss on idle facility at December 31, 1994.
Other Matters
- -------------
The Company was involved in certain litigation and other legal matters in
1995 and 1994 which are being defended and handled in the ordinary course of
business. While the ultimate results of the matters described above cannot be
determined, management does not expect that they will have a material adverse
effect on the Company's results of operations or financial position.
41
F-24
<PAGE> 40
NOTE 7 -- INCOME TAXES
The Company adopted SFAS 109, "Accounting for Income Taxes" effective
December 31, 1993. SFAS 109 permits the recognition of a deferred tax asset if
it is more likely than not that the future tax benefit will be realized. the
Company does not recognize a deferred tax asset except to the extent that future
years' deductible items will offset future years' taxable items or will, as loss
carrybacks, generate a refund in the current and two previous years. Previously,
under SFAS 96, the Company treated future years' net tax deductible items as if
they were net operating losses for the years in which they were expected to
occur. The Company reported a tax benefit for these losses to the extent the
losses would generate a tax refund in the current and two previous years.
<TABLE>
Deferred tax assets and liabilities are comprised of the following:
<CAPTION>
PERIOD
JANUARY 1, 1995 TO
DECEMBER 19, 1995
------------------
<S> <C>
Depreciation ......................................... $ 181,891
----------
Gross deferred tax liabilities ....................... 181,891
----------
Net operating loss carryforwards ..................... 1,632,000
Inventory valuation .................................. 166,000
Expense accruals ..................................... 92,458
Allowance for bad debts .............................. 64,000
Allowance for loss on idle facility .................. 69,905
Uniform capitalization costs ......................... 12,400
Pensions ............................................. 4,793
----------
Gross deferred tax assets ............................ 2,041,556
----------
Deferred tax asset valuation allowance ............... 1,859,665
----------
Net deferred tax asset ............................... $ --
==========
</TABLE>
The change in the valuation allowance from December 31, 1994 to December
19, 1995 was $370,364.
At December 19, 1995, for federal income tax purposes, the Company had net
operating loss carryforwards of approximately $32,450,000 which will expire
beginning in fiscal year 2000. Certain changes in stock ownership can result in
a limitation on the amount of net operating loss carryforwards that can be
utilized in each year. The Company determined it has undergone such an ownership
change. Consequently, utilization of net operating loss carryforwards will be
limited to approximately $320,000 per year.
NOTE 8 -- DISCONTINUED OPERATIONS
In August, 1993, the Company's owner, Montecatini USA, Inc. (the "Parent")
decided to divest SPS Holdings, Inc. and its wholly owned subsidiary, Structural
Polymer Systems, Inc. In connection with this plan, Structural Polymer Systems,
Inc. received a letter of intent from Reinhold Industries, Inc. to acquire the
assets of its Compositair Division in December, 1993. This sale was consummated
on May 14, 1994.
The terms of sale included placing a portion of the purchase price in an
escrow account for a period of one year from the close. This amount, subject to
determination by a formula within the asset purchase agreement, was $376,082 and
was paid to Structural Polymer Systems, Inc. in May, 1995. This amount is
included in prepaid expenses and other current assets at December 31, 1994.
The terms of sale also included a $475,000, 6% interest bearing promissory
note due on May 14, 1996. Both principal and interest are due at maturity. This
note was assigned to Montecatini U.S.A., Inc., on September 25, 1995 in partial
satisfaction of balances due to them. This note is included in other assets at
December 31, 1994. Structural Polymer Systems, Inc. completed its disposal plan
during 1994.
42
F-25
<PAGE> 41
NOTE 9 -- RELATED PARTY TRANSACTIONS
Line of Credit -- Parent Company
- --------------------------------
The Company maintained a revolving credit facility with its Parent,
Montecatini USA, Inc. in the amount of $12,000,000 through September 25, 1995.
The credit facility carried interest at negotiated rates, principally ranging
from 6.63% to 6.94% for the period January 1, 1995 to September 25, 1995. There
are no commitment fees for unused credit facility. The weighted average interest
rate on the credit facility for the period from January 1, 1995 to September 25,
1995 was 6.8%. On September 25, 1995 the Parent contributed all outstanding
amounts due under this credit facility to equity and canceled the facility.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
- --------------------
The Company maintains a defined benefit pension plan covering all
bargaining unit employees which provides for monthly benefit payments upon
retirement. The benefits are based on a fixed monthly payment for each year of
credited service. Plan contributions are made in accordance with ERISA
regulations. The plan maintains investments in various pooled funds at a bank.
<TABLE>
The components of net pension costs are as follows:
<CAPTION>
PERIOD
JANUARY 1, 1995 TO
DECEMBER 19, 1996
------------------
<S> <C>
Service cost for benefits earned ...................... $23,343
Interest cost on projected benefit obligation ........ 62,195
Expected return on plan assets ........................ (56,924)
Prior service cost amortization ....................... 8,639
Net actuarial (gain) loss assumption .................. (5,685)
-------
Net pension costs ..................................... $31,568
-------
</TABLE>
<TABLE>
The following table sets forth the funded status of the plan and amounts
recognized in the consolidated balance sheet at December 19, based on a
valuation date of August 1:
<CAPTION>
DECEMBER 19, 1995
-----------------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ........................ $788,440
Non-vested benefit obligation .................... 416
--------
Projected benefit obligation ..................... 788,856
Plan assets at fair value ............................. 776,874
--------
Plan assets less than projected benefit obligation .... (11,982)
Unrecognized net (gain) loss .......................... (8,305)
Unrecognized prior service cost ....................... 79,838
Adjustment to recognize minimum liability ............. (71,513)
--------
Net pension liability recognized in
the consolidated balance sheets ..................... $(11,962)
--------
Assumptions used (August 1 measurement date):
Discount rate .................................... 8%
Long term rate of return on plan assets .......... 9%
</TABLE>
The net pension liability was recognized in accrued liabilities in the
consolidated balance sheet.
Defined Contribution Plan
- -------------------------
Substantially all non-bargaining unit employees of the Company participate
in a defined contribution plan. The plan contains a matched savings provision
that permits both pretax and after tax employee contributions. Participants can
contribute up to 12% of their annual salary and receive a matching contribution
from the employer according to the provisions of the plan document.
The defined contribution plan expense was $52,000 for the period from
January 1, 1995 to December 19, 1995.
43
F-26
<PAGE> 42
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Los Angeles, California, on March 28, 1997.
THE AMERICAN MATERIALS &
TECHNOLOGIES CORPORATION
/s/ Paul W. Pendorf
---------------------------
By: Paul W. Pendorf
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Paul W. Pendorf, William A. Timmerman and David
A. Broadwin, and each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Report on Form
10-KSB, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing which they, or any of them, may deem
necessary or advisable to be done in connection with this Report, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or any
substitute or substitutes for any or all of them, may lawfully do or cause to be
done by virtue hereof. In accordance with the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Steven Georgiev Chairman of the Board of Directors March 28, 1997
- ------------------------
Steven Georgiev
/s/ Paul W. Pendorf President, Chief Executive March 28, 1997
- ------------------------ Officer, and Director
Paul W. Pendorf (Principal Executive Officer)
/s/ William A. Timmerman Chief Financial Officer March 28, 1997
- ------------------------ (Principal Financial and
William A. Timmerman Accounting Officer)
/s/ Buster C. Glosson March 28, 1997
- ------------------------
Buster C. Glosson Director
/s/ Robert V. Glaser March 28, 1997
- ------------------------
Robert V. Glaser Director
48
<PAGE> 43
EXHIBIT INDEX
-------------
Exhibit No. Description
---------- -----------
3.1* Restated Certificate of Incorporation of the Company
3.2* Amended and Restated By-Laws of the Company
4.1* Specimen certificate for the Common Stock of the
Company
4.2* Form of Representative's Warrant
1.5* Form of Lock-Up Agreement
10.2* Consulting Agreement with Steven Georgiev, dated
April 15, 1995
10.3* Employment Agreement with Paul W. Pendorf, as amended
10.3.1* Option Agreement for Paul W. Pendorf
10.4* Employment Agreement with William A. Timmerman, as
amended
10.4.1* Option Agreement for William A. Timmerman
10.5* Employment Agreement with Philip D. Cunningham
10.6* Employment Agreement with Lesley Jay Cohen, Ph.D.
10.7* Purchase Agreement between the Company and
Montecatini U.S.A., Inc., dated November 16, 1995.
10.8* Assignment and Assumption Agreement between the
Company and AMT Sub, Inc. dated December 19, 1995
10.9* Lease Agreement dated March 1, 1996 with respect to
real property located at 5915 Rodeo Road, Los
Angeles, California, between Rodeo Properties, Inc.
as lessor and the Company as lessee
10.10* Lease Agreement dated December 20, 1995 with respect
to real property located at 5610 Helms Avenue, Culver
City, California, between Sybel Heller
<PAGE> 44
Revocable Trust as lessor and the Company as lessee
10.11* Lease Agreement dated December 8, 1988 with respect
to real located at 8592 National Boulevard, Culver
City, California, between Lawrence Greener, trustee
of the Lawrence and Rosemary Greener Trust, as lessor
and the Company as lessee, together with Amendments
#1-4 thereto
10.12* Lease Agreement dated October 31, 1994 with respect
to real property located at 3517 Schaeffer Street,
Culver City, California, between Bostwick & Newman as
lessor and the Company as lessee, together with
Amendment #1 thereto
10.13* Loan and Security Agreement between Culver City
Composites Corporation and LaSalle Business Credit,
Inc., dated December 19, 1995
10.14* $560,000 Term Note of the Company dated December 19,
1995 in favor of LaSalle Business Credit, Inc.
10.15* $4,400,000 Revolving Note of the Company dated
December 19, 1995 in favor of LaSalle Business
Credit, Inc.
10.16* Guaranty of the Company in favor of LaSalle Business
Credit, Inc., dated December 19, 1995
10.17* Stock Pledge Agreement between the Company and
LaSalle Business Credit, Inc., dated December 19,
1995
10.18* Warrant for the purchase of 250,000 shares of common
stock, $0.01 par value per share, of the Company, at
an price of $1.50 per share, issued to Palomar
Medical Technologies, Inc., dated December 19, 1995
10.19* Joint Venture Agreement dated March 20, 1996 between
the Company and Advanced Polymer Systems, Inc.
10.20* 1996 Incentive and Nonqualified Stock Option Plan
10.21.1* Form of Option Agreement -- Incentive Stock Option
10.21.2* Form of Option Agreement -- Nonqualified Stock Option
10.22* Agreement dated as of July 10, 1995 between
Structural Polymer Systems, Inc. and the Stove,
Furnace, and Allied Appliance Workers Division,
International Brotherhood of Boilermaker, Iron Ship
Builders, Blacksmiths, Forgers and Helpers, AFL-CIO,
CFL, Local Lodge No. S230
10.23* Retirement Plan for Hourly-Rate Employees of
Structural Polymer Systems, Inc., effective as of
August 1, 1994
10.24* Amended and Restated Assignment Agreement with Steven
Georgiev, dated June 25, 1996
10.25* Amended and Restated Assignment Agreement with
William A. Timmerman, dated June 25, 1996
10.26* Amended and Restated Assignment Agreement with Paul
W. Pendorf, dated June 25, 1996
10.27* Form of Underwriting Agreement between the Company
and H.J. Meyers & Co., Inc.
10.28* Form of Financial Consulting Agreement between the
Company and H.J. Meyers & Co., Inc.
10.29* Form of Merger and Acquisition Agreement between the
Company and H.J. Meyers & Co., Inc.
10.30** Consulting Agreement with Steven Georgiev, dated July
30, 1996
10.31** Form of Indemnity Agreement for Directors of Company
10.32** Agreement among the Company, Carbon Design
Partnership Limited, Steradian Advanced Composites
GmbH, Brian P. Key, Didier Balcou, Titanic Holdings
Limited, Stuart A. Lewis, J. Mark Crouchen and
Michael W. Commander, dated November 22, 1996
10.33** Consulting Agreement with MapleWood, Inc. dated July
1, 1996
10.34 Asset Purchase Agreement dated February 27, 1997 by
and among the Company, Grafalloy Acquisition
Corporation, Grafalloy L.P. and Grafalloy, Inc.
10.35 Employment Agreement between Grafalloy Acquisition
Corporation and William C. Gerhart, dated February
27, 1997
10.36 Guaranty of the Company, dated February 27, 1997
10.37 Lease Agreement between Grafalloy, Inc. and Robert C.
Campbell and Alice C. Campbell, dated July 21, 1993,
together with addendum and amendments thereto
21.1 Subsidiaries of the Company
24.1 Power of Attorney (attached to signature page)
* Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-3836, as originally filed with the Securities and Exchange
Commission on April 19, 1996 and thereafter amended.
** Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-11755, as originally filed with the Securities and Exchange
Commission on September 11, 1996 and thereafter amended.
<PAGE> 1
Exhibit 10.34
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
The American Materials & Technologies Corporation
("AMT")
and
Grafalloy Acquisition Corporation
("Purchaser")
and
Grafalloy L.P.
("Seller")
and
Grafalloy, Inc.
("General Partner")
February 27, 1997
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE
----
<S> <C> <C>
1. PURCHASE AND SALE OF ASSETS.............................................1
1.1 PURCHASE AND SALE OF ASSETS.....................................1
1.2 ASSUMPTION OF LIABILITIES.......................................3
1.3 OTHER LIABILITIES NOT ASSUMED...................................3
1.4 ASSIGNMENT OF CERTAIN CONTRACTS.................................4
1.5 INSTRUMENTS OF CONVEYANCE, ASSUMPTION OR ASSIGNMENT.............5
2. PURCHASE PRICE..........................................................5
2.1 PURCHASE PRICE..................................................5
2.2 ADJUSTMENTS.....................................................5
2.3 ADJUSTMENT PROCEDURE............................................6
3. CLOSING.................................................................6
4. TAXES AND PREPAID ITEMS.................................................6
5. REPRESENTATIONS AND WARRANTIES OF SELLER................................7
5.1 ORGANIZATION AND POWER..........................................7
5.2 DUE AUTHORIZATION; EFFECT OF TRANSACTION........................7
5.3 FINANCIAL STATEMENTS............................................7
5.4 ACCOUNTS RECEIVABLE. .........................................8
5.5 DISTRIBUTIONS...................................................8
5.6 SUBSIDIARIES....................................................8
5.7 REAL PROPERTY...................................................8
5.8 LEASES..........................................................8
5.9 PERSONAL PROPERTIES.............................................8
5.10 EMPLOYMENT ARRANGEMENTS.........................................9
5.11 MATERIAL CONTRACTS AND ARRANGEMENTS.............................9
5.12 CARBON FIBER SUPPLY ARRANGEMENTS................................9
5.13 ORDINARY COURSE OF BUSINESS....................................10
5.14 LITIGATION AND COMPLIANCE WITH LAWS............................10
5.15 TAXES..........................................................10
5.16 ENVIRONMENTAL MATTERS..........................................11
5.17 TRADEMARKS, LICENSES, ETC......................................11
5.18 INSURANCE......................................................12
5.19 EXTRAORDINARY EVENTS...........................................12
5.20 ...............................................................12
5.21 PRODUCTS IN WARRANTY...........................................12
5.22 CERTAIN TRANSACTIONS...........................................12
5.23 NO GOVERNMENTAL AUTHORIZATIONS OR APPROVALS REQUIRED...........12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.24 EMPLOYEE BENEFIT PLANS. ......................................12
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF GENERAL
PARTNER................................................................14
6.1 ORGANIZATION AND CORPORATE POWER...............................14
6.2 DUE AUTHORIZATION; EFFECT OF TRANSACTION.......................14
7. REPRESENTATIONS, WARRANTIES, COVENANTS, AND AGREEMENTS OF AMT
AND PURCHASER..........................................................14
7.1 ORGANIZATION AND CORPORATE POWER...............................14
7.2 DUE AUTHORIZATION; EFFECT OF TRANSACTION.......................14
7.3 SEC DOCUMENTS; FINANCIAL STATEMENTS............................15
7.4 REPORTS UNDER EXCHANGE ACT. ..................................15
7.5 COLLECTION OF ACCOUNTS RECEIVABLE..............................15
7.6 CONTINUING REPRESENTATIONS.....................................15
8. COVENANTS AND AGREEMENTS...............................................16
8.1 COVENANTS AND AGREEMENTS OF SELLER PENDING CLOSING.............16
8.2 DISTRIBUTION OF AMT STOCK......................................16
8.3 ACTIONS PRIOR TO THE CLOSING...................................16
9. CONDITIONS OF AMT'S AND PURCHASER'S OBLIGATIONS........................16
9.1 OPINION OF SELLER'S COUNSEL....................................16
9.2 NO OPPOSITION..................................................17
9.3 NON-COMPETITION AGREEMENTS.....................................17
9.4 EMPLOYMENT AGREEMENTS..........................................17
9.5 PERMITS, ETC...................................................17
9.6 REPRESENTATIONS AND COVENANTS..................................17
9.7 INSTRUMENTS OF TRANSFER........................................17
9.8 SUBSCRIPTION FOR AMT STOCK.....................................17
9.9 [Intentionally left blank.]....................................17
9.10 TAX ALLOCATION AGREEMENT.......................................18
9.11 CHANGE OF NAME.................................................18
9.12 ESCROW AGREEMENT...............................................18
9.13 SOLVENCY CERTIFICATE...........................................18
9.14 AMENDMENT TO LEASE.............................................18
9.15 CANCELLATION OF NOTES..........................................18
9.16 DILIGENCE......................................................18
9.17 WAIVER OF CLOSING CONDITIONS. ................................18
10. CONDITIONS OF SELLER'S OBLIGATIONS.....................................18
10.1 OPINION OF AMT'S PURCHASER'S COUNSEL...........................18
10.2 REPRESENTATIONS AND COVENANTS..................................18
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
10.3 NO OPPOSITION..................................................19
10.5 SUBSCRIPTION FOR AMT STOCK.....................................19
10.6 SECURITY FOR PURCHASE NOTE.....................................19
10.7 EMPLOYMENT AGREEMENTS..........................................19
10.8 SUBORDINATION AGREEMENT........................................19
10.9 TAX ALLOCATION AGREEMENT.......................................19
10.10 WAIVER OF CLOSING CONDITIONS...................................19
11. INDEMNIFICATION........................................................20
11.1 INDEMNIFICATION BY SELLER......................................20
11.2 LIMITS ON INDEMNIFICATION......................................20
11.3 INDEMNIFICATION BY PURCHASER...................................21
11.4 NOTICE OF CLAIM................................................22
11.5 INDEMNITY ESCROW...............................................22
12. BULK SALES ACT.........................................................23
13. BROKERAGE FEE..........................................................23
14. ENTIRE AGREEMENT; AMENDMENTS; WAIVERS..................................23
15. ASSIGNMENT; SUCCESSORS AND ASSIGNS.....................................24
16. SEVERABILITY...........................................................24
17. TERMINATION............................................................24
18. COUNTERPARTS...........................................................24
19. SECTION AND OTHER HEADINGS.............................................24
20. NOTICES................................................................25
21. GENDER.................................................................25
22. LAW TO GOVERN..........................................................26
23. ARBITRATION............................................................26
</TABLE>
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<PAGE> 5
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") entered into this 27th day
of February, 1997, by and among The American Materials & Technologies
Corporation, a Delaware corporation ("AMT"), Grafalloy Acquisition Corporation,
a Delaware corporation ("PURCHASER"), Grafalloy L.P., a Delaware limited
partnership ("SELLER"), and Grafalloy, Inc., a Delaware corporation and the
general partner of Seller (the "GENERAL PARTNER"),
W I T N E S S E T H T H A T:
WHEREAS, Purchaser desires to purchase and Seller desires to sell and
convey to Purchaser substantially all of the assets of Seller relating to its
business involving the manufacture of composite golf club shafts, upon the terms
and subject to the conditions set forth herein; and
WHEREAS, Purchaser is willing to assume certain specified liabilities of
Seller; and
WHEREAS, among the assets to be transferred pursuant hereto are all of the
issued and outstanding shares of common stock, $0.01 par value per share, of
Grafalloy Equipment Corp. ("GEC"), a Delaware corporation and a newly created
wholly-owned subsidiary of Seller ("GEC STOCK"); and
WHEREAS, the parties hereto intend that Purchaser shall elect, pursuant to
Section 338 of the Internal Revenue Code, to treat the purchase of the shares of
GEC Stock as a purchase of assets for federal tax purposes;
NOW, THEREFORE, in consideration of the agreements of the parties hereto,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS
---------------------------
1.1 PURCHASE AND SALE OF ASSETS. At the Closing (as defined in SECTION 3),
Seller agrees to sell, convey, transfer, assign and deliver to Purchaser, and
AMT and Purchaser agree to purchase from Seller, for the purchase price
hereinafter specified, all of Seller's assets, properties and business of every
kind and description and wherever situated (the "ASSETS"). Without limiting the
generality of the foregoing, the Assets to be acquired by Purchaser hereunder
shall include:
(a) All of Seller's goodwill and business as a going concern,
including the name "Grafalloy" or any variation thereof.
(b) All of Seller's normal operating cash on hand, accounts
receivable, (a recent listing of which is attached hereto) miscellaneous
accounts receivable and notes receivable or other rights to receive
payments, whether arising out of the manufacture, sale, distribution or use
of its products, technology, services or otherwise.
<PAGE> 6
(c) All of Seller's inventories of finished goods, work-in-process,
raw materials, and other miscellaneous supplies and materials (a recent
listing of which is attached hereto).
(d) All of the GEC Stock.
(e) All of Seller's prepaid expenses.
(f) All interests of Seller in real property including land,
buildings, structures, improvements, fixtures, leaseholds and leasehold
improvements.
(g) All machinery, equipment, tools, molds, motor vehicles,
transportation, packing and delivery equipment and supplies, furniture and
fixtures of every kind and description owned by Seller or ordered by it (a
recent listing of which is attached hereto) on or before the Closing Date
(as defined in SECTION 3).
(h) All of Seller's right, title and interest of every kind and
description in and to the following assets:
(i) All of Seller's rights and privileges under "Assigned
Contracts" (as defined in SECTION 1.4) and unfilled purchase and sales
orders.
(ii) All of Seller's rights to or under all trademarks, service
marks, certification marks, United States and foreign trademark
registrations and applications, trade names, copyrights, United States
and foreign patents and patent applications, if any, including
international priority rights associated therewith, and all patent,
trademark and other licenses, trade secrets, inventions, and any and
all goodwill associated with any of the foregoing, royalties and
rights to sue for past infringements, including, without limitation,
those items listed or otherwise described on the Schedules hereto.
(iii) All of Seller's customer lists, uncollected invoices,
credit files, payroll records, schedules of fixed assets, books of
account, contracts, sales representation agreements and sales agency
agreements (if any), files, papers, books, records, designs, drawings,
specifications and engineering data and all other public or
confidential business records, all to the extent reasonably required
for the orderly continuation of the business operations of Seller
(collectively, the "BUSINESS RECORDS").
(i) Except as otherwise specified on the DISCLOSURE SCHEDULE hereto,
all of Seller's causes of action, judgements, claims and demands of
whatever nature, memberships, agencies and permits, claims for refunds and
rights of offset and credits, all to the extent that they are assignable by
Seller.
(j) All of Seller's rights under employment contracts, restrictive
covenants, nondisclosure agreements and similar obligations of present and
former officers and employees of Seller, including, without limitation,
those listed on the DISCLOSURE SCHEDULE.
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<PAGE> 7
1.2 ASSUMPTION OF LIABILITIES. At the Closing, Purchaser shall assume
and agree to pay, perform and discharge Seller from the following liabilities of
Seller as existing on the Closing Date (the "ASSUMED LIABILITIES"):
(a) All liabilities reflected in the balance sheet of Seller as of
January 25, 1997, including, without limitation, those for product
warranties and liabilities arising in the ordinary course of Seller's
business which generally accepted accounting principles do not require to
be reflected on the balance sheet dated January 25, 1997 and which do not
exceed $10,000;
(b) All of Seller's obligations under the "Assigned Contracts" as
hereinafter defined;
(c) All of Seller's liabilities as shown on the DISCLOSURE SCHEDULE
hereto and made a part hereof; and
(d) liabilities arising in the ordinary course of Seller's business
after January 25, 1997, being the date of the most recent balance sheet,
attached hereto as EXHIBIT A, included in the Financial Statements, as
hereinafter defined, to the Closing together with any other liabilities not
reflected on EXHIBIT A which other liabilities do not in the aggregate
exceed $10,000.
With respect to any Assumed Liability, such assumption by Purchaser is for
the benefit only of Seller and shall not expand, increase, broaden or enlarge
the rights or remedies of any other party, nor create in any other party any
right against Purchaser which such party would not have against Seller if this
Agreement had not been consummated.
1.3 OTHER LIABILITIES NOT ASSUMED. Neither AMT nor Purchaser shall assume
any liabilities of Seller which are not described in SECTION 1.2 or set forth on
the DISCLOSURE SCHEDULE and, with respect to each Assumed Liability, neither AMT
nor Purchaser shall assume or be under any liability or obligation over and
above any amount, or after the occurrence of any limitation or expiration date,
of such liability or obligation stated on such schedule. Without limiting the
generality of the foregoing and except as otherwise provided on the DISCLOSURE
SCHEDULE or in SECTION 1.2 hereof, the Assumed Liabilities will not include, and
neither AMT nor Purchaser shall assume under this Agreement, any of the
following obligations or liabilities of Seller:
(a) Except as otherwise provided in SECTION 4, any cost, expense,
capital gain or income tax or any similar liability of Seller, any limited
or general partner of the Seller (each, a "PARTNER" and collectively, the
"PARTNERS") or any Partner arising from or growing out of the sale provided
for by this Agreement.
(b) Any debt, obligation or liability to any Partner, employee, agent,
officer, director or security holder of Seller or of any entity owned or
controlled in whole or in part by Seller under any employment, sales,
representation or similar agreement not identified as an "Assigned
Contract" (as defined below), or under any employee option plan, stock or
securities purchase plan, bonus plan or arrangement, pension plan or other
benefit plan, health plan or other employee welfare plan or arrangement.
3
<PAGE> 8
(c) Any obligations or amounts owed to any employees of Seller or any
Partner.
(d) Any debt, liability or obligation of Seller (or costs and expenses
in connection therewith) to the extent that such debt, liability or
obligation is actually satisfied or paid on behalf of Seller by an insurer
or insurers under a policy issued to Seller.
(e) Any liability or obligation arising from any violation by Seller
or by its Partners, officers, employees or agents of any statute (or rule
or regulation thereunder) or executive regulation of the United States or
any State or any political subdivision or agency thereof or any statutes
(or rule or regulation thereunder) or executive, administrative or
quasi-judicial regulation of any foreign government.
(f) Any liability or obligation whose existence violates or is
contrary to any representation or warranty of Seller hereunder.
(g) Any liability under any Environmental Law, as defined in EXHIBIT B
hereto, connected in any manner with any products produced by, or events or
activities produced by Seller prior to the Closing.
(h) Federal or other domestic or foreign income tax or other tax
liabilities known or unknown, existing or arising from operations prior to
the Closing, except for taxes on products not delivered by Seller or paid
for prior to the Closing.
(i) Any liability or obligation for or arising under any claim for
workers compensation or for any tort, breach of any legal duty, breach or
violation of any contract or violation or breach of any law, statute,
ordinance, rule, regulation, injunction or decree, or any liability or
obligation for any "product liability" or other claim connected in any
manner with any products, events or activities produced or taking place
prior to the Closing.
(j) Any liability to Trenwith Capital, Inc. ("TRENWITH"), arising
under that certain letter agreement, dated June 25, 1996, by and between
Trenwith and Seller, or otherwise.
1.4 ASSIGNMENT OF CERTAIN CONTRACTS. At the Closing, Purchaser shall
succeed to the rights and privileges of Seller, and shall assume the obligations
of Seller performable after the Closing, pursuant to those leases, insurance
policies, contracts and other agreements, and only those leases, insurance
policies, contracts and other agreements, of Seller which are listed as
"Assigned Contracts" on the DISCLOSURE SCHEDULE hereto (the "ASSIGNED
CONTRACTS") as and in the form of the copies thereof (or, if oral, as and in the
form of the written statements of the terms thereof) furnished or made available
to Purchaser pursuant to SECTIONS 5.8, 5.9, 5.10, 5.11, 5.12 AND 5.18 hereto.
Without limiting the generality of the foregoing, neither AMT nor Purchaser
shall assume, nor shall either of them have any liability with respect to, any
obligations of Seller under any Assigned Contract (a) required therein to be
performed by Seller at or prior to the Closing or (b) arising out of any breach
thereof occurring prior to the Closing.
4
<PAGE> 9
1.5 INSTRUMENTS OF CONVEYANCE, ASSUMPTION OR ASSIGNMENT. The sale,
conveyance, transfer, assignment and delivery of the Assets and the Assigned
Contracts and the assumption of the Assumed Liabilities, as herein provided,
shall be effected by bills of sale, endorsements, assignments, deeds, drafts,
checks, stock powers or other instruments in such reasonable and customary form
as shall be requested by AMT or Purchaser, and Seller shall at any time and from
time to time after the Closing, upon reasonable request, execute, acknowledge
and deliver such additional bills of sale, endorsements, assignments, deeds,
drafts, checks, stock powers or other instruments and take such other actions as
may be reasonably required to effectuate the transactions contemplated by this
Agreement.
2. PURCHASE PRICE
--------------
2.1 PURCHASE PRICE. In consideration for the sale, conveyance, transfer and
delivery of the Assets and the Assigned Contracts and upon the terms and subject
to the conditions set forth in this Agreement, Purchaser shall assume the
Assumed Liabilities and AMT shall pay to Seller the "PURCHASE PRICE," which
shall consist of:
(a) a cash payment of $6,372,793;
(b) two secured non-negotiable subordinated promissory notes of
Purchaser, guaranteed by AMT, which notes are in substantially the form
attached as EXHIBITS C-1 AND C-2 hereto (the "PURCHASE NOTES"), dated as of
the Closing Date, in the aggregate original principal amounts (i) of
$800,000 a copy of which is attached is EXHIBIT C-1 hereto (the "$800,000
NOTE"), and (ii) $747,254 a copy of which is attached as EXHIBIT C-2
hereto. The $800,000 Note shall be placed in escrow at or prior to the
Closing, and the principal amount of the $800,000 Note shall be subject to
adjustment to reflect decreases in Working Capital as described in SECTION
2.2 hereof;
(c) 179,492 shares of the common stock, $0.01 par value per share, of
AMT ("AMT STOCK"), less 9,590 of such shares of AMT Stock which shall be
placed in escrow at or prior to the Closing and which shall be subject to
adjustment to reflect decreases in Working Capital as described in SECTION
2.2; and
(d) a non-negotiable promissory note in the original principal amount
of $175,000 a copy of which is attached as EXHIBIT C-3 (the "$175,000
NOTE").
2.2 ADJUSTMENTS. For purposes of this Agreement, "WORKING CAPITAL" shall
mean current assets less current liabilities (excluding any reserve for doubtful
accounts) determined in accordance with generally accepted accounting principles
("GAAP") to the extent consistent with Seller's past practices. The Purchase
Price shall be adjusted downward to account for the amount, if any, by which
Working Capital of Seller as of the Closing is less than $150,000 (provided
that, for determining the amount of any such adjustment, such $150,000 amount
shall be increased by the amount by which $110,000 exceeds capital expenditures
made during January and February of 1997), as determined based on the "Working
Capital Audit," as hereinafter defined. Any adjustment to the Purchase Price
pursuant hereto shall be made by allocating 86.74% of such adjustment to the
5
<PAGE> 10
principal amount of the Purchase Note and 13.26% of such adjustment to the
escrowed shares of AMT stock. Any amount by which Working Capital exceeds
$150,000 pursuant to the Working Capital Audit shall be used to immediately
prepay the principal amount outstanding on the $175,000 Note.
2.3 ADJUSTMENT PROCEDURE. A post-Closing audit (the "WORKING CAPITAL
AUDIT") shall be completed by Purchaser's independent auditors and communicated
in writing to Seller no later than thirty days after the "Closing Date," as
hereinafter defined. If Seller disagrees with the result of the Working Capital
Audit, Seller shall inform Purchaser of such disagreement in writing within ten
business days after results of the Working Capital Audit are communicated to
Seller. Purchaser and Seller shall attempt to resolve their differences through
good faith negotiation. If Purchaser and Seller are unable to resolve such
disagreement within twenty days after Seller informs Purchaser of its
disagreement with the results of the Working Capital Audit, the disagreement
will be submitted to a binding third-party audit, with costs to be shared
equally by Purchaser and Seller. Such audit shall be conducted in San Diego,
California by an auditor who (a) shall be selected by the then current managing
partner of the San Diego office of a so-called "Big Six" accounting firm agreed
upon by AMT and Seller and (b) shall possess a minimum of 10 years' experience
in accounting and auditing.
3. CLOSING
-------
The closing of the sale and purchase (the "CLOSING") shall take place at
the offices of Foley, Hoag & Eliot LLP at 10:00 a.m. on February 27, 1997
effective as of 2:30 p.m. Pacific Standard Time on February 27, 1997, or at such
other time and place as may be mutually agreed upon (the "CLOSING DATE") unless
this Agreement shall be extended or terminated in accordance with SECTION 17
hereof. At the Closing, Seller shall deliver to Purchaser such bills of sale,
endorsements, assignments, deeds, drafts, checks, stock powers or other
instruments as shall be effective to vest in Purchaser title to the Assets in
accordance with this Agreement. At the Closing, AMT shall deliver to Seller the
Purchase Note, the "ASSUMPTION AGREEMENT," as hereinafter defined, one or more
stock certificates evidencing the AMT Stock and $6,372,793 by wire transfer of
immediately available funds to the account described in the DISCLOSURE SCHEDULE.
4. TAXES AND PREPAID ITEMS
-----------------------
Except as otherwise expressly provided herein, as reflected on the most
recent balance sheet of Seller included in the "Financial Statements" (as
hereinafter defined), or incurred in the ordinary course of business thereafter
subject to the limitations set forth in SECTION 1.2(d), Seller will pay all
sales, use, franchise and other taxes and charges which may become payable in
connection with the sale of the Assets pursuant to the terms of this Agreement,
and any and all other taxes and charges accruing out of the operation of
Seller's business prior to the Closing Date. Notwithstanding the foregoing,
Seller and Purchaser shall each be responsible for one-half of any taxes imposed
under Cal. Rev. and Tax Code, Sections 6051, 7202, 7251 or 7262; in connection
with the sale of the Assets.
6
<PAGE> 11
5. REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents, warrants, covenants and agrees that, except as set forth
in the DISCLOSURE SCHEDULE:
5.1 ORGANIZATION AND POWER. Seller is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified and in good standing in each other jurisdiction in which
it owns or leases properties, conducts operations or maintains a stock of goods
and where the failure to so qualify would have a material adverse effect on
Seller or its business or property (a true and correct list of each such
jurisdiction is set forth in the DISCLOSURE SCHEDULE), with full partnership
power and authority to carry on the business in which it is engaged and to
execute and deliver and carry out the transactions contemplated by this
Agreement. GEC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
5.2 DUE AUTHORIZATION; EFFECT OF TRANSACTION. No provision of Seller's
Certificate of Limited Partnership or Fourth Amended and Restated Limited
Partnership Agreement or of any agreement, instrument or understanding, or any
judgment, decree, rule or regulation, to which Seller is a party or by which
Seller is bound, has been or will be violated by the execution and delivery by
Seller of this Agreement or the performance or satisfaction of any agreement or
condition herein contained upon Seller's part to be performed or satisfied, and
all requisite partnership and other authorizations for such execution, delivery,
performance and satisfaction by Seller have been duly obtained. This Agreement
will, upon execution and delivery, be a legal, valid and binding obligation of
Seller, enforceable in accordance with its terms.
5.3 FINANCIAL STATEMENTS. Seller has delivered to Purchaser true, correct
and complete copies of the audited financial statements of Seller, including the
balance sheet of Seller as at the close of its fiscal year ended December 31,
1996, a related statement of operations, consolidated statement of changes in
partners' equity, and statement of cash flows for the year then ended (the
"AUDITED FINANCIAL STATEMENTS"). Seller has also delivered to Purchaser the
balance sheet of Seller as at January 25, 1997, together with related statement
of operations, consolidated statement of changes in partners' equity, and
statement of cash flows for the period then ended (the "INTERIM FINANCIAL
STATEMENTS").
The Audited Financial Statements, including the notes to such financial
statements, and the Interim Financial Statements are hereinafter sometimes
collectively referred to as the "FINANCIAL STATEMENTS." All of the Financial
Statements have been prepared in accordance with GAAP consistently followed
throughout the periods (except as set forth in such notes or statements and,
with respect to the Interim Financial Statements, except for normal auditing
adjustments) and fairly present, in all material respects, the financial
condition of Seller and the results of its operations as at the dates thereof
and for the periods covered thereby. To Seller's knowledge and except as set
forth in the DISCLOSURE SCHEDULE, the Financial Statements reflect or provide
for all material claims against, and all debts and liabilities of, Seller, fixed
or contingent, as at the dates thereof, and to Seller's knowledge there has not
been any change between the date of the most recent Financial
7
<PAGE> 12
Statements and the date of this Agreement which has affected materially and
adversely the business or properties or condition or prospects, financial or
other, or results of operations of Seller.
5.4 ACCOUNTS RECEIVABLE. All customer and trade notes and accounts
receivable (collectively, "ACCOUNTS RECEIVABLE") owned by Seller on the date of
the most recent balance sheet included in the Financial Statements, net of
reserves, are in the aggregate fully collectible in the ordinary course of
business consistent with the past practices of Seller within 120 days of the
Closing, to the extent of the aggregate face value thereof as indicated on such
balance sheet. Purchaser shall attempt to collect all Accounts Receivable in a
manner consistent with Seller's past practices. At the option of the Purchaser
exercisable within ten days after the end of the 120 day period set forth in the
previous sentence, any such Accounts Receivable remaining uncollected 120 days
after the Closing together with supporting documentation may be returned to
Seller for a cash payment in the amount of such Accounts Receivable, and Seller
may thereafter collect such Accounts Receivable in a manner consistent with
Seller's past practices. To the extent that, after the Closing and prior to the
return of receivables to Seller, Purchaser receives payment from customers,
whose receivables Purchaser decides to return to Seller in accordance with this
section, such payments shall be applied to such customer's oldest receivables
first.
5.5 DISTRIBUTIONS. From January 25, 1997 to the date hereof, Seller has not
declared or made any distribution whatsoever to any holder of its securities,
either in cash, securities, or other property, through purchases or redemptions
of securities or otherwise.
5.6 SUBSIDIARIES. Except for the GEC Stock, Seller does not own, directly
or indirectly, any of the capital stock of any corporation, association, trust
or similar entity, any interest in the equity of any partnership or similar
entity, any share in any joint venture, or any other equity or proprietary
interest in any entity or enterprise, however organized and however such
interest may be denominated or evidenced.
5.7 REAL PROPERTY. Seller owns no real property.
-------------
5.8 LEASES. The leases listed and described in the DISCLOSURE SCHEDULE and
constituting a portion of the Assigned Contracts constitute all the leases of
real or material items of personal property under which Seller is bound or to
which Seller is a party. Each lease listed in the DISCLOSURE SCHEDULE is valid,
binding, subsisting and enforceable in accordance with its terms, and neither
Seller nor, to the knowledge of Seller, any landlord or lessor is in default or
in arrears in the performance or satisfaction of any agreement or condition on
its part to be performed or satisfied thereunder, and no written waiver or
indulgence or, to the knowledge of Seller, oral or other waiver or indulgence
has been granted by any of the landlords or lessors under said leases. Seller is
not the landlord or lessor under any leases of real or personal property.
5.9 PERSONAL PROPERTIES. Seller directly or indirectly through GEC owns and
has good title to all the tangible and intangible personal property and assets,
other than the leaseholds or licenses referred to in the DISCLOSURE SCHEDULE,
reflected upon the most recent balance sheet included in the Financial
Statements or used by Seller in its business if not so reflected, free and clear
of all liens, encumbrances and security interests of other persons, of whatever
kind and character, except as set
8
<PAGE> 13
forth in the DISCLOSURE SCHEDULE. The DISCLOSURE SCHEDULE contains an
identification of each item of fixed assets and machinery and equipment on the
books of Seller and GEC. None of the fixed assets and machinery and equipment is
subject to contracts of sale, none is held by Seller directly or indirectly
through GEC as lessee or as conditional sales vendee under any lease or
conditional sales contract and none is subject to any title retention agreement,
except as set forth in the DISCLOSURE SCHEDULE. The production machinery and
equipment currently in use on a regular basis has been maintained in a manner
consistent with Seller's past practice and, to the knowledge of Seller, does
not, and as of the Closing will not, require repairs exceeding a cost of $5,000
with respect to any single such piece of machinery or equipment or $25,000 in
the aggregate. All of Seller's or GEC's inventories of finished goods,
work-in-process, raw materials, and other miscellaneous supplies and materials
("INVENTORY"), are capable of being sold by Seller in the ordinary course of
business at a price equal to the valuation of Inventory in the most recent
balance sheet (net of reserves) included in the Financial Statements.
5.10 EMPLOYMENT ARRANGEMENTS. Except as set forth on the DISCLOSURE
SCHEDULE, Seller has no obligation, contingent or otherwise, under any
employment agreement, collective bargaining or other labor agreement, any
agreement containing severance or termination pay arrangements, deferred
compensation agreement, retainer or consulting arrangements, pension or
retirement plan, bonus or profit-sharing plan, employee stock option or purchase
plan or other employee contract or non- terminable (whether with or without
penalty) arrangement, group life, health, medical or hospitalization insurance,
plan or program or other employee or fringe benefit plan, including vacation
plans or programs and sick leave plans or programs. The DISCLOSURE SCHEDULE sets
forth the basis of funding, and the current status of, any past service
liability with respect to any such plan or agreement. Seller or its employees
are not now and for the past five years have not been subject to or involved in
or, to Seller's knowledge, threatened with any union elections, petitions
therefor or other organizational activities. Seller has performed all material
obligations required to be performed under all such agreements, plans and
arrangements and is not in breach of or in default or arrears under the terms
thereof.
5.11 MATERIAL CONTRACTS AND ARRANGEMENTS. Except as set forth in the
DISCLOSURE SCHEDULE or reflected in the Financial Statements, Seller has no
contract or arrangement, including, without limitation, any commitments or
obligations, contingent or otherwise, under any contract or arrangement (a) for
the purchase or sale of inventory in excess of $5000 in any one instance, (b)
for the purchase or sale of supplies, services or other items in excess of $5000
in any one instance, (c) for the purchase, sale or lease of any equipment or
machinery, (d) for the performance of service for others in excess of $5000 in
any one instances or (e) extending beyond June 30, 1997. Each of such contracts
and arrangements is valid, binding, subsisting and enforceable against Seller in
accordance with its terms and Seller has performed all material obligations
required to be performed by it under any such contract or arrangement and is not
in breach or default or in arrears in any material respect or in any other
respect which would permit the other party to cancel such contract or
arrangement under the terms thereof.
5.12 CARBON FIBER SUPPLY ARRANGEMENTS. The DISCLOSURE SCHEDULE describes
all of Seller's existing executory supply contracts, agreements and other
arrangements with Toray Industries, Inc. for the supply of carbon fiber and
carbon epoxy prepreg.
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<PAGE> 14
5.13 ORDINARY COURSE OF BUSINESS. Seller, from the date of the most recent
Financial Statements, to the date hereof,
(a) has operated its business in the normal, usual and customary
manner in the ordinary and regular course of its business;
(b) has not sold or otherwise disposed of any of its properties or
assets, other than inventory sold in the ordinary course of business;
(c) has not sold, assigned or transferred any patents, trademarks,
trade names, trade secrets, copyrights or other intangible assets;
(d) has not increased the compensation payable or to become payable to
any of its officers, employees, or agents paid at a rate exceeding $50,000
annually following such increase;
(e) has not suffered any material damage, destruction or loss (whether
or not covered by insurance) or any acquisition or taking of property by
any governmental authority;
(f) has not knowingly waived any rights which individually or in the
aggregate exceed $5000; and
(g) has not experienced any organized, collective work stoppage or
industrial action.
5.14 LITIGATION AND COMPLIANCE WITH LAWS. There is no litigation pending to
which Seller is a party or which concerns any Asset and, to Seller's knowledge,
no such litigation is threatened. Seller is and at all times since its inception
has been in all material respects in compliance with all laws and governmental
rules and regulations, domestic and foreign, and all requirements of insurance
carriers, applicable to its business or affairs or properties or assets,
including, without limitation, those relating to pollution, pollution of public
health, the environment and occupational health and safety.
5.15 TAXES. "TAXES" means any and all federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Internal Revenue Code section 59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
Seller has filed or caused to be filed, or on the date of the Closing will
have filed, all returns, declarations and reports related to Taxes that are
required to be filed by Seller on or prior to the Closing. All Taxes due and
payable by Seller on or before the date of this Agreement with respect to the
Assets have been paid except for any such obligations being contested in good
faith and which are described on the DISCLOSURE SCHEDULE. Seller has not
received any notice or assessment to the
10
<PAGE> 15
effect that there are Taxes due or claimed to be due from Seller. In addition,
to the knowledge of Seller, no such notice is contemplated or under
consideration. Seller has no knowledge nor has Seller received any notice of the
assertion or threatened assertion of any lien on any of the Assets on account of
any unpaid Taxes that are due and payable. No audits of the returns or reports
of Seller by any government authority are pending or, to the knowledge of
Seller, threatened. From January 25, 1997 to the date hereof Seller has not made
any payment of or on account of any federal, state or local income, franchise or
any real or personal property taxes, except as set forth in the DISCLOSURE
SCHEDULE. Seller is not aware of any basis upon which any assessment for a
material amount of additional federal income taxes could be made. The
information shown on the federal income tax returns of Seller heretofore
delivered to AMT fairly presents the information purported to be shown, in all
material respects.
5.16 ENVIRONMENTAL MATTERS. Without limiting the generality of
SECTION 5.14:
(a) Seller is in compliance in all material respects with all
applicable Environmental Laws (as such term is defined in EXHIBIT B
hereto);
(b) Seller has obtained all permits and approvals required under
Environmental Laws, including, without limitation, all environmental,
health and safety permits, licenses, approvals, authorizations, variances,
agreements and waivers of federal, state and local governmental authorities
("PERMITS") necessary for the conduct of Seller's business and the
operation of its facilities, and all such Permits are in full force and
effect and Seller is in all material respects in compliance with all terms
and conditions of such Permits;
(c) To the knowledge of Seller, neither Seller nor any of its
currently or previously owned or leased property or operations has been
named as a potentially responsible party or is subject to any outstanding
written order from or agreement with any federal, state or local
governmental authority or other person or is subject to any judicial or
docketed administrative proceeding respecting (i) Environmental Laws, (ii)
Remedial Action (as such term is defined in EXHIBIT B hereto) or (iii) any
material Environmental Liabilities and Costs (as such term is defined in
EXHIBIT B hereto);
(d) Seller has not received any notice or claim to the effect that it
is or is reasonably expected to be subject to a demand or claim by any
person as a result of a Release (as such term is defined in EXHIBIT B
hereto) or threatened Release or any notice letter or request for
information under CERCLA (as such term is defined in EXHIBIT B hereto); and
(e) No Environmental Lien (as such term is defined in EXHIBIT B
hereto) and no unrecorded Environmental Lien of which Seller has notice has
attached to any property of Seller.
5.17 TRADEMARKS, LICENSES, ETC. The DISCLOSURE SCHEDULE sets forth all of
the trademarks, trade names, service marks, patents, copyrights, registrations
or applications with respect thereto, and licenses or rights under the same
owned, used or intended to be acquired or used by Seller, and, to the extent
indicated in the DISCLOSURE SCHEDULE, the same have been duly registered in such
offices
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<PAGE> 16
as are indicated therein. Seller is the sole and exclusive owner of the
trademarks, trade names, service marks and copyrights, the holder of the full
record title to the trademark registrations and the sole owner of the inventions
covered by the patents and patent applications, all as set forth in the
DISCLOSURE SCHEDULE; Seller has the sole and exclusive right, except as set
forth in the DISCLOSURE SCHEDULE, to use such trademarks, trade names, service
marks, patents and copyrights. Seller's use of such trademarks, trade names,
service marks, patents and copyrights has not infringed, and is presently not
infringing, the rights of any person and, to Seller's knowledge, no person is
currently infringing any of Seller's rights therein.
5.18 INSURANCE. The insurance policies listed and described briefly (which
description sets forth deductible amounts, if any) in the DISCLOSURE SCHEDULE
constitute all of the policies in force and effect in respect of the business,
properties and assets, including, without limitation, insurance on personnel, of
Seller. Seller is not in default under any such policy.
5.19 EXTRAORDINARY EVENTS. From January 25, 1997 to the date hereof, none
of the business or properties or condition, financial or other, or results of
operations of Seller have been materially and adversely affected in any way as
the result of any fire, explosion, accident, casualty, labor disturbance,
requisition or taking of property by any governmental body or agency, flood,
embargo, or Act of God or the public enemy, or cessation, interruption or
diminution of operations, whether or not covered by insurance.
5.20 [Intentionally omitted.]
5.21 PRODUCTS IN WARRANTY. Attached as part of the DISCLOSURE SCHEDULE are
true and correct copies of Seller's standard warranty agreements used by Seller
in connection with its business operations. Seller's standard warranty
agreements apply to each product in warranty except as otherwise indicated on
the DISCLOSURE SCHEDULE. Seller is not in violation in any material respect of
any such warranty agreement.
5.22 CERTAIN TRANSACTIONS. None of the Partners, officers, directors or
employees of Seller or the General Partner is presently a party to any
transaction with Seller (other than for services as officers, directors and
employees), including, without limitation, any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from, any such Partner, officer, director or employee, any member of a
family of any such Partner, officer, director or employee or any corporation,
partnership, trust or other entity in which any such Partner, officer, director
or any employee has a substantial interest or is an officer, director, trustee
or partner.
5.23 NO GOVERNMENTAL AUTHORIZATIONS OR APPROVALS REQUIRED. No authorization
or approval of, or filing with, any governmental agency, authority or other
regulatory body will be required of Seller in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
5.24 EMPLOYEE BENEFIT PLANS. The DISCLOSURE SCHEDULE contains a true,
correct and complete list of all pension, profit sharing, retirement, deferred
compensation, welfare, insurance disability,
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<PAGE> 17
bonus, vacation pay, severance pay and other similar plans, programs or
agreements, and every material personnel policy, whether reduced to writing or
not, relating to any persons employed by Seller and maintained at any time by
Seller or the General Partner or by any other member (hereinafter, "AFFILIATE")
of a controlled group of corporations, group of trades or businesses under
common control or affiliated service group that includes Seller or the General
Partner (as defined for purposes of Section 414(b), (c) and (m) of the Code)
(collectively, the "PLANS"). Seller has made available to Purchaser true,
correct and complete copies of all Plans that have been reduced to writing,
together with all documents establishing or constituting any related trust,
annuity contract, insurance contract or other funding instrument, and true,
correct, and complete written summaries of those that have not been reduced to
writing. Except as set forth on the DISCLOSURE SCHEDULE, neither Seller nor the
General Partner nor any Affiliate has any obligation or other employee benefit
plan liability under applicable law; nor has Seller, the General Partner or any
Affiliate ever been obligated to contribute to any "multi-employer plan," as
defined in Section 3(37) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Neither Seller nor the General Partner nor any Affiliate
has incurred any "withdrawal liability" calculated under Section 4211 of ERISA
and there has been no event or circumstance which would cause them to incur any
such liability. Neither Seller nor the General Partner nor any Affiliate has
ever maintained a Plan providing health or life insurance benefits to former
employees. No Plan previously maintained by Seller, the General Partner or any
Affiliate that was subject to ERISA has been terminated; no proceedings to
terminate any such Plan have been instituted within the meaning of Subtitle C of
Title IV of ERISA; and no reportable event within the meaning of Section 4043 of
said Subtitle C has occurred with respect to any such Plan, and no liability to
the Pension Benefit Guaranty Corporation has been incurred. For each Plan,
Seller, the General Partner and every Affiliate are, in all material respects,
in compliance with all requirements prescribed by all statutes, regulations,
orders, or rules currently in effect, and they have in all material respects
performed all obligations required to be performed by them. Neither Seller nor
the General Partner nor any Affiliate, nor any of their Partners, directors,
officers, employees, or agents, nor any trustee or administrator of any trust
created under the Plans, have engaged in or been a party to any "prohibited
transaction" as defined in Section 4975 of the Code and Section 406 of ERISA
that could subject AMT or Purchaser or their affiliates, directors, or employees
or the Plans or the trusts relating thereto or any party dealing with any of the
Plans or trusts to any tax or penalty on "prohibited transactions" imposed by
Section 4975 of the Code.
Each Plan intended to qualify under Section 401(a) of the Code has been
determined by the Internal Revenue Service to so qualify, and the trusts created
thereunder have been determined to be exempt from tax under Section 501(a) of
the Code; copies of all determination letters have been delivered to Purchaser;
and nothing has occurred since the date of such determination letters that might
cause the loss of such qualification or exemption. There are no qualified profit
sharing or stock bonus plans, all employer contributions accrued for plan years
ending prior to the Closing Date under the Plan terms and applicable law have
been made.
Except as set forth on the DISCLOSURE SCHEDULE, all of the liabilities with
respect to all of the Plans are accurately reflected in the Financial Statements
or incurred thereafter only in the ordinary course of Seller's business, none of
which are material.
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<PAGE> 18
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF GENERAL PARTNER
-------------------------------------------------------------
6.1 ORGANIZATION AND CORPORATE POWER. The General Partner is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is duly qualified and in good standing in each other
jurisdiction in which it owns or leases properties, conducts operations or
maintains a stock of goods (a true and correct list of each such jurisdiction is
set forth in the DISCLOSURE SCHEDULE), with full corporate power and authority
to carry on the business in which it is engaged and to execute and deliver and
carry out the transactions contemplated by this Agreement.
6.2 DUE AUTHORIZATION; EFFECT OF TRANSACTION. No provision of the General
Partner's Certificate of Incorporation or By-laws or of any agreement,
instrument or understanding, or any judgment, decree, rule or regulation, to
which the General Partner is a party or by which the General Partner is bound,
has been or will be violated by the execution and delivery by the General
Partner of this Agreement or the performance or satisfaction of any agreement or
condition herein contained upon its part to be performed or satisfied, and all
requisite corporate and other authorizations for such execution, delivery,
performance and satisfaction have been duly obtained. This Agreement will, upon
execution and delivery, be a legal, valid and binding obligation of the General
Partner, enforceable in accordance with its terms.
7. REPRESENTATIONS, WARRANTIES, COVENANTS, AND AGREEMENTS OF AMT
-------------------------------------------------------------
AND PURCHASER
-------------
7.1 ORGANIZATION AND CORPORATE POWER. AMT is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified and in good standing in each other jurisdiction in which
it owns or leases properties, conducts operations or maintains a stock of goods,
where failure to so qualify would have a material adverse effect on AMT or its
business or property, with full corporate power and authority to carry on the
business in which it is engaged and to execute and deliver and carry out the
transactions contemplated by this Agreement. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified and in good standing in each other jurisdiction
in which it owns or leases properties, conducts operations or maintains a stock
of goods, where failure to so qualify would have a material adverse effect on
Purchaser or its business or property, with full corporate power and authority
to carry on the business in which it is engaged and to execute and deliver and
carry out the transactions contemplated by this Agreement.
7.2 DUE AUTHORIZATION; EFFECT OF TRANSACTION. No provision of AMT's or
Purchaser's Certificate of Incorporation or By-laws, or of any agreement,
instrument or understanding, or any judgment, decree, rule or regulation, to
which AMT or Purchaser is a party or by which it is bound, have been or will be
violated by the execution by AMT or Purchaser of this Agreement or the
performance or satisfaction of any agreement or condition herein contained upon
the part of AMT or Purchaser to be performed or satisfied, and all requisite
corporate and other authorizations for such execution, delivery, performance and
satisfaction have been duly obtained. This Agreement will upon execution and
delivery be a legal, valid and binding obligation of each of AMT and Purchaser,
enforceable in accordance with its terms.
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<PAGE> 19
7.3 SEC DOCUMENTS; FINANCIAL STATEMENTS. AMT has made available to Seller
and the General Partner a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by AMT with the
Securities Exchange Commission (the "COMMISSION") since its initial public
offering (as such documents have since the time of their filing been amended,
the "AMT SEC DOCUMENTS"), which are all the documents (other than preliminary
material) that AMT was required to file with the Commission since such date. As
of their respective dates, the AMT SEC Documents and any forms, reports and
other documents filed by AMT after the date of this Agreement complied or will
comply in all material respects with the requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), or the Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), as the case may be, and the rules and regulations of the
Commission thereunder applicable to such AMT SEC Documents or such other forms,
reports or other documents, and none of the AMT SEC Documents contained, or will
contain at the time they are filed, any untrue statement of a material fact or
omitted, or will omit at the time they are filed, to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of AMT included in the AMT SEC Documents comply as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-QSB of the Commission)
and fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments, which were not individually or in the aggregate
material) in all material respects the financial position of AMT as at the dates
thereof and the results of its operations and cash flows for the periods then
ended.
7.4 REPORTS UNDER EXCHANGE ACT. In order to permit the eventual sale of AMT
Stock by Seller any Partner or any shareholder of any Partner to whom Seller
transfers AMT Stock, AMT agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act;
and
(b) file with the Securities and Exchange Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
7.5 COLLECTION OF ACCOUNTS RECEIVABLE. Purchaser shall collect Accounts
Receivable in a manner consistent with the past practices of Seller. Any
Accounts Receivable remaining uncollected after 120 days after the Closing shall
be returned to Seller for collection, and Seller shall pay the face amount of
such Accounts Receivable to Purchaser in cash.
7.6 CONTINUING REPRESENTATIONS. The representations and warranties of AMT
and Purchaser herein contained shall survive the Closing for a period of 24
months, except that the warranties set forth in SECTION 7.4 shall survive the
closing for a period of 36 months or such earlier time as Rule 144(k) or any
successor to such rule shall become available for the sale of the AMT Stock.
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<PAGE> 20
8. COVENANTS AND AGREEMENTS
------------------------
8.1 COVENANTS AND AGREEMENTS OF SELLER PENDING CLOSING. Seller covenants
and agrees that Seller, from the date hereof to the Closing Date,
(a) will operate its business in the normal, usual and customary
manner in the ordinary and regular course of business;
(b) will not sell or otherwise dispose of any of its properties or
assets, other than inventory of finished goods sold in the ordinary course
of business;
(c) will not sell, assign or transfer any patents, trademarks, trade
names, trade secrets, copyrights or other intangible assets;
(d) will not increase the compensation payable or to become payable to
any of its officers, employees, or agents paid at a rate exceeding $50,000
annually following such increase; or
(e) will not enter into any other transaction or transactions which
individually or in the aggregate are material to Seller.
8.2 DISTRIBUTION OF AMT STOCK. Seller agrees and covenants that each
transfer of AMT Stock by Seller shall be made in compliance with all applicable
securities laws, and, without limiting the generality of the foregoing, in
connection with each such transfer, the transferee shall execute a Subscription
Agreement in the form of EXHIBIT D hereto.
8.3 ACTIONS PRIOR TO THE CLOSING. Seller shall pay when due all Taxes owing
on account of the Assets the operations of Seller that relate to the period
prior to the Closing, other than such amounts, if any, that constitute Assumed
Liabilities and except as provided in SECTION 4. Seller shall be responsible for
payment, when due, of all Taxes assessed based upon, or otherwise relating to,
the Assets or the operations of Seller prior to the Closing Date and for all
period(s) ending on or before the Closing Date, whether or not due on the
Closing Date, other than such amounts, if any, that constitute Assumed
Liabilities and except as provided in SECTION 4.
9. CONDITIONS OF AMT'S AND PURCHASER'S OBLIGATIONS
-----------------------------------------------
The obligations of AMT and Purchaser to close hereunder are subject to the
fulfillment to the reasonable satisfaction of, or waiver by, AMT and Purchaser,
prior to or at the Closing, of each of the following conditions:
9.1 OPINION OF SELLER'S COUNSEL. Seller shall have furnished AMT and
Purchaser with an opinion, dated the Closing Date, of O'Connor, Cavanagh,
Anderson, Killingsworth and Beshears, counsel for Seller, in form and substance
reasonably satisfactory to AMT and Purchaser.
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<PAGE> 21
9.2 NO OPPOSITION. No suit, action or proceeding shall be pending or
threatened at any time prior to or on the Closing Date before or by any court or
governmental body seeking to restrain or prohibit, or damages or other relief in
connection with, the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby or which might materially
and adversely affect the business or properties or condition, financial or
other, or results of operations of Seller.
9.3 NON-COMPETITION AGREEMENTS. Peter C. Brooks, William Gerhart, Neil
Haas, and Robin Arthur shall have executed and delivered to Purchaser a
Non-Competition Agreement, in substantially the form of EXHIBIT E hereto.
9.4 EMPLOYMENT AGREEMENTS. Purchaser shall have executed and delivered
employment agreements, substantially in the form of EXHIBIT F hereto with each
of William M. Gerhart, Robin Arthur and Neil Haas.
9.5 PERMITS, ETC. Seller shall have assigned to Purchaser, or Purchaser
shall have obtained, all such permits, licenses, approvals, authorizations,
variances, agreements and warranties from federal, state and local governmental
authorities, which Purchaser shall, in the exercise of its sole discretion, deem
necessary or desirable for the operation by Purchaser of the business of Seller
after the Closing.
9.6 REPRESENTATIONS AND COVENANTS. The representations and warranties of
Seller and the General Partner contained in this Agreement or otherwise made in
writing by either or on the behalf of Seller or the General Partner pursuant
hereto or otherwise made in connection with the transactions contemplated hereby
shall be true and correct in all material respects at and as of the Closing Date
with the same force and effect as though made on and as of such date; each and
all of the covenants, agreements and conditions to be performed or satisfied or
waived by Seller hereunder at or prior to the Closing Date shall have been duly
performed or satisfied or waived; and Seller shall have furnished AMT and
Purchaser with such certificates and other documents evidencing the truth of
such representations and warranties and the performance and satisfaction of such
covenants, agreements and conditions as AMT and Purchaser shall have reasonably
requested.
9.7 INSTRUMENTS OF TRANSFER. Seller shall have delivered to Purchaser bills
of sale, assignments, deeds, stock powers and other instruments of transfer and
assignment in accordance with the provisions hereof, transferring to Purchaser
all of Sellers' right, title and interest in and to the Assets, including the
Assigned Contracts, to be transferred, sold, assigned and conveyed by Sellers to
Purchaser pursuant to the provisions of this Agreement.
9.8 SUBSCRIPTION FOR AMT STOCK. AMT, Seller and William M. Gerhart and each
other person identified by Seller in SCHEDULE 9.8 (each, a "SUBSCRIBING PERSON"
and, collectively, the "SUBSCRIBING PERSONS") shall have entered into
subscription agreements, in substantially the form of EXHIBIT D hereto, relating
to the issuance of shares of AMT Stock by AMT to Seller and the distribution by
Seller to the Subscribing Persons, which shall contain provisions for
registration of such shares of AMT Stock and which shall provide for a two (2)
year lock-up period.
9.9 [Intentionally left blank.]
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<PAGE> 22
9.10 TAX ALLOCATION AGREEMENT. Seller and Purchaser shall have executed and
delivered a Tax Allocation Agreement in substantially the form of EXHIBIT G
hereto.
9.11 CHANGE OF NAME. On or before the Closing Date, Seller shall have
changed its corporate name from "Grafalloy L.P." to another name in no way
similar to or susceptible of confusion with "Grafalloy" or variations thereof,
the General Partner shall have changed its corporate name from "Grafalloy, Inc."
to another name in no way similar to or susceptible of confusion with
"Grafalloy" or variations thereof, and Purchaser shall have reserved the name
"Grafalloy Corporation" in Delaware and California.
9.12 ESCROW AGREEMENT. Seller and AMT shall have executed and delivered the
"Escrow Agreement," as that term is defined in SECTION 11.5 hereof.
9.13 SOLVENCY CERTIFICATE. Seller shall have delivered a solvency
certificate, dated the Closing Date, (in form and substance satisfactory to AMT
and Purchaser) signed by the appropriate representative of Seller.
9.14 AMENDMENT TO LEASE. Seller and Robert C. Campbell and Alice C.
Campbell ("Landlords") shall have executed and delivered Amendment No. 3 to that
certain Lease dated July 21, 1993 between Seller and Landlords.
9.15 CANCELLATION OF NOTES. [INTENTIONALLY OMITTED]
---------------------
9.16 DILIGENCE. AMT shall have completed its diligence review of the
business, properties, assets and liabilities of Seller, with results reasonably
satisfactory to Purchaser.
9.17 WAIVER OF CLOSING CONDITIONS. Seller shall deliver to AMT and
Purchaser a certificate stating that it has no knowledge of a failure on the
part of AMT or Purchaser to satisfy any of the conditions to Closing set forth
in this SECTION 9.
10. CONDITIONS OF SELLER'S OBLIGATIONS
----------------------------------
The obligations of Seller to close hereunder are subject to the fulfillment
to the reasonable satisfaction of, or waiver by, Seller prior to or at the
Closing of each of the following conditions:
10.1 OPINION OF AMT'S PURCHASER'S COUNSEL. AMT and Purchaser shall have
furnished Seller and the Partners with an opinion, dated the Closing Date, of
Foley, Hoag & Eliot LLP, counsel for AMT and Purchaser, in form and substance
reasonably satisfactory to Seller.
10.2 REPRESENTATIONS AND COVENANTS. The representations and warranties of
AMT and Purchaser contained in this Agreement or otherwise made in writing by
AMT and Purchaser or on behalf of AMT and Purchaser pursuant hereto or otherwise
made in connection with the transactions contemplated hereby shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as though made on and as of such date; each of the covenants,
agreements and conditions, including payment of the Purchase Price and execution
of an Assumption
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<PAGE> 23
Agreement, to be performed or satisfied or waived by AMT or Purchaser hereunder
at or prior to the Closing Date shall have been duly performed or satisfied or
waived; and AMT and Purchaser shall have furnished Seller with such certificates
or other documents evidencing the truth of such representations and warranties
and the performance and satisfaction of such covenants, agreements and
conditions as Seller shall have reasonably requested.
10.3 NO OPPOSITION. No suit, action or proceeding shall be pending or
threatened on the Closing Date before or by any court or governmental authority
seeking to restrain or prohibit the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
10.4 ASSUMPTION AGREEMENT. Purchaser shall have delivered to Seller an
assumption agreement dated as of the Closing, by which Purchaser shall assume
the Assumed Liabilities (the "ASSUMPTION AGREEMENT").
10.5 SUBSCRIPTION FOR AMT STOCK. AMT, Seller and William M. Gerhart and
each other person identified by Seller in SCHEDULE 9.8 (each, a "SUBSCRIBING
PERSON" and, collectively, the "SUBSCRIBING PERSONS") shall have entered into
subscription agreements, in substantially the form of EXHIBIT D hereto, relating
to the issuance of shares of AMT Stock by AMT to Seller and the distribution by
Seller to the Subscribing Persons, which shall contain provisions for
registration of such shares of AMT Stock and which shall provide for a two (2)
year lock-up period.
10.6 SECURITY FOR PURCHASE NOTE. The Purchase Notes shall each be secured
by a lien on all the assets of Purchaser. Such lien shall be subordinated and
junior to the security interest and right of payment of any Senior Lender.
Purchaser shall have entered into a security agreement in substantially the form
of EXHIBIT G hereto and shall have delivered signed financing statements and
taken such other action reasonably requested by Seller to perfect Seller's
security interest in such assets.
10.7 EMPLOYMENT AGREEMENTS. Purchaser shall have executed and delivered
employment agreements, substantially in the form of EXHIBIT F hereto with each
of William M. Gerhart, Robin Arthur and Neil Haas.
10.8 SUBORDINATION AGREEMENT. LaSalle and AMT shall have entered into a
subordination agreement with Seller in such form and on such terms as shall be
satisfactory to Seller, or the Purchase Notes and the $175,000 Note shall
contain subordination provisions satisfactory to Seller.
10.9 TAX ALLOCATION AGREEMENT. Seller and Purchaser shall have executed and
delivered a Tax Allocation Agreement in substantially the form of EXHIBIT G
hereto.
10.10 WAIVER OF CLOSING CONDITIONS. AMT shall deliver to Seller a
certificate stating that it has no knowledge of a failure on the part of Seller
to satisfy any of the conditions to closing set forth in this SECTION 10.
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11. INDEMNIFICATION
---------------
11.1 INDEMNIFICATION BY SELLER. Seller hereby agrees to indemnify, defend
and hold AMT and Purchaser, or any subsidiary of AMT or Purchaser holding title
to any Asset (collectively, the "INDEMNIFIED PERSONS"), harmless from and
against the amount of any actual (or potential in the case of any litigation or
claims by any person not a party to this Agreement) damage, loss, cost or
expense (including reasonable attorneys' fees and settlement costs) to the
Indemnified Persons ("LOSS") occasioned or caused by, resulting from or arising
out of:
(a) any failure by Seller to perform, abide by or fulfill any of the
agreements, covenants or obligations set forth in this Agreement to be so
performed or fulfilled by Seller;
(b) any material breach of any of the representations or warranties of
Seller set forth in this Agreement;
(c) any claim, known or unknown, arising out of or by virtue of or
based upon any liability or obligation of Seller which is not an Assumed
Liability including, without limitation, any fees or commissions owed to
Trenwith, amounts owed by Seller under the California Bulk Sales Law or
amounts owed by Seller to any taxing authority (other than such amounts
owed to taxing authorities which are Assumed Liabilities);
PROVIDED, HOWEVER, THAT Loss shall not include any incidental, consequential,
punitive damages, or any amount to the extent that such amount is either an
Assumed Liability or reflected in the working capital adjustment in accordance
with SECTION 2.2 but only to the extent that such adjustment results in a
reduction in the Purchase Price. All claims for indemnification shall be
submitted in writing within 24 months of the Closing Date.
The amount of any Loss shall be the amount of cash reimbursement that, when
received by the Indemnified Person incurring such loss, shall reimburse such
Indemnified Person for any cost or expense actually incurred by reason of the
Loss.
11.2 LIMITS ON INDEMNIFICATION BY SELLER
-----------------------------------
(a) Subject to SECTION 11.2(d) below, Purchaser's and AMT's sole
recourse and remedy shall be to indemnification hereunder. The obligation
of Seller to indemnify the Indemnified Persons hereunder shall not exceed
in the aggregate $1,250,000, after accounting for taxes in accordance with
SECTION 11.2(c).
(b) Subject to SECTION 11.2(d) below, the Seller shall not be liable
and the Indemnified Persons shall have no right to indemnification until,
and then only to the extent that, the aggregate amount of losses exceeds
$100,000 after accounting for taxes in accordance with SECTION 11.2(c)
below; provided that no single item of loss shall exceed $25,000 not to
exceed the limitations set forth in this SECTION 11.2. With respect to each
single item of loss that exceeds $25,000, the Indemnified Persons shall be
entitled to full indemnification for the entire amount of each such item of
loss not to exceed the limitations set forth in this SECTION 11.2.
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<PAGE> 25
(c) For purposes of this SECTION 11.2(c):
(i) the term "ACTUAL TAX LIABILITY" shall mean, for any given
fiscal year, the dollar amount, if any, of the federal income tax paid
by Purchaser as reflected on Purchaser's consolidated federal income
tax return for such fiscal year; and
(ii) the term "EFFECTIVE TAX RATE" shall mean, for any given
fiscal year, Purchaser's Actual Tax Liability divided by Purchaser's
net income before taxes as reported on Purchaser's federal income tax
return.
The amount of any Loss hereunder shall be reduced by the amount, if
any, by which such Loss reduces Purchaser's Actual Tax Liability for the
fiscal year in which such Loss was accrued in accordance with GAAP. The
amount of such reduction, if any, shall be calculated by multiplying the
amount of the Loss by the Effective Tax Rate for that year.
(d) if Purchaser or AMT shall suffer any Loss (including the costs of
defense) arising out of or in connection with any matter described in
SECTIONS 11.1(a) OR (c) AMT and/or Purchaser shall be entitled to full
recourse and indemnification without reference to the limitations set forth
in SECTIONS 11.2(a) AND (b) above.
11.3 INDEMNIFICATION BY PURCHASER. Purchaser hereby agrees to indemnify,
defend and hold Seller harmless from and against the amount of any actual (or
potential in the case of any litigation or claims by any person not a party to
this Agreement) damage, loss, cost or expense (including reasonable attorneys'
fees and settlement costs) to Seller ("LOSS") occasioned or caused by, resulting
from or arising out of:
(a) any failure by Purchaser or AMT to perform, abide by or fulfill
any of the agreements, covenants or obligations set forth in or entered
into in connection with this Agreement to be so performed or fulfilled by
Purchaser or AMT;
(b) any material breach of any of the representations or warranties of
Purchaser or AMT set forth in this Agreement; or
(c) any claim, known or unknown, arising out of or by virtue of or
based upon any liability or obligation which is an Assumed Liability;
PROVIDED, HOWEVER, THAT Loss shall not include incidental, consequential or
punitive damages.
Except as otherwise provided for in SECTION 7.6 all claims for
indemnification shall be submitted in writing within 24 months of the Closing
Date.
The amount of any Loss shall be the amount of cash reimbursement that, when
received by Seller incurring such loss, shall reimburse Seller for any costs or
expenses actually incurred by reason of the Loss.
21
<PAGE> 26
11.4 NOTICE OF CLAIM. Seller, AMT or Purchaser, as in the case may be
("CLAIMANT") shall give prompt written notice to Seller, AMT or Purchaser as
appropriate ("INDEMNIFYING PARTY") of any claim (actual or threatened) or other
event which in the judgment of Claimant might result or has resulted in a Loss
by Claimant hereunder, and Indemnifying Party shall have the right to assume the
defense of such claim or any litigation resulting therefrom; PROVIDED THAT (a)
Indemnifying Party confirms in writing its obligation to provide indemnification
with respect to such claim, and (b) counsel for Indemnifying Party, who shall
conduct the defense of such claim (actual, threatened or asserted) or
litigation, shall be reasonably satisfactory to the Claimant, and Claimant may
participate in such defense at its expense, and provided, further, that the
omission by Claimant to give notice as provided herein shall not relieve
Indemnifying Party of its obligations hereunder except to the extent that such
omission results in a failure of actual notice to Indemnifying Party and
Indemnifying Party is damaged or prejudiced as a result of such failure of
actual notice. Indemnifying Party, in the defense of any such claim or
litigation, shall not, except with the consent of Claimant, consent to the entry
of any judgment or decree or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to the
Claimant of a release from all liability in respect to such claim or litigation
(provided that if Claimant does not so consent then any loss in excess of the
proposed settlement shall be paid by Claimant), and Indemnifying Party shall
have no liability with respect to any payment made by Claimant in connection
with the settlement, satisfaction or compromise of any claim unless Indemnifying
Party shall have approved thereof in advance in writing. If Claimant shall not
have received notice that Indemnifying Party shall assume the defense of such
claim within twenty (20) days after the notice is sent to Indemnifying Party of
the existence of such claim, then Claimant shall be free to proceed with the
defense of such claim at the expense of Indemnifying Party. In such case,
Indemnifying Party shall pay all expenses of defense promptly, and in any event
within five (5) days of submission of any invoice or bill for such expenses to
Indemnifying Party. Each such notice shall be accompanied (or followed as
promptly as is reasonably practicable after the amount of such Loss becomes
determinable) by a certificate signed by the President of Claimant, and setting
forth in reasonable detail the calculation of the amount of such Loss in
accordance with the provisions hereof, and accompanied by copies of all relevant
documents and records. The omission to give such notice or provide such
certificate by Claimant shall not relieve Indemnifying Party of its obligations
under this SECTION 11.4 except to the extent such omission results in a failure
of actual notice to Indemnifying Party and Indemnifying Party is damaged or
prejudiced by such failure of actual notice. No Loss shall be considered to have
occurred with respect to any payment made by Claimant in settlement,
satisfaction or compromise of any claim unless Indemnifying Party shall have
approved thereof in advance and in writing.
11.5 INDEMNITY ESCROW. In order to provide AMT and Purchaser with
assurances that there will be sufficient funds available to meet its indemnity
obligations hereunder, Seller shall escrow $1,500,000 for a period of 12 months
from the date hereof after which $250,000 shall be released and the remaining
$1,250,000 shall remain in escrow for a further 12 months, in accordance with
the provisions of the Escrow Agreement attached as EXHIBIT I hereto (the "ESCROW
AGREEMENT"). Such escrowed funds shall be used solely for the purpose of making
payments to Indemnified Persons pursuant to this SECTION 11.
22
<PAGE> 27
12. BULK SALES ACT
--------------
AMT, Purchaser and Seller acknowledge that, in effecting the transactions
contemplated hereby, neither AMT or Purchaser nor Seller has taken any steps to
comply with the California Bulk Sales Law. Notwithstanding the foregoing, Seller
covenants and agrees to pay and discharge promptly and when due, and in all
respects to defend AMT and Purchaser against, all claims of creditors (other
than Assumed Liabilities) that are asserted against AMT or Purchaser by reason
of noncompliance with said Bulk Sales Law.
13. BROKERAGE FEE
-------------
The parties hereto severally represent that no broker (other than Trenwith)
has been involved in this transaction and each party agrees to indemnify and
hold the others harmless from payment of any brokerage fee, finders fee or
commission claimed by any party who claims to have been involved because of
association with such party; PROVIDED THAT Seller (pursuant to an agreement
between Seller and Trenwith) shall be responsible for payment of any fees owed
to Trenwith in connection with this transaction at the Closing.
14. ENTIRE AGREEMENT; AMENDMENTS; WAIVERS
-------------------------------------
This Agreement constitutes the entire agreement of the parties related to
the subject matter of this Agreement, supersedes all prior or contemporary
agreements, representations, warranties, covenants and understandings of the
parties. This Agreement may not be amended, nor shall any waiver, change,
modification, consent or discharge be effected, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification, consent or discharge is sought. In
furtherance of the foregoing, the parties hereto acknowledge that (a) there have
been no representations, warranties, covenants, understandings or agreements
related to the subject matter of this Agreement other than as set forth herein
and therefore no reliance can be placed on matters other than as set forth
herein, and (b) no agent of any party has or had authority to make
representation, warranties, covenants or agreements on behalf of such party and
if and to the extent so made, such representations, warranties, covenants or
agreements were not authorized and have not been the subject upon which reliance
has been placed.
Any waiver of any term or condition of this Agreement, or of the breach of
any covenant, representation or warranty contained herein, in any one instance,
shall not operate as or be deemed to be or construed as a further or continuing
waiver of such term, condition or breach of covenant, representation or
warranty, nor shall any failure at any time or times to enforce or require
performance of any provision hereof operate as a waiver of or affect in any
manner such party's right at a later time to enforce or require performance of
such provision or of any other provision hereof; and no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision.
23
<PAGE> 28
15. ASSIGNMENT; SUCCESSORS AND ASSIGNS
----------------------------------
This Agreement shall not be assignable by any party without the prior
written consent of the others. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
16. SEVERABILITY
------------
If any provision or provisions of this Agreement shall be, or be found to
be, invalid, inoperative or unenforceable as applied to any particular case in
any jurisdiction or jurisdictions, or in all jurisdictions or in all cases,
because of the conflict of any provision with any constitution or statute or
rule of public policy or for any other reason, such circumstance shall not have
the effect of rendering the provision or provisions in question invalid,
inoperative or unenforceable in any other jurisdiction or in any other case or
circumstance or of rendering any other provision or provisions herein contained
invalid, inoperative or unenforceable to the extent that such other provisions
are not themselves actually in conflict with such constitution, statute or rule
of public policy, but this Agreement shall be reformed and construed in any such
jurisdiction or case as if such invalid, inoperative or unenforceable provision
had never been contained herein and such provision reformed so that it would be
valid, operative and enforceable to the maximum extent permitted in such
jurisdiction or in such case.
17. TERMINATION
-----------
This Agreement may be terminated at any time prior to the Closing without
liability on the part of any party by written termination agreement executed by
Seller and AMT. Each of Seller and AMT may extend the Closing Date, in each case
on no more than two occasions, and in each case for a seven-day period, by
either of AMT or Seller giving written notice to the other of such seven-day
extension. Thereafter, this Agreement may be terminated by written notice by
either Seller or AMT if each of the agreements contemplated by this Agreement
have not been executed and delivered and the Closing has not occurred on or
before such extended Closing Date; provided that the failure to close shall not
have occurred as a result of the terminating party's failure to either (a)
fulfill all of its obligations under this Agreement, or (b) take any actions
reasonably required to be taken by it to fulfill the other party's conditions to
closing, as set forth in SECTIONS 9 AND 10 respectively.
18. COUNTERPARTS
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument, and in pleading or proving any provision of this Agreement
it shall not be necessary to produce more than one such counterpart.
19. SECTION AND OTHER HEADINGS
--------------------------
The headings contained in this Agreement are for reference purposes only
and shall not in any way effect the meaning or interpretation of this Agreement.
24
<PAGE> 29
20. NOTICES
-------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered or mailed,
postage prepaid, certified mail, return receipt requested:
(a) TO SELLER: If to Seller or the General Partner:
---------
Peter C. Brooks
Chief Executive Officer
Grafalloy L.P.
2974 Sondra Court
Carlsbad, CA 92009
with a copy to:
John B. Furman, Esq.
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears
One East Camelback Road, Suite 1000
Phoenix, AZ 85012-1656
(c) TO AMT OR PURCHASER: If to AMT or Purchaser, to:
-------------------
Paul W. Pendorf
President and Chief Executive Officer
The American Materials & Technologies Corporation
5915 Rodeo Road
Los Angeles, CA 90016
with a copy to:
David A. Broadwin, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
and/or to such other person(s) and address(es) as either party shall have
specified in writing to the other.
21. GENDER
------
Whenever used herein, the singular number shall include the plural, the
plural shall include the singular, and the use of any gender shall include all
genders.
25
<PAGE> 30
22. LAW TO GOVERN
-------------
This Agreement shall be governed by and construed and enforced in
accordance with the law (other than the law governing conflict of law questions)
of the State of California.
23. ARBITRATION
-----------
In the event the parties hereto are unable to resolve any dispute with
respect to claims arising hereunder within 30 days of written notice of such
dispute by one party to the others, such dispute shall be settled by compulsory
and binding arbitration by a panel of three arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction. Each of AMT and Seller shall select one arbitrator,
and the arbitrator so selected shall mutually agree upon and select the third
arbitrator comprising such panel. The parties agree that such arbitration shall
be held in San Diego, California. To the extent necessary to enter or enforce an
award hereunder, the parties hereby consent to jurisdiction in such court or
courts located in California as is provided by law.
* * *
26
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
THE AMERICAN MATERIALS &
TECHNOLOGIES CORPORATION
By: /s/ Paul W. Pendorf
----------------------------------------------
Name: Paul W. Pendorf
Title: President and Chief Executive Officer
GRAFALLOY ACQUISITION CORPORATION
By: /s/ Paul W. Pendorf
----------------------------------------------
Paul W. Pendorf
Name:--------------------------------------------
Chief Executive Officer
Title:-------------------------------------------
GRAFALLOY L.P.
By its general partner,
Grafalloy, Inc.
By: /s/ Peter C. Brooks
----------------------------------------------
Name: Peter C. Brooks
Title: Chief Executive Officer
GRAFALLOY, INC.
By: /s/ Peter C. Brooks
----------------------------------------------
Name: Peter C. Brooks
Title: Chief Executive Officer
27
<PAGE> 32
EXHIBIT B
CERTAIN DEFINED TERMS
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 ET SEQ.), as amended or supplemented from
time to time. "CONTAMINANT" means any waste, pollutant, hazardous material,
hazardous substance, toxic substance, hazardous waste, special waste, or any
constituent of any such pollutant material, substance or waste, including,
without limitation, asbestos, polychlorinated biphenyls, oil, petroleum,
petroleum-derived substances, and any pollutant material, substance or waste
regulated under any Environmental Law.
"ENVIRONMENTAL LAWS" means all federal, state, local and foreign laws or
regulations, codes, orders, decrees, judgments or injunctions issued,
promulgated, approved or entered thereunder relating to pollution of the
environment, protection of public health and safety, protection of occupational
health and safety, releases or threatened releases of Contaminants into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), the manufacture, processing,
distribution, use, treatment, recycling, storage, disposal, transport or
handling of Contaminants. Environmental Laws shall include, without limitation,
CERCLA, The Resource Conservation and Recovery Act, (42 USC 6901, ET SEQ.) the
Hazardous Material Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.), the Clean
Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control Act (15
U.S.C. Section 2601 ET SEQ.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 ET SEQ.), the Federal Insecticide Fungicide and Rodenticide Act (7
U.S.C. Section 136 ET SEQ.), the Food, Drug and Cosmetic Act (21 U.S.C. Section
301 ET SEQ.), the Medical Waste Tracking Act of 1988, Pub. L. No. 100-582, 102
Stat. 2950 (1988), as such laws have been amended or supplemented from time to
time to the date hereof, and any analogous future federal, or present or future
state, local or foreign, statutes, ordinances or bylaws.
"ENVIRONMENTAL LIABILITIES AND COSTS" means, all liabilities, obligations,
responsibilities, losses, damages, injury to persons, property or natural
resources, punitive damages, consequential damages, treble damages, costs and
expenses (including all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation, feasibility studies, and
remedial actions), fines, penalties, sanctions and interest incurred as a result
of any claim or demand, by any governmental authority, corporation, partnership,
trust, individual or other entity ("PERSON"), whether based in contract, tort,
implied or express warranty, common laws, strict liability, criminal or civil
statute, including any Environmental Law, permit, order, approval,
authorization, license, variance or agreement with a federal, state or local
governmental authority or other person, arising from environmental, health or
safety conditions or a Release or threatened Release resulting from the past
operations of the Seller (or any of its predecessors in interest), or any
Release for which the Seller is otherwise responsible under any Environmental
Law.
"ENVIRONMENTAL LIEN" means any lien or similar interest in favor of any
federal, state or local governmental authority for Environmental Liabilities and
Costs.
B-1
<PAGE> 33
"RELEASE" means, as to the Seller, any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, pouring, emptying,
escaping, dumping, discarding, leaching or migration of a Contaminant whether
indoors or outdoors, whether or not the Release occurs on property owned, leased
or controlled by Seller. Release includes the movement of Contaminants through
or in air, soil, surface water, groundwater or property and includes the
abandonment or discarding of barrels, containers and other closed receptacles
containing any Contaminant.
"REMEDIAL ACTION" means all actions necessary to (i) clean up, remove,
treat or in any other way address Contaminants in the indoor or outdoor
environment, (ii) prevent a threatened Release or condition that is reasonably
likely to result in a Release or minimize further release of Contaminants so
they do not migrate or endanger or threaten to endanger present or future public
health or welfare or the indoor or outdoor environment or (iii) perform
pre-remedial studies and investigations and post-remedial monitoring and care.
B-2
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") made as of February 27, 1997,
between Grafalloy Acquisition Corporation, a Delaware corporation (the
"COMPANY"), and William Gerhart, an individual (the "EXECUTIVE"),
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to employ Executive as one of its senior
executive officers for the period and upon and subject to the terms herein
provided; and
WHEREAS, the Company desires to be assured that Executive will not compete
with the Company for the period and within the geographical areas hereinafter
specified; and
WHEREAS, Executive is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided; and
WHEREAS, Executive does not desire to work for the Company in a position
lower than that of an executive officer and is willing to agree not to compete
with the Company;
NOW, THEREFORE, in consideration of the premises, the parties hereto
covenant and agree as follows:
SECTION 1. TERM OF EMPLOYMENT; COMPENSATION. The Company agrees to employ
Executive from the date hereof until December 31, 1999, in an executive
capacity, as President and Chief Executive Officer and Director, with the
responsibilities and benefits normally associated with such position. The
Company will pay Executive for his services during the term of the Executive's
employment hereunder at an annual rate of not less than One Hundred Twenty-Five
Thousand Dollars ($125,000), payable in arrears, in equal installments, in
accordance with standard Company practice, but in any event not less often than
monthly, subject only to such payroll and withholding deductions as are required
by law. Executive's base salary shall be subject to annual review by the Board
of Directors of the Company, or any compensation committee established by such
Board of Directors; provided that Executive's base salary may not be reduced
below $125,000 per annum. Executive shall also be entitled to receive a bonus of
100% of base salary after each year of employment under this Agreement,
contingent upon achieving earnings before interest, taxes, depreciation and
amortization determined in accordance with generally accepted accounting
principle consistently followed ("EBITDA") in fiscal 1997 of $1,787,000, EBITDA
in fiscal 1998 of $3,000,000, and EBITDA in fiscal 1999 of $5,900,000. As of the
date of this Agreement, the Company shall cause Executive to be granted an
option to purchase up to 50,000 shares of common stock, $0.01 par value per
share, of The American Materials & Technologies Corporation ("AMT COMMON
STOCK"), at a purchase price of $5.00 per share. Executive shall be eligible to
receive an option to purchase up to 100,000 shares of AMT Common Stock at a
purchase price of $5.00 per share, subject to the successful completion of the
acquisition identified on EXHIBIT A hereto. All options granted in accordance
with this Section 1
<PAGE> 2
shall vest in three equal consecutive annual installments, the first installment
of which shall vest February 27, 1998, and shall be subject to the other terms
and conditions customarily attached to options issued by The American Materials
& Technologies Corporation under its 1996 Incentive and Nonqualified Stock
Option Plan. Notwithstanding the preceding sentence of this Section 1, all
options granted pursuant to Section 1 hereof shall fully vest upon and
immediately prior to any sale of all or substantially all of the assets of AMT,
the merger of AMT with any other corporation or other entity as a result of or
as a part of any change-in-control of AMT.
SECTION 2. OFFICE AND DUTIES. Executive shall have responsibility, subject
to the Board of Directors of the Company, for participating in the management
and direction of the Company's business and operations and shall perform such
tasks and duties as may from time to time be assigned to the Executive by the
Board of Directors; provided that Executive's duties shall not be inconsistent
with Executive's title and position within the Company. Executive shall devote
substantially all of his business time, labor, skill, undivided attention and
best ability to the performance of his duties hereunder. During the term of his
employment, Executive shall not directly or indirectly pursue any other business
activity without the Company's prior written consent. Executive agrees that he
will travel to whatever extent is reasonably necessary in the conduct of the
Company's business, provided, however, that Executive shall not be required to
move his residence from the San Diego, California area.
SECTION 3. EXPENSES. Executive shall be entitled to prompt reimbursement
for expenses incurred by him in connection with the performance of his duties
hereunder upon receipt of vouchers therefor in accordance with such procedures
as the Company has heretofore or may hereafter establish.
SECTION 4. VACATION DURING EMPLOYMENT. Executive shall be entitled to such
reasonable vacations as may be allowed by the Company in accordance with general
practices to be established, but in any event not less than three (3) weeks
during each twelve (12) month period.
SECTION 5. ADDITIONAL BENEFITS. Nothing herein contained shall preclude
Executive, to the extent he is otherwise eligible, from participation in all
group insurance programs or other fringe benefit plans which the Company may
hereafter in its sole and absolute discretion make available generally to its
employees, but the Company shall not be required to establish or maintain any
such program or plan.
SECTION 6. TERMINATION OF EMPLOYMENT. (a) Notwithstanding any other
provision of this Agreement, Executive's employment may be terminated:
(i) By the Company without cause upon not less than thirty (30) days'
written notice in which event the Company shall pay to Executive an amount equal
to the base salary required to be paid for the remainder of this Agreement, all
of Executive's options granted pursuant to this Agreement shall accelerate and
such options shall become immediately exercisable and any bonus amounts earned
under this Agreement shall become payable to Executive as follows: no later than
4 months following the end of the fiscal year in which such termination takes
place pursuant to this SECTION 6(a)(i), Executive shall be entitled to receive a
bonus
2
<PAGE> 3
calculated pursuant to SECTION 1 hereof but payable only on a pro rata
basis according to the number of months of employment completed during such
fiscal year.
(ii) By the Company for "CAUSE" (as hereafter defined) in which event
the Company's obligation to pay future compensation hereunder shall cease
forthwith, except for any obligation of the Company under any compensation or
benefit plan in which Executive is then a vested beneficiary. "CAUSE" means:
(A) Executive's material failure, refusal or inability to
perform, neglect of or carrying out in an irresponsible way his
duties hereunder, or breach of any one or more of the material
provisions of this Agreement, which shall have continued for a
period of thirty (30) days (or such longer period as is
reasonably required to cure such breach with diligent and good
faith effort) after written notice to Executive from the Chairman
or other representative of the Board of Directors of the Company
specifying such breach or failure and which shall not have
resulted from a breach of any material provision of this
Agreement by the Company;
(B) inability of Executive to discharge his duties hereunder for
one or more periods totaling three (3) consecutive months during
any consecutive twelve (12) month period due to illness, accident
or other disability (mental or physical); or
(C) conviction of Executive for any crime involving moral
turpitude or any other illegal act that materially and adversely
reflects upon the business, affairs or reputation of the Company
or on Executive's ability to perform his duties hereunder.
(iii) By the Executive for any reason upon fourteen (14) days' written
notice, in which event the Company's obligation to pay future compensation
hereunder shall cease forthwith, except for any obligation of the Company under
any compensation or benefit plan in which Executive is then a vested
beneficiary; PROVIDED, HOWEVER, that if such termination by the Executive is the
result of a material breach by the Company of the terms hereof which continues
for ten (10) days (or such longer period as is reasonably required to cure such
breach with diligent and good faith effort) after the Company's receipt written
notice thereof, then the Company shall pay to Executive an amount equal to the
base salary required to be paid for the remainder of this Agreement and any
bonus amounts earned under this Agreement and vesting of all of Executive's
options granted pursuant to this Agreement shall accelerate and such options
shall become immediately exercisable and any bonus amounts earned under this
Agreement shall become payable to Executive as follows: no later than 4 months
following the end of the fiscal year in which such termination takes place
pursuant to this SECTION 6(a)(iii), Executive shall be entitled to receive a
bonus calculated pursuant to SECTION 1 hereof but payable only on a pro rata
basis according to the number of months of employment completed during such
fiscal year.
(b) In the event of Executive's death during the term of his employment,
the Company's
3
<PAGE> 4
obligation to pay further compensation hereunder shall cease forthwith, except
that Executive's legal representative shall be entitled to receive his fixed
compensation for the period up to the last day of the month in which such death
shall have occurred.
SECTION 7. DISCLOSURE AND ASSIGNMENT OF INTELLECTUAL PROPERTY. Executive
shall promptly disclose to the Company and any successor or assign of the
Company, and grant to the Company, and its successors and assigns (without any
separate remuneration or compensation other than that received by him from time
to time in the course of his employment) his entire right, title and interest
throughout the world in and to all research, information, inventions, designs,
procedures, developments, discoveries, improvements, patents and applications
therefor, trademarks and applications therefor, copyrights and applications
therefor, trade secrets, drawings, plans, systems, methods, specifications, and
all other manufacturing, engineering, technical, research and development data
and know-how (herein sometimes "INTELLECTUAL PROPERTY") made, conceived,
developed and/or acquired by him solely or jointly with others during the period
of his employment with the Company, which relate to the manufacture, production
or processing of any products developed or sold by the Company during the term
of this Agreement or which are within the scope of or usable in connection with
the Company's business as it may, from time to time, hereafter be conducted or
proposed to be conducted. (It is understood and agreed that Executive has
heretofore disclosed to the Company, and assigned to it, all Intellectual
Property now known to him over which he has any control.) Executive agrees to
execute all appropriate patent applications securing all United States and
foreign patents on all Intellectual Property, and to do, execute and deliver any
and all acts and instruments that may be necessary or proper to vest all
Intellectual Property in the Company or its nominee or designee and to enable
the Company, or its nominee or designee, to obtain all such patents; and
Executive agrees to render to the Company, or its nominee or designee, all such
assistance as it may require in the prosecution of all such patent applications
and applications for the re-issue of such patents, and in the prosecution or
defense of all interferences which may be declared involving any of said patent
applications or patents, but the expense of all such assignments and patent
applications, or all other proceedings referred to herein above, shall be borne
by the Company. Executive shall be entitled to fair and reasonable compensation
for any such assistance requested by the Company or its nominee or designee and
furnished by him after the termination of his employment.
SECTION 8. CONFIDENTIALITY. Executive shall not, either during the period
of his employment with the Company or thereafter, reveal or disclose to any
person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any information not already lawfully
generally available to other companies in the business of manufacturing or
marketing golf- related products concerning any Intellectual Property, or any
marketing technique or cost method, or any customer, mailing or supplier list,
whether or not supplied by the Company, and whether or not made, developed
and/or conceived by Executive or by others in the employ of the Company. All
originals and copies of any of the foregoing, relating to the business of the
Company, however and whenever produced, shall be the sole property of the
Company. Upon the termination of Executive's employment in any manner or for any
reason, Executive shall promptly surrender to the Company all copies of any of
the foregoing, together with any other documents, materials, data, information
and equipment belonging to or
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relating to the Company's business and in his possession, custody or control,
and Executive shall not thereafter retain or deliver to any other person, any of
the foregoing or any summary or memorandum thereof.
SECTION 9. RESTRICTION. The Company has invested and may in the future be
required to invest substantial sums of money, directly or indirectly, to
continue and expand the business conducted by it and in connection therewith,
and as Executive recognizes that the Company would be substantially injured by
Executive disclosing to others, or by Executive using for his own benefit, any
Intellectual Property or any of the other types of information referred to in
SECTION 8 or other confidential or secret information he has obtained or
developed or shall obtain or develop as an employee of the Company, or which he
may now possess and which he has made available to the Company, Executive agrees
that during the period of his employment hereunder and for a period ending one
year after termination of employment:
(a) Neither he nor any member of his family will be interested,
directly or indirectly, as an investor in any other business or enterprise in
the United States engaged in the business of the manufacture and marketing of
advanced composite golf shaft products in competition with the Company (except
as an investor in securities listed on a national securities exchange or
actively traded over the counter so long as such investments are in amounts not
significant as compared to his total investments or to the aggregate of the
outstanding securities of the issuer of the same class or issue); and
(b) He will not, directly or indirectly, for his own account or as
employee, officer, director, partner, joint venturer or otherwise, engage within
the United States or elsewhere, in any phase of the business of the manufacture
and marketing of advanced composite golf shaft products in competition with the
Company in such geographic area in any other business in which the Company is
engaged and for which he has responsibility.
Executive and the Company are of the belief that the period of time and the
area herein specified are reasonable, in view of the nature of the business in
which the Company is engaged and proposes to engage, the state of its product
development and Executive's knowledge of this business. However, if such period
or such area should be adjudged unreasonable in any judicial proceeding, then
the period of time shall be reduced by such number of months or such area shall
be reduced by elimination of such portion of such area, or both, as are deemed
unreasonable, so that this covenant may be enforced in such area and during such
period of time as is adjudged to be reasonable.
SECTION 10. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered or three (3)
days after mailing if mailed by first-class, registered or certified mail,
postage prepaid, addressed (a) if to Executive, at 4323 Resmar Road, Lamesa, CA
91941, with a copy to Messrs. O'Connor, Cavanaugh, Anderson, Killingworth &
Beshears, One East Canelback Road, Suite 1100, Phoenix, Arizona 85012-1656,
Attn: John Furman, Esq., or to such other person(s) or address(es) as Executive
shall have furnished to the Company in writing; and (b) if to the Company,
Grafalloy Corporation, 1020 North Marshall Avenue, El Cajon, California 92020,
with copies to The American Materials &
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Technologies Corporation, 5915 Rodeo Road, Los Angeles, California 90016 and
David A. Broadwin, Esq., c/o Foley, Hoag & Eliot LLP, One Post Office Square,
Boston, Massachusetts 02109, or to such other person(s) or address(es) as the
Company shall have furnished to Executive in writing.
SECTION 11. ASSIGNABILITY. In the event that the Company shall be merged
with, or consolidated into, any other corporation owned wholly by The American
Materials & Technologies Corporation ("AMT"), or in the event that it shall sell
and transfer substantially all of its assets to another corporation owned wholly
by AMT, the terms of this Agreement shall inure to the benefit of, and be
assumed by, the corporation resulting from such merger or consolidation, or to
which the Company's assets shall be sold and transferred. This Agreement shall
not be assignable by Executive, but it shall be binding upon, and to the extent
provided in SECTION 6 shall inure to the benefit of, his heirs, executors,
administrators and legal representatives.
SECTION 12. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Company and Executive with respect to the subject matter thereof and
there have been no oral or other agreements of any kind whatsoever as a
condition precedent or inducement to the signing of this Agreement or otherwise
concerning this Agreement or the subject matter hereof.
SECTION 13. EXPENSES. Each party shall pay its own expenses incident to the
performance or enforcement of this Agreement, including all fees and expenses of
its counsel for all activities of such counsel undertaken pursuant to this
Agreement, except as otherwise herein specifically provided.
SECTION 14. EQUITABLE RELIEF. Executive recognizes and agrees that the
Company's remedy at law for any breach of the provisions of SECTIONS 7, 8 OR 9
hereof would be inadequate, and he agrees that for breach of such provisions,
the Company shall, in addition to such other remedies as may be available to it
at law or in equity or as provided in this Agreement, be entitled to injunctive
relief and to enforce its rights by an action for specific performance to the
extent permitted by law. Should Executive engage in any activities prohibited by
this Agreement, he agrees to pay over to the Company all compensation,
remunerations or moneys or property of any sort received in connection with such
activities; such payment shall not impair any rights or remedies of the Company
or obligations or liabilities of Executive which such parties may have under
this Agreement or applicable law.
SECTION 15. WAIVERS AND FURTHER AGREEMENTS. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; PROVIDED, HOWEVER, THAT no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may
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reasonably require in order to effectuate the terms and purposes of this
Agreement.
SECTION 16. AMENDMENTS. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
SECTION 17. SEVERABILITY. If any provision of this Agreement shall be held
or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflicting of any provision with
any constitution or statute or rule of public policy or for any other reason,
such circumstance shall not have the effect of rendering the provision or
provisions in question, invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case. In
addition to the foregoing, the Company may, in its sole discretion, elect to pay
Executive his base salary during the one year restricted period set forth in
SECTION 9.
SECTION 18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
SECTION 19. SECTION HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
SECTION 20. GENERAL PROVISIONS
------------------
(a) Executive and Company further agree that the obligations of
Executive under SECTION 8 only (or, in the case of termination OTHER THAN
pursuant to SECTION 6(a)(i) or pursuant to the proviso to the first sentence of
SECTION 6(a)(iii), SECTIONS 8 AND 9 only), of this Agreement shall be binding
upon him irrespective of the duration of his employment by the Company, the
reasons for any cessation of his employment by the Company, or the amount of his
compensation and shall survive the termination of this Agreement (whether such
termination is by the Company, by Executive, upon expiration of this Agreement
or otherwise). No other obligations of Executive shall survive the termination
of his employment by Company regardless of the reason for such termination.
(b) Executive represents and warrants to the Company that he is not
now under any obligations to any person, firm or corporation, and has no other
interest which is inconsistent or in conflict with this Agreement, or which
would prevent, limit or impair, in any way, the
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performance by him of any of the covenants or his duties in his said employment.
SECTION 21. GENDER. Whenever used herein, the singular number shall include
the plural, the plural shall include the singular, and the use of any gender
shall include all genders.
SECTION 22. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the State of California.
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of the date first above written.
GRAFALLOY ACQUISITION CORPORATION
By: /s/ Paul W. Pendorf
---------------------------
Name: Paul W. Pendorf
-------------------------
Title: Chief Executive Officer
------------------------
/s/ William Gerhart
-----------------------------
Executive
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EXHIBIT 10.35
GUARANTY
TO: Grafalloy L.P., a Delaware limited partnership
1. GUARANTY OF INDEBTEDNESS. For valuable consideration, The
American Materials & Technologies Corporation, a Delaware corporation
("Guarantor"), unconditionally guaranties and promises to pay to Grafalloy L.P.,
a Delaware limited partnership ("Payee"), or order, on demand, any and all
Indebtedness (as defined below) of Grafalloy Acquisition Corporation, a Delaware
corporation ("Maker"), to Payee, if Maker fails to pay any or all of the
Indebtedness at the time or times and in the manner provided for payment. The
word "Indebtedness" as used in this Guaranty means all of Maker's indebtedness
and obligations to Payee evidenced by (a) the 7% Secured Subordinated
Non-Negotiable Promissory Note, of even date herewith, in the original principal
amount of $800,000.00, executed by Maker in favor of Payee (the "Purchase
Note"), including, principal, interest, and other charges, all costs of
collection, including, attorneys' fees and expenses, if any, and all extensions,
renewals, modifications and amendments of the Purchase Note; (b) the 12% Secured
Subordinated NonNegotiable Promissory Note of even date herewith, in the
original principal amount of $747,254.00, executed by Maker in favor of Payee
(the "Prince Note"), including, principal, interest, late charges and other
charges, all costs of collection, including, attorneys' fees and expenses, if
any, and all extensions, renewals, modifications and amendments of the Prince
Note; (c) the 7% Unsecured Subordinated Non-Negotiable Promissory Note of even
date herewith, in the original principal amount of $175,000.00, executed by
Maker in favor of Payee (the "Shareholder Note"), including, principal,
interest, and other charges, all costs of collection, including attorneys' fees
and expenses, if any, and all extensions, renewals, modifications and amendments
of the Shareholder Note; (d) the Asset Purchase Agreement dated as of February
27, 1997, between Maker, Payee, Guarantor and Grafalloy, Inc. ("the Asset
Purchase Agreement"), including, all costs of collection, including, attorneys'
fees and expenses, if any, and all modifications and amendments of the Asset
Purchase Agreement; and (e) any document, instrument or agreement executed in
connection with Maker's obligations evidenced by the Purchase Note, the Prince
Note, the Shareholder Note, or the Asset Purchase Agreement, including, the
Security Agreement of even date herewith between Maker and Payee, or other
security document. It is not necessary for Payee to inquire into the powers of
Maker or the officers, directors, or agents acting or purporting to act on
Maker's behalf, and any of the Indebtedness made or created in reliance upon the
purported exercise of such powers shall be guarantied hereunder. The Purchase
Note, the Prince Note and the Shareholder Note are hereinafter collectively
referred to as the "Notes."
2. DEFINITIONS. All capitalized terms not otherwise defined in this
Guaranty shall have the meaning assigned thereto in the Notes.
3. EFFECTIVENESS OF GUARANTY. This Guaranty shall bind and obligate
Guarantor for payment of the Indebtedness precisely as if the same had been
contracted and was
<PAGE> 2
due and owing by Guarantor directly, and shall constitute a guaranty of payment,
not a guaranty of collection. The obligations of Guarantor hereunder shall
survive and continue in full force and effect until payment in full of the
Indebtedness is actually received by Payee, notwithstanding: (a) any release or
termination of the liability of Maker or any other guarantor, by express or
implied agreement with Payee or by operation of law; (b) Maker may be liable
individually or jointly with others; (c) the Indebtedness or any part thereof is
deemed to have been paid or discharged by operation of law or some act or
agreement of Payee; (d) recovery upon the Indebtedness may be or hereafter
becomes barred by any statutes of limitation, by bankruptcy, by insolvency, by
reorganization, or any other means; or (e) the Indebtedness may be or hereafter
becomes unenforceable or invalid. For purposes of this Guaranty, the
Indebtedness shall be deemed to be paid only the extent that Payee actually
receives immediately available funds and to the extent of any credit bid by
Payee at any foreclosure or trustee's sale of any collateral securing any part
of the Indebtedness.
4. INDEPENDENT OBLIGATION. The obligations of Guarantor hereunder
are separate and independent of the obligations of Maker and of every other
guarantor of the Indebtedness, and a separate action or actions may be brought
and prosecuted against Guarantor regardless of whether an action is brought
against Maker or any other guarantor or whether Maker or any other guarantor is
joined in any such action or actions, or whether Payee forecloses upon, sells or
otherwise disposes of or collects any collateral securing any of the
Indebtedness. Subject to Section 9 below, the Indebtedness may be enforced
against Guarantor at any time following the failure on the part of Maker to pay
and perform the Indebtedness.
5. AUTHORIZATION OF PAYEE. Guarantor authorizes Payee, without
notice or demand, and without affecting Guarantor's liability hereunder, from
time to time to: (a) amend, modify, or restate any instrument, document or
agreement evidencing or relating to all or any portion of the Indebtedness; (b)
renew, compromise, extend, accelerate or otherwise change the time for payment
of, or otherwise change the terms of the Indebtedness or any part thereof,
including, any increase or decrease of the rate of interest thereon; (c) take
and hold collateral as security for the payment of this Guaranty or the
Indebtedness, and exchange, substitute, subordinate, enforce, waive and release
any such collateral; (d) apply any and all payments from Maker, Guarantor or any
other guarantor, or recoveries from any collateral securing any of the
Indebtedness, in such order or manner as Payee in its sole and absolute
discretion may determine; (e) direct the order or manner of sale of any
collateral securing any part of the Indebtedness as Payee in its sole and
absolute discretion may determine; (f) release or substitute any one or more of
the Maker, Guarantor or any other guarantor, or acquire additional guarantors;
and (g) assign its rights under this Guaranty in whole or in part.
6. GUARANTOR'S WAIVERS. To the extent permitted by applicable law,
Guarantor waives and agrees not to assert: (a) any right to require Payee to
proceed against Maker, Guarantor, or any other guarantor, proceed against or
exhaust any collateral of Maker held as security for any part of the
Indebtedness, or pursue any other remedy in Payee's power whatsoever; (b) any
defense arising by reason of any disability or other defense of Maker or by
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reason of the cessation of, or unenforceability of, the liability of Maker for
all or any part of the Indebtedness from any cause whatsoever (other than
payment in full); (c) any exemption rights; (d) demand, diligence, grace,
presentment for payment, protest, notice of nonpayment (except as set forth in
SECTION 7.1 of the Security Agreement or in SECTION 8 of the Notes),
nonperformance, extension, dishonor, maturity, protest and default; (e) recourse
to any guaranty or suretyship defenses; (f) notice of acceptance of this
Guaranty; (g) all rights and privileges Guarantor might otherwise have to
require Payee to pursue any other remedy available to Payee in any particular
manner or order; (h) the existence, creation, or incurring of new or additional
Indebtedness; (i) any impairment of collateral securing any part of the
Indebtedness, including, failure to perfect a security interest in, and release
of, any such collateral; (j) the benefits of any statutory provision limiting
the right of Payee to recover a deficiency judgment, or to otherwise proceed,
against any person or entity obligated for payment of the Indebtedness, after
any foreclosure or trustee's sale of any collateral securing any part of the
Indebtedness; and (k) any implied right of reimbursement or contribution from
Maker or any other claim against Maker at law or in equity. Guarantor agrees
that if Payee shall exercise any right or remedy with respect to any collateral
securing any of the Indebtedness, Guarantor shall be and remain liable to Payee
for the deficiency by which the net proceeds of exercise of such right or remedy
actually received by Payee shall be less than the Indebtedness.
7. NO SUBROGATION. Until all Indebtedness of Maker to Payee shall be
paid in full, Guarantor shall have no right of subrogation and waives any right
to enforce any remedy which Guarantor now has or may hereafter have against
Maker, and waives any right to participate in any collateral securing any of the
Indebtedness held by Payee.
8. WAIVER OF GRADSKY AND OTHER RIGHTS AND DEFENSES.
(a) GRADSKY. Guarantor understands and acknowledges that if
Payee forecloses judicially or nonjudicially against any real property security
for the Indebtedness, that foreclosure could impair or destroy any ability that
Guarantor may have to seek reimbursement, contribution or indemnification from
Maker or others based on any right Guarantor may have of subrogation,
reimbursement, contribution or indemnification for any amounts paid by Guarantor
under this Guaranty. Guarantor further understands and acknowledges that in the
absence of this Section, such potential impairment or destruction of Guarantor's
rights, if any, may entitle Guarantor to assert a defense to this Guaranty based
on Section 580d of the California Code of Civil Procedure as interpreted in
UNION BANK V. GRADSKY, 265 Cal.App.2d 40 (1968). By executing this Guaranty,
Guarantor freely, irrevocably and unconditionally: (i) waives and relinquishes
that defense and agrees that Guarantor will be fully liable under this Guaranty
even though Payee may foreclose judicially or nonjudicially against any real
property security for the Indebtedness; (ii) agrees that Guarantor will not
assert that defense in any action or proceeding which Payee may commence to
enforce this Guaranty; (iii) acknowledges and agrees that the rights and
defenses waived by Guarantor under this Guaranty include any right or defense
that Guarantor may have or be entitled to assert based upon or arising out of
any one or more of Sections 580a, 580b, 580d or 726 of the California Code of
Civil Procedure or
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Section 2848 of the California Civil Code; and (iv) acknowledges and agrees that
Payee is relying on this waiver in making the Indebtedness available to Maker,
and that this waiver is a material part of the consideration which Payee is
receiving for making the Indebtedness available to Maker.
(b) SUBROGATION AND REIMBURSEMENT. Guarantor waives the
Guarantor's rights of subrogation and reimbursement and any other rights and
defenses available to the Guarantor by reason of Sections 2787 to 2855,
inclusive, of the California Civil Code, including: (i) any defenses the
Guarantor may have to the Guaranty obligation by reason of an election of
remedies by Payee; and (ii) any rights or defenses the Guarantor may have by
reason of protection afforded to Maker with respect to the obligation so
guaranteed pursuant to the antideficiency or other laws of California limiting
or discharging Maker's indebtedness, including Section 580a, 580b, 580d or 726
of the Code of Civil Procedure.
(c) ELECTION OF REMEDIES. Guarantor waives all right and
defenses arising out of an election of remedies by Payee, even though that
election of remedies, such as a nonjudicial foreclosure with respect to security
for a guaranteed obligation, has destroyed the Guarantor's rights of subrogation
and reimbursement against Maker by the operation of Section 580d of the Code of
Civil Procedure or otherwise.
(d) OTHER. No provision or waiver in this Guaranty shall be
construed as limiting the generality of any other waiver contained in this
Guaranty.
9. SUBORDINATION. Payee, by its acceptance of this Guaranty, and all
subsequent holders of this Guaranty, agree to be bound by the provisions of this
Section 9 as follows:
(a) SUBORDINATED DEBT. All of Guarantor's obligations,
liabilities and indebtedness arising under this Guaranty (as the same may be
amended, modified, supplemented or restated), any interest thereon (both before
and after the commencement of any event described in SUBSECTION 9(d) below), and
any costs or expenses associated with the collection or enforcement thereof, are
hereinafter referred to collectively as the "SUBORDINATED DEBT". The
Subordinated Debt is subordinate and junior in right of payment, to the extent
and in the manner set forth below, to all "SUPERIOR DEBT" (as defined in
SUBSECTION 9(b) below) of Guarantor to the extent provided in this SECTION 9.
(b) SUPERIOR DEBT. For the purpose of these subordination
provisions of this Guaranty, the term "SUPERIOR DEBT" shall mean (both before
and after the commencement of any event described in SUBSECTION 9(d) below) any
obligation, liability or indebtedness of Guarantor owing to LaSalle from time to
time under the terms and conditions of (A) that certain Continuing Unconditional
Guaranty dated as of December 19, 1995 executed in favor of LaSalle by
Guarantor, as the same may be amended, modified, supplemented or restated from
time to time, (B) any other instrument of guaranty executed in favor of LaSalle
by Guarantor in respect
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of loans or credit accommodations extended by LaSalle to Maker or to any other
entity owned or controlled by Guarantor (as any such Continuing Unconditional
Guaranty or other instrument of guaranty may be hereafter from time to time
amended, modified, supplemented or restated), and (C) any other note, instrument
or agreement evidencing indebtedness of Guarantor to LaSalle or pursuant to
which such indebtedness is issued or governed (as any such note, instrument or
agreement may be hereafter from time to time amended, modified, supplemented or
restated), and shall include any refinancing, replacement, extension or renewal
of such indebtedness. Anything contained herein to the contrary notwithstanding,
the Subordinated Debt shall be subordinate and junior in right of payment, to
the extent and manner set forth in this Section 9, to an aggregate principal
amount of all Superior Debt of up to $50,000,000.00.
(c) PERMITTED PAYMENTS.
(i) NO BLOCKAGE. Notwithstanding the foregoing
subordination of debt, Payee shall be entitled to receive payments from
Guarantor on the Subordinated Debt, except as set forth in Subsections 9(c)(ii)
and (iii) and Section 9(d) below.
(ii) SUPERIOR DEBT PAYMENT DEFAULTS. During the
continuance of any default in the payment of principal or interest by Guarantor
under the Superior Debt, upon written notice from the holder of the Superior
Debt to Guarantor and Payee and thereafter during the continuance of such
default, Guarantor shall not make, and Payee shall not be entitled to receive,
any direct or indirect payment (in cash, property or securities or by set-off or
otherwise) on the Subordinated Debt until the default in the payment of
principal or interest shall have been cured or waived in writing by the holder
of the Superior Debt, or shall have ceased to exist ("Payment Default Standstill
Period").
(iii) OTHER SUPERIOR DEBT DEFAULTS. During the continuance
of any event of default under the Superior Debt, other than the defaults as
described in Subsection 9(c)(ii) above, upon written notice from the holder of
the Superior Debt to Guarantor and Payee, and thereafter during the continuance
of such event of default, for a period not exceeding 180 days, Guarantor shall
not make, and Payee shall not be entitled to receive, any direct or indirect
payment (in cash, property or securities or by set-off or otherwise) on the
Subordinated Debt until such event of default shall have been cured or waived in
writing by the holder of the Superior Debt, or shall have ceased to exist ("Non-
Payment Default Standstill Period"). Anything contained herein to the contrary
notwithstanding, the holder of the Superior Debt may declare only one such
Non-Payment Default Standstill Period in connection with Guarantor's obligations
hereunder arising from the Purchase Note. The Payment Default Standstill Period
and the Non-Payment Default Standstill Period are collectively referred to as
the "Standstill Period."
(d) CERTAIN EVENTS OF BANKRUPTCY. In the event of:
(i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to Guarantor;
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(ii) any proceedings for the liquidation, dissolution or
other winding-up of Guarantor, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings;
(iii) any assignment by Guarantor for the benefit of its
creditors;
or
(iv) any other marshaling of the assets of Guarantor,
the Superior Debt(including any interest on the Superior Debt accruing at the
legal rate after the commencement of any such proceedings and any additional
interest that would have accrued on the Superior Debt but for the commencement
of such proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be made to
Payee on account of the Subordinated Debt. Any payment or distribution, whether
in cash, securities or other property, which would otherwise (but for these
subordination provisions) be payable or deliverable in respect of the
Subordinated Debt shall be paid or deliverable directly to the holder of the
Superior Debt (including any interest thereon accruing at the legal rate after
the commencement of any such proceedings and any additional interest that would
have accrued on same but for the commencement of such proceedings) until such
time as the Superior Debt shall have been paid in full.
(e) NO PAYMENTS/REMEDIES.
(i) Payee will not ask for, demand receive or accept payment
from Guarantor or on Guarantor's behalf (and Guarantor will not pay to Payee)
any Subordinated Debt during any Standstill Period.
(ii) Notwithstanding the foregoing, Payee may send notices
of default to Guarantor.
(f) PAYMENTS IN TRUST. If any payment or distribution, whether
in cash, securities or other property, shall be received by Payee (i) in
contravention of any of the terms of this SECTION 9 before all the Superior Debt
shall have been paid in full, such payment or distribution shall be received in
trust for the benefit of, and shall promptly be paid over or delivered and
transferred to the holder of the Superior Debt for application to the payment of
the Superior Debt.
(g) CERTAIN RIGHTS OF SUBORDINATED DEBT. The holder of the
Superior Debt shall not be prejudiced in the right to enforce subordination of
the Subordinated Debt as described in this Section 9 by any act or failure to
act on the part of Guarantor. The foregoing provisions as to subordination are
solely for the purpose of defining the relative rights of the holder of the
Superior Debt, on the one hand, and Payee, on the other hand. Nothing contained
herein shall impair, as between Guarantor and Payee, the obligation of
Guarantor, which is
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unconditional and absolute, to pay to Payee the Indebtedness as and when the
same shall become due and payable in accordance with the terms of this Guaranty,
or prevent Payee from exercising all rights, powers and remedies otherwise
permitted by applicable law or under this Guaranty upon an Event of Default
under this Guaranty, all subject to the rights of the holder of the Superior
Debt as set forth in this SECTION 9.
(h) NOTICE OF DEFAULTS. Payee shall give to the holder of the
Superior Debt prompt notice of any Event of Default by Guarantor or Maker of any
of their respective obligations to Payee.
(i) SUBROGATION. Upon payment in full of all the Superior Debt
and until the Subordinated Debt has been paid in full, Payee shall be subrogated
to the rights of the holder of the Superior Debt to receive payments and
distributions with respect to the Superior Debt to the extent that payments and
distributions with respect to the Subordinated Debt otherwise payable to Payee
have been applied to payment of the Superior Debt in accordance with the
provisions of this SECTION 9. As between Guarantor, on the one hand, and Payee,
on the other hand, a payment or distribution applied to payment of the Superior
Debt in accordance with the provisions of this SECTION 9 which otherwise would
have been made to Payee shall not be deemed a payment by Guarantor on the
Subordinated Debt. The subordination provisions of this SECTION 9 define the
relative rights of Payee and the holder of the Superior Debt and do not impair
the obligation of Guarantor to pay the Subordinated Debt to Payee, as and when
due and payable, except as provided herein.
10. SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Maker now
or hereafter held by or payable to Guarantor is hereby subordinated to the
Indebtedness, and such indebtedness of Maker to Guarantor, if Payee so requests,
shall be collected, enforced and received by Guarantor as trustee for Payee and
shall be paid over to Payee on account of the Indebtedness, but without reducing
or affecting in any manner the liability of Guarantor under the other provisions
of this Guaranty.
11. EVENTS OF DEFAULT. Payee may declare Guarantor to be in default
under this Guaranty upon the occurrence of any of the following events ("Events
of Default"):
(a) Guarantor fails to perform any of its obligations under this
Guaranty;
(b) Guarantor revokes this Guaranty or this Guaranty becomes
ineffective for any reason; or
(c) Any of the events described in SECTION 9(d) of this Guaranty
shall occur.
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12. REVIVAL AND REINSTATEMENT. If Payee is required to pay, return or
restore to Maker or any other person any amounts previously paid on the
Indebtedness because of any bankruptcy or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships in connection with Maker, or any other reason, the obligations of
Guarantor shall be reinstated and revived and the rights of Payee shall continue
with regard to such amounts, all as though they had never been paid.
13. BANKRUPTCY. In the event of the commencement of a bankruptcy case
by or against Maker or Guarantor or involving any of Payee's collateral for the
Indebtedness, Payee, to the extent not already provided for herein or in the
Financing Documents, shall be entitled to recover, and Guarantor shall be
obligated to pay, Payee's attorneys' fees and costs incurred in connection with:
(a) any determination of the applicability of the bankruptcy laws to the terms
of this Guaranty, the Financing Documents or Payee's rights hereunder or
thereunder; (b) any attempt by Payee to enforce or preserve its rights under the
bankruptcy laws, or to prevent Guarantor, Maker or any other person from seeking
to deny Payee its rights thereunder; (c) any effort by Payee to protect,
preserve, or enforce its rights against Payee's collateral for the Indebtedness,
or seeking authority to modify the automatic stay of 11 U.S.C. ss. 362 or
otherwise seeking to engage in such protection, preservation, or enforcement; or
(d) any civil proceeding(s) arising under the bankruptcy laws, or arising in or
related to a case under the bankruptcy laws.
14. COSTS OF COLLECTION. Guarantor agrees to pay all costs of
collection, including, attorneys' fees, whether or not suit is filed, and all
costs of suit and preparation for suit (whether at trial or appellate level), in
the event any obligation of Guarantor hereunder is not paid or discharged when
required to be paid or discharged, or in case it becomes necessary to protect
any collateral which is security for any obligation of Guarantor hereunder, or
to exercise any other right or remedy hereunder, or in the event Payee is made a
party to any litigation because of the existence of this Guaranty, or if at any
time Payee should incur any attorneys' fees in any proceeding under any federal
bankruptcy law (or any similar state or federal law) in connection with the
obligations evidenced hereby. In the event of any court proceeding, court costs
and attorneys' fees shall be set by the court and not by the jury and shall be
included in any judgment obtained by Payee.
15. NO WAIVER BY PAYEE. No delay or failure of Payee in exercising
any right hereunder shall affect such right, nor shall any single or partial
exercise of any right preclude further exercise thereof.
16. GOVERNING LAW. This Guaranty shall be construed in accordance
with and governed by the laws of the State of California, without regard to the
choice of law rules of the State of California.
17. JURISDICTION AND VENUE. Guarantor hereby expressly agrees that in
the event any actions or other legal proceedings are initiated by or against
Guarantor or Payee
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involving any alleged breach or failure by any party to pay, perform or observe
any sums, obligations or covenants to be paid, performed or observed by it under
this Guaranty, or involving any other claims or allegations arising out of the
transactions evidenced or contemplated by this Guaranty, regardless of whether
such actions or proceedings shall be for damages, specific performance or
declaratory relief or otherwise, such actions, in the sole and absolute
discretion of Payee, may be required to be brought in San Diego County,
California; and Guarantor hereby submits to the jurisdiction of the State of
California for such purposes and agrees that the venue for such actions or
proceedings shall properly lie in San Diego County, California; and Guarantor
hereby waives any and all defenses to such jurisdiction and venue.
18. TIME OF ESSENCE. Time is of the essence of this Guaranty and each
and every provision hereof.
19. ENTIRE AGREEMENT, AMENDMENTS. This Guaranty sets forth the entire
agreement of Payee and Guarantor with respect to the subject matter hereof and
supersedes all prior written agreements and representations by Payee to
Guarantor. There are no conditions, oral or written, to the effectiveness of
this Guaranty. No amendment, modification, change, waiver or discharge of any
provision of this Guaranty or any right of Payee hereunder, or any release of
Guarantor from any of its obligations hereunder, shall be effective unless
evidenced by an instrument in writing and signed by the party against whom
enforcement is sought.
20. SEVERABILITY. If any provision hereof is invalid or
unenforceable, the other provisions hereof shall remain in full force and effect
and shall be liberally construed in favor of Payee in order to effectuate the
other provisions hereof.
21. BINDING NATURE. The provisions of this Guaranty shall be binding
upon Guarantor and the successors and assigns of Guarantor, and shall inure to
the benefit of Payee and its successors and assigns.
22. TRANSFER AND ASSIGNMENT. Payee may from time to time transfer all
or any part of its interest in the Indebtedness and this Guaranty, without
notice to Guarantor. Guarantor shall not transfer (by agreement, operation of
law or otherwise) any obligation under this Guaranty, and any such purported
transfer shall be void.
23. INDUCEMENT OF PAYEE. This Guaranty is given at the instance and
request of Maker in order to induce Payee to make available to Maker certain
financial accommodations which constitute a portion of the Indebtedness.
Guarantor acknowledges and agrees that Payee has acted in reliance upon this
Guaranty in making such financial accommodations available to Maker. Guarantor
hereby represents and warrants that Guarantor is and will continue to be fully
informed about all aspects of the financial condition and business affairs of
Maker, and any other guarantor of the Indebtedness, that Guarantor deems
relevant to the obligation of Guarantor hereunder, and Guarantor hereby waives
and fully discharges Payee from any and all obligations to communicate to
Guarantor any information whatsoever regarding the Indebtedness, Maker,
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<PAGE> 10
or the financial condition, business affairs or otherwise of Maker or any other
guarantor of the Indebtedness.
24. NOTICE. Any notice or other communication with respect to this
Guaranty shall: (a) be in writing; (b) be effective on the day of hand-delivery
thereof to the party to whom directed, one day following the day of deposit
thereof with delivery charges prepaid, with a national overnight delivery
service, or two days following the day of deposit thereof with postage prepaid,
with the United States Postal Service, by regular first class, certified or
registered mail; (c) if directed to Payee, be addressed to Payee at the office
of Payee located at 2974 Sondra Court, Carlsbad, California 92009, Attention:
Peter C. Brooks, or to such other address as Payee shall have specified to
Guarantor by like notice, with a copy to John B. Furman, Esq. O'Connor Cavanagh,
et al., One East Camelback Road, Suite 1100, Phoenix, Arizona 85012-1650; (d) if
directed to Guarantor, be addressed to Guarantor at the address for Guarantor
set forth below Guarantor's name, or to such other address as Guarantor shall
have specified by like notice, with a copy to David Broadwin, Esq., Foley, Hoag
& Eliot LLP, One Post Office Square, Boston, Massachusetts 02109; and (e) if
directed to LaSalle, as holder of the Superior Debt, then to LaSalle Business
Credit, Inc., 477 Madison Avenue, New York, New York 10022, Attention: District
Credit Manager.
25. SECTION HEADINGS. The section headings set forth in this Guaranty
are for convenience only and shall not have substantive meaning hereunder or be
deemed part of this Guaranty.
26. CONSTRUCTION. This Guaranty shall be construed as a whole, in
accordance with its fair meaning, and without regard to or taking into account
any presumption or other rule of law requiring construction against the party
preparing this Guaranty. Unless the context otherwise requires, the words
"hereof," "herein," and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, the word "include(s)" means "include(s),
without limitation," and the word "including" means "including, without
limitation". All references to dollar amounts shall mean amounts in lawful money
of the United States of America.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of
February 27, 1997.
GUARANTOR:
The American Materials & Technologies
Corporation, a Delaware corporation
By: /s/ Paul W.Pendorf
--------------------------------
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Name: Paul Pendorf
Title: President
Address:
5915 Rodeo Road
Los Angeles, California 90016
PAYEE:
Grafalloy, L.P., a Delaware limited
partnership
By its general partner, Grafalloy, Inc.,
a Delaware corporation
By: /s/ Peter C. Brooks
-------------------------------
Name: Peter C. Brooks
Title: Chief Executive Officer
Address:
2974 Sondra Court
Carlsbad, California 92009
11
<PAGE> 1
Exhibit 10.37
Lease Agreement between Grafalloy, Inc. and Robert C. Campbell
and Alice C. Campbell, dated July 21, 1993,
and amendments thereto
<PAGE> 2
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, July
21, 1993, is made by and between Robert C. & Alice C. Campbell ("Lessor") and
Grafalloy Inc., a Delaware Corporation ("Lessee"), (collectively the "Parties,"
or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 1020 N. Marshall Avenue, El Cajon located in the
County of San Diego, State of California and generally described as (describe
briefly the nature of the property) Approximately 16,580 square feet of
industrial office and warehouse space ("Premises"). (See Paragraph 2 for further
provisions.)
1.3 Term: 12 months ("Original Term") commencing September 1, 1993
("Commencement Date") and ending August 31, 1994 ("Expiration Date"). (See
Paragraph 3 for further provisions.)
1.4 Early Possession: Lessee currently occupies the premises under separate
agreement ("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further
provisions.)
1.5 Base Rent: $6,590.00 per month ("Base Rent"), payable on the 1st day of
each month commencing September 1, 1993. (See Paragraph 4 for further
provisions.) |__| If this box is checked, there are provisions in this Lease for
the Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $ 0 as Base Rent for the period_____.
1.7 Security Deposit: $ 6,590.00 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: General manufacturing and wholesale distribution of
sports products and general office use. (See Paragraph 5 for further
provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 6 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
East County Properties, Inc.
[X] both Lessor and Lessee. (See Paragraph 15 for further
provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
<PAGE> 3
guaranteed by_______________________("Guarantor"). (See Paragraph 37 for further
provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 57 and Exhibits A, all of which constitute a part of this
Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental is an approximation which Lessor and Lessee
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3)and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the sam relate to Lessee's occupancy of the Premises and/or the
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term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
Insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3
Date, Lessee may, at its option, by notice in writing to Lessor within ten (10)
days thereafter, cancel this Lease, in which event the Parties shall be
discharged from all obligations hereunder. Except as may be otherwise provided,
and regardless of when the term actually commences, if possession is not
tendered to Lessee when required by this Lease and Lessee does not terminate
this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if
any, that Lessee would otherwise have enjoyed shall run from the date of
delivery of possession and continue for a period equal to what Lessee would
otherwise have enjoyed under the terms hereof but minus any days of delay caused
by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any
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<PAGE> 5
amount due Lessor or to reimburse or compensate Lessor for any liability, cost,
expense, loss or damage (including attorneys' fees) which Lessor may suffer or
incur by reason thereof. If Lessor uses or applies all or any portion of said
Security Deposit, Lessee shall within ten (10) days after written request
therefor deposit moneys with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Any time the Base Rent increases
during the term of this Lease,Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor sufficient to maintain the same ratio
between the Security Deposit and the Base Rent as those amounts are specified in
the Basic Provisions. Lessor shall not be required to keep all or any part of
the Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that unreasonably causes owners
and/or occupants of, or causes damage to, neighboring premises or properties.
Lessor hereby agrees to not unreasonably withhold or delay its consent to any
written request by Lessee, Lessee's assignees or subtenants, and by any
prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of and permitted purpose for which the premises
may be used or occupied, so long as the same will not impair the structural
integrity of the improvements on the Premises, the mechanical or electrical
systems therein, and is otherwise permissible pursuant to this Paragraph 6. If
Lessor elects to withhold such consent, Lessor shall within five (5) business
days give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the
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<PAGE> 6
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by lessee in the normal course of Lessee's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its consent
to the use or presence of any Hazardous Substance, activity or storage tank by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and or
liability therefrom, or therefor, including, but not limited to, the
installation (and removal on or before Lease expiration or earlier termination)
of reasonably necessary protective modifications to the Premises (such as
concrete encasements) and or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, in quantities that violate Applicable Law,
or a condition involving or resulting from same, has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor. Lessee
shall also immediately give Lessor a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action, or
proceeding given to, or received from, any governmental authority or private
party, or persons entering or occupying the Premises, concerning the presence,
spill, release, discharge of, or exposure to, any Hazardous Substance or
contamination in, on, or about the Premises, including but not limited to all
such documents as may be involved in any Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the
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<PAGE> 7
environment created or suffered by Lessee, and the cost of investigation
(including consultant's and attorney's fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances or storage tanks, unless specifically so agreed by Lessor
in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau relating in any
manner to Lessee's use of the Premises (including but not limited to matters
pertaining to (i) industrial hygiene, (ii) environmental conditions on, in,
under or about the Premises, including soil and groundwater conditions, and
(iii) the use, generation, manufacture, production, installation, maintenance,
removal, transportation, storage, spill or release of any Hazardous Substance by
Lessee or storage tank installed by Lessee now in effect or which may hereafter
come into effect, and whether or not reflecting a change in policy from any
previously existing policy, Lessee shall, within five (5) days after receipt of
Lessor's written request, provide Lessor with copies of all documents and
information, including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lendor(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times upon reasonable
notice or the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease and to employ experts and/or
consultants in connection therewith and/or to advise Lessor with respect to
Lessee's compliance with this Lease, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused by Lessee is found to exist. In any such case Lessee shall
upon request reimburse Lessor or Lessor's Lendor as the case may be for the
costs and expenses of such inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
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(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
pressure vessels, fire sprinkler and/or standpipe and hose or other automatic
fire extinguishing system, including fire alarm and/or smoke detection systems
and equipment, fire hydrants, fixtures, walls (interior and exterior),
foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, about, or adjacent to the Premises. Lessee shall
not cause or permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including through the plumbing or sanitary sewer
systems) and shall promptly, at Lessor's expense, take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by lessee,
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the buildings on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if
any,located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi)asphalt and parking lot
maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises), it is intended by the Parties hereto
that Lessor have no obligation, in any manner whatsoever, to repair and maintain
the Premises, the improvements thereon, or the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of any needed repairs.
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7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, airlines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing irreparable damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures,. "Lessee Owned Alterations and/or Utility
Installations" are defined as Alterations and/or Utility Installations made by
lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee
shall not make any Alterations or Utility Installations in, on, under or about
the Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the Interior of the Premises (excluding
the roof), as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during the term of this Lease does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $30,000 or more upon Lessee's providing Lessor with a
lien and completion send in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest thereon, Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such claim or demand,
then
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Lessee shall, at its sole expense defend and protect itself, Lessor and the
Premises against the same and shall pay and satisfy any such adverse judgment
that may be rendered thereon before the enforcement thereof against the Lessor
or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a
surety bond satisfactory to Lessor in an amount equal to one and one-half times
the amount of such contested lien, claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
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8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
cause by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "Insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried by Lessor. In the event Lessor is the Insuring
Party, Lessor shall also maintain liability insurance described in Paragraph
3.2(a) above, in addition to and not in lieu of, the insurance required to be
maintained by Lessee Lessee shall not be named as an additional insured herein.
to time, or the amount required by Landlord, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake,
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any
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undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1(c).
(b) Rental Value. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be up to of repairs or replacement of the Premises. Said
insurance shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, property taxes, insurance premium costs and other
expenses, if any, otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the event of such
loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused solely by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall by separate policy maintain insurance coverage on
all of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. Lessee shall be the Insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
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8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certificates
evidencing the existence and amounts of such insurance with the insureds and
loss payable clauses as required by this Lease. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and
maintain the insurance required to be carried by the Insuring Party under this
Paragraph 8, the other Party may, but shall not be required to, procure and
maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnity, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lendors, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lesser and Lesser shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's
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employees, contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury of the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 8.2(a) in violation of Applicable
Law in, on, or under the Premises.
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9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible (as limited by Section 8.3(a) hereof, which is
Lessee's responsibility) as and when required to complete said repairs. In the
event, however, the shortage in proceeds was due to the fact that, by reason of
the unique nature of the improvements, full replacement cost insurance coverage
was not commercially reasonable and available, Lessor shall have no obligation
to pay for the shortage in insurance proceeds or to fully restore the unique
aspects of the Premises unless Lessee provides Lessor with the funds to cover
same, or adequate assurance thereof, within ten (10) days following receipt of
written notice of such shortage and request therefor. If Lessor receives said
funds or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case the Lease shall remain in full force and
effect. If in such case Lessor does not so elect, then the Lease shall terminate
sixty (60) days following the occurrence of the damage or destruction. Unless
otherwise agreed, Lessee shall in no event have any right to reimbursement from
Lessor for Lessee _________________________________________________ rights under
Paragraph 13), Lessor may at Lessor's option, either (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessor's commitment to pay for the repair of such damage
totally at lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment, in such event this Lease
shall continue in full force and effect and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was
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covered by a negligent or willful act of Lessee. In the event, however, that the
damage or destruction was caused by Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee except as released and waived in Paragraph
8.8.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
One (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds. Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor my at
lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period. Notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessor's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage-
Insured), whether or not Lessor or Lessee repairs or restores the Premises, the
Base Rent, Real Property Taxes, insurance premiums, and other charges If any,
payable by Lessee hereunder for the period during which such damage, its repair
of the restoration continues (not to exceed the period for which rental value
insurance is required under Paragraph 8.3(b), shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired. Except for
abatement of Base Rent, Real Property Taxes, Insurance premiums, and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder shall
be performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
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giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and recommendation thereof required by Applicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
lessee's said commitment. In such event this lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If lessee
does not give such notice and provides the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination-Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the
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termination of this Lease and hereby waive the provisions of any present or
future statute to the extent inconsistent therewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payment shall be made at least ten
(10) days prior to the delinquency date of the applicable instalment. Lessor
shall promptly furnish Lessor with satisfactory evidence that such taxes have
been paid. If any such taxes to be paid by Lessee shall cover any period of time
prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitable prorated to cover only the
portion of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration If Lessee shall
fail to pay any Real Property Taxes required by the Lessee to be paid by Lessee,
Lessor shall have the right to pay the same and Lessee shall reimburse Lessor
therefor upon demand.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due.
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by
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any authority having the direct or indirect power to tax, including any city,
state or federal government, or any school, agricultural, sanitary, fire,
street, drainage or other improvement district thereof, levied against any legal
or equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "Real Property Taxes"
shall also include any tax, fee, levy, assessment or charge, or any increase
therein, imposed by reason of events occurring, or changes in applicable law
taking effect, during the term of this Lease, including but not limited to a
change in the ownership of the Premises or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the Parties.
10.3 Joint Assessment. If the Properties are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements including all in the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations shall
cause its fixtures, furnishings, equipment and all other personal property to be
assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's rent property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
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12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) after the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity reasonable therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under this Lease shall, be
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
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(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment structure
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment structure for property similar to the Premises as then
constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein.
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee t perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges to paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
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(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as originally
defined), $350.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said Default. "Default" is defined as a failure by
the Lessee to observe/comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "Breach" is defined
as
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessor to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form if applicable) of (i) compliance with Applicable Law per Paragraph
6.3, (ii) the inspection, maintenance and service contracts required under
Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it
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shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences
such cure within said thirty (30) days period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by lessee
of any general arrangement or assignment for the benefit of creditors; (ii)
Lessee's becoming a "debtor" as defined in 11 U.S.C. ss.101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days; (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure within sixty (60) days following written notice by or on
behalf f Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of the Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. the costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only be cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
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(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event,
Lessor shall be entitled to recover from Lessee (i) the worth at the time of the
award of the unpaid rent which had been earned at the time of termination; (ii)
the worth at the time of award of the amount by which the unpaid rent would have
been earned after termination until the time of award exceeds the amount of such
rental loss that the Lessee proves could have been reasonably avoided, (iii) the
worth at the time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental
loss that the Lessee proves could be reasonably avoided; and (iv) any other
amount necessary to compensate Lessor for all the detriment proximately caused
by the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including but
not limited to the cost of recovering possession of the Premises, expenses of
reletting, including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, and that portion of the leasing commission paid by
Lessor applicable to the unexpired term of this Lease. The worth at the time of
award of the amount referred to in provision (iii) of the prior sentence shall
be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
receive therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice may be given to Lessee under any
statute authorizing the forfeiture of Lease for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 38 for the limitation on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservations, efforts to relet the Premises, or the appointment of a receiver
to protect the lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursuing any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
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(d) the expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, be come due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or
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deed of trust covering the Premises whose name and address shall have been
furnished Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days after such notice as reasonably required for its performance, then Lessor
shall not be in breach of this Lease if performance is commenced within such
thirty (30) day period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), the Lease shall terminate as to
the part so taken as of the date the condemning authority takes
________________________ a land on which there is no building. Any award for the
taking of any part of the Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold or for the taking of the land or as severance damages;
provided, however, that Lessee shall be entitled to any compensation separately
awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received, over and
above the legal and other expenses incurred by Lessor in the condemnation
matter, repair any damage to the Premises caused by such condemnation, except to
the extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. Broker's Fee.
15.1 xxxxxx
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of an agreed for brokerage services rendered by
said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing,
Lessor further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Leases would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether
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by agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Brokers a fee in accordance with the
schedule of said Brokers in effect at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has had
no dealings with any person, firm, broker or finder (other than the Brokers, if
any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission) or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect therein.
15.6 Lessor and Lessee hereby consent to and approve all agency relationships,
including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (1) days after written
notice from the other Party (the "Requesting Party") execute, acknowledge and
deliver to the Requesting Party a statement in writing in form similar to the
then most current. "Tenancy Statement" form published by the American Industrial
Real Estate Association, plus such additional information, confirmation and/or
statements as amy be reasonably requested by the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any pert
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee due to the Premises, or, if this is a
sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the
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Premises or in this Lease, Lessor shall deliver to the transferee or assignee
(in cash or by credit), any unused Security Deposit held by Lessor at the time
of such transfer or assignment. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges not received by Lessor within thirty (30) days following
the date on which it was due, shall bear interest from the thirty-first (31st)
day after it was due at the rate of 12% per annum, but not exceeding the maximum
rate allowed by law, in addition to the late charge provided for in Paragraph
13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect therein or with respect to any default or breach
hereof by other Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing and may
be delivered in person (by hand or by messenger or courier service) or may be
sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purposes of mailing or delivering notices to
Lessee. A copy of all notices required or
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permitted to be given to Lessor hereunder shall be concurrently transmitted to
such party or parties at such addresses as Lessor may from time to time
hereafter designate by written notice of Lessee.
23.2 Any notice sent by registered or certified mail, return receipt requested,
shall be deemed given forty-eight (48) hours after the same is addressed as
required herein and mailed with postage prepaid. Notices delivered by United
States Express Mail or overnight courier that guarantees next day delivery shall
be deemed given twenty-four (24) hours after delivery of the same to the United
States Postal Service or courier. If any notice is transmitted by facsimile
transmission or similar means, the same shall be deemed served or delivered upon
telephone confirmation of receipt of the transmission thereof, provided a copy
is also delivered via delivery or mail. If notice is received on a Sunday or
legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof or similar act by
Lessee, or be construed as the basis of an estoppel to enforce the provision or
provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach oat the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and delivery to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recording shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
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<PAGE> 30
30. Subordination; Attornment; Non-Disturbance
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any lender whose name and address have been
furnished Lessor in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason hereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not (i) be liable
for any act or omission or any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any ______ or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender hat Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents, provided however, that
upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably reburied to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in nay such proceeding, action, or appeal thereof, shall be entitled to
reasonable attorney's fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term "Prevailing Party" shall
29
<PAGE> 31
include, without limitation, a Party who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party of its claim or defense. The attorney's
fees award shall not be computed in accordance with any court fee schedule, but
shall be such as to fully reimburse all attorney's fees reasonably incurred.
Lessor shall be entitled to attorney's fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time. In the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders or leases, and making such alterations, repairs
improvements or additions to the Premises or to the building of which they are a
part, as Lessor may reasonably deem necessary, Lessor may at any time place on
or about the Premises or building any ordinary "For Sale" signs and Lessor may
at any time during the last one hundred twenty (120) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, not permit to be conducted, either
voluntarily or involuntarily any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Less
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the premises by or for Lessee shall be subject to
the provisions of paragraph 7 (Maintenance, Repairs, Utility Installations,
Trace Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of the
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing the
Lessor, the voluntary or other surrender of the Lease by Lessee the mutual
termination or cancellation thereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate in
the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing substances. Lessor's failure within ten (10) days following
any such event to make a written election to the contrary by written notice to
the holder of any such lesser interest, shall constitute Lessor's election to
have such event constitute the termination of such interest.
30
<PAGE> 32
36. Consents.
(a) Except for Paragraph 33 hereto (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultant' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor Subject to
Paragraph 12.2(a) (applicable to assignment or subletting). Lessor's consent to
any act, assignment of this Lease or subletting of the Premises by Lessee shall
not constitute an acknowledgement that no Default or Breach by Lessee of this
Lease exists, nor shall such consent be deemed a waiver of any then existing
Default or Breach, except as may be otherwise specifically stated in writing by
Lessor at the time of such consent.
(b) All conditions to lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are than
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of this Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on Guarantors
behalf) to obligate such Guarantor on said guaranty, and including in the case
of a corporate Guarantor, a certified copy of a resolution of its board of
directors authorizing the making of such guaranty, together with a certificate
of incumbency showing the signature of the persons authorized to sign on its
behalf, (b) current financial statements of Guarantor as may from time to time
be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation
that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all the covenants, conditions and provisions
on Lessee's part
31
<PAGE> 33
to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated form this Lease in any manner,
by reservation of otherwise.
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notices of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under paragraph 13.1 whether the Defaults are
cured, during the twelve (12) month period immediately preceding the exercise of
the Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 30.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a
32
<PAGE> 34
monetary obligation of Lessee for a period of thirty (30) days after such
obligation becomes due (without any necessity of Lessor to give notice thereof
to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of Default
under Paragraph 13.1 during any twelve (12) month period, whether or not the
Defaults are cured or (iii) Lessee commits a Breach of this Lease.
40. Multiple Bindings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe a
reasonable and non-discriminatory rules and regulations which Lessor may make
from time to time for the management, safety, care, and cleanliness of the
grounds, the packing and unleading of vehicles and the preservation of good
order, as well as for the convenience of other occupants or tenants of such
other buildings and their invitees, and that Lessee will pay its fair share of
common expenses incurred in connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions so long as even easements, rights, decisions, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee nor add to the cost of performance of Lessee's obligations hereunder.
Lessee agrees to sign any documents reasonably requested by Lessor to effectuate
any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum if it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease or its behalf. If Lessee is a corporation, trust or
partnership Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
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<PAGE> 35
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be contracted by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. The Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend the
Lease from time to time to reflect any adjustments that are made to the Base
Rent or other rent payable under this Lease. As long as they do not materially
change Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably have to an
institutional, insurance company, or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of whom the
Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
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<PAGE> 36
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Los Angeles, CA Executed at
on September 7, 1993
By LESSOR: Robert C. & By LESSEE: GRAFALLOY INC.
Alice Campbell a Delaware Corporation
By /s/ Robert C. Campbell By /s/ William C. Gerhart
-------------------------- -----------------------------
Robert C. Campbell William C. Gerhart
President
11911 San Vincente Blvd. 1390 1020 North Marshall Avenue
Los Angeles, CA 90049 El Cajon, CA 92020
(310) 476-4525 619/562-1020
35
<PAGE> 37
ADDITIONAL PARAGRAPHS
49. QUIET CONDUCT. Lessee shall not create any disturbance including, but not
limited to noise, vibration or noxious odor or gas which reasonably affects
adjacent tenants or owners. It is Lessee's responsibility to disclose to
Lessor or Agent prior to the execution of this Lease, any proposed use of
the Premises which may unreasonably disturb adjacent tenants.
50. OUTSIDE STORAGE/OUTSIDE WORK. Leasee understands and agrees that there will
be no outside storage, vehicle or otherwise; or work done outside the
leased Premises without prior written consent from Lessor or agent.
51. TOXIC WASTES DISPOSAL/ENVIRONMENTAL MATTERS. IT shall be the Lessee's sole
responsibility to properly dispose of all wastes generated or used in the
course of Leasee's occupancy. Such disposal shall by made in accordance
with all applicable laws, codes and standards provided for such disposal.
Lessee shall be solely responsible for nay clean-up of such wastes. Lessee
is specifically prohibited from dumping any such wastes into any drain or
toilet facility on leased Premises, and if used for such disposal, will be
responsible for any subsequent clean up. Lessee will at all times comply
with all federal state and local laws, ordinances and regulations ("rules")
relating to hazardous or toxic materials, wastes or substances ("hazardous
materials") and will promptly notify Lessor in writing of any claim made or
threatened by any person against Lessee or the Premises relating to
hazardous materials, including any action or threatened action or inquiry
by any governmental or regulatory agency or instrumentality, any report
made to any environmental agency, and any complaint, notice, warning or
claimed violation in connection therewith. Lessee will at all times
indemnify, protect, defend and hold Lessor and the Premises free and
harmless from and against any and all losses, costs, damages, liabilities,
claims or expenses, including attorneys' fees, arising from or caused
directly or indirectly by (i) the presence in, on, under or about the
Premises or discharge in or form the Premises of any hazardous materials
placed or caused to be placed in, on, under or about the Premises by
Lessee, or at Lessee's direction, or (ii) Lessee's use, storage,
generation, transportation, disposal, release or threatened release,
discharge or generation of hazardous materials in, on, under, about or from
the Premises, or (iii) Lessee's failure to comply with hazardous materials
rule. This indemnity will survive termination of this Lease.
52. AUTO REPAIR. Lessee shall not conduct any automobile repair within the
leased Premises or adjacent parking lot area. No cars shall be stored in
such parking area over twelve (12) hours. Any vehicle left over twelve (12)
hours will be subject to be towed. This paragraph shall not apply to
company vehicles.
53. STORAGE/ANIMALS. Lessee shall not use, keep or permit to be used or kept
any foul or noxious gas or substances in the Premises, or permit or suffer
the Premises to
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<PAGE> 38
be occupied or used in a manner offensive or objectionable to the Lessor or
other occupants of the building by reason of noise, odors and/or vibrations
or interfere in any way with other Tenants or those having business
therein, nor shall any animals or birds be brought in or kept in or about
the Premises or the building. Lessee shall not conduct any auction on
Premises.
54. ENVIRONMENTAL NOTIFICATION AND INDEMNIFICATION.
(a) Duty to inform Lessee. If Lessor knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting
from same, has been located in, on, under or about the Premises, prior to
Lessee's occupancy, Lessor shall immediately give written notice of such
fact to Lessee.
Lessor, at Lessee's written request, shall also immediately give Lessee a
copy of any statements, report, notice, registration, application, permit,
business plan, license claim, action or proceeding, given to or received
from, any governmental authority or private party, or person entering or
occupying the Premises, concerning the presence, spill, release, discharge
of, or exposure to, any Hazardous Substance or contamination in, on, or
about the Premises, including but not limited to all such documents as may
be involved in any Reportable Uses involving the Premises.
(b) Indemnification. Lessor shall indemnify, protect, defend and hold
Lessee, its agents and employees, harmless form and against any and all
damages, liabilities, judgments, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving
any Hazardous Substance or Storage tank on the Premises prior to Lessee's
occupancy. Lessor's obligations under this Paragraph 14 shall include, but
not be limited to, the previous occupants and the cost of investigation
(including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, shall be at the sole
expense of Lessor.
55. AMERICANS WITH DISABILITIES ACT: Lessee shall at all times keep the
Premises in compliance with the Americans With Disabilities Act and its
supporting regulations, and all similar federal, state or local laws,
regulations and ordinances to the extent that such compliance is required
solely as a result of Lessee's use of the Premises. If Lessor's consent
would be required for alterations to bring the Premises into compliance,
Lessor agrees not to unreasonably withhold its consent.
56. REMOVAL OF TEMPORARY STRUCTURES: Lessee agrees to remove all "temporary"
structures from the warehouse prior to lease expiration. Temporary
structures shall include all demising/separation walls which are not part
of any of the existing office area or "clean room" manufacturing areas as
well as all chain link fencing.
37
<PAGE> 39
LESSOR, ROBERT C. & ALICE C. CAMPBELL
By: Date:
---------------------------- ---------------------------
Robert C. Campbell
38
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Company
Name of Subsidiary Jurisdiction
- ------------------ ------------
Culver City Composites Corporation Delaware
Carbon Design Partnership Limited England
Siloxirane Composites Corp. Delaware
Grafalloy Corporation Delaware
AMT FSC Ltd. U.S. Virgin Islands
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,655,229
<SECURITIES> 0
<RECEIVABLES> 3,947,504
<ALLOWANCES> 123,056
<INVENTORY> 1,456,152
<CURRENT-ASSETS> 10,455,319
<PP&E> 5,001,312
<DEPRECIATION> 641,903
<TOTAL-ASSETS> 15,694,849
<CURRENT-LIABILITIES> 3,680,903
<BONDS> 0
0
0
<COMMON> 41,391
<OTHER-SE> 11,566,274
<TOTAL-LIABILITY-AND-EQUITY> 15,694,849
<SALES> 22,410,718
<TOTAL-REVENUES> 22,410,718
<CGS> 16,749,767
<TOTAL-COSTS> 20,905,363
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,755
<INCOME-PRETAX> 1,201,600
<INCOME-TAX> 239,200
<INCOME-CONTINUING> 962,400
<DISCONTINUED> 0
<EXTRAORDINARY> 28,586
<CHANGES> 0
<NET-INCOME> 933,814
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
