As filed with the Securities and Exchange Commission on October 15, 1996
Registration No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
NATURAL GAS VEHICLE SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 3714 33-0515639
- ------------------------ ---------------------------- ---------------------
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
5580 Cherry Avenue
Long Beach, California 90805
(310) 630-5768
(310) 630-0206 (fax)
(Address and telephone number of Registrant's principal executive offices)
----------------
John R. Bacon
President
Natural Gas Vehicle Systems, Inc.
5580 Cherry Avenue
Long Beach, California 90805
(310) 630-5768
(310) 630-0206 (fax)
(Name, address and telephone number of agent for service)
----------------
Please send a copy of all communications to:
Lawrence B. Fisher, Esq. Gary J. Simon, Esq.
Orrick, Herrington & Sutcliffe LLP Parker Chapin Flattau & Klimpl, LLP
666 Fifth Avenue 1211 Avenue of the Americas
New York, New York 10103 New York, New York 10036
(212) 506-5000 (212) 704-6000
(212) 506-5151 (fax) (212) 704-6288 (fax)
----------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================
Proposed Maximum Proposed Maximum
Title of Shares Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Share(1) Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.01 1,725,000 shares $7.50 $12,937,500 $3,920.45
par value per share(2)
==============================================================================================
</TABLE>
----------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act.
(2) Includes 225,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
Cross-Reference Sheet
Showing Location in Prospectus of Part I Items of Form SB-2
Item and Caption in Form SB-2 Location in Prospectus
- ----------------------------- ----------------------
1. Front of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Forepart of the Registration
Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus........... Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors;
Selected Consolidated Financial Data
4. Use of Proceeds..................... Use of Proceeds; Capitalization
5. Determination of Offering Price..... Risk Factors; Underwriting
6. Dilution............................ Dilution
7. Selling Security Holders............ Not Applicable
8. Plan of Distribution................ Outside Front Cover Page
of Prospectus; Underwriting
9. Legal Proceedings................... Risk Factors; Business
10. Directors, Executive Officers,
Promoters and Control Persons....... Management; Principal Stockholders
11. Security Ownership of Certain
Beneficial Owners and Management.... Principal Stockholders
12. Description of Securities........... Description of Capital Stock
13. Interests of Named Experts
and Counsel......................... Legal Matters; Experts
14. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities..................... Description of Capital Stock
15. Organization Within Last Five Years The Company; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Business; Certain
Transactions
16. Description of Business............. Prospectus Summary; Risk Factors;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business
17. Management's Discussion and
Analysis or Plan of Operation....... Management's Discussion and Analysis
of Financial Condition and Results
of Operations
<PAGE>
18. Description of Property............ Business
19. Certain Relationships and Related
Transactions....................... Certain Transactions;
Principal Stockholders
20. Market for Common Equity and
Related Stockholder Matters......... Outside Front Cover Page of
Prospectus; Prospectus Summary;
Dividend Policy; Dilution;
Description of Capital Stock; Shares
Eligible for Future Sale
21. Executive Compensation.............. Management
22. Consolidated Financial Statements... Consolidated Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................ Not Applicable
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to the registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1996
PROSPECTUS
1,500,000 SHARES
NATURAL GAS VEHICLE SYSTEMS, INC.
COMMON STOCK
--------------
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Natural Gas Vehicle
Systems, Inc. (the "Company"). Prior to this Offering, there has been no public
market for the Common Stock and there can be no assurance that such a market
will develop after the consummation of this Offering or, if developed, that it
will be sustained. It is currently anticipated that the initial public offering
price per share of Common Stock will be between $6.00 and $7.50. For information
regarding the factors considered in determining the initial public offering
price per share of Common Stock, see "Risk Factors" and "Underwriting." It is
anticipated that the Common Stock will be quoted on the Nasdaq Small Cap Market
("Nasdaq") under the symbol "NGVS."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Underwriting
Discounts and
Price to Public Commissions(1) Proceeds to Company(2)
- -------------------------------------------------------------------------------
Per Share............ $ $ $
- -------------------------------------------------------------------------------
Total(3)............. $ $ $
===============================================================================
(1) Does not include additional compensation payable to Commonwealth
Associates, the representative of the several Underwriters (the
"Representative"), including a non-accountable expense allowance and a
financial advisory fee. In addition, see "Underwriting" for information
concerning indemnification and contribution arrangements with the
Underwriters and other compensation payable to the Representative.
(2) Before deducting expenses payable by the Company estimated to be
approximately $450,000, excluding the Underwriters' non-accountable
expense allowance and financial advisory fee. See "Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
225,000 additional shares of Common Stock on the same terms and conditions
as the Common Stock offered hereby solely to cover over-allotments, if
any. If such over-allotment option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $______, $______ and $______, respectively. See "Underwriting."
The shares of Common Stock are being offered by the Underwriters named
herein subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify this Offering and to reject any order in
whole or in part. It is expected that delivery of certificates representing the
shares of Common Stock offered hereby will be made against payment therefor at
the offices of Commonwealth Associates at 733 Third Avenue, New York, New York
10017, on or about _______________, 1996.
Commonwealth Associates
The date of this Prospectus is _______________, 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL CAP MARKET,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
--------------
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated or the
context otherwise requires: (i) the "Company" refers to Natural Gas Vehicle
Systems, Inc. and its wholly-owned subsidiary, (ii) all information in this
Prospectus has been adjusted to reflect a one-for-three reverse stock split
effected prior to the date hereof, and (iii) all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option and no exercise
of the warrants to purchase 150,000 shares of Common Stock issued to the
Representative in connection with this Offering (the "Representative's
Warrants"). See "The Company."
The Company
Natural Gas Vehicle Systems, Inc. is the leading United States
manufacturer and distributor of fuel storage systems for use on-board natural
gas vehicles. The Company's fuel storage cylinders are highly-engineered
pressure vessels for the storage of compressed natural gas. Since 1990, the
Company and its predecessors have invested significant resources in product
development and manufacturing capability to meet the expected growth in demand
in the natural gas vehicle market. The United States Clean Air Act Amendments of
1990 (the "Clean Air Act") and the Energy Policy Act of 1992 (the "Energy Policy
Act"), in combination with clean air laws passed in California, Texas and many
other states, mandate the use of alternative fueled vehicles in the United
States, reflecting the stated national policy of reducing vehicular air
pollution and dependence on foreign oil. Generally, these laws specify more
stringent emissions standards for vehicles (begun in 1994 and becoming
progressively more stringent through the year 2001), and require federal, state
and certain other fleet operators to utilize domestic, non-petroleum fuels in
their fleet vehicles on an increasing basis over time. In March 1996, the
Department of Energy promulgated regulations pursuant to the Energy Policy Act
requiring a minimum of 25%, 10% and 30% of newly-manufactured 1997 model year
vehicles purchased beginning September 1, 1996 by federal, state and "fuel
provider" fleet operators, respectively, to operate on non-petroleum based
"alternative fuels" such as compressed natural gas. The Company believes that
compressed natural gas is the most viable alternative fuel currently available.
In September 1996, a bill was introduced in the United States House of
Representatives the stated purpose of which in its present form is to encourage
the increased use of domestic natural gas as a transportation fuel and thereby
realize the broad societal benefits associated with such use, including improved
environmental quality, enhanced energy security, and increased domestic economic
activity. This bill would encourage the use of natural gas vehicles (including
bi-fuel vehicles) through emission reduction credits, tax incentives for fleet
vehicle operators and owners of natural gas fueling stations, fuel credits,
shorter depreciation recovery periods for natural gas vehicles and refueling
property and the establishment of a research, development and demonstration
program at the United States Department of Energy. There can be no assurance
that this bill will be reintroduced in the next legislative session or enacted
into law in its current form, if at all.
The Company currently manufactures and distributes a variety of aluminum
and composite cylinder products and has recently introduced a steel cylinder
product line. The Company believes that the commercialization and further
development of the steel cylinder product line is essential to the Company's
expansion plans since approximately 25% of the United States market and 90% of
the international market consists of steel cylinders. The Company also has an
investment in a regional technology center which converts vehicles to operate on
compressed natural gas. In addition, the Company offers emission testing,
diagnostics, troubleshooting and engineering support both to original equipment
manufacturers ("OEMs") and to customers converting their vehicles to operate on
compressed natural gas.
The Company currently markets and sells its compressed natural gas
cylinders throughout the United States for use by automotive OEMs, such as Ford
Motor Company; bus manufacturers, such as Blue Bird Body Company, Transportation
Manufacturing Corporation and El Dorado National Bus; aftermarket conversion
specialists; and utility, government and private fleets, such as Southern
California Gas Co., the United States Postal Service and United Parcel Service
of America, Inc. ("UPS"). The Company currently also supplies cylinders for use
by the Ford Motor Company's program for its F-Series Pick-Up, E-Series Econoline
Van and Contour passenger car
3
<PAGE>
natural gas vehicle product lines. In addition to domestic sales, the Company
has also commenced marketing its compressed natural gas cylinders in the
international market and has received a provisional approval letter from the
Government of Venezuela authorizing the sale and use of the Company's cylinders.
In 1995, there were approximately 42,000 natural gas vehicles in operation
in the United States and government and industry sources estimate that, by the
year 2010, two million or more natural gas vehicles will be in operation in the
United States, although there can be no assurance that such levels will be
attained as predicted, if at all. The Company also estimates that there are over
one million natural gas vehicles currently in operation worldwide.
In addition to the government mandates contained in the Clean Air Act and
the Energy Policy Act, the Company and certain industry experts believe that the
natural gas vehicle industry will expand in the future for a number of reasons:
o Environmental Benefits - Compressed natural gas is the cleanest
burning fossil fuel and can reduce nitrogen oxide emissions by up to
76%, carbon monoxide emissions by up to 95%, carbon dioxide
emissions by up to 24% and reactive hydrocarbons by up to 95%, thus
meeting stringent governmental vehicle emissions standards.
o Economics - Compressed natural gas is substantially less expensive
on an energy equivalent basis when compared to conventional refined
fuels such as gasoline and diesel. In addition, vehicle operating
costs are reduced due to less engine wear with resulting lower
maintenance costs and longer engine life.
o Supply - Natural gas is widely available and in abundant supply.
United States domestic reserves are reported to be sufficient to
meet an estimated 50 years of demand and North American supplies are
reported to be sufficient to meet an estimated 150 years of demand
at current usage rates. Natural gas is also readily available in all
urban and suburban areas in the United States through an existing
underground pipeline network.
o Safety - The Company and certain industry experts believe that
natural gas is a safer vehicle fuel than gasoline because (i) the
ignition temperature for natural gas is higher than gasoline, (ii)
natural gas is lighter than air and thus dissipates quickly, and
(iii) natural gas can ignite only in a narrow range of fuel-air
ratios.
o Dependence on Foreign Oil and Balance of Payments - Currently, the
United States obtains approximately 52% of its domestic petroleum
requirements from imported oil. In addition to the national security
implications created by this dependency, the importation of
petroleum products created a reported deficit in United States
balance of payments of approximately $45 billion in 1994 with the
correspondingly negative impact on the United States domestic
economy. The United States government reports that, unless an
alternative source of energy is found, United States dependence on
imported petroleum will increase to approximately 70% by 2010.
The Company believes that fleets, which are the Company's target market,
currently account for a significant portion of all airborne pollutants in urban
areas and are the primary target of several recent federal and state legislative
mandates requiring conversion to operation on alternative fuels over time. In
the 22 metropolitan regions in the United States designated as serious, severe
or extreme "non-attainment" areas under the Clean Air Act (those geographic
areas which do not meet the Clean Air Act's air pollution standards),
approximately 8.5 million of these vehicles are operated in fleets of 10 or more
vehicles with an operating range of less than 200 miles per day, including
school and transit buses, medium duty trucks, garbage trucks, utility fleet
vehicles, delivery vehicles and certain light-duty fleets, including taxis and
police cars. The majority of these fleet vehicles operate in urban areas, in
stop-and-go driving conditions, with predictable average daily mileage and
central refueling and servicing locations.
4
<PAGE>
The Company's strategy is to take advantage of its expertise and
leadership position in its industry to increase its share of the expanding
market for natural gas vehicle fuel storage cylinders. The Company initially has
focused and will continue to focus on the high fuel-use fleet vehicle segment of
the natural gas vehicle market, in which vehicles consume large quantities of
fuel due to the nature of their operation and usage. For example, the Company is
currently developing a full composite product line which is under limited market
testing by UPS. In addition, the Company believes there are opportunities for
vehicle conversion centers as well as for turnkey projects for fleet operators
seeking a single source to fully establish a natural gas vehicle program,
providing vehicles, refueling, long-term fuel supply contracts and financing.
The Company is evaluating other joint venture opportunities with major regional
gas industry companies to establish regional technology centers to meet the
expected demand for natural gas vehicle production capabilities and conversion
services. The Company also plans to enter certain international markets through
the establishment of technology centers with foreign joint venture partners in
strategic locations throughout the world.
The Offering
Common Stock Offered Hereby........ 1,500,000 shares
Common Stock to be Outstanding
prior to the Offering............ 2,290,195 shares (1)
Common Stock to be Outstanding
after the Offering............... 3,790,195 shares (1)
Use of Proceeds.................... Approximately $3,500,000 for a new
manufacturing facility; approximately
$695,000 to repay certain outstanding
indebtedness; approximately $500,000
for the purchase of manufacturing
machinery for steel cylinder
production; and the balance,
approximately $3,664,000, for
working capital and other general
corporate purposes. See "Use of
Proceeds" and "Certain Transactions."
Proposed Nasdaq Symbol............. "NGVS"
Risk Factors....................... The Common Stock offered hereby
involves a high degree of risk.
Prospective investors should carefully
consider the factors discussed under
the heading "Risk Factors."
- ----------
(1) Excludes (i) 158,717 shares of Common Stock and 32,000 shares of Preferred
Stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $5.67 (including 2,963 shares of Common Stock issuable
upon exercise of the warrant issued in connection with the Private
Placement (as hereinafter defined) assuming an initial public offering
price of $6.75 per share), (ii) 100,000 shares of Common Stock issuable
upon the exercise of outstanding options granted pursuant to the Amended
and Restated Natural Gas Vehicle Systems, Inc. Stock Option Plan (the
"1992 Plan") at an exercise price equal to the initial public offering
price per share in this Offering, (iii) 54,833 shares of Common Stock
issuable upon exercise of options available for future grant pursuant to
the Company's 1996 Combined Incentive and Nonqualified Stock Option Plan
(the "1996 Plan") at an exercise price equal to the initial public
offering price per share in this Offering and (iv) 145,167 shares of
Common Stock issuable upon the exercise of outstanding options granted
pursuant to the 1996 Plan at an exercise price equal to the initial public
offering price per share in this Offering. See "Management--Stock Option
Plans" and "Shares Eligible For Future Sale."
5
<PAGE>
Summary Financial Data
(In thousands, except per share data)
Year Ended Six Months Ended
December 31, June 30,
------------------ ------------------
Statement of Operations Data: 1994 1995 1995 1996
------- ------- ------- -------
(Unaudited)
Net sales .......................... $ 5,189 $ 5,683 $ 3,550 $ 4,374
Operating costs and expenses:
Cost of sales .................... 5,868 6,171 3,305 3,951
Research and development ......... 714 622 284 202
Selling .......................... 935 926 394 366
General and administrative ....... 2,086 1,243 665 591
Restructuring charge ............. 482 299 -- --
------- ------- ------- -------
Loss from operations (1) ........... (4,896) (3,578) (1,098) (736)
Equity in losses of investments .... (1,034) (267) (89) (15)
Interest and other expenses, net ... (337) (446) (306) (133)
------- ------- ------- -------
(1,371) (713) (395) (148)
Net loss ........................... $(6,267) $(4,291) $(1,493) $ (884)
======= ======= ======= =======
Net loss per share ................. $ (3.83) $ (2.07) $ (0.72) $ (0.32)
Weighted average number of shares
outstanding (2) .................. 1,638 2,071 2,071 2,728
December 31, June 30, 1996
----------------- -------------------
Pro Forma,
1994 1995 Actual As Adjusted (3)
---- ---- ------ ---------------
(unaudited)
Balance Sheet Data:
Working capital (deficit).......... $(1,313) $(379) $(1,226) $ 7,233
Total current assets............... 2,318 2,003 3,932 12,891
Total assets....................... 6,547 5,376 7,310 16,269
Short term borrowing............... 245 245 245 245
Total current liabilities.......... 3,631 2,382 5,158 5,658
Long-term debt net, of current
portion.......................... 90 -- -- --
Related party loans, non-current... 5,016 -- -- --
Stockholders' equity (deficit)..... (2,190) 2,994 2,152 10,611
- ----------
(1) Loss from operations for 1994 and 1995 includes a restructuring charge of
$482,000 in 1994 and $299,000 in 1995. During 1994, the Company
implemented a plan to consolidate facilities and reorganize its
operations. As a result, the Company recorded a one-time restructuring
charge related to severance and relocation costs and the disposal of
certain equipment. In December 1995, the Company's Board of Directors
approved management's plan to dispose of the Company's interest in two
joint venture regional technology centers. Accordingly, the Company has
recorded a provision to wind down the joint venture operations. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 3 of Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the calculation of the weighted average number of shares outstanding.
(3) Adjusted to reflect (i) the sale of 13,889 shares of Common Stock and a
two-year $100,000 unsecured promissory note (including a two-year warrant
to purchase that number of shares of Common Stock equal to $20,000 divided
by
6
<PAGE>
the higher of (A) the initial public offering price per share of Common
Stock in this Offering, at an exercise price equal to the initial public
offering price per share in this Offering or (B) $5.00, at an exercise
price of $5.00) to a private investor in September 1996 for an aggregate
consideration of $200,000 (the "Private Placement") and the initial
application of the net proceeds therefrom, (ii) the receipt of $400,000 in
July 1996 pursuant to a Loan and Security Agreement between the Company
and a private investor and the issuance to such investor of warrants to
purchase 100,000 shares of Common Stock at an exercise price of $3.00 per
share (the "July Dopp Transaction") and (iii) the sale of 1,500,000 shares
of Common Stock offered hereby at an assumed initial public offering price
of $6.75 per share (after deducting estimated offering expenses and
underwriting discounts and commissions), and the initial application of
the estimated net proceeds therefrom. See "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Certain Transactions."
7
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of risk.
In addition to the other information contained in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the securities offered hereby. Prospective investors
should be in a position to risk the loss of their entire investment. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
History of Operating Losses; Accumulated Deficit; Going Concern
Uncertainty Language in Independent Auditors' Report. The Company has a history
of operating losses and is subject to certain business risks associated with a
company in a developing industry, including constraints on the Company's
resources, uncertainties regarding product development, market acceptance and
future revenues. As of December 31, 1995 and June 30, 1996, the Company had an
accumulated deficit of $20,391,000 and $21,275,000, respectively. Although the
Company has derived revenues from operations for several years, the Company has
incurred losses since inception. The Company's ability to operate its business
successfully will depend, in part, on a variety of factors, many of which are
outside the Company's control, including changes in governmental programs and
requirements, changes in Department of Transportation ("DOT"), National Highway
Transportation Safety Administration and similar regulatory requirements, plant
and equipment repair and maintenance requirements, market acceptance,
technological changes, competition and changes in raw material supplies and
suppliers. There can be no assurance regarding whether or when the Company will
successfully implement its business plan or that the Company will achieve
profitability by generating sufficient revenues to offset anticipated costs.
The Company's independent certified public accountants have included an
explanatory paragraph in their report on the Company's Consolidated Financial
Statements stating that the Consolidated Financial Statements have been prepared
based on the assumption that the Company will continue as a going concern and
that the Company has suffered recurring losses from operations and expects to
continue to incur losses for the foreseeable future such matters raise
substantial doubt about the Company's ability to continue as a going concern.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 1 of Notes to Consolidated Financial Statements.
Government Regulation. The development of the market for vehicles fueled
by compressed natural gas, the demand for the Company's products and the
development of competition all are affected by local, state and federal
regulations in the United States. The development of any future international
business likewise will be affected by regulations imposed by foreign
governmental authorities. Among the regulations with the greatest potential
effect on the Company's business are environmental regulations which pertain to
air quality standards as well as technical standards which certify products for
use in motor vehicles. Other regulations which may indirectly affect the
Company's business are rules or ordinances regarding pressure vessels and fire
safety which may affect the development of refueling stations for vehicles
fueled by compressed natural gas. There can be no assurance that current
government regulations which promote the use of alternative transportation fuels
will remain in effect or that future governmental actions which might adversely
affect the Company's business, financial condition and results of operations
will not be enacted.
The Company is particularly dependent upon the emission standards and use
of alternative fuels mandated by the Clean Air Act and the Energy Policy Act, as
well as upon requirements mandated by state and foreign governments. In 1995,
the California Air Resources Board modified and lowered its "zero emission
vehicle" requirements and, in 1996, the Department of Energy delayed the
phase-in dates for state and "fuel provider" fleets under the Energy Policy Act.
In addition, the Texas legislature recently enacted legislation defining
reformulated gasoline and "clean diesel" fuel as "clean alternative fuels." Any
future delays in implementation of, or legislative amendments or other
modifications to, or policy changes affecting, any of the Clean Air Act, the
Energy Policy Act or similar statutes or regulations would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the failure of governmental agencies to enforce
legislation or
8
<PAGE>
administrative regulations mandating more stringent emission standards or the
conversion to alternative fuel technology would have a material adverse effect
on the Company's business, financial condition and results of operations.
In September 1996, a bill was introduced in the United States House of
Representatives which in its present form would encourage the increased use of
domestic natural gas as a transportation fuel primarily through the use of
various emissions credits and tax incentives. If this bill is enacted into law
in its present form, however, it would amend certain provisions of the Energy
Policy Act requiring alternative fuel providers to purchase a specified
percentage of alternative fuel vehicles by eliminating such requirement after
model year 1999. This bill would also substantially repeal the fleet requirement
program provisions of the Energy Policy Act which currently require certain
private fleet owners and operators to acquire specified percentages of
alternative fuel vehicles beginning in model year 1999. The elimination of these
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
this bill will be reintroduced in the next legislative session or enacted into
law in its current form, if at all. See "Business--Government Regulation."
Dependence on Alternative Transportation Fuels Market; Market Acceptance
of Natural Gas Vehicles. There can be no assurance that growth in the market for
alternative transportation fuels will materialize or, if such growth does occur,
that it will result in increased sales of the Company's products. The Company
faces competition from other types of alternative fuels such as electricity,
liquefied petroleum gas (propane), methanol, ethanol, hydrogen, reformulated
gasoline and liquefied natural gas. At present, the absence of a well-developed
infrastructure for the supply of alternative fuels is limiting growth in the
alternative fuels market. Such an infrastructure is necessary for widespread use
of alternative fuels and there can be no assurance that such an infrastructure
will develop. There can be no assurance that gas utility companies and others
will build fueling stations or maintain fueling capacity in the future to
support the development of a viable alternative transportation fuels market. In
addition, growth in the alternative transportation fuels market has been
affected by the fact that consumer passenger vehicles are not yet subject to the
same stringent federal or state environmental emission standards which mandate
the purchase of alternative fuel vehicles by fleet operators. Even if growth in
the alternative transportation fuels market does develop, there can be no
assurance that natural gas will become the alternative fuel of choice.
Furthermore, the Company's industry has been characterized by high up-front
capital costs for natural gas vehicle conversion and the limited range of
vehicles operating on compressed natural gas as compared to petroleum-fueled
vehicles and liquefied natural gas-fueled vehicles. These factors may discourage
potential customers from selecting compressed natural gas as a fuel over other
alternative fuels in the market. If other alternative fuels become more widely
accepted than compressed natural gas, the Company's business, financial
condition and results of operations would be materially adversely affected. See
"Business."
Concentration of Revenues. The Company derives a significant portion of
its revenue from a relatively limited number of customers. During 1995, revenues
from the Company's ten most significant customers accounted for approximately
72% of its revenues, and its largest customer accounted for approximately 17% of
revenues. During the six months ended June 30, 1996, the Company had two
customers, GFI Control Systems, Inc. (a supplier to Ford Motor Company) and Blue
Bird Body Company, which comprised approximately 45% and 20% of net cylinder
sales, respectively, and the Company's ten most significant customers accounted
for approximately 81% of its revenues. There can be no assurance that these
customers will continue to purchase the Company's products and services or do so
at the same revenue levels or margins. The loss of any significant customer
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Customers and
Marketing."
Significant Capital Requirements; Dependence on Offering Proceeds; Future
Need for Additional Financing. The Company's capital requirements in connection
with its product development and marketing activities will be significant,
including the need for additional bank or other financing to build or acquire an
additional manufacturing facility. The Company has been dependent upon the
proceeds of sales of its securities to private investors and debt financing to
fund its initial commercial activities. The Company is dependent on the proceeds
of this Offering to continue commercial activities and anticipates, based on its
currently proposed plans
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and assumptions relating to its operations, that the net proceeds of this
Offering will be adequate to satisfy its capital and operational requirements
for at least 12 months from the consummation of this Offering. The Company's
future liquidity and capital resource requirements will depend on numerous
factors, including the extent to which favorable government regulation is
implemented or enforced, market acceptance of the Company's products, the costs
and timing of expansion of sales, marketing and manufacturing activities and
competition. There can be no assurance that additional capital will be available
on terms acceptable to the Company, if at all. Furthermore, any additional
equity financing may be dilutive to stockholders and debt financing, if
available, likely will include restrictive covenants. The failure of the Company
to raise capital on acceptable terms when needed could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Dependence on New Product Development; Introduction of Steel Cylinder. The
Company's success will depend in part on its ability to continue to design and
manufacture new competitive products as well as to enhance its existing
products. There can be no assurance that new product lines, such as the
Company's 3600 pounds per square inch ("psi") steel cylinder product line, will
receive necessary government approvals, achieve market acceptance or perform in
accordance with industry standards. The Company's product development efforts
will require additional investments in order to maintain and enhance the
Company's market position. There can be no assurance that unforeseen problems
will not occur with respect to the Company's technology or products. Development
schedules for new products are subject to uncertainty and there can be no
assurance that the Company will meet such schedules. The Company has experienced
delays in new product development in the past and there can be no assurance that
delays will not be experienced in the future. Delays in new product development
can result from a number of factors, including changes in specifications during
the development stage, initial failures of products or unexpected behavior of
products under certain conditions, failure of out-sourced components to meet
specifications or lack of availability of such components, unplanned
interruptions with existing products that can result in reassignment of product
development resources and other factors. Delays in the development and
availability of new products could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--The Company's Fuel Storage Systems Business" and "-Government
Regulation."
Fluctuations in Price and Quality of Natural Gas. There is substantial
uncertainty in the markets for natural gas and in the future prices at which
natural gas may be sold. A change in the price of natural gas may affect some or
all of the operations of the Company. The availability of a ready market for
natural gas and the prices obtained for such natural gas depend upon numerous
factors beyond the control of the Company, including the supply of natural gas
and national and international economic and political developments. In addition,
the quality of compressed natural gas provided to customers may affect the
performance of natural gas vehicles operated by such customers and the
perception of natural gas vehicles in the alternative transportation fuels
industry. If substandard compressed natural gas is used to fuel a natural gas
vehicle, such natural gas vehicle may perform below industry standards and
create an adverse perception of the natural gas vehicle industry as a whole.
There can be no assurance that the Company's business, financial condition and
results of operations will not be adversely affected by factors related to
changing conditions in the natural gas markets over which the Company may have
no control.
Dependence On License Agreement. The Company's composite-reinforced
aluminum fuel storage cylinders are manufactured and sold under a
royalty-bearing, exclusive world-wide license (the "Fawley License") from NCF
Industries, Inc., a California corporation, and Norman C. Fawley, the principal
shareholder of NCF Industries, Inc., pursuant to the provisions of an Amended
Cylinder License Agreement dated as of May 25, 1993. The Fawley License expires
on the later of (i) February 9, 2005 and (ii) the termination of any commercial
sales, manufacturing, distribution, licensing or sublicensing of licensed
products commenced prior to February 9, 2005, unless earlier terminated due to a
default by the Company for failure to make royalty payments, or otherwise. In
the event the Company defaults in the payment of royalties required under the
Fawley License, or otherwise fails to perform the terms thereof, NCF Industries,
Inc. and Norman C. Fawley have the right to terminate the license and to retain
sole use and enjoyment of the licensed patents and know-how pertaining to the
Company's composite-
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reinforced aluminum fuel storage cylinder. In such event, the Company may be
prohibited from manufacturing or selling such fuel storage cylinders.
Should the Company default under its license agreement, the Company may
lose its right to market and sell products based upon the licensed technology.
In such event, the Company's business, financial condition and results of
operations would be materially adversely affected. There can be no assurance
that the Company will be able to renew this license agreement upon its
expiration or meet its obligations under this agreement on a timely basis, if at
all. See "Business--License Agreements" and "--Intellectual Property Rights."
Effects of Maturing Debt; Pledged Assets. As of June 30, 1996, the Company
had outstanding approximately $2,260,000 of indebtedness, all of which is due
and payable by December 1996, including a $600,000 line of credit arranged by an
affiliate of the Company for the benefit of one of the Company's principal
suppliers which expired on October 1, 1996 and a $600,000 loan which is due and
payable by November 30, 1996. On July 1, 1996, the Company borrowed an
additional $400,000 for working capital purposes, which amount plus interest is
due and payable on November 30, 1996. The Company has from time to time been in
default with respect to certain of its indebtedness, and has had to negotiate
waivers with respect thereto. See "Certain Transactions" and Notes 8, 9 and 10
of Notes to Consolidated Financial Statements. Although the Company plans to use
approximately $695,000 of the net proceeds of this Offering to reduce its
outstanding indebtedness, there can be no assurance that the Company will have
or maintain adequate capital at any given time or from time to time in the
future or not be in default under any of its loan agreements and there is no
assurance that additional capital or waivers in respect of defaulted loans, if
needed by the Company, will be available to it. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Transactions."
In addition, the Company has pledged all of its assets as collateral for
indebtedness. If the Company defaults on such indebtedness, there can be no
assurance that creditors holding a security interest in the Company's assets
will not proceed against such collateral. Any such proceedings or other actions
by the Company's creditors in the event of the Company's default on indebtedness
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Use of Proceeds."
Legal Proceedings. In February 1996, the Company was served as a defendant
with a summons and complaint in an action filed by James and Susan Pettengill
which is currently pending in the United States District Court for the Eastern
District of Michigan arising out of a "loss-of-content" incident in August 1993
involving a natural gas cylinder manufactured by the Company's predecessor. The
Company has investigated the incident and believes that any damages suffered by
Mr. Pettengill were not due to any manufacturing flaw or other acts or omissions
by it but were instead caused by the negligence of Mr. Pettengill's employer in
failing to properly maintain the natural gas cylinder, to test the cylinder
pursuant to applicable law, to properly install the cylinder and to properly
instruct Mr. Pettengill in reasonably safe practices regarding the cylinder,
among other things. The Company believes that any liability it may incur in
connection with this lawsuit will be adequately covered by the Company's
insurance policy. Although the Company intends to contest these claims
vigorously, there can be no assurances as to the eventual outcome of such claims
or their effect on the Company's financial condition and results of operations.
An adverse determination in the litigation arising from these claims or the
settlement of such claims in an amount in excess of the Company's insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business-Litigation."
Fluctuations in Quarterly Results. The Company's operating results have
fluctuated significantly in the past and will likely continue to fluctuate
significantly in the future as a result of a variety of factors, many of which
are beyond the Company's control. Sales have been dependent on the budget cycles
and funding arrangements of both federal and state agencies, on the uncertainty
associated with the timing of the delivery of vehicles to be retrofitted and
upon the use to which the vehicle is put (e.g. school buses are typically
retrofitted in the summer months), as well as other factors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Potential Fluctuations in Quarterly Results."
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Risk of International Operations. The Company has recently commenced
marketing its products and technologies in international markets, including both
industrialized and developing countries. The Company's international operations
are subject to various risks common to international activities, including
political instability, economic instability and recessions, exposure to currency
fluctuations, the inherent difficulty of administering business abroad and the
need to comply with a wide variety of foreign import and United States export
laws, tariffs and other regulatory requirements. The Company's competitiveness
in overseas markets generally may be negatively impacted when there is a
significant increase in the value of the dollar against European currencies or
the currencies of other countries where the Company does business. The Company
also expects to continue to face heightened competition from manufacturers and
distributors in foreign markets. In addition, the laws of some foreign countries
do not protect the Company's proprietary rights to the same extent as the laws
of the United States. See "Business--The Company's Target Market--International
Market Development," "--Government Regulation" and "--Competition."
Technological Changes and Uncertainty. The market for products in the
natural gas vehicle industry is characterized by rapid changes and evolving
industry standards often resulting in product obsolescence or short product
lifecycles. Accordingly, the ability of the Company to compete will depend on
its ability to introduce its products to the marketplace in a timely manner, and
to enhance and improve its products. There can be no assurance that the
Company's competitors or future competitors will not develop technologies or
products that render the Company's products or technologies obsolete or less
marketable or that the Company will be able to successfully enhance its products
or technologies or adapt them satisfactorily. See "Business--Competition."
Limited Availability of Raw Materials and Components. Some of the
Company's raw materials currently are supplied by a small number of specially
qualified producers, including some foreign suppliers. The most sensitive raw
material category is that of extruded aluminum tube stock, which presently is
produced by only three United States companies. Only two of these companies,
Aluminum Company of America ("Alcoa") and Spectrulite Consortium, Inc.
("Spectrulite"), currently possess the unique press capacity required to produce
the particularly large diameter aluminum tubes upon which the Company is
substantially dependent. Certain natural gas vehicle engine systems and their
components (including on-board emissions diagnostic equipment) are in limited
supply, and the Company's vehicle conversion programs are dependent upon the
availability of those items. In addition, the price and availability of certain
raw materials are subject to market fluctuations. There can be no assurance that
the Company's material requirements can be met in the future as demand grows,
unless additional supply capacity is developed in the United States. The
Company's performance also is materially dependent upon the ability of its
suppliers to keep pace with current and future OEM technologies. While the
Company believes that multiple sources of supply are available for all of its
raw materials, should the Company be unable to obtain adequate quantities of its
raw materials, delays or reductions in product shipments could occur which would
have a material adverse effect on the Company's business, financial condition
and results of operations. The supply and price of raw materials used to produce
the Company's products can be affected by factors beyond the control of the
Company, such as shortages, political instability and market volatility. If any
of the foregoing were to occur, the Company's business, financial condition and
results of operations would be materially adversely affected. While the Company
has the ability to pass certain material price adjustments through to its
customers, there can be no assurance that the Company can continue to pass
through these material price increases or pass them through on a timely basis.
In addition, the Company's results of operations are dependent upon its ability
to accurately forecast its requirements of raw materials. Any failure by the
Company to accurately forecast its demand for raw materials could result in the
Company either being unable to meet higher than anticipated demand for its
products or producing excess inventory, either of which may materially adversely
affect the Company's business, financial condition and results of operations.
See "Business."
Competition. Several companies offer products and services that compete
directly with the Company's compressed natural gas cylinders and installation
services. While the Company is not aware of any competitor that does so, any of
the Company's existing competitors could decide to offer the same range of
vehicle systems and services offered by the Company. If the market for
compressed natural gas fueled fleet vehicles develops as anticipated by the
Company, it is likely that new competitors will enter the market. Many of the
Company's competitors have significantly greater financial, technical and
marketing resources and greater name recognition than
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the Company. Such competition may impose additional pricing pressures on the
Company. There can be no assurance that the Company will compete successfully
with its existing competitors or with any new competitors.
In order to meet the emissions standards that have been established by
United States federal and state mandates over the past several years, several
alternative fuels in addition to compressed natural gas are being used or have
been proposed for use in alternative fuel vehicles. These include electricity,
liquefied petroleum gas (propane), methanol, ethanol, hydrogen, reformulated
gasoline and liquefied natural gas. Each of these other fuels have comparative
advantages and disadvantages over compressed natural gas and each is expected to
find at least some niche in the market for alternative fuels. See
"Business--Competing Alternative Fuels" and "--Competition."
Dependence on Transportation Industry; Impact of Gasoline Prices. The
Company's principal operations are cyclical in that they are directly related to
domestic and foreign vehicle production, which is in turn dependent on general
economic conditions and other factors. These conditions include the level of
economic growth, employment levels, financing availability, interest rates and
consumer confidence. The Company manufactures and supplies products primarily to
the transportation original equipment market, which includes the passenger car
and truck and forklift markets. A significant reduction in vehicle demand may
have a material adverse effect on the level of the Company's sales to OEMs and
the Company's business, financial condition and results of operations. There can
be no assurance that vehicle production levels will not decline in the future.
In addition, there is substantial and continuing pressure from the major OEMs to
reduce sourcing costs, including costs associated with suppliers such as the
Company. Furthermore, the Company's business, financial condition and results of
operations may be directly affected by the price of crude oil in the commodities
markets. If the price of crude oil decreases so as to significantly reduce the
price of gasoline, one of the primary incentives for the use of alternative
fuels would be eliminated and the Company's business, financial condition and
results of operations would be materially adversely affected. See "Business--The
Benefits of Compressed Natural Gas."
Dependence on Management. The Company's growth and profitability are
dependent upon, among other things, the abilities and experience of the
Company's management team. Except for Messrs. Howard T. Phelan and John R.
Bacon, the Company's Chairman of the Board and Chief Executive Officer and the
Company's President and Chief Operating Officer, respectively, none of the
Company's management team has employment agreements with the Company and there
can be no assurance that the Company will be able to retain their services. The
Company is considering obtaining key person life insurance on the lives of each
of Messrs. Phelan and Bacon. If the services of either of these officers were no
longer available to the Company, the Company's business, financial condition and
results of operations could be materially adversely affected. See "Management."
Uncertainty Regarding Proprietary Rights. The Company relies upon a
combination of nondisclosure and other contractual arrangements and trade
secret, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third parties from whom the Company licenses intellectual
property. The Company enters into confidentiality agreements with each of its
employees and limits distribution of proprietary information. There can be no
assurance that the steps taken by the Company in this regard will be adequate to
deter misappropriation of proprietary information or that the Company will be
able to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights. See "Business--Intellectual Property Rights."
Product Liability and Safety Risks. The Company's operations are subject
to all of the risks normally incident to the servicing and operation of natural
gas assets, including encountering unexpected pressures, explosions and fires,
which could result in personal injuries, loss of life, environmental damage, and
other damage to the properties of the Company or others. Errors in product
design, manufacture, installation or maintenance could result in serious
personal injury, loss of life, environmental or property damage and could
severely impact the Company's ability to remain a viable competitor in the
natural gas vehicle industry. The Company's activities involve numerous
financial, business, regulatory, environmental, operating and legal risks.
Damages occurring as a result of these risks may give rise to product liability
claims against the Company. Although the Company currently maintains product
liability insurance coverage in the amount of $6 million, such insurance is
becoming increasingly expensive and there can be no assurance that the Company
will be able to maintain such insurance on acceptable terms or that such
insurance will provide adequate coverage against product liability claims. In
addition, while the Company believes that its safety programs and procedures are
adequate, no assurance can be given that
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accidents of design, manufacture, installation or maintenance will not occur or
that damages from any of these accidents, if they do occur, will be covered
adequately by insurance. A successful product liability claim against the
Company in excess of its insurance coverage could have a material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, the adverse publicity of any claim against the Company or another
industry participant could adversely affect the Company's business prospects.
See "Business--Litigation."
Arbitrary Offering Price. The initial public offering price has been
arbitrarily determined by negotiation between the Company and the
Representative. In determining the offering price the Representative and the
Company considered, among other things, market prices of similar securities of
comparable publicly traded companies, the financial condition and operating
information of companies engaged in activities similar to those of the Company,
the financial condition and prospects of the Company and the general condition
of the securities market. Consequently, the initial public offering price of the
Common Stock does not necessarily bear any relationship to the Company's asset
value, net worth or other established valuation criteria and may not be
indicative of prices that may prevail at any time or from time to time in the
public market for the Common Stock. See "Underwriting."
No Prior Public Trading Market; Potential Volatility of Stock Price. Prior
to this Offering, there has been no public market for the Company's Common Stock
and there can be no assurance that an active trading market will develop or be
sustained after this Offering. The initial public offering price negotiated
between the Company and the Representative may not be indicative of prices that
will prevail in the trading market. The market prices for securities of
companies in the Company's industry have at times in the past been volatile. The
announcement of technological innovations or new commercial products by the
Company or its competitors, governmental regulations, regulatory approvals or
developments relating to patents or proprietary rights, publicity regarding
actual or potential products under development by the Company or others, as well
as period-to-period fluctuations in financial results and general economic,
political and market conditions, may have a significant impact on the market
price of the Common Stock. See "Underwriting."
Shares Eligible For Future Sale. Upon completion of this Offering, the
Company will have a total of 3,790,195 shares of Common Stock outstanding
(4,015,195 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, the 1,500,000 shares (1,725,000 shares if the
Underwriters' over-allotment option is exercised in full) sold in this Offering
and 366,862 currently outstanding shares will be freely tradeable without
restriction or registration under the Securities Act by persons other than
"affiliates" of the Company, as defined under the Securities Act. The remaining
1,923,333 shares of Common Stock outstanding upon completion of this Offering
will be "restricted shares" as that term is defined by Rule 144 as promulgated
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemption provided by Rule 144. All officers, directors and
stockholders of the Company and all holders of any options, warrants or other
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock have agreed that they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose of any shares of Common Stock or other capital stock
of the Company, or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock of the
Company without the prior written consent of the Representative, on behalf of
the Underwriters, for a period of 18 months from the date of this Prospectus,
provided, however, that (i) any such person may make private sales or bona fide
gifts of securities of the Company during such period if the proposed transferee
agrees to be bound by the above restrictions and (ii) such restrictions shall
not apply with respect to the laws of descent and distribution. As of the date
of this Prospectus, options to purchase a total of 100,000 and 145,167 shares of
Common Stock pursuant to the 1992 Plan and the 1996 Plan, respectively, were
outstanding and an additional 54,833 shares of Common Stock were available for
future option grants under the 1996 Plan. Any future sales of shares of Common
Stock may have an adverse effect on the market price of the Common Stock. See
"Management--Stock Option Plans," "Principal Stockholders," "Shares Eligible for
Future Sale," "Underwriting" and Note 12 of Notes to Consolidated Financial
Statements.
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Broad Discretion of Management and the Board of Directors in Use of
Proceeds. Although the Company intends to apply the net proceeds of this
Offering in the manner described under "Use of Proceeds," the Company's
management and the Board of Directors have broad discretion within such proposed
uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other aspects of the use thereof. Approximately 43.8%
(51.5% if the Underwriters' over-allotment option is exercised in full) of the
net proceeds of this Offering will be allocated and used for working capital and
other general corporate purposes. The Company may reallocate the net proceeds of
this Offering among the various categories set forth under "Use of Proceeds" as
it, in its sole discretion, deems necessary or advisable based upon prevailing
business conditions and circumstances. See "Use of Proceeds."
Control by Existing Stockholders; Benefits of Offering to Insiders.
Following this Offering, the Company's directors, officers and principal
(greater than 5%) stockholders, and certain of their affiliates, will
beneficially own approximately 59% of the outstanding shares of Common Stock. As
a result of such ownership, these stockholders will be able to control the
election of all directors and other actions submitted to a vote of the Company's
stockholders. Upon completion of this Offering, approximately $350,000 of the
net proceeds of this Offering will be used to repay indebtedness to certain
affiliates of certain members of the Board of Directors of the Company. As a
result, certain members of the Board of Directors will benefit from the use of
the proceeds of this Offering. See "Use of Proceeds," "Dilution," "Principal
Stockholders" and "Certain Transactions."
Immediate and Substantial Dilution. Purchasers of the shares of Common
Stock offered hereby (at an assumed initial public offering price of $6.75 per
share) will incur an immediate dilution in net tangible book value per share of
Common Stock of $3.95 (58.5%) per share ($3.78 per share (56.0%) if the
Underwriters' over-allotment option is exercised in full). Additional dilution
to future net tangible book value per share may occur upon the exercise of the
Representative's Warrants and options and warrants that are outstanding or to be
issued under the Company's stock option plans or otherwise. See
"Capitalization," "Dilution" and "Certain Transactions."
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THE COMPANY
The Company is a successor to an aluminum cylinder manufacturing business
started in 1982 and operated by Alcoa Securities Corporation, a wholly-owned
subsidiary of Alcoa, from 1984 until 1987. Between 1987 and 1992, the Company's
predecessors underwent a series of restructurings. The Company was incorporated
in Delaware in 1992 and currently operates through its wholly-owned subsidiary:
Natural Gas Vehicle Development Company, Inc., a California corporation
("NGVDC"). Natural Gas Vehicle Development Company Southeast, Inc., a Georgia
corporation, is a wholly-owned subsidiary of NGVDC.
The Company's executive offices are located at 5580 Cherry Avenue, Long
Beach, California 90805. The Company's telephone number is (310) 630-5768 and
its fax number is (310) 630-1382.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered hereby are estimated to be approximately $8,359,000
($9,680,000 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $6.75 per share, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
Amount Percentage
------ ----------
New Manufacturing Facility ............................ $3,500,000 41.9%
Repayment of Indebtedness ............................. $ 695,000 8.3%
Purchase of Manufacturing Machinery for Steel Cylinder $ 500,000 6.0%
Working Capital and General Corporate Purposes ........ $3,664,000 43.8%
---------- -----
Total ........................................... $8,359,000 100.0%
The Company plans to use approximately $3,500,000 of the net proceeds, in
conjunction with additional bank or other financing, to build or acquire a new
manufacturing facility which will be designed to permit expansion of the
Company's current manufacturing operations, as well as to produce larger
diameter cylinders (aluminum and steel) than the Company currently is able to
produce. The timing of this application of the net proceeds of this Offering
will be dependent upon several factors, including the identification of a
suitable site and the availability of additional financing. There can be no
assurance that such additional financing will be available on acceptable terms,
if at all. The Company currently anticipates that this application of the net
proceeds will not occur prior to 12 months after the completion of this
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources,"
"Business--Manufacturing" and "--Properties."
Approximately $695,000 of the net proceeds of this Offering will be used
to repay certain indebtedness, including approximately $245,000 to retire the
remaining principal amount due under a Loan and Security Agreement, dated June
2, 1992, by and between the Company and Silicon Valley Bank, as amended (the
"SVB Loan"), maturing on December 31, 1996 and bearing interest at the prime
rate of Silicon Valley Bank; approximately $350,000 to repay indebtedness to
Clock Spring, Inc. and Caithness Corporation; and approximately $100,000 to
repay a $100,000 unsecured promissory note bearing interest at the rate of 12%
per annum issued to a private investor in the Private Placement. See "Certain
Transactions."
Approximately $500,000 of the net proceeds of this Offering will be used
to purchase manufacturing machinery for a 3,600psi steel cylinder product line
which the Company introduced at the Natural Gas Vehicle Coalition Conference in
September 1996. See "Business--The Company's Fuel Storage Systems Business."
The remaining approximately $3,664,000 of the net proceeds of this
Offering, as well as any net proceeds received from the exercise of the
Underwriters' over-allotment option, will be used for working capital and
general corporate purposes, including the repayment of additional indebtedness.
See "Capitalization," "Management's
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Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions."
These amounts are estimates, and the amount and timing of the expenditures
of the net proceeds for these purposes will depend on numerous factors,
including the status of the Company's commercialization and marketing efforts,
government regulation, competition, manufacturing activities and market
acceptance of the Company's products. The Company may also use a portion of the
net proceeds to acquire natural gas vehicle-related businesses, products or
technologies, although the Company has no agreements and is not involved in any
negotiations with respect to any such transactions. See "Risk Factors--Broad
Discretion of Management and the Board of Directors in Use of Proceeds." Pending
such uses, the Company plans to invest the net proceeds from this Offering in
short-term, investment-grade, interest bearing securities.
The Company currently anticipates that the net proceeds of this Offering
will be adequate to satisfy its capital and operational requirements for at
least 12 months from the consummation of this Offering. The Company's capital
requirements in connection with its product development and marketing activities
will be significant, including the need for additional bank or other financing
to build or acquire an additional manufacturing facility. The Company
anticipates that additional funding will be required after the use of the net
proceeds of the Offering. No assurance can be given that such additional
financing will be available when needed on terms acceptable to the Company, if
at all. See "Risk Factors--Significant Capital Requirements; Dependence on
Offering Proceeds; Future Need for Additional Financing."
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does
not anticipate paying cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant. The SVB Loan currently prohibits the declaration or
payment of cash dividends on the Company's capital stock without the prior
written consent of Silicon Valley Bank.
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company as of June 30, 1996, and on a pro forma, as
adjusted basis, to reflect (i) the Private Placement, (ii) the July Dopp
Transaction and (iii) the sale of the Common Stock offered hereby and the
initial application of the estimated net proceeds therefrom, assuming a public
offering price of $6.75 per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. See "Use of
Proceeds." The information set forth below should be read in conjunction with
the Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
June 30, 1996
-----------------------
Actual Pro Forma,
-------- As Adjusted
-----------
(in thousands)
(unaudited)
Short-term debt: ................................. $ 2,260 $ 2,760
-------- --------
Stockholders' equity:
Preferred stock--$.01 par value;
2,000,000 shares authorized; no ............ $ 0 $ 0
shares issued and outstanding
Common stock--$.01 par value;
20,000,000 shares authorized;
2,276,306 shares issued and
outstanding; 3,790,195 shares
issued and outstanding pro forma,
as adjusted(1) ............................. $ 23 $ 38
Additional paid-in capital .................... $ 23,404 $ 31,848
Accumulated deficit ........................... $(21,275) $(21,275)
-------- --------
Total stockholders' equity ................. $ 2,152 $ 10,611
-------- --------
Total capitalization .......................... $ 4,412 $ 13,371
======== ========
- ----------
(1) Excludes (i) 158,717 shares of Common Stock and 32,000 shares of Preferred
Stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $5.67 (including 2,963 shares of Common Stock issuable
upon exercise of the warrant issued in connection with the Private
Placement assuming an initial public offering price of $6.75 per share),
(ii) 100,000 shares of Common Stock issuable upon the exercise of
outstanding options granted pursuant to the 1992 Plan at an exercise price
equal to the initial public offering price per share in this Offering,
(iii) 54,833 shares of Common Stock issuable upon exercise of options
available for future grant pursuant to the 1996 Plan at an exercise price
equal to the initial public offering price per share in this Offering and
(iv) 145,167 shares of Common Stock issuable upon the exercise of
outstanding options granted pursuant to the 1996 Plan at an exercise price
equal to the initial public offering price per share in this Offering. See
"Management--Stock Option Plans" and "Shares Eligible For Future Sale."
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1996 was $2,252,000, or approximately $0.98 per share. Pro forma net
tangible book value per share represents the total amount of tangible assets
less total liabilities divided by the number of shares of Common Stock issued
and outstanding. Without taking into account any changes in pro forma net
tangible book value arising from operations after June 30, 1996, other than to
give effect to (i) the Private Placement, (ii) the July Dopp Transaction and
(iii) the sale of the 1,500,000 shares of Common Stock offered hereby at an
assumed initial public offering of $6.75 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the pro forma net tangible book value of the Company at June 30,
1996 would have been $10,611,000, or approximately $2.80 per share. This
represents an immediate increase in net tangible book value of $1.82 per share
to existing stockholders and an immediate dilution in net tangible book value of
$3.95 per share to new investors. The following table illustrates this per share
dilution:
Assumed initial public offering price per share ...................$ 6.75
Pro forma net tangible book value per share
as of June 30, 1996.................................$ 0.98
Increase per share attributable to this Offering......$ 1.82
Pro forma net tangible book value per share
after this Offering........................................$ 2.80
------
Dilution per share to new investors..........................$ 3.95
======
The following table summarizes, on a pro forma basis to reflect the same
adjustments described above, the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by (i) existing stockholders of Common Stock at June 30, 1996 (after giving
effect to the Private Placement in September 1996) and (ii) new stockholders in
the Offering, assuming the sale of the 1,500,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $6.75 per share. The
calculations are based upon total consideration given by new investors and
existing stockholders before any deduction of underwriting discounts and
offering expenses.
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
--------- ------- ----------- ------- ---------
Existing Stockholders(1) 2,290,195 60.4% $23,526,900 69.9% $10.27
New Investors ........... 1,500,000 39.6% $10,125,000 30.1% $ 6.75
--------- ----- ----------- ----- ------
Total ............. 3,790,195 100% $33,651,900 100% $ 8.88
========= ===== =========== =====
- ----------
(1) Excludes (i) 158,717 shares of Common Stock and 32,000 shares of Preferred
Stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $5.67 (including 2,963 shares of Common Stock issuable
upon exercise of the warrant issued in connection with the Private Placement
assuming an initial public offering price of $6.75 per share), (ii) 100,000
shares of Common Stock issuable upon the exercise of outstanding options
granted pursuant to the 1992 Plan at an exercise price equal to the initial
public offering price per share in this Offering, (iii) 54,833 shares of
Common Stock issuable upon exercise of options available for future grant
pursuant to the 1996 Plan at an exercise price equal to the initial public
offering price per share in this Offering and (iv) 145,167 shares of Common
Stock issuable upon the exercise of outstanding options granted pursuant to
the 1996 Plan at an exercise price equal to the initial public offering
price per share in this Offering. See "Management--Stock Option Plans" and
"Shares Eligible For Future Sale."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data, ratios and percentages)
The following selected consolidated financial data at December 31, 1995 and
for the years ended December 31, 1994 and 1995 have been derived from the
Company's audited Consolidated Financial Statements included herein. The
selected consolidated financial data at December 31, 1994 have been derived from
audited consolidated financial statements not included herein. The selected
consolidated financial data at June 30, 1996 and for the six months ended June
30, 1995 and 1996 were derived from unaudited consolidated financial data of the
Company that, in the opinion of management, include all adjustments (consisting
of normal recurring accruals) necessary to fairly present such data. The
information should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto appearing elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Operating results for the six month period ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1996.
Six Months Ended
Year Ended December 31, June 30,
----------------------- ------------------
1994 1995 1995 1996
------- ------- ------- -------
Statement of Operations Data: (unaudited)
Net sales .......................... $ 5,189 $ 5,683 $ 3,550 $ 4,374
Operating costs and expenses:
Cost of sales .................... 5,868 6,171 3,305 3,951
Research and development ......... 714 622 284 202
Selling .......................... 935 926 394 366
General and administrative ....... 2,086 1,243 665 591
Restructuring charge ............. 482 299 -- --
------- ------- ------- -------
Loss from operations (1) ........... (4,896) (3,578) (1,098) (736)
Equity in losses of investments .... (1,034) (267) (89) (15)
Interest and other expenses, net ... (337) (446) (306) (133)
------- ------- ------- -------
(1,371) (713) (395) (148)
Net loss ........................... $(6,267) $(4,291) $(1,493) $ (884)
======= ======= ======= =======
December 31, June 30, 1996
------------------ -----------------------
Pro Forma,
1994 1995 Actual As Adjusted(2)
------- ------- ------- --------------
(unaudited)
Balance Sheet Data:
Working capital (deficit) ..... $(1,313) $ (379) $(1,226) $ 7,233
Total assets .................. 6,547 5,376 7,310 16,269
Long-term debt, net of
current portion ............. 90 -- -- --
Related party loans,
non-current.................. 5,016 -- -- --
Stockholders' equity (deficit) (2,190) 2,994 2,152 10,611
- ----------
(1) Loss from operations for 1994 and 1995 includes a restructuring charge of
$482,000 in 1994 and $299,000 in 1995. During 1994, the Company
implemented a plan to consolidate facilities and reorganize its
operations. As a result, the Company recorded a one-time restructuring
charge related to severance and relocation costs and the disposal of
certain equipment. In December 1995, the Company's Board of Directors
approved management's plan to dispose of the Company's interest in two
joint venture regional technology centers. Accordingly, the Company has
recorded
20
<PAGE>
a provision to wind down the joint venture operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 3 of Notes to Consolidated Financial Statements.
(2) Adjusted to reflect (i) the sale of 13,889 shares of Common Stock and a
two-year $100,000 unsecured promissory note (including a two-year warrant
to purchase that number of shares of Common Stock equal to $20,000 divided
by the higher of (A) the initial public offering price per share of Common
Stock in this Offering, at an exercise price equal to the initial public
offering price per share in this Offering or (B) $5.00, at an exercise
price of $5.00) to a private investor in September 1996 for an aggregate
consideration of $200,000 (the "Private Placement") and the initial
application of the net proceeds therefrom, (ii) the receipt of $400,000 in
July 1996 pursuant to a Loan and Security Agreement between the Company
and a private investor and the issuance to such investor of warrants to
purchase 100,000 shares of Common Stock at an exercise price of $3.00 per
share (the "July Dopp Transaction") and (iii) the sale of 1,500,000 shares
of Common Stock offered hereby at an assumed initial public offering price
of $6.75 per share (after deducting estimated offering expenses and
underwriting discounts and commissions), and the initial application of
the estimated net proceeds therefrom. See "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Certain Transactions."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the historical Consolidated Financial Statements and the Notes thereto and the
other financial information appearing elsewhere in this Prospectus. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Prospectus contain forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements. Factors
that may cause such differences include, but are not limited to, those discussed
under "Risk Factors" and elsewhere in this Prospectus.
Overview
The Company is the leading United States manufacturer and distributor of
fuel storage systems for use on-board natural gas vehicles. The Company
currently manufactures and distributes a variety of aluminum and composite
cylinder types and has recently introduced a steel cylinder product line.
Beginning in 1992, the Company established and operated its first regional
technology center offering emission testing, diagnostics, troubleshooting and
engineering support both to OEMs and to customers converting their vehicles to
operate on compressed natural gas. By the end of 1994, the Company had three
fully operational regional technology centers located in Los Angeles,
California, Austin, Texas and Atlanta, Georgia. All three regional technology
centers were joint venture arrangements wherein the Company partnered with a
local utility.
Revenues to date have been comprised principally of sales of compressed
natural gas cylinders to automotive OEMs, technology centers, aftermarket
conversion specialists, utilities and private fleets. The Company is currently
developing a full composite product line which is under limited market testing
by UPS.
The Company's cost of sales have been relatively high due to the fixed
costs and low utilization rates of the Company's current manufacturing
facilities. Expenditures on research and development reflects the continued
emphasis on product development.
Restructuring
In 1994, the Company implemented a plan to reorganize its operations. As a
result, the Company recorded a restructuring charge of $482,000 related to
severance and relocation costs and the disposal of certain equipment.
In the second quarter of 1995, the Company's Board of Directors approved
management's plan to withdraw from its joint venture investment in regional
technology centers located in Austin, Texas and Atlanta, Georgia. In Austin, the
relaxation of state regulations to include reformulated gasoline as an
alternative fuel severely reduced the size of the natural gas vehicle market. In
May 1996, the Company withdrew from its Atlanta regional technology center
partnership due to increasing losses and declining revenues from operations. The
Company's former joint venture partners in the Atlanta regional technology
center subsequently closed such center on September 15, 1996. The Company
incurred certain divestiture expenses associated with terminating its ownership
interest in the two joint ventures totalling $299,000. In addition, the Company
incurred $227,000 in general and administrative expenses related to its
withdrawal from the two joint ventures.
Results of Operations
The following table sets forth, for the periods indicated, consolidated
statement of operations data as a percentage of net revenues:
22
<PAGE>
Year ended Six Months
December 31, Ended June 30,
---------------- ----------------
1994 1995 1995 1996
------ ------ ------ ------
Statement of Operations Data: (unaudited)
Net sales .............................. 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of sales ....................... 113.1% 108.6% 93.1% 90.3%
Research and development ............ 13.8% 10.9% 8.0% 4.6%
Selling ............................. 18.0% 16.3% 11.1% 8.4%
General and administrative .......... 40.2% 21.9% 18.7% 13.5%
Restructuring charge ................ 9.3% 5.3% 0.0% 0.0%
------ ------ ------ ------
Loss from operations ................... (94.4%) (63.0%) (30.9%) (16.8%)
Equity in losses
of investments ....................... (19.9%) (4.7%) (2.5%) (0.3%)
Interest and other expenses, net ....... (6.5%) (7.8%) (8.6%) (3.0%)
------ ------ ------ ------
(26.4%) (12.5%) (11.1%) (3.4%)
Net loss ............................ (120.8%) (75.5%) (42.1%) (20.2%)
====== ====== ====== ======
Comparison of Six Months Ended June 30, 1996 (the "1996 Period") to Six
Months Ended June 30, 1995 (the "1995 Period").
Net sales for the 1996 Period increased $824,000, or 23.2%, from the 1995
Period. This increase was primarily due to large OEM sales to GFI Control
Systems, Inc. (for use by Ford Motor Company) and to Blue Bird Body Company.
Cost of sales includes material costs, direct costs and allocated factory
overhead associated with the manufacturing of the cylinders. Cost of sales
increased by $646,000, or 19.5%, from the 1995 Period to the 1996 Period. Cost
of sales did not increase at the same rate as net sales because the Company was
able to realize economies of scale from increased unit sales volumes spread over
certain fixed manufacturing costs.
Research and development costs for the 1996 Period decreased $82,000, or
28.9%, from the 1995 Period. The decrease was comprised of an increase in costs
associated with the development of the composite cylinder offset by a $100,000
research grant contributed by Southern California Gas Co., the Company's partner
in the Los Angeles regional technology center, towards the development of a fast
flow pressure release device that would speed the depressurization of a
cylinder. In addition, the Company began the development of a composite hoop
wrapped steel cylinder in 1996 for the purpose of expanding its product line in
the heavier but more price-sensitive segment of the market.
Selling costs for the 1996 Period decreased $28,000, or 7.1%, from the
1995 Period. The reduction in selling costs is due to a reduction in personnel
costs as the Company focused on developing its relationship with the OEMs.
General and administrative costs for the 1996 Period decreased $74,000, or
11.1%, from the 1995 Period. The decrease in general and administrative costs is
due to a reduction in personnel costs.
Equity in loss of investments in joint venture technology centers for the
1996 Period decreased by $74,000, or 83.1%, from the 1995 Period. The reduction
in losses was due to the divestiture in the Atlanta, Georgia and Austin, Texas
regional technology centers.
Net interest and other expense for the 1996 Period decreased $173,000, or
56.5%, from the 1995 Period. The reduction is principally due to the conversion
of related-party debt into Common Stock in the fourth quarter of 1995. Interest
expense related to the regional technology centers for the 1995 Period was
$22,000.
23
<PAGE>
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
Net sales for 1995 increased $494,000, or 9.5%, from 1994. This increase
was primarily due to an improving natural gas vehicle market, market acceptance
of new 15 inch diameter aluminum cylinders and the introduction in 1995 of a
full composite cylinder.
Cost of sales includes material costs, direct costs and factory overhead
associated with the manufacturing of the cylinders. Cost of sales for 1995
increased by $303,000, or 5.2%, as compared to 1994. Cost of sales did not
increase at the same rate as net sales because the Company was able to realize
economies of scale from increased unit sales volumes spread over certain fixed
manufacturing costs.
Research and development costs for 1995 decreased $92,000, or 12.9%, as
compared to 1994. The level of development costs was relatively comparable from
1995 to 1994 and reflects the Company's ongoing development efforts in new types
of cylinders and the completion of the first stage prototype of a full composite
cylinder.
In 1994, the Company incurred the majority of its costs in developing its
full composite cylinder while in 1995 the Company concentrated on developing a
greater engineering capability to service specific customer needs and to improve
operational efficiency of its manufacturing facility.
Selling costs for 1995 decreased $9,000, or 1%, as compared to 1994.
Selling costs consist of personnel-related costs and sales expenses. Such costs
were comparable from 1995 to 1994 due to offsetting costs from the Company's
opening of a sales office in Detroit to increase its focus on the OEM business
and the Company's closing of its sales offices in Pennsylvania and Kansas in
1995.
General and administrative costs for 1995 decreased $843,000, or 40.4%, as
compared to 1994. The decrease in general and administrative costs is primarily
due to the reduction in administrative personnel and efficiencies gained from
the reorganization of the Company's operations in the fourth quarter of 1994,
including the addition of a new management team.
Restructuring. In the second quarter of 1995 the Company's Board of
Directors approved management's plan to withdraw from its joint venture
investment in regional technology centers located in Austin and Atlanta. As a
result, the Company wrote down its related investments of $294,000 in these two
regional technology centers.
Equity in loss of investments in joint venture regional technology centers
for 1995 decreased by $767,000, or 74.2%, from 1994. The technology centers
reduced their costs at all facilities and the technology center located in
Austin, Texas began to wind-down its operations in 1995.
Net interest and other expense for 1995 increased $109,000, or 32.3%, as
compared to 1994. The increase reflects the increased borrowings required by the
Company to fund on-going operations. See "--Liquidity and Capital Resources."
Potential Fluctuations in Quarterly Results
The Company's operating results have fluctuated significantly in the past
and will likely continue to fluctuate significantly in the future as a result of
a variety of factors, many of which are beyond the Company's control. Sales have
been dependent on the budget cycles and funding arrangements of both federal and
state agencies, on the uncertainty associated with the timing of the delivery of
vehicles to be retrofitted and upon the use to which the vehicle is put (e.g.
school buses are typically retrofitted in the summer months), as well as other
factors.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations through the
issuance of equity securities and notes to related parties and short-term
borrowings. The Company has not been able to generate sufficient cash from
operations and, as a consequence, additional financing has been required to fund
ongoing operations. Cash used in operations for the six months ended June 30,
1996 was $1,535,000 as compared to cash used in operations of $1,969,000 for the
six months ended June 30, 1995. As of June 30, 1996, the Company had a working
capital deficit of $1,226,000 and accounts receivable of $2,072,000.
24
<PAGE>
The Company has experienced significant working capital deficiencies when
additional financing has been delayed and, as a consequence, its major vendors
have tightened their credit terms to include prepayment or cash on delivery.
These cash shortages have had a significant impact on the operational efficiency
of the Company.
In 1994, the Company's sales and net income were adversely affected by the
industry's reaction to a "loss-of-content" event involving a compressed natural
gas cylinder which had been installed in a pick-up truck manufactured by
General Motors Corporation ("G.M.") and G.M.'s related decision to temporarily
delay production of natural gas vehicles. The ramifications in the natural gas
vehicle industry from this accident contributed to a severe cash shortage
experienced by the Company in the second half of 1995, which adversely affected
the Company's efforts to improve on its 1995 results. Subsequently, as a result
of capital infusions in December 1995 and June 1996, the Company has been able
to improve its operating results.
In order to fund ongoing operations, the Company has borrowed from related
parties and raised cash from the sale of its Common Stock. Cash provided by
financing activities for the six months ended June 30, 1996 was $1,656,000 which
was comprised of short-term loans from related parties and an outside investor.
In July 1996, the Company received $400,000 from an investor in exchange
for: (i) a promissory note for $400,000 bearing interest at 12% per annum, due
on November 30, 1996; (ii) warrants exercisable into 100,000 shares of common
stock at $3 per share; and (iii) a consulting fee payable in the amount of
$3,000 per month as long as the Company has an unpaid balance related to the
$400,000 promissory note and a related $600,000 note from the same investor.
This note is secured by certain machinery.
In September 1996, the Company sold 13,889 shares of Common Stock and a
two-year $100,000 unsecured promissory note bearing interest at the rate of 12%
per annum, including a two-year warrant to purchase that number of shares of
Common Stock equal to $20,000 divided by the higher of (A) the initial public
offering price per share of Common Stock in this Offering, at an exercise price
equal to the initial public offering price per share in this Offering or (B)
$5.00, at an exercise price of $5.00, for an aggregate consideration of $200,000
in the Private Placement. Approximately $100,000 of the net proceeds of the
Private Placement was used for the purchase of steel cylinder production
equipment and the remaining approximately $100,000 was used for raw material
purchases and other working capital and general corporate purposes.
Cash used by investing activities primarily has consisted of capital
expenditures for equipment used in the manufacturing facility. For the year
ended December 31, 1995 and six months ended June 30, 1996, capital expenditures
totaled $454,000 and $182,000, respectively. The Company expects to use a
portion of the net proceeds from this Offering to purchase manufacturing
machinery for the steel cylinder and to construct a new manufacturing facility.
The timing of this latter application of the net proceeds of this Offering will
be dependent upon several factors, including the identification of a suitable
site and the availability of additional financing. There can be no assurance
that such additional financing will be available on acceptable terms, if at all.
The Company currently anticipates that this application of the net proceeds will
not occur prior to 12 months after the completion of this Offering.
In addition, the remaining portion of the net proceeds from this Offering
will be used to repay short-term debt due by December 31, 1996 and to fund
working capital requirements. See "Use of Proceeds."
The Company expects that its cash used in operating activities and
investing activities will increase in the remainder of 1996 and 1997. The
Company believes that the net proceeds from this Offering, together with other
available cash, including net cash flow from operations, will be sufficient to
meet the Company's operations and capital requirements for at least the next 12
months. The Company's capital requirements depend on numerous factors, but
principally on the market's acceptance of the Company's products and on the
development of the natural gas vehicle market in the future.
The timing of such capital requirements cannot accurately be predicted. If
capital requirements vary materially from those currently planned, the Company
may require additional financing. The Company has no commitments for any
additional financing, and there can be no assurance that any such commitments
can be obtained on favorable terms, if at all. Any additional equity financing
may be dilutive to the Company's stockholders and debt financing, if available,
may involve restrictive covenants with respect to dividends, raising future
capital and other financial and operational matters. If the Company is unable to
obtain additional financing as needed, the Company may be required to reduce the
scope of its operations or its anticipated expansion, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Net Operating Losses
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $17,000,000 expiring through 2010. The ultimate realization of the
net operating loss carryforwards will be subject to certain
25
<PAGE>
limitations due to any changes in the Company's ownership and will be dependent
upon the Company attaining future taxable earnings.
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the tax loss carryforward
that can be utilized, which could result in a part of such losses expiring
before they are used.
Other
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation." This standard encourages, but
does not require, recognition of compensation expense based on the fair value of
equity instruments granted to employees. The Company does not plan to adopt the
recognition provisions of this standard. The disclosures required by this
standard will be included in a note to the Company's 1996 consolidated financial
statements.
26
<PAGE>
BUSINESS
General
Natural Gas Vehicle Systems, Inc. is the leading United States
manufacturer and distributor of fuel storage systems for use on-board natural
gas vehicles. The Company's fuel storage cylinders are highly-engineered
pressure vessels for the storage of compressed natural gas. Since 1990, the
Company and its predecessors have invested significant resources in product
development and manufacturing capability to meet the expected growth in demand
in the natural gas vehicle market. The United States Clean Air Act Amendments of
1990 (the "Clean Air Act") and the Energy Policy Act of 1992 (the "Energy Policy
Act"), in combination with clean air laws passed in California, Texas and many
other states, mandate the use of alternative fueled vehicles in the United
States, reflecting the stated national policy of reducing vehicular air
pollution and dependence on foreign oil. The Company believes that compressed
natural gas is the most viable alternative fuel currently available.
In September 1996, a bill was introduced in the United States House of
Representatives the stated purpose of which in its present form is to encourage
the increased use of domestic natural gas as a transportation fuel and thereby
realize the broad societal benefits associated with such use, including improved
environmental quality, enhanced energy security, and increased domestic economic
activity. This bill would encourage the use of natural gas vehicles (including
bi-fuel vehicles) through emission reduction credits, tax incentives for fleet
vehicle operators and owners of natural gas fueling stations, fuel credits,
shorter depreciation recovery periods for natural gas vehicles and refueling
property and the establishment of a research, development and demonstration
program at the United States Department of Energy. There can be no assurance
that this bill will be reintroduced in the next legislative session or enacted
into law in its current form, if at all.
The Company currently manufactures and distributes a variety of aluminum
and composite cylinder products and has recently introduced a steel cylinder
product line. The Company believes that the commercialization and further
development of the steel cylinder product line is essential to the Company's
expansion plans since approximately 25% of the United States market and 90% of
the international market consists of steel cylinders. The Company also has an
investment in a regional technology center which converts vehicles to operate on
compressed natural gas. In addition, the Company offers emission testing,
diagnostics, troubleshooting and engineering support both to original equipment
manufacturers ("OEMs") and to customers converting their vehicles to operate on
compressed natural gas.
The Company currently markets and sells its compressed natural gas
cylinders throughout the United States for use by automotive OEMs, such as Ford
Motor Company; bus manufacturers, such as Blue Bird Body Company, Transportation
Manufacturing Corporation and El Dorado National Bus; aftermarket conversion
specialists; and utility, government and private fleets, such as Southern
California Gas Co., the United States Postal Service and United Parcel Service
of America, Inc. ("UPS"). The Company currently also supplies cylinders for use
by the Ford Motor Company's program for its F-Series Pick-Up, E-Series Econoline
Van and Contour passenger car natural gas vehicle product lines. In addition to
domestic sales, the Company has also commenced marketing its compressed natural
gas cylinders in the international market and has received a provisional
approval letter from the Government of Venezuela authorizing the sale and use of
the Company's cylinders.
The Company believes that fleets, which are the Company's target market,
currently account for a significant portion of all airborne pollutants in urban
areas and are the primary target of several recent federal and state legislative
mandates requiring conversion to operation on alternative fuels over time. In
the 22 metropolitan regions in the United States designated as serious, severe
or extreme "non-attainment" areas under the Clean Air Act (those geographic
areas which do not meet the Clean Air Act's air pollution standards),
approximately 8.5 million of these vehicles are operated in fleets of 10 or more
vehicles with an operating range of less than 200 miles per day, including
school and transit buses, medium duty trucks, garbage trucks, utility fleet
vehicles, delivery vehicles and certain light-duty fleets, including taxis and
police cars. The majority of these fleet vehicles operate in urban areas, in
stop-and-go driving conditions, with predictable average daily mileage and
central refueling and servicing locations.
The Company's strategy is to take advantage of its expertise and
leadership position in its industry to increase its share of the expanding
market for natural gas vehicle fuel storage cylinders. The Company initially has
27
<PAGE>
focused and will continue to focus on the high fuel-use fleet vehicle segment of
the natural gas vehicle market, in which vehicles consume large quantities of
fuel due to the nature of their operation and usage. For example, the Company is
currently developing a full composite product line which is under limited market
testing by UPS. In addition, the Company believes there are opportunities for
vehicle conversion centers as well as for turnkey projects for fleet operators
seeking a single source to fully establish a natural gas vehicle program,
providing vehicles, refueling, long-term fuel supply contracts and financing.
The Company is evaluating other joint venture opportunities with major regional
gas industry companies to establish regional technology centers to meet the
expected demand for natural gas vehicle production capabilities and conversion
services. The Company also plans to enter certain international markets through
the establishment of technology centers with foreign joint venture partners in
strategic locations throughout the world.
Industry Overview
Natural Gas Vehicle Industry. The natural gas vehicle industry in the
United States consists of approximately 280 providers of natural gas vehicle
products and services serving more than 50,000 natural gas vehicles in the
United States. Natural gas vehicle industry participants offer a variety of
products and services, including high-pressure compressed natural gas fuel
vessel storage systems and conversion services and technology. In 1995, there
were approximately 42,000 natural gas vehicles in operation in the United States
and government and industry sources estimate that, by the year 2010, two million
or more natural gas vehicles will be in operation in the United States, although
there can be no assurance that such levels will be attained as predicted, if at
all. The Company also estimates that there are over one million natural gas
vehicles currently in operation worldwide.
Government Mandate. The Clean Air Act and the Energy Policy Act, in
combination with clean air laws passed in California, Texas and many other
states, mandate the use of alternative fueled vehicles in the United States,
reflecting the stated national policy of reducing vehicular air pollution and
dependence on foreign oil. Generally, these laws specify more stringent
emissions standards for vehicles (begun in 1994 and becoming progressively more
stringent through the year 2001), and require federal, state and certain other
fleet operators to utilize domestic, non-petroleum fuels in their fleet vehicles
on an increasing basis over time. In March 1996, the Department of Energy
promulgated regulations pursuant to the Energy Policy Act requiring a minimum of
25%, 10% and 30% of newly-manufactured 1997 model year vehicles purchased by
federal, state and "fuel provider" fleet operators, respectively, to operate on
non-petroleum based "alternative fuels" such as compressed natural gas.
In September 1996, a bill was introduced in the United States House of
Representatives the stated purpose of which in its present form is to encourage
the increased use of domestic natural gas as a transportation fuel. Although
this bill would encourage the use of natural gas vehicles (including bi-fuel
vehicles) through emission reduction credits, tax incentives, fuel credits and
other means, it would also amend certain provisions of the Energy Policy Act by
eliminating the mandated purchase of a specified percentage of alternative fuel
vehicles by alternative fuel providers and private fleet owners and operators
beginning in model year 1999. See "--Government Regulation."
The Company and several industry experts believe that the Clean Air Act
and the Energy Policy Act will promote the transition to the use of compressed
natural gas. The Energy Policy Act was introduced in response to the threat from
foreign oil dependence presented by the Gulf War in 1991. United States domestic
reserves are reported to be sufficient to meet an estimated 50 years of demand
and North American supplies are reported to be sufficient to meet an estimated
150 years of demand at current usage rates. Industry sources report that the
United States imported approximately 52% of its total oil consumption in the six
months ended June 30, 1996.
The Benefits of Compressed Natural Gas
In the United States, compressed natural gas first was used as a motor
vehicle fuel at the turn of the century. However, refined petroleum products
(gasoline and diesel) became the dominant motor fuel due to the ease of their
storage compared to compressed natural gas, as well as the lack of pipeline
infrastructure at that time to transport natural gas from the well head to
consumers.
A task force formed by President Clinton to consider federal fleet
conversions concluded in August 1993 that the increased use of motor vehicles
powered by alternative fuels other than gasoline or diesel, including compressed
natural gas, could significantly reduce United States dependence on foreign oil,
increase energy security
28
<PAGE>
by diversifying the transportation fuel supply, aid in revitalizing the domestic
energy industry, stimulate the domestic economy, create American jobs and
improve environmental quality, particularly in urban areas.
In addition to the government mandates contained in the Clean Air Act and
the Energy Policy Act, the Company and certain industry experts believe that
compressed natural gas should be viewed as the most viable of all of the various
motor vehicle "alternative fuels" and is emerging as an important fuel for motor
vehicle fleets for the following reasons:
o Environmental Benefits - In the United States, the Energy Policy Act
and the Clean Air Act, as well as various state clean air laws,
mandate the use of alternative fuels by fleet vehicles. Compressed
natural gas is the cleanest burning fossil fuel and can reduce
nitrogen oxide emissions by up to 76%, carbon monoxide emissions by
up to 95%, carbon dioxide emissions by up to 24% and reactive
hydrocarbons by up to 95%, thus meeting stringent governmental
vehicle emissions standards. In addition, natural gas is not a
liquid at ambient temperatures and pressures and thus will not
contaminate groundwater.
o Economics - Compressed natural gas is substantially less expensive
on an energy equivalent basis when compared to conventional refined
fuels such as gasoline and diesel. In most areas of the United
States, compressed natural gas presently is sold to retail customers
at a per gallon equivalent cost of $0.65 - $0.85 as opposed to the
current price of $1.20 - $1.55 for unleaded gasoline. In addition,
vehicle operating costs are reduced due to less engine wear with
resulting lower maintenance costs and longer engine life. In
addition to these direct operating savings, a number of tax and
other programs are being considered and adopted at the federal,
state and municipal level as well as by regional gas utility
companies as an additional incentive to stimulate and accelerate the
conversion by fleets to vehicles fueled by compressed natural gas.
o Supply - Natural gas is widely available and in abundant supply.
United States domestic reserves are reported to be sufficient to
meet an estimated 50 years of demand and North American supplies are
reported to be sufficient to meet an estimated 150 years of demand
at current usage rates. The Energy Policy Act mandates the
development of domestically-produced alternative fuels (including
natural gas but excluding reformulated gasoline) in order to limit
reliance on imported energy products and to increase use of domestic
energy resources. The natural gas pipeline infrastructure in the
United States is extensive with service to and throughout every
major metropolitan area. Additional pipeline capacity currently is
under construction to further improve transmission capabilities
between Canada and the United States and between specific United
States markets.
o Safety - The Company and certain industry experts believe that
natural gas is a safer vehicle fuel than gasoline because (i) the
ignition temperature for natural gas is higher than gasoline, (ii)
natural gas is lighter than air and thus dissipates quickly, and
(iii) natural gas can ignite only in a narrow range of fuel-air
ratios.
o Dependence on Foreign Oil and Balance of Payments - Currently, the
United States obtains approximately 52% of its domestic petroleum
requirements from imported oil. In addition to the national security
implications created by this dependency, the importation of
petroleum products created a reported deficit in United States
balance of payments of approximately $45 billion in 1994 with the
correspondingly negative impact on the United States domestic
economy. The United States government reports that, unless an
alternative source of energy is found, United States dependence on
imported petroleum will increase to approximately 70% by 2010.
Competing Alternative Fuels
In order to meet the emissions standards that have been mandated by United
States federal and state legislation over the past several years, several
alternative fuels in addition to compressed natural gas have been proposed for
use in alternative fuel vehicles. Each of these other fuels has advantages and
disadvantages in comparison to compressed natural gas.
29
<PAGE>
o Electricity - Electricity has been aggressively promoted as a
purported "zero-emissions" alternative fuel, particularly in
California. Consumers are familiar with electricity and may be less
resistant to powering their vehicles the way they power home
appliances. A recent United States Environmental Protection Agency
("EPA") report notes, however, that electricity is not a true
"zero-emissions" fuel. Since it must be made from primary sources of
energy, the fuels used to generate the electricity produce
emissions. Current battery technology also requires a number of
heavy, expensive batteries in an electric vehicle, which batteries
constitute hazardous environmental waste after their useful life has
expired. Current battery technology generally permits only limited
driving range per vehicle, very light load capacity and no
heating/air-conditioning load. Based on these limitations, the
Company believes that, for the near future, electricity may have
application only in small consumer vehicles, and not in fleet
vehicles. The Company believes that hybrid electric vehicles, which
produce electricity on board from an alternative fuel such as
natural gas, will not be commercially available for a number of
years.
o Liquefied Petroleum Gas (Propane) - Liquefied petroleum gas is a
by-product of petroleum refining and natural gas production. It
currently is used throughout the United States for heating purposes
and as a petrochemical feedstock. Vehicles powered by propane emit
less ground-level, ozone-forming hydrocarbons than do vehicles
fueled with conventional gasoline. Engines in these vehicles
generally are considered easier to start than gasoline engines in
cold weather because propane is vaporized before injection into the
engine. In addition, propane storage tanks are significantly less
expensive than the Company's fuel storage cylinders. Disadvantages
of propane include seasonal variation in price, limited driving
range, limited availability of refueling stations and restrictions
on traveling through tunnels or over bridges due to safety concerns.
Also, there is very limited supply above current levels of
production. The Company believes, however, that propane may be more
widely used in certain areas, such as in Texas, where supply is
readily available.
o Methanol - Manufactured from natural gas, coal or biomass, methanol
(also called wood alcohol) can be used to power vehicles when pure
or blended with gasoline. Most methanol in the United States is
produced from natural gas resources. Emissions from methanol, which
has a higher octane rating than gasoline, would be reduced by
approximately 30% when compared to gasoline use. Methanol has an
advantage in "dual-fuel" or "flexible fuel" vehicles in that only
one fuel tank system is required. Both gasoline and methanol can be
pumped into the tank. Capital costs of a methanol fueling system
also are lower than for compressed natural gas since current
gasoline stations can be used with the addition of methanol storage
tanks. The Company believes that several disadvantages prevent
methanol from being considered a viable alternative to gasoline.
Methanol's energy density is about half that of gasoline, making it
expensive as well as reducing the range a vehicle can travel on an
equivalent tank of fuel. Methanol also is very corrosive and toxic.
Currently, vehicles using methanol at temperatures below 45(degree)F
are difficult to start due to methanol's chemical nature. Also,
vehicles using methanol emit formaldehyde in their exhaust.
Formaldehyde is a highly reactive compound which presents
significant emissions problems. Due to recent demands, methanol
currently is in relatively short supply.
o Ethanol - Ethanol is made by the fermentation of corn or other
agricultural products. Its use in the United States primarily is
centered in the Midwest, where excess corn and grain may be
converted into fuel. Ethanol currently is used as an oxygenate for
approximately 9% of all gasoline sold in the United States. Due to
its use as an oxygenate, its supply currently is on allocation in
the United States. Ethanol generally reduces harmful emissions and
is relatively low in toxicity, water soluble and biodegradable,
making the consequences of large fuel spills less harmful to the
environment. In addition, ethanol prevents fuel system deposits
because of its chemically active nature. Due to its corrosive
properties and water solubility, however, ethanol would require
special metals in engines and fuel systems and could not be carried
by pipeline. It also has the same "cold-start" difficulties as
methanol. Further, the unsubsidized cost of production is very high.
Finally, the life cycle emissions of ethanol production actually
increase total emissions.
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<PAGE>
o Hydrogen - Hydrogen's chief advantage is that it produces no carbon
dioxide or other greenhouse gases when burned. Hydrogen, however,
which must be manufactured, poses serious storage and volatility
problems since it ignites very easily.
o Reformulated Gasoline - A number of "clean" gasolines have recently
been introduced into the marketplace and research is continuing to
develop even cleaner fuels. Reformulated gasoline, capable of
significantly reducing hydrocarbon emissions, is now required in
some high-ozone areas. Reformulated gasoline is superior to other
alternative fuels in that it has a ready infrastructure and requires
little education among consumers or modification of engines or
fueling systems to gain acceptance. Reformulated gasoline's primary
disadvantage is that, in order to permit production, refineries must
be refitted, at significant cost, resulting in higher retail
gasoline prices. Further, since reformulated gasoline is derived
from petroleum, its use does not address the problem of dependence
on foreign energy sources. For these reasons, the Energy Policy Act
specifically prohibits the use of reformulated gasoline as a
mandated alternative fuel.
o Other Alternative Fuels - Other alternative fuels include liquefied
natural gas, coal-derived liquid fuels, solar and wind power and
fuels (other than alcohols) derived from biological materials, such
as bio-diesel. Management believes that liquefied natural gas, which
is cooled to a cryogenic liquid to allow greater energy storage,
prospectively is a significant alternative fuel for buses and
long-distance heavy-duty trucks. Several hundred of these vehicles
are in operation in the United States today. Various technical
problems remain, however, which have delayed widespread use.
Management believes these remaining alternative fuels are all in
various experimental stages.
The Company's Target Market
The Company currently markets its natural gas vehicle products and
services to federal, state, municipal and private fleet vehicle operators, OEMs
and to prospective customers in strategic international markets.
Fleet Vehicles. Fleets, which the Company believes account for a
significant portion of all airborne pollutants in urban areas, are the primary
target of several recent federal and state legislative mandates requiring
conversion to operation on alternative fuels over time. In the 22 metropolitan
regions in the United States designated as serious, severe or extreme
"non-attainment" areas under the Clean Air Act (those geographic areas which do
not meet the Clean Air Act's air pollution standards), approximately 8.5 million
of these vehicles are operated in fleets of 10 or more vehicles with an
operating range of less than 200 miles per day, including school and transit
buses, medium duty trucks, garbage trucks, utility fleet vehicles, delivery
vehicles and certain light-duty fleets, including taxis and police cars. The
majority of these fleet vehicles operate in urban areas, in stop-and-go driving
conditions, with predictable average daily mileage and central refueling and
servicing locations. In light of these factors, the Company believes that these
fleet vehicles represent the primary target market for the Company's products
and services in the foreseeable future.
Fleet vehicles increasingly are being converted to operate on compressed
natural gas for a number of reasons. First, they are the primary target of
several recent federal and state legislative and regulatory mandates requiring
such conversion over time. Second, the reported average 40% fuel and maintenance
savings generated by the use of compressed natural gas over gasoline
significantly improves operating costs for fleet operators. Third, according to
industry sources, the average range for a fleet vehicle is between 75 and 150
miles/day, which falls within the operating range of a vehicle equipped with
natural gas cylinder fuel storage capacity that does not crowd the vehicle
storage areas. Fourth, some fleet operators economically can invest in a
refueling facility to service their vehicles. Fifth, since natural gas is the
cleanest burning of all fossil fuels, use of compressed natural gas results in
many environmental benefits, including significantly reduced emissions.
Government and industry sources estimate that the number of compressed natural
gas fleet vehicles in the United States will increase from approximately 42,000
in 1995 to two million or more by the year 2010, although there can be no
assurance that such levels will be attained as predicted, if at all.
The Company, and the natural gas vehicle industry as a whole, has been
focusing its efforts on penetrating those fleet vehicle market segments where
vehicles consistently consume large quantities of fuel due to their
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<PAGE>
operational characteristics and/or usage patterns. High fuel-use fleets include
school and transit buses, medium duty trucks, utility fleets and high fuel-use
light duty fleets, including taxis and police cars. Most of these high fuel-use
vehicles carry multiple fuel cylinders to allow increased range.
Although the consumer market for compressed natural gas passenger vehicles
ultimately may be larger than the fleet vehicle market, it is likely to develop
more slowly for a number of reasons. At the present time there are relatively
few publicly accessible refueling stations, which limits the current
attractiveness of compressed natural gas as a fuel for individual consumers.
Passenger vehicles are also usually smaller than the typical fleet vehicle and
are driven shorter distances, thus using less fuel and creating less pollution.
Accordingly, consumer passenger vehicles are not yet subject to the same
stringent federal or state environmental emissions standards which mandate the
purchase of alternative fuel vehicles by fleet operators.
OEMs. To date, OEM natural gas vehicles have been produced in low volumes
by four categories of vehicle manufacturers:
o Automakers such as Ford Motor Company, Chrysler Corporation and
General Motors Corporation.
o Bus builders such as Blue Bird Body Company, Bus Industries of
America, El Dorado National Bus, Flexible Bus Company, Nova Bus, New
Flyer Corporation, Neoplan, and Navistar International Corporation.
o Chassis and body builders such as Northrop Grumman Corporation,
Oshkosh Truck Corporation and Utilimaster Corp., a division of
Harley-Davidson, Inc.
o Specialty vehicle builders such as Crane Carrier Company.
Several major automakers have begun to introduce natural gas vehicle
light-duty trucks and passenger cars. Ford Motor Company ("Ford") began
implementation of its natural gas vehicle qualified vehicle modifier ("QVM")
program in 1994 by offering its F-Series pickup trucks in a bi-fuel natural gas
vehicle model, followed by the E-Series vans (1995 model year) and the Contour,
a bi-fuel passenger car, in mid-1996. The Ford QVM program produced three model
lines of vehicles developed for compressed natural gas in the 1996 model year.
Ford also produces a factory-built dedicated-fuel Crown Victoria four-door
sedan. In July 1996, Chrysler Corporation, however, announced a temporary
cessation of production of their natural gas vehicle line until such time as
they can resolve certain cylinder design problems and achieve greater sales
volume. General Motors Corporation has recently announced the introduction of
their Sierra pickup truck to be produced as a natural gas vehicle in January
1997. In addition, Honda Motor Co., Ltd., BMW AG, AB Volvo and other foreign
OEMs have announced natural gas vehicle products and have United States
demonstration projects underway. As the major OEMs introduce the products listed
above, there are still products in the development phase which are expected to
be introduced in 1996 and continue through 1998, particularly from truck and bus
manufacturers.
International Market Development. The international market for natural gas
vehicles is directly impacted by the cost of imported oil and the wide
availability of lower-cost natural gas in many countries. Many countries with
plentiful natural gas resources cannot afford to import quantities of
oil-refined products (e.g., gasoline) or to use significant quantities of
domestically produced oil for motor vehicles. Further, the air pollution
problems of many cities throughout the world now require these cities to
implement vehicle emissions controls. Consequently, large markets for compressed
natural gas vehicles are developing in certain high technology markets such as
Argentina, Australia, Canada, Italy, New Zealand and Venezuela. In Venezuela,
for example, the Company has received a provisional approval letter from the
Government of Venezuela authorizing the sale and use of the Company's cylinders.
In virtually all of these countries, tax policy typically is used to create
economic incentives to switch to clean fuels. The Company also estimates that
there are over one million natural gas vehicles currently in operation
worldwide. In addition, numerous programs are underway in various other
countries. For example, activities in Korea and Indonesia suggest that these
countries represent near-term international market opportunities.
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The Company's Fuel Storage Systems Business
The Company currently manufactures 43 standard sizes and types of
cylinders, all of which are highly-engineered and tested pressure vessels. These
cylinders consist of 36 aluminum cylinder types, of which 18 are 3,000psi
cylinders and 18 are 3,600psi cylinders, and seven composite cylinder types, all
of which are 3,000psi. In addition to its standard size product offerings, the
Company has the ability to produce variable length cylinders from 30 to 100
inches which the Company believes gives it a competitive advantage.
The Company currently produces sidewall-wrapped composite-reinforced
aluminum cylinders in a variety of sizes to fit a variety of vehicles. In
addition, the Company has developed and is now marketing full-wrap, non-metallic
lined cylinders. The Company also is working with OEM manufacturers to design
vehicle-specific cylinders that can be incorporated into the vehicle frame,
optimizing space utilization and enhancing the structural integrity of the
vehicle. All of the Company's products are manufactured in compliance with DOT
regulations.
The Company has recently introduced a 3,600psi steel cylinder product line
that is designed to compete with current steel cylinder manufacturers. The
Company introduced the steel cylinder at the Natural Gas Vehicle Coalition
Conference in September 1996 and is currently soliciting orders for its steel
cylinder product line. Since steel cylinders have lesser wall thickness than
aluminum or composite cylinder types, they are characterized by increased
cylinder storage capacity. The Company believes that the commercialization and
further development of the steel cylinder product line is essential to the
Company's expansion plans since approximately 25% of the United States market
and 90% of the international market consists of steel cylinders. The Company
also believes that introduction of a steel cylinder to the international market
is important to the Company's business since such markets currently are growing
more rapidly than the United States market. The three types of cylinders offered
by the Company are considered complementary as the natural gas vehicle market
has various requirements and applications for cylinder usage. The Company plans
to use a portion of the net proceeds of this Offering to build a new
manufacturing facility designed to produce larger diameter cylinders (aluminum
and steel) than the Company currently is able to produce. See "Use of Proceeds."
The Company's Natural Gas Vehicle Production, Conversion and Service Business
In developing its business strategy, the Company determined that the
conversion of large numbers of vehicle fleets to operate on compressed natural
gas fuel requires strong, highly-qualified natural gas vehicle manufacturing and
technical expertise that is located regionally around the United States.
Consequently, in order to rapidly increase its ability to meet the expected
demand for natural gas vehicle production capabilities, the Company is pursuing
joint ventures with major regional companies, especially gas utilities, to
develop regional technology centers. The Company also is seeking similar
collaborative relationships with other potential joint venture partners in
certain foreign markets. The Company would seek to provide technical expertise
and capital, as well as compressed natural gas cylinders and other technical
equipment, to the joint ventures while the gas company partners would provide
capital, refueling capability and local marketing services. The Company
generally seeks to assist the joint ventures in training, certification
procedures, and operations of the certified emissions testing laboratory. The
Company's wholly-owned subsidiary, NGVDC (or an affiliated entity), acts as the
Company's representative in such joint venture relationships.
NGV Ecotrans. The Company currently has a 35% interest in NGV Ecotrans
Group, L.L.C. ("NGV Ecotrans"), the largest full-service natural gas vehicle
conversion and technology center in the world, which is located in Los Angeles,
California. Southern California Gas Co. and Cardinal Automotive Incorporated
have a 50% and a 15% interest in NGV Ecotrans, respectively. NGV Ecotrans
provides vehicle production and conversion services and technical services to
fleet customers and government regulators and serves as a data collection point
for industry and government analysis of natural gas vehicle performance. This
regional technology center also provides fleet operators with manuals and
training to properly complete conversions and provides the Company with an
opportunity to work with OEMs to ensure that its installed natural gas vehicle
systems meet warranty requirements.
NGV Ecotrans operates in a 60,000 square foot facility with hydraulic
lifts, related tooling and diagnostic equipment, and complete emissions test
laboratories which are capable of testing vehicles to the most stringent
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<PAGE>
federal and state criteria. This regional technology center is designed to be
able to convert 2,500 to 5,000 vehicles annually, with the potential to expand.
The Company previously operated two additional technology centers with joint
venture partners in Atlanta, Georgia and Austin, Texas. In May 1996, the Company
withdrew from its regional technology center partnership in Atlanta, Georgia due
to increasing losses and declining revenues from operations. The Company's
former joint venture partners in the Atlanta regional technology center
subsequently closed such center on September 15, 1996. The Company also closed
its Austin, Texas regional technology center due to recent Texas legislation
defining reformulated gasoline and "clean diesel" as "clean alternative fuels."
This legislation provided strong disincentives to the use of compressed natural
gas as an alternative fuel and temporarily resulted in a serious reduction in
the number of natural gas vehicle conversions conducted by the Austin regional
technology center. In general, the Company believes that it is well positioned
to take advantage of the increasing demand for natural gas vehicle conversion
services and aggressively plans to promote its products and expertise in this
area. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Future Technology Centers. The Company is in active discussions with a
number of gas utility companies and municipalities in the United States and
internationally regarding the opening of the next series of regional technology
centers, including regions covering New York, Chicago and Washington D.C. The
Company also has provided Public Service Company of New Mexico ("PSC/NM") with
technical advice and other support in order to enable PSC/NM to establish a
conversion center in Albuquerque, New Mexico. PSC/NM has agreed to use the
Company's natural gas cylinders in such conversion center whenever practical.
The Company intends to develop some or all of these locations over the next few
years, although there can be no assurance that the Company will be able to
establish any additional regional technology centers or that such technology
centers, if established, will prove profitable to the Company.
Engine Systems Support. NGV Technologies Company ("NGV Technologies") was
formed in 1991 as a division of the Company's immediate predecessor, primarily
as a technical support group for its cylinder and conversion businesses. NGV
Technologies offers emissions testing, trouble shooting and support to customers
(such as GFI Control Systems, Inc. (a supplier to Ford Motor Company), NGV
Ecotrans, Southern California Gas Co. and Institute of Gas Technology)
converting vehicles to operate on compressed natural gas. In January 1992, the
California Air Resources Board certified NGV Technologies to become a licensed
emission laboratory for the state of California. The laboratory is staffed with
technicians knowledgeable about vehicular engineering requirements used by OEMs.
Through strategic alliances with leading manufacturers of conversion equipment
hardware, NGV Technologies is engaged in the verification, calibration and
testing of California Air Resources Board and EPA certified vehicle conversion
system components. In addition, the emission lab of NGV Technologies assists the
kit suppliers in studying gas composition levels and their effects on vehicle
performance and emissions.
NGV Technologies, together with kit manufacturers, natural gas providers,
and conversion companies, conduct feasibility and effectiveness studies on a
variety of vehicles and engine families targeted for natural gas conversion.
These studies are conducted on both domestic and foreign vehicles and are
designed to determine the best installation configurations for component
packaging and emission improvements. Durability and mileage studies are then
conducted at pre-assigned mileage accumulations to determine conversion
integrity and monitor possible degradation of the systems affecting emissions
and vehicle performance. This process can support market planning in determining
the proper vehicle to be introduced and to which markets it may be targeted.
Manufacturing
The Company's composite reinforced aluminum cylinders are manufactured at
the Company's facilities in Long Beach, California. The Company's manufacturing
facilities currently operate with one shift, five days a week. Management
estimates that the current cylinder production capacity is dependent upon the
product mix used in the United States and can achieve approximately 35,000
cylinders annually, assuming three production shifts per day.
Manufacturing the Company's sidewall-wrapped, composite aluminum cylinder
is a highly-engineered process which consists of flow forming primarily extruded
metal tube and then spinning closed ends on it under very high pressures. After
forming, the cylinders are: (1) heat treated, (2) drilled and tapped, (3) wound
with a reinforced, glass composite material, (4) heat cured, (5) autofrettaged
(binding of metal and glass) and (6) given an environmental coating. After
further testing, the cylinders are assembled and undergo final quality control
checks
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<PAGE>
before shipment. Every step of the manufacturing and quality control process
conforms with DOT standards and is subject to DOT inspection.
The Company's manufacturing facilities are in two adjacent buildings
consisting in the aggregate of approximately 45,000 square feet which house all
present administrative, sales, manufacturing and under-roof storage activities.
In addition, the Company plans to use a portion of the net proceeds of this
Offering and to seek additional bank or other financing to build or acquire a
new manufacturing facility. The new manufacturing facility will be designed to
permit expansion of the Company's current manufacturing operations, as well as
to produce larger diameter cylinders (aluminum and steel) than the Company
currently is able to produce. See "Use of Proceeds" and "Business-Properties."
Customers and Marketing
The Company distributes its products through its regional technology
center, independent conversion shops, utility companies and directly to fleet
operators. It also sells specifically-engineered products directly to OEMs. The
Company employs three full time sales representatives. In 1995, the Company
established its principal sales office in Detroit headed by an experienced OEM
sales and engineering professional, focusing on OEM sales, and designated field
representatives for the Eastern and Western regions of the country. The
Company's sales representatives work with local utilities, converters, municipal
transit authorities and state and local governments to promote the use of the
Company's products in addition to pursuing direct sales to fleet operators and
OEMs. The Company continues to develop relationships with key utilities around
the country and has significantly enlarged its advertising, promotional and
marketing budgets targeted at trade magazines and trade shows.
The following list represents a cross section of the Company's current
customers:
Selected Customers
<TABLE>
<CAPTION>
OEM Fleet Operators Utilities Converters
--- --------------- --------- ----------
<S> <C> <C> <C>
GFI Control Systems, Inc. (a AMOCO Production Company Lone Star Gas Co. Alternate Energy Corp.
supplier to Ford)
Champion Motor Coach, Inc. Southwestern Bell Telephone Company Consolidated Edison Carbeuration Labs
Company of New York,
Inc.
Ford Motor Company Federal Express Corporation Pacific Gas and Electric Motorfuelers, Inc.
Company
Texas General Services Administration Connecticut Natural Gas Propane Equipment Co.
Corporation
El Dorado National Bus UPS Southern California Gas Co. Hawthorne Power Systems
Tug Manufacturing Texas Dept. of Transportation Brooklyn Union Kleenair Systems, Inc.
Crane Carrier Company United States Postal Service Southern Union Gas Co. American Natural Gas Power Company
John Deere Company City of Long Beach, CA Michigan Gas Company Alternative Fuels Technology
Corporation
Chance Industries, Inc. The Peoples Natural Gas New England Conversion Center
Co.
Blue Bird Body Company Consolidated Natural Gas North American Fleet Services
Company
TMC Company Ltd. The Columbia Gas System, Transtar Technologies, Inc.
Inc.
Northrop Grumman Corporation Elizabethtown Gas Co.
Bus Industries of America Boston Gas Company
Baltimore Gas and Electric
Company
Atlanta Gas Light Company
Public Service Company of
New Mexico
Equitable Resources, Inc.
</TABLE>
Research and Development
In the years ended December 31, 1994 and 1995, the Company incurred
approximately $713,875 and $621,600 of research and development expenses. In
1994, the Company participated in a federally funded project assigned to
Southwest Research Institute in San Antonio, Texas to develop a concept school
bus designed to illustrate
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<PAGE>
operating and safety improvements. The prototype school bus designed by this
project incorporated four of the Company's natural gas fuel cylinders.
In 1995, the Company commenced development of its composite-reinforced
3,600psi steel cylinder utilizing contributing funding from the Gas Research
Institute ("GRI") of Chicago. This technology has been fully developed through
prototype, engineering and production phases and recently underwent final design
and third party proof testing required for all new cylinder introductions. The
Company introduced the steel cylinder at the Natural Gas Vehicle Coalition
Conference in September 1996 and is currently soliciting orders for the steel
cylinder product line.
In 1996, the Company began the development of a high-flow pressure relief
device utilizing funding from Southern California Gas Co. to increase the
exhaust flow of natural gas from all current cylinder designs. This new device
would effectively decrease the cost of overall cylinder systems and increase
safety. Many cylinders currently require two pressure relief devices to
accommodate exhaust flow and require piping during installation. The Company's
new device would reduce this requirement.
In addition, the Company has focused on special cylinder designs for
specific OEM applications, as well as the design and construction of
multi-cylinder modules for bus frame installations and special cylinder
protective apparatus unique to the Company's many cylinder designs. The Company
has also been involved in development work with new materials for cylinder
liners, composite winding and protective coatings which will lower cylinder
costs, increase cylinder life and provide additional value-added aspects which
the Company believes are not currently available from competitors.
Raw Materials
Some of the Company's raw materials currently are supplied by a small
number of specially qualified producers, including some foreign suppliers. The
most sensitive raw material category is that of extruded aluminum tube stock,
which presently is produced by only three United States companies. Only two of
these companies, Alcoa and Spectrulite, currently possess the unique press
capacity required to produce particularly large diameter aluminum tubes. Certain
natural gas vehicle engine systems and their components (including on-board
emissions diagnostic equipment) are in limited supply, and the Company's vehicle
conversion programs are dependent upon the availability of those items. In
addition, the price and availability of certain raw materials are subject to
market fluctuations. There can be no assurance that the Company's material
requirements can be met in the future as demand grows, unless additional supply
capacity is developed in the United States. The Company's performance also is
materially dependent upon the ability of its suppliers to keep pace with current
and future OEM technologies. While the Company believes that multiple sources of
supply are available for all of its raw materials, should the Company be unable
to obtain adequate quantities of its raw materials, delays or reductions in
product shipments could occur which would have a material adverse effect on the
Company's business, financial condition and results of operations. The supply
and price of raw materials used to produce the Company's products can be
affected by factors beyond the control of the Company, such as shortages,
political instability and market volatility. If any of the foregoing were to
occur, the Company's business, financial condition and results of operations
would be materially adversely affected. While the Company has the ability to
pass certain material price adjustments through to its customers, there can be
no assurance that the Company can continue to pass through these material price
increases or pass them through on a timely basis. In addition, the Company's
results of operations are dependent upon its ability to accurately forecast its
requirements of raw materials. Any failure by the Company to accurately forecast
its demand for raw materials could result in the Company either being unable to
meet higher than anticipated demand for its products or producing excess
inventory, either of which may materially adversely affect the Company's
business, financial condition and results of operations.
License Agreements
The Company's composite-reinforced aluminum fuel storage cylinders are
manufactured and sold under a royalty-bearing, exclusive world-wide license (the
"Fawley License") from NCF Industries, Inc., a California corporation, and
Norman C. Fawley, the principal shareholder of NCF Industries, Inc., pursuant to
the provisions of an Amended Cylinder License Agreement dated as of May 25,
1993. The Fawley License expires on the later of (i) February 9, 2005, and (ii)
the termination of any commercial sales, manufacturing, distribution, licensing
or sublicensing of licensed products commenced prior to February 9, 2005, unless
earlier terminated. The Company is obligated to pay a monthly license fee equal
to 3% of the price of each licensed product or process shipped by
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the Company or its affiliates as well as 3% of the amount of any research and
development contract received by the Company or any affiliate which relates to
any product, process or technology covered by the Fawley License. In the event
the Company defaults in the payment of royalties required under the Fawley
License, or otherwise fails to perform the terms thereof, NCF Industries, Inc.
and Norman C. Fawley have the right to terminate the Fawley License and to
retain sole use and enjoyment of the licensed patents and know-how pertaining to
the Company's composite-reinforced aluminum fuel storage cylinder. The Company
has previously been in default of various conditions under the Fawley License
and received waivers from the licensors with respect to such defaults. There can
be no assurance that the Company will not default on the conditions of the
Fawley License in the future or that, if the Company does default, that adequate
waivers could be obtained. Should the Company default under the Fawley License
and such default was not waived by the licensors, the Company would be
prohibited from manufacturing or selling the fuel storage cylinders and other
products and technology covered by the Fawley License, with a resulting material
adverse effect on the Company's business, financial condition and results of
operations.
The Company is also a party to a Technology Transfer Agreement dated
February 23, 1993 with Alcoa Composites, Inc. ("Alcoa Composites"), a subsidiary
of Alcoa, and Audie L. Price pursuant to which the Company has acquired all
rights and interests under an existing technology license held by Alcoa
Composites to manufacture and sell certain processes and equipment designs for
winding high service pressure cylinders (the "Alcoa License"). The Alcoa License
is an exclusive, world-wide license which extends (i) as to Mr. Price's license
to the Company and the Company's obligations in connection therewith until the
receipt by the Company of a cumulative net selling price of licensed technology
products equal to $100 million and (ii) as to Alcoa Composites' transfer to the
Company and the Company's obligations in connection therewith until February 23,
2003. The Company may also unilaterally terminate the Alcoa License upon 90
days' prior notice to Alcoa Composites. Under the Alcoa License, the Company was
obligated to pay to Mr. Price an annual minimum royalty of $60,000 for the first
three years as well as royalty payments equal to 1.5% of the net selling price
of licensed technology products sold for the first $100 million in net sales. In
addition, the Company is also obligated to pay to Alcoa Composites royalties
equal to 1.5% of the net selling price of licensed technology products sold by
the Company or any licensee of the Company until February 23, 2003, as well as
25% of any royalty or transfer fees that the Company demands from any licensee
until February 23, 2003.
Competition
The Company's business is dependent upon the development of a market for
compressed natural gas as a vehicle fuel over other competing alternative fuels
such as electricity, liquefied petroleum gas (propane), methanol, ethanol,
hydrogen, reformulated gasoline and liquefied natural gas. Although the Company
believes compressed natural gas currently provides advantages over all of such
fuels, there can be no assurance that a market for compressed natural gas as an
alternative transportation fuel will develop (including the requisite refueling
infrastructure therefor).
Currently, several companies offer products and services that compete
directly with the Company's compressed natural gas cylinders and installation
services. While the Company is not aware that any competitor offers the same
range of products and services that it is developing, any of the existing
competitors could decide to offer the same range of vehicle systems and services
offered by the Company. If the market for fleet vehicles fueled by compressed
natural gas develops as anticipated by the Company, it is likely that new
competitors will enter the market. Many of these competitors have significantly
greater financial, technical and marketing resources and greater name
recognition than the Company. Such competition may impose additional pricing
pressures on the Company. There can be no assurance that the Company will
compete successfully with its existing competitors or with any new competitors.
The natural gas vehicle industry is highly competitive. Competition in the
natural gas vehicle fuel storage systems segment of that industry is based
primarily on the ability of the cylinder manufacturer to meet the design
requirements of individual end users and, to a lesser extent, where the weight
of the cylinder is not important, on price. The Company's fuel storage cylinder
products compete directly with products sold by six principal competitors:
Pressed Steel Tank Co., Inc., Comdyne, SCI Systems, Inc., Lincoln Composites,
EDO Corporation and Lucas Industries Inc. The Company does not believe that any
of these competitors produces an aluminum cylinder with a side wall hoop-wrapped
in the full range of sizes offered by the Company or has a product mix as broad
as that offered by the Company, which includes aluminum, composite and steel
cylinders.
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The Company believes that most of the natural gas vehicle production for
the foreseeable future in the United States will be achieved through the
conversion of existing gasoline vehicles. There are several other companies
which convert natural gas vehicles, including the following: Alternative Fuels
Technologies Corporation (Jamaica, NY); American Natural Gas Power Company
(Houston, TX); Kleenair Systems, Inc. (Martinsburg, WV); Motorfuelers, Inc.
(Clearwater, FL); Natural Fuels Corporation (Denver, CO); North American Fleet
Services (Phoenix, AZ); and Transtar Technologies, Inc. (Dallas, TX).
Intellectual Property Rights
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. The Company enters into
confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights. See "Risk
Factors--Uncertainty Regarding Proprietary Rights" and "Management-Employment
Agreements."
Government Regulation
Clean Air Act. The Clean Air Act established emissions standards for
automobile model years beginning in 1994. The Clean Air Act "Tier 1 Standards,"
which became effective in 1994 and cover all newly manufactured passenger cars
and light duty truck vehicles, require a reduction of approximately 40% in
hydrocarbon emissions and 60% in nitrogen oxide emissions from currently
applicable standards. Nationwide, 22 metropolitan regions have been specifically
designated as "serious, severe or extreme non-attainment" areas. A
non-attainment area under the Clean Air Act is a geographic region that has been
designated by the EPA as failing to meet certain air quality standards.
Commencing in 1996, the Tier 1 Standards apply to 100% of applicable vehicle
production. The Clean Air Act also stipulates proposed "Tier 2 Standards"
beginning in the year 2004, which the EPA will introduce if deemed necessary,
technologically feasible and cost effective. The Tier 2 Standards, as currently
proposed, would be 50% more stringent than the Tier 1 Standards for
hydrocarbons, nitrogen oxides and carbon monoxide emissions.
In addition to the Tier 1 Standards, and in an effort to address increased
vehicle emissions in varying weather conditions, the EPA recently has proposed
carbon monoxide emission standards for motor vehicles operated at unusually low
temperatures and in "ozone-depleting" summertime conditions. Moreover, the EPA
is currently studying the emissions which pose significant risks to human health
or about which significant uncertainties remain, including diesel particulates,
benzene, formaldehyde and butadiene, which are byproducts which result from the
use of traditional petroleum-based fuels.
It is estimated that 60% of all airborne emissions in urban areas are
produced by fleet vehicles. Because fleet vehicles are large contributors to
airborne pollution and are concentrated in urban areas which have the most
serious air pollution problems, the Clean Air Act establishes a mandatory
timetable for the adoption of alternative fuel vehicles by fleet operators. This
schedule specifies the percentage of new fleet vehicles acquired by federal,
state, and privately operated vehicle fleets which must use alternative fuels.
Under the Clean Air Act, by 1998, 30% of all newly-purchased passenger cars and
light duty fleet vehicles must use alternative fuels. The percentage increases
to 50% in 1999 and 70% by 2000.
Energy Policy Act. The Energy Policy Act was passed and signed into law in
1992. In large part the Energy Policy Act was designed to reduce United States
dependence on foreign oil imports by encouraging the use of domestically
produced fuels. As such, the Energy Policy Act contains both mandates and
incentives for the use of alternative fuels in vehicles, reflecting the stated
dual national security objectives of maintaining adequate reserves of domestic
oil and stemming the increase in United States reliance on imported oil. The
Energy Policy Act specifically prohibits the use of reformulated gasoline as a
mandated alternative fuel.
The Energy Policy Act currently requires federal and state fleets and
alternative fuel providers to purchase alternative fuel vehicles. The following
table displays the sequential, mandated implementation of newly-manufactured
fleet vehicle purchases which must utilize non-petroleum based "alternative
fuels."
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<TABLE>
<CAPTION>
Fiscal Year (Model "Fuel Provider"
Year in case of Federal Fleet Provisions State Fleet Provisions Fleet Provisions
"Fuel Providers") (Est. Pop. 350,000) (Est. Pop. 2,300,000) (Est. Pop. 1,200,000)
<S> <C> <C> <C>
1996*............... 25% of new vehicles 10% of new vehicles 30% of new vehicles
1997................ 33% of new vehicles 15% of new vehicles 50% of new vehicles
1998................ 50% of new vehicles 25% of new vehicles 70% of new vehicles
1999................ 75% of new vehicles 50% of new vehicles 90% of new vehicles
2000................ 75% of new vehicles 50% of new vehicles 90% of new vehicles
2001+............... 75% of new vehicles 75% of new vehicles 90% of new vehicles
</TABLE>
* In 1996, the Department of Energy delayed the phase-in dates for state and
"fuel provider" fleets by one year and there can be no assurance that
additional delays in phase-in dates will not occur in the future or that
such phase-in dates will be enforced. See "Risk Factors--Government
Regulation."
In March 1996, the Department of Energy promulgated regulations pursuant
to the Energy Policy Act requiring a minimum of 25%, 10% and 30% of
newly-manufactured 1997 model year vehicles purchased beginning September 1,
1996 by federal, state and "fuel provider" fleet operators, respectively, to
operate on non-petroleum based "alternative fuels" such as compressed natural
gas.
Proposed Natural Gas Vehicle Incentives Act of 1996. In September 1996, a
bill was introduced in the United States House of Representatives the stated
purpose of which in its present form is to encourage the increased use of
domestic natural gas as a transportation fuel and thereby realize the broad
societal benefits associated with such use, including improved environmental
quality, enhanced energy security, and increased domestic economic activity.
This bill would encourage the use of natural gas vehicles (including bi-fuel
vehicles) through emission reduction credits, tax incentives for fleet vehicle
operators and owners of natural gas fueling stations, fuel credits, shorter
depreciation recovery periods for natural gas vehicles and refueling property
and the establishment of a research, development and demonstration program at
the United States Department of Energy.
If this bill is enacted into law in its present form, however, it would
amend the above provisions of the Energy Policy Act requiring alternative fuel
providers to purchase a specified percentage of alternative fuel vehicles by
eliminating such requirement after model year 1999. This bill would also
substantially repeal the fleet requirement program provisions of the Energy
Policy Act which currently require certain private fleet owners and operators to
acquire specified percentages of alternative fuel vehicles beginning in model
year 1999. There can be no assurance that this bill will be reintroduced in the
next legislative session or enacted into law in its current form, if at all.
Federal Regulation of Natural Gas. The Federal Energy Regulatory
Commission ("FERC") regulates the transportation and resale of natural gas in
interstate commerce pursuant to the Natural Gas Act of 1938. On April 8, 1992,
FERC issued Order 636 which extensively revised the regulation of interstate
pipelines by requiring the operators of such pipelines to unbundle their
transportation services from sales services (and allow customers to choose and
pay for only the services they desire). The purpose of FERC Order 636 was to
divest the interstate pipelines of their virtual monopoly over the interstate
gas sales function. Management of the Company believes that the implementation
of FERC Order 636 has increased and will continue to increase the demand for the
Company's products by creating increased emphasis on the importance of timely
and accurate measurement and monitoring in the gas transportation and sales
industries.
Environmental Regulation. While various federal, state and local laws and
regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, may affect the
Company's operations as a result of their effect on natural gas development,
exploration, production, transportation and dispensing operations, the Company's
operations are not currently subject to substantial environmental laws and
regulations. The Company believes it is in material compliance with those
environmental laws and regulations to which it is subject. It is not anticipated
that the Company will be required in the near future to expend amounts that are
material in relation to its total capital expenditures program by reason of
environmental
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laws and regulations. However, inasmuch as such laws and regulations are
frequently changed, the Company is unable to predict the ultimate effect on the
Company and cost of compliance to the Company.
California and Other State Environmental Regulations. California has
established its own environmental regulations which in many cases are more
stringent than federal regulations and which are aimed at encouraging the
introduction of electric and other low emission alternative fuel vehicles.
California's recently enacted regulations, which include several tiers of
emissions standards, require automobile manufacturers to meet emissions
standards applicable to the entire range of vehicles sold by each manufacturer
in California. The average emissions levels will be determined by calculating
the weighted average of the emissions of the vehicles for each manufacturer.
The Company believes that automobile manufacturers will need to sell a
certain number of vehicles in California which meet these higher standards.
California's nitrogen oxide and hydrocarbon limits are substantially more
stringent than the limits mandated by the Clean Air Act. In addition, these
requirements are scheduled to gradually become even more stringent over the next
decade.
In addition, numerous other states, such as Texas, also have developed
their own regulations mandating the use of alternative fuel vehicles by fleets,
which regulations supplement provisions of the Clean Air Act and the Energy
Policy Act. In certain cases these regulations specify more aggressive
conversion timetables while significantly increasing the expected size of the
population of compressed natural gas vehicles in the future. As of November
1995, 32 states, including California, Florida, Maryland, Massachusetts, New
Jersey, New York, Pennsylvania, Texas and Virginia, provide legislative
incentives for the use of alternative fuel vehicles. These incentives range from
tax credits and cash rebates for conversions to mandatory targets for use of
alternative fuels by specified future dates. In addition, several other states
are currently considering proposed legislation promoting the use of alternative
fuel vehicles. There can be no assurance that any such legislation will be
enacted or that any currently existing legislation will result in increased use
of natural gas vehicles or be enforced by their respective state governments.
International Emissions Standards. Apart from the United States, numerous
countries have taken steps to adopt measures to address automotive pollution.
The European Economic Community proposed the European Emissions Standards in
1994, which have already been adopted by several European countries, including
France, Germany, Italy, the Netherlands, Spain and the United Kingdom.
The European Emissions Standards were effectively as stringent as the
standards imposed by then current United States automotive emissions
regulations. The United Kingdom has proposed new target levels for carbon
dioxide emissions for all auto manufacturers. Similarly, Germany has proposed a
new tax to encourage the reduction of carbon dioxide emissions 25% to 30% from
existing levels by 2005. Hungary is also considering a tax incentive program to
encourage the importation of vehicles already equipped with catalytic
converters.
In Sweden, environmental authorities are proposing auto emissions
standards similar to those adopted in California for passenger and light
vehicles. Such standards are currently proposed to be phased in over a
three-year, two-stage process. Canada is also considering similar restrictions
to those proposed in Sweden. In addition, the Japanese government has announced
plans to enact stringent standards aimed at reducing nitrogen oxide emissions by
up to 16% by the year 2010.
The Company believes that these and other foreign governmental initiatives
designed to reduce vehicular air pollution will promote the worldwide transition
to the use of compressed natural gas and increase consumer awareness of the
natural gas vehicle industry. However, there can be no assurance that any such
legislation will be enacted by foreign governments or that, if enacted, such
legislation will have a positive effect on the natural gas vehicle industry.
Employees
As of September 30, 1996, the Company had 43 full-time employees, all of
whom are located at the Company's headquarters and production facilities in Long
Beach, California except for two sales executives, one of whom is located in the
Company's Detroit-area sales office and the other who rents office space in
North Carolina. Of the Company's 43 employees, 7 are administrative personnel, 6
are technical personnel, 5 are sales personnel and 25 are production personnel.
The Company provides its employees with group health and life
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insurance benefits and a qualified 401(k) plan. The Company does not match
employee contributions to the 401(k) plan. The Company does not have any
collective bargaining, pension, or non-solicitation agreements with any of its
employees other than the 1992 Plan and the 1996 Plan. See "Management--Stock
Option Plans." The Company considers its relations with its employees to be
satisfactory.
Properties
The Company's executive offices and manufacturing facilities are located
in two adjacent buildings in Long Beach, California and consist of approximately
45,000 square feet of space. These facilities currently house all
administrative, sales, manufacturing and under-roof storage activities. The
Company pays an aggregate rent of $16,455 per month for such facilities under
two leases which each expire on January 31, 1997. The Company also currently
leases office space in Bloomfield Hills, Michigan from an unaffiliated third
party at a rent of $800 per month under a lease expiring on June 30, 1997. The
Company uses this office space as its Detroit-area sales office. Management
believes that the Company's existing facilities are suitable and adequate for
their present and proposed uses and that suitable and adequate facilities will
be available on reasonable terms for any additional offices which the Company
may open. The Company plans to use a portion of the net proceeds of this
Offering to build or acquire an additional manufacturing facility to permit
expansion of its current operations. See "Use of Proceeds."
Litigation
In February 1996, the Company was served as a defendant with a summons and
complaint in an action filed by James and Susan Pettengill which is currently
pending in the United States District Court for the Eastern District of Michigan
arising out of a "loss-of-content" incident in August 1993 involving a natural
gas cylinder manufactured by the Company's predecessor. The Company has
investigated the incident and believes that any damages suffered by Mr.
Pettengill were not due to any manufacturing flaw or other acts or omissions by
it but were instead caused by the negligence of Mr. Pettengill's employer in
failing to properly maintain the natural gas cylinder, to test the cylinder
pursuant to applicable law, to properly install the cylinder and to properly
instruct Mr. Pettengill in reasonably safe practices regarding the cylinder,
among other things. The Company believes that any liability it may incur in
connection with this lawsuit will be adequately covered by the Company's
insurance policy. Although the Company intends to contest these claims
vigorously, there can be no assurances as to the eventual outcome of such claims
or their effect on the Company's financial condition and results of operations.
An adverse determination in the litigation arising from these claims or the
settlement of such claims in an amount in excess of the Company's insurance
coverage could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is not currently
involved in any other material legal proceedings.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth the directors and executive officers of the
Company, their ages and the positions held by them with the Company.
Name Age Positions Held
---- --- --------------
Howard T. Phelan 59 Chairman of the Board
and Chief Executive Officer
John R. Bacon 57 President, Chief Operating
Officer and Director
David Dennington 38 Vice President Engineering/Quality Control
Christopher R. Jacobs 36 Vice President Sales/Marketing
Martin B. Richards 51 Vice President and Chief Financial Officer
Justin Schmidt 43 Chief Engineer
Paul A. Biddelman 50 Director
James D. Bishop, Jr. 38 Director
R. Terry Botruff 52 Director
W. Murray Buttner 64 Director
Ernest L. Daman 73 Director
Dan C. Eaton 48 Director
Helmut Korte 58 Director
Alan D. Pesky 62 Director
The business experience of each of the Company's directors and executive
officers during at least the past five years is set forth below.
Board of Directors and Key Management Personnel
Howard T. Phelan has been Chief Executive Officer and Chairman of the
Board of the Company since 1992. Mr. Phelan is a Charter Member of the Board of
Directors of the Natural Gas Vehicle Coalition (the industry association in
Washington, D.C.) and is also a member of the Coalition's Executive Committee.
He is Chairman of the national NGV Producers Association. He has also been
Chairman of the Southern States NGV Industry Group, formed in response to the
alternative fuel vehicle initiative of the 16 Southern Governors. Mr. Phelan has
a 35-year professional career in financial and technical management. Previously,
he held positions as a senior management consultant at Arthur D. Little Inc., as
chief business officer of Yale University, and as President and Chief Executive
Officer of Welsbach Corporation, which became a New York Stock Exchange - listed
company. Mr. Phelan holds B.S. and M.A.H. degrees from Yale University, and
authored a book on satellite orbit computations for NASA.
John R. Bacon has served as President and Chief Operating Officer of the
Company since 1994 and has been a director of the Company since 1995. Mr. Bacon
has brought more than 30 years of automotive experience to the Company. A
graduate from St. Louis University's Business School, he also served in the Air
Force before moving to Detroit and entering the automotive business. In 1989 he
co-founded TDM World Conversions ("TDM"), an automotive engineering and
conversion company serving the major Detroit automakers, of which Mr. Bacon
served as President until 1994. He has been a member of the Society of
Automotive Engineers & Society of Plastic Engineers for over 25 years and has
held numerous positions in industry organizations.
David Dennington has been the Company's Vice President in charge of
Engineering and Quality Control since October 1994. Mr. Dennington has been in
the automotive business for over 18 years and was formerly the Director of
Quality Systems for TDM until October 1994. Mr. Dennington has also worked with
Ford Motor Company to develop their QVM program for conversion companies. A
graduate of Eastern Michigan University's business school, he has also earned
the title of Certified Quality Engineer from the American Society of Quality
Control and has participated in extensive automotive seminars dealing with
manufacturing controls and systems.
Christopher R. Jacobs has been the Company's Vice President of Sales and
Marketing since June 1995. From 1982 until 1986, Mr. Jacobs worked for General
Motors Corporation where he held several engineering
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positions and also worked as a sales representative. From 1989 until 1995, Mr.
Jacobs worked for TDM where he held positions responsible for product
engineering, program management and sales and marketing. Mr. Jacobs holds a B.S.
degree in industrial design from Western Michigan University as well as an M.S.
degree in Business Administration from Central Michigan University. He has also
served as the co-chairman of the Technical Committee of the Natural Gas
Producers Association since 1994.
Martin B. Richards has been the Company's Vice President and Chief
Financial Officer since 1992. Mr. Richards has thirteen years of manufacturing
company experience and seven years of distribution company experience. Prior to
joining the Company's predecessor in July 1991, Mr. Richards served as Chief
Financial Officer for Forecast Lighting, Inc., a light fixture
manufacturer/distributor in Los Angeles, California. Mr. Richards received his
M.B.A. degree from the University of Chicago, an M.S.C. in operations research
from the London School of Economics and a B.S.C. degree in mechanical
engineering from Imperial College, London University.
Justin Schmidt has been the Company's Chief Engineer since 1995. Mr.
Schmidt joined the Company's predecessor in 1985 after spending 15 years with
Galiso, Inc., a manufacturing company, where he was involved in the design and
application of specialized hydrostatic test systems. Mr. Schmidt also was Vice
President of Production for a division of General Fire Extinguisher, Tech
Hydronics, a contract designer and builder of automated testing systems for fire
extinguishers and gas cylinders, from 1985 until 1988.
Paul A. Biddelman has been a director of the Company since 1993. Mr.
Biddelman has been a partner of the Hanseatic Group ("Hanseatic"), a private
investment firm based in New York, N.Y. and Hamburg, Germany since 1992 and has
been associated with the principals of Hanseatic since 1975. Mr. Biddelman
joined Hanseatic in early 1992 from Clements Taee Biddelman Inc., a merchant
banking boutique which he co-founded in 1991. Prior to that he held positions at
Drexel Burnham Lambert, Incorporated, Lehman Brothers, Kuhn, Loeb & Co. and
Oppenheimer & Co. He is also a director of Oppenheimer Group Inc., Insituform
Technologies, Inc., Celadon Group, Inc., Electronic Retailing Systems
International Inc., Petroleum Heat and Power Co., Inc., Star Gas Corporation
(the general partner of Star Gas Partners, L.P.) and Premier Parks Inc. He is a
graduate of the Harvard Business School, Columbia Law School, and has a B.S.
degree from Lehigh University.
James D. Bishop, Jr. has been a director of the Company since 1996. Mr.
Bishop has been President of Caithness Corporation ("Caithness") since 1993 and
has held various other positions with Caithness and its affiliates since 1989.
Prior to joining Caithness, Mr. Bishop held several positions in sales,
engineering and systems design with Rolm Corporation, an IBM company which
manufactures telecommunications equipment, from 1983 until 1987. Mr. Bishop
received a B.S. degree in Computer Science and Mathematics from Trinity College
and an M.B.A. in Finance and Business Policy from the Kellogg Graduate School of
Management at Northwestern University. Mr. Bishop, Jr.'s father, James D.
Bishop, Sr., resigned as a director of the Company in October 1996 and Mr.
Bishop, Jr. was elected by the remaining directors to fill this vacancy until
the next annual meeting of stockholders.
R. Terry Botruff has been a director of the Company since 1994. Mr.
Botruff has been manager of the Alternative Transportation Fuels Business Unit
of Amoco Oil Company ("Amoco") since its formation in November 1992. Prior to
that, Mr. Botruff served as Director of Marketing Concepts for Amoco. Mr.
Botruff joined Amoco in 1967 as a Marketing Territory Manager and has held
numerous positions of increasing responsibility, including Staff Director of the
Light Oils Planning Group in Chicago. Mr. Botruff received a bachelor's degree
in business administration from Western Illinois University.
W. Murray Buttner has been a director of the Company since 1993. Mr.
Buttner has been Senior Vice- President of Caithness since 1993. Prior to
joining Caithness, Mr. Buttner was a private investor and director of a number
of public and private manufacturing and service companies. He had previously
been Manager of the Corporate Finance Department of Laird Incorporated. He is a
graduate of Yale University and earned an M.B.A. degree from Stanford Business
School.
Ernest L. Daman has been a director of the Company since 1992. Mr. Daman
has been Chairman Emeritus of Foster Wheeler Development Corp. since 1989. In
1995 the White House appointed Mr. Daman as the first state-federal technology
executive within the Office of Science and Technology. In such capacity, he
served as the information clearing house for state governments, industry and
universities and has advised policy makers
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on environmental protection, transportation, communication, international
science and other technology matters. Mr. Daman is also Chairman of the American
Association of Engineering Societies and a former President of the American
Society of Mechanical Engineers ("ASME"). Mr. Daman has served in numerous
important industry and professional positions including: Fellow, ASME-Institute
of Energy (England); Pi Tau Sigma; Fellow, AAAS. He was elected to the National
Academy of Engineering in 1988.
Dan C. Eaton has been a director of the Company since 1996. Mr. Eaton is
currently Vice President- Strategic and Financial Planning of Equitable
Resources, Inc. in Pittsburgh, PA. Prior to this, Mr. Eaton was
Director-Financial Analysis of H.J. Heinz Company ("H.J. Heinz"), a food
services company, from 1994 until April 1995. His previous positions included
Vice President-Finance of Weight Watchers Gourmet Foods Company, Vice
President-Finance of H.J. Heinz Co. of Canada Ltd. and Vice President-Finance of
the Hubinger Co., all subsidiaries of H.J. Heinz. Mr. Eaton received his B.S.
degree in Accounting from the University of Idaho and an M.B.A degree from Boise
State University. He is a Certified Public Accountant and has served on the
Conference Board of Canada's committee on North American Trade.
Helmut Korte has been a director of the Company since 1992. Mr. Korte has
been President of MFM Electrologic, Inc., a manufacturer of specialized metal
forming machines, since November 1994. From April 1993 until October 1994, Mr.
Korte served as a consultant to MFM Electrologic, Inc. He was the founder and
President of Autospin, Inc., a specialty machine tool manufacturer from 1975
until April 1993. Mr. Korte developed the first compressed natural gas cylinder
spinning machine while co-founding the Company's predecessor entity in 1980. He
currently is an owner and president of several private machine building and
specialty metal-working companies in the United States and Germany.
Alan D. Pesky has been a director of the Company since 1995. Mr. Pesky is
a principal of A. D. Pesky Co., a privately held investment management company.
Prior to this, from 1987 to 1992, he was Chairman of Peak Media, a publishing
company located in Hailey, Idaho. In 1967 Mr. Pesky was a founding partner of
Scali, McCabe, Sloves, Incorporated and during his twenty-year tenure at this
agency he held various titles including Chief Financial Officer,
President-International, Vice Chairman and Chief Operating Officer. He served as
an officer in the United States Army between receiving a B.A. degree from
Lafayette College and an M.B.A. degree from Dartmouth College.
The Company has two agreements, each of which terminates upon consummation
of this Offering, with ERI Investments, Inc. (formerly EQT Capital Corporation)
and Amoco, respectively, to the effect that a mutually agreed upon
representative of such entities would be appointed as a member of the Company's
Board of Directors. Messrs. Eaton and Botruff are the designees of ERI
Investments, Inc. and Amoco, respectively.
Each director is elected to the Board of Directors for a term of one year.
The term of office of each director ends when his successor has been elected at
the annual meeting of stockholders and qualified or upon his removal or
resignation. The term in office of each executive officer ends when his
successor has been elected by the Board at any time in its discretion and
qualified or upon his removal or resignation. The Company adopted its by-laws to
provide for indemnification rights of officers, directors, and others and
eliminating the personal liability of directors for monetary damages to the
extent permitted by Delaware law.
The Company reimburses its independent directors for all reasonable
expenses incurred in connection with travelling to and from meetings of the
Board of Directors and committees thereof. Directors who are officers of the
Company are not entitled to any additional compensation as such.
Committees of the Board
The Board has an Executive Committee which consists of four directors. The
Executive Committee can exercise all of the powers of the Board between meetings
of the Board. The present members of the Executive Committee are Messrs.
Biddelman, Buttner, Eaton and Bacon, with Mr. Buttner serving as Chairman.
In addition, the Board has an Audit Committee which consists of three
directors, at least two of whom cannot be officers or employees of the Company.
The Audit Committee is responsible for the engagement of the Company's
independent auditors and will review with them the scope and timing of their
audit services and any other services they are asked to perform, their report on
the Company's financial statements following completion
44
<PAGE>
of their audit and the Company's policies and procedures with respect to
internal accounting and financial controls. The present members of the Audit
Committee are Messrs. Bacon, Biddelman and Pesky, with Mr. Biddelman serving as
Chairman.
The Board also has an Executive Compensation Committee which consists of
three directors. The Executive Compensation Committee is responsible for
approving appointments, promotions and fixing salaries of executives of the
Company between meetings of the full Board. All actions of the Executive
Compensation Committee must be ratified by the Board within six months in order
to remain effective. The present members of the Executive Compensation Committee
are Messrs. Buttner, Daman and Phelan, with Mr. Daman serving as Chairman.
Executive Compensation
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities paid to the Chief
Executive Officer and to each of the Company's four most highly compensated
executive officers other than the Chief Executive Officer who were, at December
31, 1995, executive officers of the Company and whose total salary, bonus and
other compensation exceeded $100,000 during any such year (the "Named Executive
Officers").
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Awards
------
Securities
Fiscal Other Annual Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)(2) Compensation ($)
- --------------------------- ---- ---------- --------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Howard T. Phelan 1995 $120,000 $62,500 $109,471(3) 0 $0
Chairman of the Board 1994 84,086 0 0 0 0
and Chief Executive Officer 1993 138,663 0 0 30,000 0
John R. Bacon 1995 $200,000 $ 0 $ 0 100,000 $0
President, Chief Operating 1994 34,615(4) 0 30,000(5) 200,000 0
Officer and Director
Martin B. Richards 1995 $100,000 $ 0 $ 19,615(6) 35,000 $0
Vice President and 1994 85,327 0 0 0 0
Chief Financial Officer 1993 94,135 0 0 20,000 0
</TABLE>
- -------
(1) None of the information in this table has been adjusted to give effect to
the one-for-three reverse stock split effected prior to the date hereof.
(2) Prior to the date of this Prospectus, the Company intends to cancel all
outstanding stock options and reissue an equivalent number of options
(on a post-reverse stock split basis) with an exercise price equal to the
initial public offering price per share in this Offering.
(3) Consists of $109,471 of deferred compensation for the years 1993 and 1994.
(4) Mr. Bacon's employment with the Company commenced on October 31, 1994.
(5) Consists of 20,000 shares of Common Stock with a fair market value of
$1.00 per share granted to Mr. Bacon in 1994 and $10,000 paid to Mr. Bacon
for payment of taxes on such shares.
(6) Consists of $19,615 of deferred compensation for the years 1993 and 1994.
45
<PAGE>
The following table sets forth certain information for the Named Executive
Officers with respect to grants of stock options to purchase Common Stock of the
Company made during the fiscal year ended December 31, 1995.
Option Grants During Year Ended December 31, 1995(1)
<TABLE>
<CAPTION>
Potential Realized Value
Number of % of Total at Assumed Annual Rate
Securities Options of Stock Price
Underlying Granted to Exercise Appreciation for Option
Options Employees Price Per Term($)(4)
Granted in Fiscal Share Expiration ------------------------
Name (#)(2)(3) Year ($/Sh) Date 5% 10%
- ----------------------------------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
John R. Bacon...................... 100,000 41.7% $3.00 12/14/05 $4.89 $7.83
Martin B. Richards................. 10,000 4.2% $3.00 6/26/05 $4.89 $7.83
25,000 10.4% $3.00 12/14/05 $4.89 $7.83
</TABLE>
- ----------
(1) None of the information in this table has been adjusted to give effect to
the one-for-three reverse stock split effected prior to the date hereof.
(2) Consists of stock options granted pursuant to the 1992 Plan and the 1996
Plan. The maximum term of each option granted is ten years from the date
of grant. The exercise price is equal to the market value of the stock on
the grant date.
(3) Prior to the date of this Prospectus, the Company intends to cancel all
outstanding stock options and reissue an equivalent number of options
(on a post-reverse stock split basis) with an exercise price equal to the
initial public offering price per share in this Offering.
(4) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), shown are the gains or "option spreads" that would
exist for the respective options granted. These gains are based on the
assumed rates of annually compounded stock price appreciation of 5% and
10% from the date the option was granted over the full option term. These
assumed annually compounded rates of stock price appreciation are mandated
by the rules of the Commission and do not represent the Company's
estimates or projection of future Common Stock prices.
Employment Agreements
Upon completion of this Offering, the Company will enter into three-year
employment agreements with each of Howard T. Phelan, the Company's Chief
Executive Officer, and John R. Bacon, the Company's President, pursuant to which
Messrs. Phelan and Bacon shall receive an annual salary of $120,000 and
$200,000, respectively.
Each of the employment agreements with Messrs. Phelan and Bacon will
require the full-time services of such employees. The agreements will also
contain covenants (i) restricting the employee from engaging in any activities
competitive with the business of the Company during the term of such employment
agreements, (ii) prohibiting the employee from disclosure of confidential
information regarding the Company, and (iii) confirming that all intellectual
property developed by the employee and relating to the business of the Company
constitutes the sole property of the Company.
The Company has a policy of requiring its employees, consultants and
advisors to execute confidentiality agreements upon commencement of employment
or consulting relationships with the Company. These agreements provide that all
confidential information of the Company developed or made known to the
individual during the course of their relationship with the Company must be kept
confidential, except in specified circumstances. There can be no assurance,
however, that these agreements will provide meaningful protection for the
Company's trade secrets or other proprietary information in the event of
unauthorized use or disclosure of confidential information. See
"Business--Intellectual Property Rights."
Stock Option Plans
1992 Stock Option Plan. In May 1992, the Company adopted the Amended and
Restated Natural Gas Vehicle Systems, Inc. Stock Option Plan, which plan amended
and restated the Company's 1992 NGV Systems Executive Stock Option Plan (as
amended and restated, the "1992 Plan"). The purpose of the 1992 Plan was to
46
<PAGE>
encourage and enable selected officers and other key employees of the Company to
acquire and retain a proprietary interest in the Company through ownership of
its stock. Options granted under the 1992 Plan are not "incentive" stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The 1992 Plan, which provided for the issuance of up to a maximum of
300,000 shares of Common Stock (100,000 shares on a post-reverse stock split
basis), was previously administered by a committee consisting of two directors
appointed by the Board of Directors (the "Stock Option Committee"), but is
currently administered by the Board of Directors. The number of shares of Common
Stock as to which stock options were granted to officers or key employees was
determined by the Stock Option Committee based upon such factors as it deemed to
be relevant, such as previous and anticipated contributions to, and duration of
employment with, the Company.
The exercise price per share of a stock option was established by the
Stock Option Committee in its discretion, but may not be less than the fair
market value of a share of Common Stock on the date of grant. Stock options may
not be exercised unless and until the optionee shall have been or remained in
the employ of the Company for one year and are exercisable (subject to such
restrictions and vesting provisions as the Stock Option Committee determined on
the date of grant in its discretion) in part from time to time or in whole at
any time after full vesting for a period not to exceed ten years. Such period
was established by the Stock Option Committee in its discretion on the date of
grant. Stock options terminate immediately upon the date of termination of
employment of an officer or employee who has been employed by the Company for
less than one year and three months after the date of termination of employment
(other than for death or disability, in which event such stock options terminate
one year thereafter) of an officer or employee who has been employed by the
Company for more than one year. Stock options are not transferable otherwise
than by will or the laws of descent and distribution. The 1992 Plan (but not
stock options then outstanding under the 1992 Plan) terminates in May 2002 or on
such earlier date as the Board may determine in its discretion. There are
currently options to purchase an aggregate of 100,000 shares of Common Stock
outstanding under the 1992 Plan.
1996 Stock Option Plan. In October 1996, the Company adopted the 1996
Plan. The purpose of the 1996 Plan is to enable the Company to attract and
retain qualified personnel and to provide additional incentives to the Company's
officers, directors and employees to advance the interests of the Company by
giving them an opportunity to participate in the ownership of the Company. The
1996 Plan provides for the grant of stock options that are either "incentive" or
"non-qualified" for federal income tax purposes. "Incentive" stock options are
expected to satisfy the requirements of Section 422A of the Code and,
accordingly, no "incentive" stock options may be granted to officers or
directors of the Company who are not also employees of the Company.
The 1996 Plan, which provides for the issuance of up to a maximum of
200,000 shares of Common Stock (subject to adjustment pursuant to customary
anti-dilution provisions), is currently administered by the Board of Directors
of the Company, although the Board in its discretion may delegate any or all of
such authority to a committee of the Board. The number of shares of Common Stock
as to which stock options will be granted to any officer, director or employee
will be determined by the Board based upon such factors as it may deem to be
relevant, such as previous and anticipated contributions to, and duration of
employment with, the Company, provided, however, that no officer, director or
employee of the Company shall receive a grant or grants of options with respect
to more than 50,000 shares of Common Stock in any Plan year.
The exercise price per share of a stock option is established by the Board
in its discretion, but may not be less than the fair market value (or not less
than 110% of such value if the individual to whom an "incentive stock option is
granted owns, as of the date of grant, shares of the Company's capital stock
possessing 10% or more of the total voting power of all outstanding shares of
the Company's capital stock) of a share of Common Stock as of the date of grant.
The aggregate fair market value (determined as of the date of grant of shares of
Common Stock) with respect to which "incentive" stock options are exercisable
for the first time by an individual to whom an "incentive" stock option is
granted during any calendar year (under "incentive" stock option plans of the
Company) may not exceed $100,000. Payment for shares of Common Stock purchased
upon the exercise of stock options may be made in cash or by check, or, subject
to applicable laws, by delivery of shares of Common Stock having a fair market
value equal to the exercise price of the stock options then being exercised.
Stock options may be exercisable (subject to such restrictions and vesting
provisions as the Board may determine on the date of grant in its discretion) in
part from time to time or in whole at any time after full vesting for a period
not to exceed ten years, in the case of both "non-qualified" stock options and
"incentive" stock options,
47
<PAGE>
from the date determined by the Board, which in no event shall be prior to six
months after the date of grant. Such period is established by the Board in its
discretion on the date of grant. Stock options terminate three months after the
date of termination of employment or, in the case of a director who is not also
an employee, association with the Company for a reason other than death or
disability (in which event such stock options terminate one year thereafter),
retirement (in which event such stock options terminate upon expiration of the
stated term of the options, unless the retired option holder dies within such
stated term, in which case such stock options will terminate upon the earlier to
occur of one year from the date of death and the expiration of the stated term
of such options) or termination for cause (in which event such stock options
immediately terminate). Stock options are not transferable except upon death (in
which case they may be exercised by the decedent's executor or other legal
representative). The 1996 Plan (but not stock options then outstanding under the
1996 Plan) terminates in October 2006 or on such earlier date as the Board may
determine in its discretion. There are currently options to purchase an
aggregate of 145,167 shares of Common Stock outstanding under the 1996 Plan.
401(k) Plan
The Company has established an Employees' 401(k) Plan (the "401(k) Plan")
for eligible employees of the Company who may contribute up to 15% of their
pre-tax annual salaries to the 401(k) Plan, subject to the maximum annual
deferral established by law. All contributions made by an employee are fully
vested and are not subject to forfeiture. The Company is not required to make
any contributions to the 401(k) Plan on behalf of its employees.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock, the only class of capital stock of the Company of
which shares will be outstanding after this Offering, on a comparative basis, as
of September 30, 1996 and as adjusted to reflect the sale of Common Stock
offered hereby (in each case) by (i) all persons who beneficially own, to the
knowledge of the Company, 5% or more of the Common Stock, (ii) each director of
the Company individually, (iii) each Named Executive Officer, and (iv) all
directors and executive officers of the Company as a group.
Number of Shares
Name and Address of Beneficial Owner Beneficially Percentage of
or Number of Persons in Group (1) Owned (2) Ownership
--------------------------------- ----------------- --------------------
Before After
Offering Offering
-------- --------
Caithness/NCF, L.P..................... 763,795 33.4% 20.2%
1114 Avenue of the Americas
35th Floor
New York, NY 10036-7790
Hanseatic Corporation (3).............. 373,545 16.0% 9.7%
450 Park Avenue
Suite 2302
New York, NY 10152
ERI Investments, Inc................... 277,778 12.1% 7.3%
c/o Equitable Resources, Inc.
420 Boulevard of the Allies
Pittsburgh, PA 15219
Amoco Oil Company...................... 255,608 11.2% 6.7%
200 East Randolph Drive
Chicago, IL 60601
Caithness Composites, Inc.............. 166,369 7.3% 4.4%
1114 Avenue of the Americas
35th Floor
New York, NY 10036-7790
NCF Industries, Inc.................... 152,738 6.7% 4.0%
2320 Cherry Industrial Circle
Long Beach, CA 90805-4417
Caithness Resources, Inc............... 114,941 5.0% 3.0%
1114 Avenue of the Americas
35th Floor
New York, NY 10036-7790
Howard T. Phelan (4)................... 66,798 2.9% 1.8%
John R. Bacon (5)...................... 47,334 2.0% 1.2%
Paul A. Biddelman (3).................. 373,545 16.0% 9.7%
James D. Bishop, Jr. (6)............... 1,045,105 45.6% 27.6%
R. Terry Botruff (7)................... 255,608 11.2% 6.7%
W. Murray Buttner (6).................. 1,045,105 45.6% 27.6%
Ernest L. Daman........................ 3,334 * *
Dan C. Eaton (8)....................... 277,778 12.1% 7.3%
Helmut Korte (9)....................... 69,679 3.0% 1.8%
Alan D. Pesky (10)..................... 11,806 * *
Martin B. Richards(11)................. 13,667 * *
All directors and executive officers as
a group (14 persons)(3)(4)(5)(6)
(7)(8)(9)(10)(11) 2,174,320 89.9% 55.5%
- ----------
* Represents beneficial ownership of less than 1%.
49
<PAGE>
(1) The address of each person listed, unless otherwise indicated, is c/o
Natural Gas Vehicle Systems, Inc., 5580 Cherry Avenue, Long Beach,
California 90805.
(2) As used in this table "beneficial ownership" means the sole or shared
power to vote or direct the voting or to dispose or direct the disposition
of any security. A person is deemed as of any date to have "beneficial
ownership" of any security that such person has a right to acquire within
60 days after such date. Any security that any person named above has the
right to acquire within 60 days is deemed to be outstanding for purposes
of calculating the ownership percentage of such person but is not deemed
to be outstanding for purposes of calculating the ownership percentage of
any other person. Unless otherwise noted, each person listed has the sole
power to vote, or direct the voting of, and power to dispose, or direct
the disposition of, all of such shares.
(3) Includes 324,525 shares of Common Stock and 49,020 shares subject to
warrants beneficially owned by Hanseatic Corporation ("Hanseatic"), which
are exercisable within 60 days of September 30, 1996. These warrants are
held by Hanseatic Americas LDC, a Bahamian limited duration company in
which the sole managing member is Hansobel Partners LLC, a Delaware
limited liability company in which the sole managing member is Hanseatic.
Paul A. Biddelman, a director of the Company, is an officer of Hanseatic
and has shared voting and investment power in the shares of Common Stock
and warrants held by Hanseatic.
(4) Includes 7,334 shares held by Mr. Phelan through his ownership interest in
Caithness/NCF, L.P. and 10,000 shares subject to stock options exercisable
within 60 days of September 30, 1996.
(5) Includes 40,000 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(6) Includes 763,795 shares held by Caithness/NCF, L.P., 166,369 shares held
by Caithness Composites, Inc. and 114,941 shares held by Caithness
Resources, Inc. Messrs. Bishop, Jr. and Buttner, each of whom are
directors of the Company, are the President and Senior Vice President,
respectively, of Caithness Corporation, an affiliate of each of
Caithness/NCF, L.P., Caithness Composites, Inc. and Caithness Resources,
Inc. Each of Messrs. Bishop, Jr. and Buttner disclaim beneficial ownership
of all of these shares.
(7) Includes 255,608 shares held by Amoco Oil Company. Mr. Botruff, a director
of the Company, is an officer of Amoco and is Amoco's designee to the
Company's Board of Directors pursuant to an agreement between the Company
and Amoco. See "Management." Mr. Botruff disclaims beneficial ownership of
the shares of Common Stock held by Amoco.
(8) Includes 277,778 shares held by ERI Investments, Inc. ("ERI"). Mr. Eaton,
a director of the Company, is an officer of Equitable Resources, Inc., an
affiliate of ERI, and is ERI's designee to the Company's Board of
Directors pursuant to an agreement between the Company and ERI. See
"Management." Mr. Eaton disclaims beneficial ownership of the shares of
Common Stock held by ERI.
(9) Includes 69,679 shares held by Korte Investments, Inc. Mr. Korte, a
director of the Company, is an officer of Korte Investments, Inc. Mr.
Korte disclaims beneficial ownership of the shares of Common Stock held by
Korte Investments, Inc. except to the extent of his pecuniary interest
therein, if any.
(10) Includes 8,056 shares held jointly by Mr. Pesky with his wife. Also
includes an aggregate of 3,750 shares held in trust for the benefit of Mr.
Pesky's adult children, of which Mr. Pesky disclaims beneficial ownership.
(11) Includes 13,667 shares subject to stock options exercisable within 60 days
of September 30, 1996.
50
<PAGE>
CERTAIN TRANSACTIONS
In October 1996, Caithness Resources, Inc. and NCF Industries, Inc. sold
an aggregate 3,334 shares of Common Stock to Ernest L. Daman, a director of the
Company, in consideration for past services rendered to the Company by Mr.
Daman. W. Murray Buttner, a director of the Company, is a Senior Vice President
of Caithness Corporation ("Caithness"), and James D. Bishop, Jr., a director of
the Company, is the President of Caithness. Caithness is an affiliate of
Caithness Resources, Inc.
In April 1996, the Company entered into a Loan and Security Agreement with
Paul S. Dopp, pursuant to which Mr. Dopp provided the Company with a loan in the
principal amount of $600,000 with interest at the rate of 12% per annum (as
amended, the "Dopp Loan"). Under the Dopp Loan, the Company is obligated to make
monthly payments of interest only from May 1, 1996 through November 1, 1996 and
a final balloon payment of the unpaid principal balance of the Dopp Loan
(including accrued interest thereon) on November 30, 1996. The Dopp Loan is
subject to a security interest in certain machinery owned by the Company.
In July 1996, the Company entered into another Loan and Security Agreement
with Mr. Dopp pursuant to which Mr. Dopp provided the Company with a loan in the
principal amount of $400,000 with interest at the rate of 12% per annum (the
"Second Dopp Loan"). Under the Second Dopp Loan, the Company is obligated to
make monthly payments of interest only from August 1, 1996 through November 1,
1996 and a final balloon payment of the unpaid principal balance of the Second
Dopp Loan (including accrued interest thereon) on November 30, 1996. The Second
Dopp Loan is subject to a security interest in certain machinery owned by the
Company.
In connection with the Second Dopp Loan, the Company issued to Mr. Dopp,
for nominal consideration, warrants to purchase 100,000 shares of Common Stock
of the Company at an exercise price of $3.00 per share at any time until June
30, 2001 (the "Dopp Warrants"). The Dopp Warrants provide for adjustment in the
number of shares of Common Stock issuable upon the exercise thereof and in the
exercise price of the Dopp Warrants as a result of certain dilutive events;
provided, however, that any reverse stock split or combination of the Common
Stock will not reduce the number of shares of Common Stock receivable upon
exercise of the Dopp Warrants.
The Company also agreed to hire Mr. Dopp as a consultant until such time
as the Company has repaid all outstanding loans made by Mr. Dopp at a monthly
fee of $3,000 per month plus reasonable, documented out-of-pocket expenses.
In April 1996 and July 1996, the Company issued an aggregate 36,016 shares
of Common Stock to Clock Spring, Inc. in exchange for the cancellation of
indebtedness aggregating $324,138. In addition, the Company currently is
indebted to Clock Spring, Inc. in the amount of $50,000 pursuant to a demand
promissory note bearing annual interest at the prime rate plus 3%. The Company
intends to repay this promissory note with a portion of the net proceeds of this
Offering. Messrs. Howard T. Phelan, the Chairman and Chief Executive Officer of
the Company, and W. Murray Buttner, a director of the Company, are directors of
Clock Spring, Inc.
In March 1996, the Company entered into a Loan and Security Agreement (as
amended, the "Caithness Agreement") with Caithness, a stockholder of the
Company, pursuant to which Caithness agreed to arrange for an irrevocable
standby letter of credit with an expiration date of October 1, 1996 to be issued
by The Bank of New York on account of the Company for the benefit of Alcoa in
the principal amount of $600,000. Caithness provided $600,000 to The Bank of New
York as cash collateral for such line of credit which is evidenced by a
promissory note from the Company in favor of Caithness. Interest on the unpaid
balance of any loan drawn from the line of credit accrues at the prime rate
charged by The Bank of New York plus two percent and is payable on demand. The
line of credit was subject to a security interest in all of the Company's
tangible and intangible assets and terminated on October 1, 1996. The $600,000
cash collateral for this line of credit has been returned to Caithness and
Caithness has loaned the Company $300,000 to purchase raw materials from Alcoa.
The Company plans to use a portion of the net proceeds of this Offering to repay
this $300,000 loan. W. Murray Buttner, a director of the Company, is a Senior
Vice President of Caithness, and James D. Bishop, Jr., a director of the
Company, is the President of Caithness.
In January 1996, W. Murray Buttner, a director of the Company and Senior
Vice President of Caithness, loaned $150,000 to the Company pursuant to two
promissory notes, each of which bears interest
51
<PAGE>
at the rate of 11% per annum and is due and payable on demand. The Company had
previously repaid a $50,000 loan made by Mr. Buttner in May 1995.
In December 1995 and June 1996, the Company issued an aggregate 142,240
shares of Common Stock to Caithness/NCF, L.P. in exchange for the cancellation
of indebtedness aggregating $1,280,151. W. Murray Buttner, a director of the
Company, is a Senior Vice President of Caithness, and James D. Bishop, Jr., a
director of the Company, is the President of Caithness. Caithness is a limited
partner of Caithness/NCF, L.P.
The Company is currently indebted to Equitable Resources Energy Company in
the amount of $300,000 pursuant to a demand secured promissory note, dated
November 20, 1995, bearing annual interest at 10%. Upon consummation of this
Offering, the Company intends to convert this outstanding indebtedness into
shares of Common Stock. Dan C. Eaton, a director of the Company, is an officer
of Equitable Resources, Inc., an affiliate of Equitable Resources Energy
Company.
In May 1995 and December 1995, the Company issued an aggregate 180,081
shares of Common Stock to Hanseatic Corporation in exchange for the cancellation
of indebtedness aggregating $1,620,723. Paul A. Biddelman, a director of the
Company, is an officer of Hanseatic Corporation.
In May 1995, the Company issued 255,608 and 166,667 shares of Common Stock
to Amoco and EQT Capital Corporation in exchange for the cancellation of
indebtedness of $2,300,472 and $1,500,000, respectively. R. Terry Botruff, a
director of the Company, is an officer of Amoco and Dan C. Eaton, a director of
the Company, is an officer of Equitable Resources, Inc., the successor in
interest to EQT Capital Corporation.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $0.01 per share and 2,000,000 shares of Preferred
Stock, par value $0.01 per share. As of the date of this Prospectus, 2,290,195
shares of Common Stock are outstanding. After giving effect to the sale of the
shares of Common Stock offered hereby, there will be 3,790,195 shares of Common
Stock outstanding (4,015,195 shares if the Underwriters' over-allotment option
is exercised in full).
Common Stock
The holders of shares of Common Stock are entitled to one vote per share
on all matters submitted to a vote at a meeting of stockholders. Each
stockholder may exercise such vote either in person or by proxy. Stockholders
are not entitled to cumulate their votes for the election of directors, which
means that the holders of more than 50% of the Common Stock voting for the
election of directors can elect all of the directors to be elected by holders of
Common Stock, in which event the holders of the remaining Common Stock voting
will not be able to elect any director. Subject to preferences to which holders
of Preferred Stock issued after the sale of the Common Stock offered hereby may
be entitled, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board out of
funds legally available therefor. The Company does not presently anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets of the Company which
are legally available for distribution to stockholders, subject to the prior
rights on liquidation of creditors and to preferences to which holders of
Preferred Stock issued after the sale of the Common Stock offered hereby may be
entitled. The holders of Common Stock have no preemptive, subscription,
redemption or sinking fund rights. The Common Stock currently outstanding, and
the Common Stock offered hereby, is and will be validly issued, fully paid and
nonassessable.
Preferred Stock
The Board has the authority to issue Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption (including sinking fund provisions), redemption prices and
liquidation preferences, and the number of shares constituting and the
designation of any such series, without further vote or action by the
stockholders. At present, the Company has no plans to issue any of the Preferred
Stock and is not aware of any pending or proposed transaction that would be
affected by such an issuance.
Warrants
As of September 30, 1996, there were outstanding warrants to purchase an
aggregate of 158,717 shares of Common Stock and 32,000 shares of Preferred
Stock.
Silicon Valley Bank is the holder of warrants to purchase 6,734 shares of
Common Stock at an exercise price of $11.88 per share expiring on September 29,
1997 and warrants to purchase 32,000 shares of Preferred Stock at an exercise
price of $5.00 per share expiring on June 2, 1997 (collectively, the "SVB
Warrants"). The exercise price and the number of securities issuable upon
exercise of the SVB Warrants are subject to adjustment upon the occurrence of
certain dilutive events.
Hanseatic Corporation is the holder of warrants to purchase 49,020 shares
of Common Stock at an exercise price of $10.20 per share expiring on March 5,
1998 (the "Hanseatic Warrants"). The Company may redeem all, but not less than
all, of the Hanseatic Warrants at a redemption price of $.10 per warrant at any
time after the first anniversary of an initial public offering by the Company if
the Share Closing Price (as defined in the Hanseatic Warrants) on any 20 trading
days within the consecutive 30 trading day period ending on the date of the
notice of redemption has been in excess of 150% of the Conversion Price (as
defined in the Hanseatic Warrants) then in effect. Paul A. Biddelman, a director
of the Company, is an officer of Hanseatic Corporation.
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<PAGE>
Paul S. Dopp is the holder of the Dopp Warrants to purchase 100,000 shares
of Common Stock at an exercise price of $3.00 per share expiring on June 30,
2001. See "Certain Transactions."
Green Fuels, Inc. is the holder of a warrant to purchase that number of
shares of Common Stock equal to $20,000 divided by the higher of (A) the initial
public offering price per share of Common Stock in this Offering, at an exercise
price equal to the initial public offering price per share in this Offering or
(B) $5.00, at an exercise price of $5.00. At an assumed initial public offering
price of $6.75 per share, Green Fuels, Inc. would hold a warrant to purchase
2,963 shares of Common Stock at an exercise price of $6.75 per share.
Registration Rights
The Company granted certain piggyback registration rights to the holders
of the SVB Warrants and the Dopp Warrants and certain demand and piggyback
registration rights to the holder of the Hanseatic Warrants as well as to the
holders of an aggregate of 588,942 shares of Common Stock. Such holders have
waived any and all rights they may have to register such securities (and
securities issuable upon conversion or exchange of such securities) in
connection with this Offering and for a period of 18 months after completion of
this Offering. See "Shares Eligible for Future Sale."
Certain Effects of Authorized and Unissued Stock
There will be, at the time of the sale of the Common Stock offered hereby,
15,574,588 unissued and unreserved shares of Common Stock (15,349,588 shares if
the Underwriters' over-allotment option is exercised in full) (each including
2,963 shares of Common Stock issuable upon exercise of the warrant issued in
connection with the Private Placement assuming an initial public offering price
of $6.75 per share) and 1,968,000 unissued and unreserved shares of Preferred
Stock. These additional shares may be issued for a variety of proper corporate
purposes, including future public or private offerings to raise additional
capital or facilitate acquisitions. The Company does not presently intend to
issue additional shares of Common Stock or Preferred Stock (other than in
connection with the 1996 Plan or upon the exercise of outstanding warrants or
options).
One of the effects of the existence of unissued and unreserved shares of
Common Stock and Preferred Stock may be to enable the Board to discourage an
attempt to change control of the Company (by means of a tender offer, proxy
contest or otherwise) and thereby to protect the continuity of the Company's
management. If, in the due exercise of its fiduciary duties, the Board
determined that an attempt to change control of the Company was not in the
Company's best interest, the Board could authorize, without having to obtain
approval of the stockholders, the issuance of such shares in one or more
transactions that might prevent or render more difficult the completion of such
attempt. In this regard, the Board has the authority to establish the rights and
preferences of the authorized and unissued shares of Preferred Stock, one or
more series of which could be issued entitling the holders thereof to vote
separately as a class or to cast a proportionately larger vote than the holders
of shares of Common Stock on any proposed action, to elect directors having
terms of office or voting rights greater than the terms of office or voting
rights of other directors, to convert shares of Preferred Stock into a
proportionately larger number of shares of Common Stock or other securities of
the Company, to demand redemption at a specified price under prescribed
circumstances related to such a change or to exercise other rights designed to
impede such a change. The issuance of shares of Preferred Stock, whether or not
related to any attempt to effect such a change, may adversely affect the rights
of the holders of shares of Common Stock.
Limitations Upon Transactions with "Interested Stockholders"
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock. The
54
<PAGE>
restrictions of Section 203 do not apply, among other things, if a corporation,
by action of its stockholders, adopts an amendment to its certificate of
incorporation or by-laws expressly electing not to be governed by Section 203,
provided that, in addition to any other vote required by law, such amendment to
the certificate of incorporation or by-laws must be approved by the affirmative
vote of a majority of the shares entitled to vote. Moreover, an amendment so
adopted is not effective until 12 months after its adoption and does not apply
to any business combination between the corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption. The
Company's Certificate of Incorporation and By-Laws do not currently contain any
provisions electing not to be governed by Section 203 of the Delaware General
Corporation Law. The provisions of Section 203 of the Delaware General
Corporation Law may have a depressive effect on the market price of the Common
Stock because they could impede any merger, consolidating takeover or other
business combination involving the Company, or discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain control of the
Company.
Limitation of Liability and Indemnification
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware Law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director, and provides that
the Company shall indemnify its officers and directors and may indemnify its
employees and other agents to the fullest extent permitted by law. The Company
intends to purchase directors' and officers' liability insurance after the
completion of this Offering. Section 145 of the Delaware Law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he had
no reasonable cause to believe his conduct was unlawful. Delaware Law does not
permit a corporation to eliminate a director's duty of care, and the provisions
of the Company's Certificate of Incorporation have no effect on the availability
of equitable remedies, such as injunction or recession, for a director's breach
of the duty of care.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted for directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have a total of
3,790,195 shares of Common Stock outstanding (4,015,195 if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 1,500,000
shares (1,725,000 shares if the Underwriters' over-allotment option is exercised
in full) sold in this Offering and 366,862 currently outstanding shares will be
freely tradeable without restriction or registration under the Securities Act by
persons other than "affiliates" of the Company, as defined under the Securities
Act. The remaining 1,923,333 shares of Common Stock outstanding upon completion
of the Offering will be "restricted shares" as that term is defined by Rule 144
as promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements, and to the availability of
current public information about the Company. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least three years, would be entitled to sell such shares under Rule
144(k) without regard to the requirements described above.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 generally may be relied upon with
respect to the sale of shares purchased from the Company by its employees,
directors, officers or consultants prior to the date of this Prospectus pursuant
to written compensatory benefit plans such as the 1992 Plan and the 1996 Plan
and written contracts such as option agreements. Rule 701 is also available for
sales of shares acquired by persons pursuant to the exercise of options granted
prior to the effective date of this Prospectus, regardless of whether the option
exercise occurs before or after the effective date of this Prospectus.
Securities issued in reliance on Rule 701 are "restricted securities" within the
meaning of Rule 144 and, beginning 90 days after the date of this Prospectus,
may be sold by persons other than affiliates of the Company subject only to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its two-year minimum holding period requirement.
Under Rule 144 (and subject to the conditions thereof), all the restricted
shares will be eligible for sale upon completion of this Offering. All officers,
directors and stockholders of the Company and all holders of any options,
warrants or other securities convertible into, or exercisable or exchangeable
for, shares of Common Stock have agreed that they will not, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose of any shares of Common Stock or
other capital stock of the Company, or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company without the prior written consent of the Representative, on
behalf of the Underwriters, for a period of 18 months from the date of this
Prospectus, provided, however, that (i) any such person may make private sales
or bona fide gifts of securities of the Company during such period if the
proposed transferee agrees to be bound by the above restrictions and (ii) such
restrictions shall not apply with respect to the laws of descent and
distribution.
There are currently 100,000 shares of Common Stock subject to outstanding
options under the 1992 Plan, 145,167 shares of Common Stock subject to
outstanding options under the 1996 Plan and 54,833 shares of Common Stock
reserved for issuance under the 1996 Plan. At appropriate times subsequent to
completion of the Offering, the Company may file registration statements under
the Securities Act to register the Common Stock to be issued under these plans.
After the effective date of such registration statement, and subject to the
lock-up agreement executed by existing shareholders, shares issued under these
plans will be freely tradeable without restriction or further registration under
the Securities Act, unless acquired by affiliates of the Company.
No prediction can be made as to the effect, if any, that the sales of the
Common Stock or the availability of such shares for sale in the public market
will have on the market price for the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
after the restrictions described above lapse could adversely affect prevailing
market prices for the Common Stock and impair the ability of the Company to
raise capital through an offering of its equity securities in the future.
56
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for which Commonwealth
Associates is acting as representative (the "Representative"), have agreed,
severally and not jointly, subject to the terms and conditions contained in the
underwriting agreement between the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the several Underwriters, an aggregate of 1,500,000 shares of
Common Stock. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
Number of
Underwriter Shares
- ----------- ------
Commonwealth Associates..........................................
---------
Total...................................................... 1,500,000
=========
The Underwriters are committed on a "firm commitment" basis to purchase
and pay for all the shares of Common Stock offered hereby (other than shares
offered pursuant to the Underwriters' over-allotment option), if any shares are
purchased. The shares are being offered by the Underwriters, subject to prior
sale, when, as, and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by counsel and to certain other conditions.
Through the Representative, the Underwriters have advised the Company that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and the
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD") concessions not in excess
of $0.__ per share, of which not in excess of $0.__ per share may be reallowed
to other dealers who are members of the NASD. After commencement of this
Offering, the public offering price, the concessions, and the reallowance may be
changed by the Representative. The Representative has informed the Company that
it does not expect sales to discretionary accounts by the Underwriters to exceed
five percent of the shares of Common Stock offered hereby.
The Company has granted to the Underwriters an option exercisable for 45
days from the date of this Prospectus to purchase up to an additional 225,000
shares of Common Stock (the "Over-allotment Shares") at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriters may exercise this option in whole
or, from time to time, in part, solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the shares of
Common Stock offered hereby.
The Company has agreed to pay the Representative, in its individual rather
than representative capacity, a non-accountable expense allowance equal to 2% of
the gross proceeds of this Offering, including any proceeds derived from the
sale of the Over-allotment Shares, in connection with certain expenses incurred
by the Representative and to reimburse the Representative for certain other
expenses incurred by the Representative.
The Company has agreed to sell to the Representative and its designees
warrants (the "Representative's Warrants") to purchase up to 150,000 shares of
Common Stock at an exercise price per share equal to 120% of the initial public
offering price. The Representative's Warrants are not redeemable and may not be
sold, transferred, assigned, pledged or hypothecated for a period of one year
from the date of this Prospectus, except that they may be assigned, in whole or
in part, to any successor, officer, employee or partner of the Representative,
or to officers, employees or partners of any such successor or partner, and are
exercisable during the four-year period commencing one year from the date of
this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term,
the holders of the Representative's Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Common Stock. To
the extent that the Representative's Warrants are exercised or exchanged,
dilution to the interests of the Company's stockholders will occur. Further, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of the Representative's Warrants can
be expected to exercise or exchange them at a time when the Company would, in
all likelihood, be able to obtain any needed capital on terms more favorable to
the
57
<PAGE>
Company than those provided in the Representative's Warrants. Any profit
realized by the Representative on the sale of the Representative's Warrants or
the underlying shares of Common Stock may be deemed additional underwriting
compensation. The Representative's Warrants provide for reductions, which in
certain circumstances could be material, in the exercise price of the
Representative's Warrants upon the occurrence of certain events, including the
issuance by the Company of shares of Common Stock for a price below the exercise
price of the Representative's Warrants or the then market price of the Common
Stock, whichever is higher, and corresponding potentially significant increases
in the number of shares purchasable upon exercise of the Representative's
Warrants, for a period of five years from the date of this Prospectus, except
that grants or issuances under the Company's 1992 Plan or 1996 Plan or pursuant
to outstanding warrants and any issuance of shares of Common Stock in connection
with certain business combinations shall not, subject to certain conditions,
trigger any such provisions. The Representative's Warrants provide, subject to
certain conditions, for a period of four years commencing one year from the date
of this Prospectus, one "demand" registration right and will provide, subject to
certain conditions, for a period of three years commencing two years from the
date of this Prospectus, certain "piggyback" registration rights.
In addition, the Company has entered into an agreement to retain the
Representative as its exclusive financial advisor in connection with the
management of this Offering for a period of six months from June 11, 1996 for a
fee of $35,000, paid upon execution of such agreement, and an additional fee of
3% of the gross proceeds of this Offering (including any gross proceeds derived
from the sale of the Over-allotment Shares), payable in full, in advance, at the
closing of this Offering. This agreement does not require the Representative to
devote a specific amount of time to the performance of its duties thereunder.
The Company has agreed to indemnify the Underwriters, their officers,
directors, employees, affiliates, agents, legal counsel and controlling persons
or contribute to losses arising out of certain liabilities, including
liabilities under the Securities Act.
All of the officers, directors and stockholders of the Company and all
holders of any options, warrants or other securities convertible into or
exercisable for, shares of Common Stock have agreed that they will not, directly
or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose of any shares of Common Stock or
other capital stock of the Company, or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company without the prior written consent of the Representative, on
behalf of the Underwriters, for a period of 18 months from the date of this
Prospectus, provided, however, that (i) any such person may make private sales
or bona fide gifts of securities of the Company during such period if the
proposed transferee agrees to be bound by the above restrictions and (ii) such
restrictions shall not apply with respect to the laws of descent and
distribution.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price has been arbitrarily determined by
negotiation between the Company and the Representative. In determining the
offering price the Representative and the Company considered, among other
things, market prices of similar securities of comparable publicly traded
companies, the financial condition and operating information of companies
engaged in activities similar to those of the Company, the financial condition
and prospects of the Company and the general condition of the securities market.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the Underwriting Agreement that is on file as an exhibit to
Registration Statement of which this Prospectus is a part.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Orrick, Herrington &
Sutcliffe LLP, located at 666 Fifth Avenue, New York, New York 10103. Certain
legal matters will be passed upon for the Underwriters by Parker Chapin Flattau
& Klimpl, LLP, located at 1211 Avenue of the Americas, New York, New York 10036.
58
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995, and for each of the years in the two-year period ended December 31, 1995
have been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1995
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations and net capital deficiency raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a registration statement on Form SB-2
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted from this Prospectus
in accordance with the Commission's rules and regulations. For further
information, reference should be made to the Registration Statement and to the
exhibits filed thereto. For further information with respect to the Company and
the Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto which may be inspected without charge or copied
at the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Commission's
Public Reference Section at prescribed rates. Registration statements
transmitted through the Commission's Electronic Data Gathering, Analysis and
Retrieval System are also publicly available through the Commission's Internet
site on the World Wide Web (http://www.sec.gov). Descriptions contained in this
Prospectus as to the contents of any contract or other documents filed as an
exhibit to the Registration Statement are not necessarily complete and each such
description is qualified by reference to such contract or document. In addition,
it is anticipated that the Common Stock will be quoted on the Nasdaq Small Cap
Market under the symbol "NGVS". Reports and other information concerning the
Company may be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing financial statements examined by an independent public accounting
firm and such other reports as the Company may determine to be appropriate or as
may be required by law. The Company's fiscal year ends on December 31. The
Company will become a reporting company under the Securities Exchange Act of
1934 after this Offering.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Natural Gas Vehicle Systems, Inc. and Subsidiary:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1995
and June 30, 1996 (unaudited).......................................... F-3
Consolidated Statements of Operations for the Years ended
December 31, 1994 and 1995 and the Six Months ended
June 31, 1995 and 1996 (unaudited)..................................... F-4
Consolidated Statements of Shareholders' Equity for the
Years ended December 31, 1994 and 1995 and the Six Months
ended June 30, 1996 (unaudited)........................................ F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1994 and 1995 and the Six Months ended
June 30, 1995 and 1996 (unaudited)..................................... F-6
Notes to Consolidated Financial Statements............................... F-8
F-1
<PAGE>
When the one-for-three reverse stock split described in note 17 of the notes to
consolidated financial statements has been consummated, we will be in a position
to render the following report.
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Natural Gas Vehicle Systems, Inc.:
We have audited the accompanying consolidated balance sheet of Natural Gas
Vehicle Systems, Inc. and subsidiary as of December 31, 1995 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended December 31, 1994 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Natural Gas Vehicle
Systems, Inc. and subsidiary as of December 31, 1995 and the results of their
operations and their cash flows for the years ended December 31, 1994 and 1995
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to
the consolidated financial statements, the Company's recurring losses from
operations and need for future financing or equity raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
April 11, 1996, except for Note 17,
which is as of October 10, 1996
F-2
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
----------- -----------
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash $ 61 $ --
Restricted cash 350 600
Accounts receivable, net of allowance for doubtful accounts of $105 526 2,072
and $10 as of December 31, 1995 and June 31, 1996, respectively
Inventories 1,004 1,116
Other current assets 62 144
---------- ----------
Total current assets 2,003 3,932
Property and equipment, net 3,080 2,989
Investments in joint ventures 238 224
Other assets 55 165
---------- ----------
$ 5,376 $ 7,310
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,735 $ 2,859
Due to related parties -- 39
Notes payable to bank 245 245
Notes payable to third party -- 600
Notes payable to related parties 313 1,377
Term debt 89 38
---------- ----------
Total current liabilities 2,382 5,158
---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 2,000,000 shares;
none issued and outstanding -- --
Preference stock, $5 par value. Authorized 50,000 shares; none
issued and outstanding -- --
Common stock, $.01 par value. Authorized 20,000,000 shares;
issued and outstanding 2,271,626 and 2,276,306 shares as of
December 31, 1995 and June 30, 1996, respectively 23 23
Additional paid-in capital 23,362 23,404
Accumulated deficit (20,391) (21,275)
---------- ----------
Net shareholders' equity 2,994 2,152
---------- ----------
Commitments and contingencies (note 15)
Subsequent events (note 17) $ 5,376 $ 7,310
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended
December 31, Six months ended June 30,
--------------------------- ---------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 5,189 $ 5,683 $ 3,550 $ 4,374
Operating costs and expenses:
Cost of sales 5,868 6,171 3,305 3,951
Research and development 714 622 284 202
Selling 935 926 394 366
General and administrative 2,086 1,243 665 591
Restructuring charge (note 3) 482 299 -- --
---------- ---------- ---------- ----------
Loss from operations (4,896) (3,578) (1,098) (736)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense, net (337) (446) (306) (133)
Equity in losses of joint
ventures (1,034) (267) (89) (15)
---------- ---------- ---------- ----------
(1,371) (713) (395) (148)
---------- ---------- ---------- ----------
Net loss $ (6,267) $ (4,291) $ (1,493) $ (884)
========== ========== ========== ==========
Net loss per share $ (3.83) $ (2.07) $ (0.72) $ (0.32)
========== ========== ========== ==========
Weighted average shares
outstanding 1,638 2,071 2,071 2,728
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1994 and 1995
and the six months ended June 30, 1996 (unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Common stock Additional Net
------------------------ paid-in Accumulated shareholders'
Shares Amount capital deficit equity
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 1,173,620 $ 12 $ 13,513 $ (9,833) $ 3,692
Issuance of common stock 18,583 -- 385 -- 385
Net loss -- -- -- (6,267) (6,267)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 1,192,203 12 13,898 (16,100) (2,190)
Issuance of common stock 401,959 4 3,585 -- 3,589
Conversion of related party debt
and related accrued interest into
common stock 665,797 7 5,774 -- 5,781
Conversion of deferred compensation
into common stock 11,667 -- 105 -- 105
Net loss -- -- -- (4,291) (4,291)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 2,271,626 23 23,362 (20,391) 2,994
Issuance of common stock (unaudited) 4,680 -- 42 -- 42
Net loss (unaudited) -- -- -- (884) (884)
---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 (unaudited) 2,276,306 $ 23 $ 23,404 $ (21,275) $ 2,152
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
--------------------------- ---------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,267) $ (4,291) $ (1,493) $ (884)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation 473 644 245 273
Undistributed loss of joint
ventures 1,034 267 89 15
Loss on sale of property and
equipment -- 111 34 --
Loss on investment in joint
venture -- 299 -- --
Change in assets and
liabilities:
Accounts receivable (544) 653 155 (1,546)
Due to related parties (90) 90 90 39
Inventories 739 (303) (414) (112)
Other current assets 581 52 (155) (82)
Restricted cash -- (350) (350) (250)
Other assets 152 173 (17) (110)
Accounts payable and
accrued expenses 1,194 (530) (153) 1,122
---------- ---------- ---------- ----------
Net cash used in
operating activities (2,728) (3,185) (1,969) (1,535)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (360) (454) (280) (182)
Proceeds from sale of property and
equipment 20 -- -- --
---------- ---------- ---------- ----------
Net cash used in
investing activities (340) (454) (280) (182)
---------- ---------- ---------- ----------
</TABLE>
(Continued)
F-6
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
--------------------------- ---------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from sale of common stock $ 385 $ 3,515 $ 2,500 $ 42
Proceeds from issuance of notes
payable to related parties 2,225 821 441 1,064
Proceeds from issuance of note
payable to third party -- -- -- 600
Borrowings from bank 245 -- -- --
Payment on term debt (100) (100) (50) (50)
Payment on long-term debt to
related parties (40) (375) (310) --
Fees paid for conversion of notes
payable to related parties into
common stock -- (211) (177) --
---------- ---------- ---------- ----------
Net cash provided by
financing activities 2,715 3,650 2,404 1,656
---------- ---------- ---------- ----------
Net increase
(decrease) in cash (353) 11 155 (61)
Cash at beginning of period 403 50 50 61
---------- ---------- ---------- ----------
Cash at end of period $ 50 $ 61 $ 205 $ --
========== ========== ========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest $ 49 $ 448 $ 295 $ 127
Cash paid during the period for
taxes -- -- -- --
========== ========== ========== ==========
</TABLE>
Supplemental disclosure of noncash financing activities:
During the year ended December 31, 1995, $5,357,000 of related party
indebtedness owed by the Company was canceled and exchanged for common
stock; $710,000 of interest (of which $338,000 was accrued at December 31,
1994) was also canceled and exchanged for common stock and $105,000 of
deferred compensation owed to an officer and shareholder of the Company was
converted into common stock. A rate of $9 per share was used to carry out
all conversions. Financing fees of $211,000 were incurred in the
conversion of this debt.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1994 and 1995 and June 30, 1996
(1) Summary of Significant Accounting Policies and Practices
Business
Natural Gas Vehicle Systems, Inc. and subsidiary (the Company) is the
leading United States manufacturer and distributor of fuel storage systems
for use on-board natural gas vehicles. The Company currently manufactures
and distributes a variety of aluminum and composite cylinder products. The
Company also has an investment in a regional technology center which
converts vehicles to operate on compressed natural gas.
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company
has suffered recurring losses from operations and expects to continue to
incur losses for the foreseeable future due to significant costs incurred
in connection with manufacturing and marketing its products. Management is
currently seeking additional financing from outside sources. However,
there can be no assurance that such financing will be obtained. Success of
future operations is dependent upon, among other things, the Company's
ability to obtain further financing. The Company is subject to all of the
risks inherent in new business enterprises and the likelihood of the
success of the Company must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with a new business. These matters raise substantial doubt
about the Company's ability to continue as a going concern. The
accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Principles of Consolidation
The consolidated financial statements include the accounts of Natural Gas
Vehicle Systems, Inc. (NGVSI), its wholly owned subsidiary, and NGV
Development Company, Inc. (NGVD). All significant intercompany balances and
transactions have been eliminated.
Investment in Joint Venture
Investments in joint ventures, which ownership interests range from 20% to
50% and in which the Company exercises significant influence over operating
and financial policies, are accounted for using the equity method. The
Company's investments are increased or decreased by the Company's share of
earnings or losses, respectively, less dividends received.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
F-8
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Concentration of Credit Risk
The Company sells fuel storage systems to customers primarily located
in the United States and extends credit based on an evaluation of the
customers' financial conditions, generally without requiring collateral.
Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses.
As of and for the six-month period ended June 30, 1996, one customer, GFI
Control Systems, Inc., represented 45% of consolidated revenues and 76% of
the Company's accounts receivable balance.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the assets as follows:
Machinery and equipment 5 to 15 years
Furniture and fixtures 3 to 5 years
Tools and dies 5 years
Leasehold improvements Shorter of estimated useful
life or lease term
Trucks 3 to 5 years
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes." Under the asset and liability method of
SFAS No. 109, deferred income taxes reflect the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable
to future years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. Changes in
tax rates and laws are reflected in earnings in the period such changes are
enacted.
Research and Development
Research and development costs are expensed as incurred.
Financial Instruments
The estimated fair values of cash, restricted cash, due to related parties,
notes payable to banks, notes payable to third party, notes payable to
related parties and term debt approximate their carrying value. Rates
currently available to the bank for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt and notes
payable.
F-9
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Computation of Net Loss per Share
Net loss per share is calculated using the weighted average number of
shares outstanding. Common equivalent shares from stock options and
warrants are included in the computation as their effect on the share
calculation is dilutive.
Pursuant to the requirements of the Securities and Exchange Commission,
common stock, stock options and warrants issued by the Company during the
twelve months immediately preceding the filing of an initial public
offering have been included in the calculation of the weighted average
shares outstanding as if they were outstanding for all periods presented
using the treasury stock method.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
Interim Financial Data (Unaudited)
The unaudited consolidated financial statements for the six months ended
June 30, 1995 and 1996 have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations in accordance with generally accepted accounting principles.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
encourages a new method of recognizing stock-based compensation expense
using the estimated fair value of employee stock options. Alternatively,
companies may choose to retain the current approach set forth in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and provide expanded footnote disclosure. The statement is
effective for the Company's fiscal year ended December 31, 1996. The
Company does not plan to use the fair-value method when it adopts the
pronouncement.
(2) Restricted Cash
During the periods ended December 31, 1995 and June 30, 1996, deposits were
made with a bank, and certificates of deposit obtained for amounts of
$350,000 and $600,000, respectively. The Company obtained the funds
through promissory notes issued from the Company to related parties. These
certificates of deposit were used as collateral for letters of credit
issued by the bank to one of NGVSI's key suppliers.
F-10
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Restructuring Charge
During 1994, the Company implemented a plan to consolidate facilities and
reorganize its operations. As a result, the Company recorded a one-time
restructuring charge of $482,000 related to severance and relocation costs
and the disposal of certain equipment, of which $300,000 was accrued for
the settlement of these costs at December 31, 1994. At June 30, 1996, all
costs had been settled and there was no remaining accrual.
In December 1995, the Company's Board of Directors approved management's
plan to dispose of the Company's interest in two joint ventures, NGV
Southeast Technology Center and NGV Technology Center, LLP. Accordingly,
the Company has recorded a provision of $299,000 to wind down the joint
venture operations.
(4) Inventories (In Thousands)
December 31, June 30,
1995 1996
----------- -----------
(Unaudited)
Raw materials $ 376 $ 838
Work in process 154 10
Finished goods 474 268
---------- ----------
$ 1,004 $ 1,116
========== ==========
(5) Property and Equipment (In Thousands)
December 31, June 30,
1995 1996
------------ -----------
(Unaudited)
Machinery and equipment $ 4,336 $ 4,464
Furniture and fixtures 265 319
Tools and dies 327 327
Leasehold improvements 235 236
Vehicles 17 16
---------- ----------
5,180 5,362
Less accumulated depreciation and
amortization (2,100) (2,373)
---------- ----------
$ 3,080 $ 2,989
=========== ==========
F-11
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Investments in Joint Ventures
Investments carried at equity and the percentage interest owned consist of
the following joint ventures:
December 31, June 30,
1994 and 1995 1996
---------- ----------
(Unaudited)
NGV Technology Center, LLP 50.00% 50.00%
NGV Ecotrans Technology Center 50.00 35.00
NGV Southeast Technology Center 33.33 --
========== ==========
During the six months ended June 30, 1996, the Company disposed of its
ownership interests in NGV Southeast Technology Center and reduced its
ownership interest in NGV Ecotrans Technology Center.
Summarized financial information of the unconsolidated joint ventures is
presented below (in thousands):
Years ended December 31, Six months ended June 30,
Combined Results ------------------------ -------------------------
of Operations 1994 1995 1995 1996
------- ------- ------- -------
(Unaudited)
Revenues $ 5,089 $ 6,643 $ 3,948 $ 1,885
Operating loss (1,885) (795) (267) (333)
Net loss (1,911) (824) (288) (326)
======= ======= ======= =======
December 31, June 30,
Combined Financial Position 1995 1996
------------ -----------
(Unaudited)
Total assets $ 3,166 $ 2,246
Total liabilities 1,438 971
Partners' equity 1,728 1,275
========== ==========
(7) Accounts Payable and Accrued Expenses (In Thousands)
December 31, June 30,
1995 1996
------------ -----------
(Unaudited)
Accounts payable $ 1,046 $ 1,408
Amounts due to GFI Control Systems, Inc. 112 828
Other accrued expenses 577 623
---------- ----------
$ 1,735 $ 2,859
========== ==========
F-12
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) Notes Payable to Bank
The Company has a credit agreement with its bank that provides for a
revolving line of credit of $245,000 collateralized by a $250,000 standby
letter of credit provided by a shareholder. Borrowings under the revolving
line of credit bear interest at prime rate (prime rate was 8.25% at June
30, 1996). At December 31, 1995 and June 30, 1996, there were outstanding
borrowings under the line of credit of $245,000. As part of the credit
agreement, the Company granted warrants to its bank. Such warrants are
exercisable into 32,000 shares of preferred stock at $5 per share and 6,734
shares of common stock at $11.88 per share. The warrants expire in August
1997. The value of the warrants was not considered material when issued.
The credit agreement expires on September 30, 1996.
(9) Notes Payable to Third Party
The Company has a promissory note of $600,000 at June 30, 1996 with an
investor, bearing interest at 12% per annum, due on November 30, 1996. The
promissory note is secured by certain equipment of the Company.
(10) Related Party Transactions
Notes Payable
The Company is affiliated with certain entities through common ownership.
The Company's notes payable (all current) are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ -----------
(Unaudited)
<S> <C> <C>
Promissory note to Equitable Resources Energy Company,
bearing annual interest at 10%, due on demand $ 50 $ 50
Promissory note to Caithness/NCF Limited Partners,
bearing annual interest at 10%, due on demand
and secured by substantially all of the assets
of the Company. 250 250
Promissory note to Southern Union, bearing interest at
prime rate, due on demand 13 --
Promissory note to Caithness Corporation, bearing
interest at prime rate plus 2%, due on demand -- 600
Promissory note to Clock Spring Inc., bearing interest at
prime rate plus 3%, due on demand -- 300
Promissory note to directors, bearing interest at 11%, due
on demand -- 177
---------- ----------
$ 313 $ 1,377
========== ==========
</TABLE>
The prime rate was 8.25% at June 30, 1996.
On May 31, 1995, debt of $3,225,000 outstanding at December 31, 1994 was
canceled and exchanged for common stock at a rate of $9 per share of common
stock, less financing fees of $111,000. In addition, associated interest
totaling $462,000 was converted into shares at the same rate, less
financing fees of $16,000.
F-13
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
On December 31, 1995, debt of $2,132,000 outstanding at December 31, 1994
was canceled and exchanged for common stock at a rate of $9 per share of
common stock, less financing fees of $75,000. In addition, associated
interest totaling $249,000 was converted into shares at the same rate, less
financing fees of $9,000.
Sales to Joint Ventures
Sales to joint ventures consist of the following (in thousands):
Years ended December 31, Six months ended June 30,
------------------------ -------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(Unaudited)
NGVTC $ 110 $ 91 $ 76 $ --
NGV Ecotrans 707 375 260 112
NGV Southeast 523 383 241 88
---------- ---------- ---------- ----------
$ 1,340 $ 849 $ 577 $ 200
========== ========== ========== ==========
Other
The Company paid certain fees to shareholders and employees under
established royalty agreements. Royalties paid for the years ended
December 31, 1994 and 1995 and the six months ended June 30, 1996 totaled
approximately $186,000, $207,000 and $70,000, respectively.
(11) Income Taxes
Due to the Company's net operating losses, there is no income tax benefit
or expense for the years ended December 31, 1994 and 1995 and the six
months ended June 30, 1995 and 1996.
The components of the net deferred tax consist of the following (in
thousands):
December 31,
--------------------
1994 1995
-------- --------
Deferred tax assets:
Allowance for bad debts $ 96 $ 46
Inventory 74 51
Accumulated depreciation 490 444
Accrued compensation 146 8
Other accruals 131 45
Net operating loss carryforwards 5,592 7,480
-------- --------
Total deferred tax assets 6,529 8,074
Valuation allowance (6,529) (8,074)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
F-14
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the
deferred tax assets and the level of the valuation allowance. At such time
as it is determined that it is more likely than not that deferred tax
assets are realizable, the valuation allowance will be reduced.
The Company's effective tax rate differs from the statutory Federal income
tax rate as shown in the following schedule:
Years ended December 31,
----------------------------
1994 1995
-------- --------
Income tax benefit at statutory rate (34)% (34)%
Losses carried forward to future periods 34 34
-------- --------
Effective tax rate -- % -- %
======== ========
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $17,000,000 expiring through 2010. The ultimate realization
of the net operating loss carryforward will be subject to certain
limitations due to any changes in the Company's ownership and will be
dependent upon the Company attaining future taxable earnings.
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the tax loss
carryforward that can be utilized, which could result in a part of such
losses expiring before they are used.
(12) Shareholders' Equity
Preference, Preferred and Common Stock
The holders of preference stock shall have the same rights and privileges
as the holders of common stock, except that in case of the dissolution or
liquidation of the Company, the holders of preference stock shall be
entitled to receive payment of the par value (preference stock, $5 par
value) thereof from the Company's assets remaining after paying the debts
and liabilities of the Company, before any payment or other distribution
shall be made to the holders of common stock. The holders of preferred
stock shall have such rights and privileges as shall be determined by the
Board of Directors and filed as a Certificate of Designation with the
Delaware Secretary of State prior to the issuance of such preferred stock
in one or more series. As of December 31, 1995 and June 30, 1996, no
shares of preference or preferred stock were outstanding.
Stock Option Plan
The Company has a nonqualified stock option plan for key employees,
including directors and executive officers of the Company. The exercise
price of the options is established at the discretion of a Committee of the
Board of Directors, provided that it may not be less than estimated fair
value at the time of grant. The plan provides that the options are
exercisable based on vesting schedules, generally over a five-year period.
The options expire ten years from the date of grant.
F-15
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The following table summarizes all activity under the Stock Option Plan:
Stock Exercise price
Options per share
---------- ---------------
Outstanding at December 31, 1993 68,335 $ 18.00
Granted 66,666 18.00
Exercised --
Canceled (11,333) 18.00
----------
Outstanding at December 31, 1994 123,668 18.00
Granted 83,333 9.00
Exercised --
Canceled (27,834) 9.00-18.00
----------
Outstanding at December 31, 1995 179,167 9.00-18.00
Granted --
Exercised --
Canceled (2,000) 9.00
----------
Outstanding at June 30, 1996 (unaudited) 177,167 9.00-18.00
========== =============
Warrants
As part of the credit agreement described in note 8, the Company granted
warrants to its bank. Such warrants are exercisable into 32,000 shares of
preferred stock at $5 per share and 6,734 shares of common stock at $11.88
per share. The warrants expire in August 1997.
The Hanseatic Corporation, a related party, has warrants to purchase 49,020
shares of common stock at $10.20 per share. The warrants are subject to
certain adjustments.
As part of a credit agreement, the Company granted warrants to an investor.
Such warrants are exercisable into 100,000 shares of common stock at $3.00
per share. The value of the warrants was not considered material when
issued.
(13) 401(k) Plan
The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code (the Plan). The terms of the Plan provide that employees over
21 years of age who were employed as of August 1, 1992 shall be eligible to
participate in the Plan. All employees who are hired after August 1, 1992
shall be eligible to participate in the Plan if they are over 21 years of
age and have completed three consecutive months of eligible service during
which the employee has 250 or more hours of service or one year of eligible
service. The Company made no contributions to the Plan during the years
ended December 31, 1994 and 1995 and the six months ended June 30, 1996.
F-16
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(14) Deferred Compensation
The Company deferred a certain percentage of compensation to its key
employees beginning September 18, 1993 and ceased deferring such
compensation in November 1994, except for officers of the Company. During
1995, $228,000 of deferred compensation was repaid and $105,000 was
converted into shares of the Company's common stock at $9 per share. As of
December 31, 1995 and June 30, 1996, deferred compensation was $18,000,
which is included in accrued expenses in the consolidated balance sheets.
(15) Commitments and Contingencies
The Company leases its facilities and various office equipment under
operating leases which expire through May 1998.
Future minimum rental commitments under these operating leases are
summarized as follows:
Year ending December 31:
1996 $ 214,000
1997 25,000
1998 9,000
------------
$ 248,000
============
Rent expense incurred by the Company totaled approximately $378,000,
$223,000, $118,000 and $105,000 during the years ended December 31, 1994
and 1995 and the six months ended June 30, 1996 and 1996, respectively.
The Company is from time to time involved in routine legal matters
incidental to its businesses. In the opinion of the Company, the
resolution of such matters will not have a material effect on its financial
condition or results of operations.
(16) Major Customers
The Company operates in one business, compressed natural gas cylinder
sales. The joint ventures (note 6) are engaged in technology center
operations. The combined results of operations and financial position of
the unconsolidated joint ventures are disclosed in note 6.
During the year ended December 31, 1994, two customers, NGV Ecotrans (joint
venture) and Transtar, represented 14% and 13% of net sales, respectively.
During the year ended December 31, 1995 and the six months ended June 30,
1996, two customers, GFI Control Systems, Inc. and Blue Bird Body Company,
represented 45% and 22% and 18% and 12% of net sales, respectively.
F-17
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(17) Subsequent Events (Unaudited)
Stock Split
On October 10, 1996, the Board of Directors authorized a one-for-three
reverse stock split of the Company's common stock, which subsequently was
approved by the shareholders. All references in the consolidated financial
statements to the number of common shares and per share amounts have been
retroactively restated to reflect the decreased number of common shares
outstanding.
Bridge Financing
In July 1996, the Company received $400,000 from an investor (note 9) in
exchange for: (i) a promissory note for $400,000 bearing interest at 12%
per annum, due on November 30, 1996; (ii) warrants exercisable into 100,000
shares of common stock at $3 per share; and (iii) a consulting fee payable
in the amount of $3,000 per month as long as the Company has an unpaid
balance related to the $400,000 promissory note and the $600,000 note (note
9). This note is secured by certain machinery.
In September 1996, the Company completed a bridge financing of one unit
consisting of (i) 13,889 shares of the Company's common stock and (ii) a
two-year $100,000 unsecured promissory note bearing interest at the rate of
12% per annum, including a detachable two-year warrant to purchase that
number of shares of common stock equal to $20,000 divided by the higher of
(a) the initial public offering price per share of common stock (IPO Price)
at an exercise price equal to the IPO Price or (b) $5.00 at an exercise
price of $5.00.
F-18
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the securities to which it relates or an offer to
sell or a solicitation of an offer to buy any securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any date subsequent to the date hereof.
______________
TABLE OF CONTENTS
Page
----
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 8
The Company........................................................... 16
Use of Proceeds....................................................... 16
Dividend Policy....................................................... 17
Capitalization........................................................ 18
Dilution.............................................................. 19
Selected Consolidated Financial Data.................................. 20
Management's Discussion and Analysis of
Financial Condition and
Results of Operations.............................................. 22
Business.............................................................. 27
Management............................................................ 42
Principal Stockholders................................................ 49
Certain Transactions.................................................. 51
Description of Capital Stock.......................................... 53
Shares Eligible for Future Sale....................................... 56
Underwriting.......................................................... 57
Legal Matters......................................................... 58
Experts............................................................... 59
Additional Information................................................ 59
Index to Financial Statements......................................... F-1
______________
Until ________, 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligations of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
================================================================================
1,500,000 Shares
NATURAL GAS VEHICLE
SYSTEMS, INC.
Common Stock
----------
PROSPECTUS
----------
Commonwealth Associates
______________, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Article
Seven of the Registrant's Certificate of Incorporation and Article IX, Section 1
of the Registrant's Bylaws provides for mandatory indemnification of its
directors and officers and permissible indemnification of employees and other
agents to the maximum extent permitted by the Delaware General Corporation Law.
Reference is also made to Section __ of the Form of Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of the
Registrant against certain liabilities. In addition, the Registrant intends to
purchase directors' and officers' liability insurance after the completion of
this Offering.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the securities being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq listing fee.
SEC Registration Fee ..................................... $ 3,920.45
NASD Filing Fee .......................................... 1,793.75
Nasdaq Listing Fee ....................................... 15,000.00
Printing Costs ........................................... 90,000.00
Legal Fees and Expenses .................................. 200,000.00
Accounting Fees and Expenses ............................. 100,000.00
Blue Sky Fees and Expenses ............................... 25,000.00
Transfer Agent and Registrar Fees ........................ 10,000.00
Miscellaneous ............................................ 4,285.80
--------------
Total ............................................. $ 450,000.00
==============
- ----------
Item 26. Recent Sales of Unregistered Securities.
(a) Since October 1993, the Registrant has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities:
1. On September 12, 1996, the Registrant sold 13,889 shares of
common stock, $.01 par value ("Common Stock"), to Green Fuels,
Inc. and issued to the same private investor a warrant to
purchase that number of shares of Common Stock equal to
$20,000 divided by the higher of (a) the initial public
offering price per share of Common Stock in an initial public
offering of Common Stock by the Registrant or (b) $5.00.
2. On July 10, 1996, the Registrant issued 18,008 shares of
Common Stock to Clock Spring, Inc. in exchange for
cancellation of indebtedness of $162,069.
3. On June 3, 1996, the Registrant issued 2,681 shares of Common
Stock to Caithness/NCF, L.P. in exchange for cancellation of
indebtedness of $24,126.
II-1
<PAGE>
4. On April 3, 1996, the Registrant issued 18,008 and 166,369
shares of Common Stock to Clock Spring, Inc. and Caithness
Composites, Inc., respectively, in exchange for cancellation
of indebtedness of $162,069 and $1,497,318, respectively.
5. On January 2, 1996, the Registrant sold 2,000 shares of Common
Stock to Peter Stern for an aggregate cash consideration of
$18,000.
6. On December 31, 1995, the Registrant issued 139,559 shares of
Common Stock to Caithness/NCF, L.P. in exchange for
cancellation of indebtedness of $1,256,025.
7. On December 29, 1995, the Registrant sold 5,000 and 667 shares
of Common Stock to Howard T. Phelan and John R. Bacon,
respectively, for an aggregate cash consideration of $45,000
and $6,000, respectively.
8. On December 4, 1995, the Registrant issued 34,334 shares of
Common Stock to Hanseatic Corporation in exchange for
cancellation of indebtedness of $309,000.
9. On December 1, 1995, the Registrant sold 223 shares of Common
Stock to L.S. Reed Revocable Management Trust for an aggregate
cash consideration of $2,000.
10. On May 31, 1995, the Registrant sold an aggregate of 129,238
shares of Common Stock to seven private investors (including
Howard T. Phelan and Mr. and Mrs. Alan D. Pesky) for an
aggregate cash consideration of $1,135,000.
11. On May 31, 1995, the Registrant issued 255,608, 145,747 and
166,667 shares of Common Stock to Amoco Oil Company, Hanseatic
Corporation and EQT Capital Corporation in exchange for
cancellation of indebtedness of $2,300,472, $1,311,723 and
$1,500,000, respectively.
12. On December 21, 1994, the Registrant granted 6,667 shares of
Common Stock to John R. Bacon as a signing bonus upon his
commencement of employment with the Registrant.
13. On June 22, 1994, the Registrant sold an aggregate of 3,125
shares of Common Stock to four private investors for an
aggregate cash consideration of $75,000.
14. On April 18, 1994, the Registrant sold 6,667 shares of Common
Stock to Pilar International Corp. for an aggregate cash
consideration of $160,000.
15. On March 1, 1994, the Registrant sold 2,084 shares of Common
Stock to L.S. Reed Revocable Management Trust for an aggregate
cash consideration of $50,000.
16. On December 7, 1993, the Registrant sold 4,167 shares of
Common Stock to each of Little Moose Trust and Overlook Trust
for an aggregate cash consideration of $100,000 each.
17. On November 30, 1993, the Registrant sold 20,834 shares of
Common Stock to Three Star Partners for an aggregate cash
consideration of $500,000.
(b) There were no underwriters, brokers or finders employed in connection
with any of the transactions set forth in Item 26.
(c) The issuances described in Item 26(a) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for
II-2
<PAGE>
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
Item 27. Exhibits and Financial Statement Schedules.
(a) Exhibits
1.1* Form of Underwriting Agreement between the Registrant and
Commonwealth Associates ("Commonwealth").
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant.
3.3 Form of Restated and Amended Certificate of Incorporation of the
Registrant, to be filed and effective prior to the effectiveness of
this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2* Form of Representative's Warrant Agreement between the Registrant
and Commonwealth (including form of Representative's Warrant).
4.3* Form of Financial Advisory Agreement between the Registrant and
Commonwealth.
5.1* Opinion of Orrick, Herrington & Sutcliffe LLP.
10.1 Amended and Restated Natural Gas Vehicle Systems, Inc. Stock Option
Plan.
10.2* Form of Natural Gas Vehicle Systems, Inc. 1996 Combined Incentive
and Nonqualified Stock Option Plan.
10.3 Lease Agreement, dated August 23, 1989, by and between the
Registrant and S.S.T. Properties, as amended.
10.4 Lease Agreement, dated January 19, 1995, by and between the
Registrant and S.S.T. Properties.
10.5* Loan and Security Agreement, dated June 2, 1992, by and between the
Registrant and Silicon Valley Bank, as amended.
10.6 Amended Cylinder License Agreement, dated as of May 25, 1993, by and
among the Registrant, CNG Cylinder Corporation, Norman C. Fawley and
NCF Industries, Inc.
10.7 Technology Transfer Agreement, dated February 23, 1993, by and among
the Registrant, Alcoa Composites, Inc. and Audie L. Price.
10.8 Joint Venture Agreement, dated as of May 1, 1993, by and between
Natural Gas Vehicle Development Company, Inc. and EcoTrans
Aftermarket Corporation, as amended.
10.9* Form of Employment Agreement between the Registrant and Howard T.
Phelan.
10.10* Form of Employment Agreement between the Registrant and John R.
Bacon.
II-3
<PAGE>
10.11 Loan and Security Agreement, dated as of March 8, 1996, by and
between the Registrant and Caithness Corporation, as amended.
10.12 Loan and Security Agreement, dated as of April 4, 1996, by and
between the Registrant and Paul S. Dopp, as amended.
10.13 Loan and Security Agreement, dated as of July 1, 1996, by and
between the Registrant and Paul S. Dopp.
10.14 $100,000 Promissory Note, dated September 12, 1996, executed by the
Registrant in favor of Green Fuels, Inc.
10.15 Common Stock Purchase Warrant, dated September 12, 1996, issued by
the Registrant to Green Fuels, Inc.
10.16 $50,000 Promissory Note, dated June 24, 1996, executed by the
Registrant in favor of Clock Spring Company.
10.17 $50,000 Promissory Note, dated January 12, 1996, executed by the
Registrant in favor of W. Murray Buttner.
10.18 $100,000 Promissory Note, dated January 30, 1996, executed by the
Registrant in favor of W. Murray Buttner.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Orrick, Herrington & Sutcliffe (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors.
24 Power of Attorney (included on page II-6).
27.1 Financial Data Schedule.
* To be filed by amendment.
(b) Financial Statement Schedules
Not Applicable.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended (the "Securities Act"), the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on the 14th day of
October, 1996.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ Howard T. Phelan
---------------------
Howard T. Phelan
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that the persons whose signatures
appear below each severally constitutes and appoints Howard T. Phelan and John
R. Bacon, and each of them, as true and lawful attorneys-in-fact and agents,
with full powers of substitution and resubstitution, for them in their name,
place and stead, in any and all capacities, to sign any and all amendments
(including pre-effective and post-effective amendments) to this Registration
Statement, any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other 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
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all which said attorneys-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do, or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board October 14, 1996
of Directors and Chief
/s/ Howard T. Phelan Executive Officer
- -------------------------- (Principal Executive Officer)
Howard T. Phelan
/s/ Martin B. Richards Vice President and Chief October 14, 1996
- -------------------------- Financial Officer (Principal
Martin B. Richards Financial and Accounting
Officer)
/s/ John R. Bacon President, Chief Operating October 14, 1996
- -------------------------- Officer and a Director
John R. Bacon
/s/ Paul A. Biddelman Director October 14, 1996
- --------------------------
Paul A. Biddelman
/s/ James D. Bishop, Jr. Director October 14, 1996
- --------------------------
James D. Bishop, Jr.
<PAGE>
/s/ R. Terry Botruff Director October 14, 1996
- --------------------------
R. Terry Botruff
/s/ W. Murray Buttner Director October 14, 1996
- --------------------------
W. Murray Buttner
/s/ Ernest L. Daman Director October 14, 1996
- --------------------------
Ernest L. Daman
/s/ Helmut Korte Director October 14, 1996
- --------------------------
Helmut Korte
/s/ Dan C. Eaton Director October 14, 1996
- --------------------------
Dan C. Eaton
/s/ Alan D. Pesky Director October 14, 1996
- --------------------------
Alan D. Pesky
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NATURAL GAS VEHICLE SYSTEMS, INC.
Natural Gas Vehicle Systems, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Natural Gas
Vehicle Systems, Inc., resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by striking Article FOURTH in its entirety and replacing therefor:
FOURTH
Authorized Shares of Stock: (a) The total number of shares
of stock which the Corporation shall be authorized to issue
is twenty million (20,000,000) shares of Common Stock which
shall have a par value of $0.01 per share, fifty thousand
(50,000) shares of Preference Stock which shall have a par
value of $5.00 per share, and two million (2,000,000) shares
of Preferred Stock which shall have a par value of $0.01 per
share.
(b) The express terms and provisions of the shares
classified and designated as Preference Stock, are as
follows:
The holders of Preference Stock shall have the same rights
and privileges as the holders of Common Stock, except that
in case of the dissolution or liquidation of the
Corporation, the holders of Preference Stock shall be
entitled
<PAGE>
to receive payment of the par value thereof from the
Corporation's assets remaining after paying the debts and
liabilities of the Corporation, before any payment or other
distribution shall be made to the holders of Common Stock.
(c) The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this
Article FOURTH, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be
included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions
thereof.
The authority of the Board with respect to each series
shall include, but not be limited to, determination of the
following:
(i) The number of shares constituting that series and
the distinctive designation of that series;
(ii) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from
which date or dates, and the relative rights of priority, if
any, of payment of dividends on shares of that series;
(iii) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so,
the terms of such voting rights;
(iv) Whether that series shall have conversion
privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors
shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or date upon or after which
they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different
conditions and at different redemption dates;
- 2 -
<PAGE>
(vi) Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series, and, if
so, the terms and amount of such sinking fund;
(vii) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution
or winding up of the corporation, and the relative rights of
priority, if any, of payment shares of that series;
(viii) Any other relative rights, preferences and
limitations of that series.
Dividends on outstanding shares of Preferred Stock
shall be paid or declared and set apart for payment before
any dividends shall be paid or declared and set apart for
payment on the common shares with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the assets
available for distribution to holders of shares of Preferred
Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are
entitled, then such assets shall be distributed ratably
among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts
(including unpaid cumulative dividends, if any) payable with
respect thereto.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation law of the state of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
- 3 -
<PAGE>
IN WITNESS WHEREOF, said Natural Gas Vehicle Systems, Inc. has caused
this certificate to be signed by Howard T. Phelan, its President, and J. Ferd
Convery III, its Secretary, this 10th day of May, 1994.
By: /s/ Howard T. Phelan
-------------------------------
Howard T. Phelan, President
ATTEST: /s/ J. Ferd Convery
---------------------------
J. Ferd Convery, Secretary
- 4 -
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NATURAL GAS VEHICLE SYSTEMS, INC.
NATURAL GAS VEHICLE SYSTEMS, INC., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: The Corporation has not received any payment for any of its
stock.
SECOND: The amendment to the Corporation's Certificate of
Incorporation set forth in the following resolution was approved by a majority
of the Corporation's Board of Directors and was duly adopted in accordance with
the provisions of Section 241 of the General Corporation Law of the State of
Delaware:
"RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by striking Article FOURTH in its entirety and replacing therefor:
FOURTH
Authorized Shares of Stock: (a) The total number of shares
of stock which the Corporation shall be authorized to issue
is twenty million (20,000,000) shares of Common Stock which
shall have a par value of $0.01 per share, and fifty
thousand (50,000) shares of Preferred Stock which shall have
a par value of $5.00 per share.
(b) The express terms and provisions of the shares
classified and designated as Preferred Stock, are as
follows:
The holders of Preferred Stock shall have the same rights
and privileges as the holders of Common Stock, except that
in case of the dissolution or liquidation of the
Corporation, the holders of Preferred Stock shall be
entitled to receive payment of the par value thereof from
the Corporation's assets remaining after paying the debts
and liabilities of the Corporation, before any payment or
other distribution shall be made to the holders of Common
Stock.
<PAGE>
IN WITNESS WHEREOF, NATURAL GAS VEHICLE SYSTEMS, INC. has caused this
Certificate to be signed and attested by its duly authorized officers, this 29th
day of May, 1992.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ Howard T. Phelan
------------------------------
Howard T. Phelan,
Chief Executive Officer
ATTEST:
/s/ John A. McNamara
- -----------------------------------
John A. McNamara,
Secretary
- 2-
<PAGE>
CERTIFICATE OF INCORPORATION
OF
NATURAL GAS VEHICLE SYSTEMS, INC.
FIRST
Name of Corporation: The name of the Corporation is NATURAL GAS
VEHICLE SYSTEMS, INC.
SECOND
Registered Office: The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, County of New
Castle, Wilmington, Delaware, 19801.
Name of Registered Agent: Then name of the registered agent of the
Corporation at such address is THE CORPORATION TRUST COMPANY.
THIRD
Purpose of Corporation: The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
FOURTH
Authorized Shares of Stock: The total number of shares of stock which
the Corporation shall be authorized to issue is twenty million (20,000,000)
shares of Common Stock which shall have a par value of $0.01 per share.
<PAGE>
FIFTH
Management of Corporation: The business and affairs of the Corporation
shall be managed by Board of Directors. The members of the Board of Directors
need not be elected by ballot unless required by the By-laws of the Corporation.
The qualifications for members of the Board of Directors and the procedures
governing board elections shall be set forth in the By-laws, as amended from
time to time. The names and mailing addresses of the persons who are to serve as
the initial directors until the first annual meeting of stockholders or until
their successors are elected and qualify are as follows:
Name Mailing Address
---- ---------------
James D. Bishop c/o Caithness Corporation
1114 Avenue of the Americas
35th Floor
New York, New York 10036-7790
Ernest L. Daman 435 Wychwood Road
Westfield, New Jersey 07090
Helmut Korte c/o Autospin, Inc.
20735 Belshaw Avenue
Carson, California 90749
Norman C. Fawley c/o NCF Industries, Inc.
2320 Cherry Industrial Circle
Long Beach, California 90805
Howard T. Phelan c/o Caithness Corporation
1114 Avenue of the Americas
35th Floor
New York, New York 10036-7790
SIXTH
By-Laws: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, as
- 2 -
<PAGE>
amended from time to time, the Board of Directors is expressly authorized to
adopt, amend or repeal the By-laws of the Corporation.
SEVENTH
Actions of Officers and Directors: No person shall be liable to the
Corporation or its stockholders for any loss or damage suffered by it or them on
account of any action taken or omitted to be taken by him as a director of the
Corporation, except that this provision shall not eliminate or limit the
liability of any director (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of the directors of the Company shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of this Article by the stockholders of the Company
shall not adversely affect any right or protection of a director of the Company
existing at the time of such repeal or modification.
No person shall be liable to the Corporation for any loss or damage
suffered by it on account of any action taken or
- 3 -
<PAGE>
omitted to be taken by him as an officer of the Corporation in good faith, if
such person (i) exercised or used the same degree of diligence, care, and skill
as an ordinarily prudent person would have exercised or used under the
circumstances in the conduct of his own affairs, or (ii) took, or omitted to
take, such action in reliance upon advice of counsel for the Corporation or upon
statements made or information furnished by officers or employees of the
Corporation, which he had reasonable grounds to believe to be true, or upon a
financial statement of the officer of the Corporation in charge of its accounts
or certified by a public accountant or a firm of public accountants. If the
Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of the officers of the
Company, then the liability of the officers of the Company shall be eliminated
or limited to the fullest extent permitted by the Delaware General Corporation
Law, as so amended. Any repeal or modification of this Article by the
stockholders of the Company shall not adversely affect any right or protection
of an officer of the Company existing at the time of such repeal or
modification.
EIGHTH
Indemnification: Every person who was or is a party or is threatened
to be made a party to or is involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including any action or suit by or in the right of the
- 4 -
<PAGE>
Corporation) by reason of the fact that he or a person of whom he is the legal
representative is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified and held harmless by
the Corporation to the fullest extent legally permissible under the General
Corporation Law of the State of Delaware, as amended from time to time, against
all expenses, liabilities, and losses (including attorneys' fees, judgments,
fines, and amounts paid in settlement) actually and reasonably incurred or
suffered by him in connection with such suit, action or proceeding. Such right
of indemnification shall be a contract right, which may be enforced in any
manner desired by such person. Such right of indemnification shall not be
exclusive of any other right that such directors, officers or representatives
may have or hereafter acquire and, without limiting the generality of such
statement, they shall be entitled to their respective rights of indemnification
under any By-laws, agreement, vote of stockholders, provision of the General
Corporation Law of the State of Delaware, as amended from time to time, or
otherwise, as well as their rights under this Article EIGHTH.
The Board of Directors may adopt By-laws from time to time with
respect to indemnification permitted by the General Corporation Law of the State
of Delaware, as amended from time to time, and may cause the Corporation to
purchase and maintain
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insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent or another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred in any such capacity or arising out of such status,
whether or not the Corporation would have the power to indemnify such person
against such liability.
NINTH
Amendment/Repeal of Certificate of Incorporation: The Corporation
reserves the right to amend and/or repeal any provision contained in this
Certificate of Incorporation in the manner prescribed by the General Corporation
Law of the State of Delaware, as amended from time to time. All rights conferred
herein are granted subject to that reservation of authority.
TENTH
Incorporator: The Incorporator and his address are as follows:
Robert W. Anderson 53 Cardinal Drive, P.O. Box 2369
Westfield, New Jersey 07091
I, THE UNDERSIGNED, being the Incorporator, for the purpose of forming
a Corporation under the laws of the State of Delaware, do make, file, and record
this Certificate of
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Incorporation, do certify that the facts stated herein are true and,
accordingly, have hereunto set my hand and seal this 29th day of May, 1992.
/s/ Robert W. Anderson
-----------------------------
Robert W. Anderson
BY-LAWS
OF
NATURAL GAS VEHICLE SYSTEMS, INC.
ARTICLE I
CORPORATE OFFICES AND PURPOSES
Section 1. Name.
The name of the Corporation is NATURAL GAS VEHICLE SYSTEMS, INC. It shall
hereafter be referred to as the "Corporation".
Section 2. Offices.
The principal administrative office of the Corporation shall be located at
2250 Cherry Industrial Circle, Long Beach, California 90805. The Corporation may
also have offices at such other place or places as the Board of Directors may
from time to time establish in order to further the purposes of the Corporation.
Section 3. Purposes.
The purpose of the Corporation shall be to acquire all assets, rights and
liabilities of CNG Cylinder Company of North America, L.P., a Delaware limited
partnership with offices at 2250 Cherry Industrial Circle, Long Beach California
90805 ("CNG"), and to develop and commercialize technologies, products and
processes relating to the use of compressed natural gas cylinders and the
conversion of motor vehicles to natural gas operation. In furtherance of these
purposes, the Board of Directors of the Corporation shall be authorized to
create one or more divisions or subsidiaries of the Corporation.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at the Corporation's
principal administrative office in Long Beach, California, unless the
Corporation's Board of Directors approves a
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different location for the meetings, on such date and at such time as the Board
of Directors shall each year fix, which date shall be within thirteen (13)
months of the last annual meeting of stockholders or, if no such meeting has
been held, the date of incorporation.
Section 2. Special Meetings.
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of Directors
or the chief executive officer and shall be held at the Corporation's principal
administrative office at Long Beach, California unless the Board of Directors
approves a different location, on such date, and at such time as they or he or
she shall fix.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the date and time thereof are
announced at the meeting at which the adjournment is taken and the location of
the adjourned meeting is the same location as the original meeting; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
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Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the chief executive officer of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
The chairman of any meeting of stockholders shall determine the order of
business, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting
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of stockholders, the person presiding at the meeting may, and to the extent
required by law, shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his duties shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability. Every vote taken by
ballots shall be counted by an inspector or inspectors appointed by the chairman
of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order and showing the address of each
such stockholder and the number of shares registered in his or her name, shall
be open to the examination of any such stockholder, for any purpose germane to
the meeting, during ordinary business hours for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by all holders of outstanding stock
and shall be delivered to the Corporation by delivery to its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's principal office shall be made by hand or by certified or
registered mail, return receipt requested.
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Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the date
of the earliest dated consent delivered to the Corporation, a written consent or
consents signed by all holders to take action are delivered to the Corporation
in the manner prescribed in the first paragraph of this Section.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number and Term of Office.
The number of directors who shall constitute the whole Board shall be five
(5). Each director shall be elected for a term of one year and until his or her
successor is elected and qualified, except as otherwise provided herein or
required by law. The stockholders may approve an increase in the number of
directors who shall constitute the full Board, up to a maximum of twelve
directors.
Section 2. Vacancies.
Any vacancy on the Board occurring during a term, including vacancies which
arise as a result of an increase in the number of directors constituting the
Board as provided in Section I of Article III, shall be filled by the
stockholders at a special meeting called by the remaining directors for that
purpose.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held quarterly at the
Corporation's principal administrative office in Long Beach, California unless
the Board approves a different location for the meetings, on such date or dates,
and at such time or times as shall have been established by the Board of
Directors and publicized among all directors. A notice of each regular meeting
shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third (1/3)
of the directors then in office (rounded up to the nearest whole number) and
shall be held at
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the Corporation's principal administrative office in Long Beach, California
unless the Board of Directors approves a different location, on such date, and
at such time as they or he or she shall fix. Notice of the place, date, and time
of each such special meeting shall be given each director by whom it is not
waived by mailing written notice or by telegraphing or telexing or by facsimile
transmission of the same not less than seventy-two (72) hours before the
meeting. Unless otherwise indicated in the notice thereof, any and all business
may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, seventy-five percent (75%) of the
directors constituting the full Board shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including without limiting the generality of the foregoing, the
unqualified power:
(1) To declare dividends from time to time in accordance with law;
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(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase, bonus or
other compensation plans for directors, officers, employees and agents of
the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors. The cost of attendance of directors for Board of Directors
meetings, unless otherwise agreed to, shall be borne by the Corporation.
Section 10. Resignation.
Any director may resign by delivering a written resignation to the chairman
of the board or to the secretary of the Corporation, and the remaining directors
shall call a special meeting of the stockholders to fill the vacancy for the
remainder of said director's term.
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Section 11. Removal of Director.
No director shall be removed without cause. Any director may be removed
from office with cause by the affirmative vote of seventy-five percent (75%) of
all directors of the Board then in office.
Section 12. Advisors.
The Board of Directors shall elect five advisors to the Board (the
"Advisors"). The Advisors shall be entitled to attend all meetings of the Board
of Directors, and shall be entitled to notice of all such meetings in the same
manner as directors. The Advisors shall be entitled to participate in all
discussions among the directors at such Board meetings, but no Advisor shall be
entitled to vote on any resolution proposed by the Board of Directors.
ARTICLE IV
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the whole Board, may
from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee.
Section 2. Executive Committee.
If the stockholders approve an increase in the number of directors
composing the Board to seven or more directors, then the Board of Directors may,
in its discretion, by resolution adopted unanimously by the whole board,
constitute a general executive committee for the Board, appoint the members
thereof, and specify its authority and responsibility. Such committee shall be
composed of three members of the Board of Directors who shall serve at the
pleasure of the Board. The executive committee shall have such powers and shall
perform such duties as the Board may delegate to it in writing from time to
time, including the immediate oversight and management of the business affairs
of the Corporation in accordance with Budgets and Plans approved by the full
Board, except that the committee shall have no authority in reference to
amending the certificate of incorporation, adopting a plan of merger or
consolidation, suggesting to stockholders the sale, lease,
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exchange, mortgage, or other disposition of all or substantially all of the
property and assets of the Corporation other than in the usual course of
business, recommending to stockholders a voluntary dissolution or a revocation
thereof, amending, altering or repealing any provision of these Bylaws, electing
or removing any directors or officers of the Corporation, or members of the
executive committee, fixing the compensation of any member of the executive
committee, declaring dividends, or amending, altering, or repealing any
resolution of the Board of Directors which, by its terms, provides that it shall
not be amended, altered, or repealed by the executive committee. The executive
committee shall act by a majority of the members thereof, and any action duly
taken by the executive committee within the course and scope of its authority
shall be binding on the Corporation. The executive committee shall keep a
written record of its proceedings and shall submit such record to the whole
Board at each regular meeting, and at such other times as may be requested by
the Board. Each member of the full Board shall receive 24 hour advance notice,
by facsimile transmission, of proposed meetings of the executive committee,
including a brief summary of topics to be considered by the executive committee
at such meeting. Prior to such executive committee meeting, any two members of
the full Board may call for a special meeting of the full Board to deal with one
or more of such specified topics in lieu of allowing the executive committee to
act thereon.
ARTICLE V
OFFICERS
Section 1. Generally.
The officers of the Corporation shall consist of a Chairman of the Board, a
President, an Executive Vice-President, one or more Vice Presidents, a
Secretary, a Chief Financial Officer and such other officers as may from time to
time be appointed by the Board of Directors. Officers shall be elected by the
Board of Directors, which shall consider that subject at its first meeting after
every annual meeting of stockholders. Each officer shall hold office until his
or her successor is elected and qualified or until his or her earlier
resignation or removal. Any number of offices may be held by the same person.
Section 2. Chairman.
The Chairman shall be the chief executive officer of the Corporation.
Subject to the provisions of these Bylaws and to the direction of the Board of
Directors, he or she shall have the responsibility for the general management
and control
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of the business and affairs of the Corporation and shall perform all duties and
have all powers which are commonly incident to the office of chief executive or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized and shall have general supervision and
direction of all of the other officers, employees and agents of the Corporation.
Section 3. President.
The President shall, in the absence of the Chairman or in the event of his
death, inability, or refusal to act, perform the duties of the Chairman, and
when so acting, shall have all the authority of, and be subject to all the
restrictions of, the Chairman pursuant to the provisions of the General
Corporation Law of the State of Delaware, as amended from time to time, the
Certificate of Incorporation, as amended from time to time, these By-laws, as
amended from time to time, and to the direction of the Board.
Section 4. Executive Vice-President.
The Executive Vice-President shall, in the absence of the President or in
the event of his death, inability or refusal to act, perform the duties of the
President, and when so acting, shall have all the authority of, and be subject
to all of the restrictions of, the President pursuant to the provisions of the
General Corporation Law of the State of Delaware, as amended from time to time,
the Certificate of Incorporation, as amended from time to time, these Bylaws, as
amended from time to time, and to the direction of the Board. The Executive
Vice-President shall serve as the chief operating officer of the Corporation.
Section 5. Vice President.
Each Vice President shall have such powers and duties as may be delegated
to him or her by the Board of Directors.
Section 6. Chief Financial Officer.
The Chief Financial Officer shall have the responsibility for maintaining
the financial records of the Corporation. He or she shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Chief Financial Officer shall also perform
such other duties as the Board of Directors may from time to time prescribe.
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Section 7. Secretary.
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He or
she shall have charge of the corporate books and shall perform such other duties
as the Board of Directors may from time to time prescribe.
Section 8. Delegation of Authority.
The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof.
Section 9. Removal.
Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.
Section 10. Action with Respect to Securities of Other Corporation.
Unless otherwise directed by the Board of Directors, the Executive
Vice-President or any officer of the Corporation authorized by the Executive
Vice-President shall have the power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of stockholders of or with
respect to any action of stockholders of any other corporation in which this
Corporation may hold securities and otherwise to exercise any and all rights and
powers which this Corporation may possess by reason of its ownership of
securities in such other corporation.
Section 11. Compensation of Officers.
Officers shall receive, pursuant to resolution of the Board, fixed fees
and/or other compensation for the services they render to the Corporation.
ARTICLE VI
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman, the President, the Executive
Vice-President or a Vice President and by the Secretary or an Assistant
Secretary, or the Chief Financial Officer or an Assistant Financial Officer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
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Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article VI of these
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date for
determining stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten (10) days after the date upon which
the resolution fixing the
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record date is adopted. If no record date has been fixed by the Board of
Directors and no prior action by the Board of Directors is required by the
Delaware General Corporation Law, the record date shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation in the manner prescribed by Article II,
Section 9 hereof. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by the Delaware General
Corporation Law with respect to the proposed action by written consent of the
stockholders, the record date for determining stockholders entitled to consent
to corporate action in writing shall be at the close of business on the date on
which the Board of Directors adopts the resolution taking such prior action.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VII
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by mail with postage paid and return receipt
requested, or by sending such notice by pre-paid telegram or mailgram. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is actually received by said stockholder,
director, officer, employee or agent shall be the time of the giving of the
notice.
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Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VIII
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts.
The Board of Directors may authorize any officer or officers, agents or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 2. Loans.
No loans shall be contracted on behalf of the Corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks Drafts, or Orders.
All checks, drafts, or other orders for the payment of money, notes, or
other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the Corporation and in
such manner as shall from time to time be determined by resolution of the Board
of Directors.
Section 4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies, or
other depositories as the Board of Directors may select.
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ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or an officer of the
COrporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section 3 of this Article IX with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this Article IX
shall include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an
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"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is not further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section 2 or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Section 1 and 2 of this Article IX shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
Section 3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this Article IX is not paid in full by
the Corporation within sixty (60) days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also with respect to the expense of prosecuting or defending
such suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) in any suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of, the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or
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expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article IX or otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights.
The right to indemnification and to the advancement of expenses conferred
in this Article IX shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ARTICLE X
PROGRAMS AND BUDGETS
Section 1. Operations Pursuant to Programs and Budgets.
The operations of the Corporation shall be conducted, and assets acquired,
only pursuant to Programs and Budgets which have been approved by the Board of
Directors. "Program" shall mean a description in reasonable detail, in
accordance with industry standards, of operations to be conducted by the
Corporation for a designated period. "Budget" shall mean a detailed estimate of
all costs to be incurred by the Corporation with respect to a Program.
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<PAGE>
Section 2. Content of Programs and Budgets.
Upon approval of these Bylaws by the Board of Directors (the "Effective
Date"), and on or before thirty (30) days prior to the end of each fiscal year
of the Corporation, the Corporation shall cause to be prepared and submitted to
the Board of Directors a Budget for the Corporation covering the balance of the
fiscal year following the Effective Date and each next succeeding fiscal year,
containing projections of profit and loss, cash flow, and ending balance sheets
for each quarter of such period. The purposed annual Budget shall be reviewed by
the Board of Directors and comments or suggested changes proposed by the Board
within fifteen (15) days thereafter. The Board of Directors shall use its best
efforts to approve the Budget for a fiscal year prior to the commencement of
said fiscal year.
Section 3. Content of Program and Budget.
The Budget for each year shall include, as applicable, all anticipated
costs and expenses, including but not limited to development, operation and
maintenance expenditures, capital expenditures, working capital requirements,
and a statement of all proposed financing arrangements for said year as well as
extraordinary capital and acquisition expenses. Each Budget shall also include
quarterly development, production and marketing schedules and forecasts, as
applicable, with cost estimates and budget items in sufficient detail to conform
with industry standards.
Section 4. Emergency or Unexpected Expenditure.
In case of emergency, the Board of Directors may take any action it deems
necessary to protect the Corporation's assets or to comply with law or
governmental regulations.
ARTICLE XI
ACCOUNTING
Section 1. Quarterly Cash Budget.
The Corporation shall, in advance of each fiscal quarter, cause to be
prepared a Budget reflecting in reasonable detail the receipts and credits as
well as the debits and expenses anticipated to be received, or paid, as the
case may be, on the Corporation's books of account. The quarterly Budget shall
show:
(1) the estimated amount that will be required to be financed by the
Corporation during the subject fiscal quarter in accordance with the approved
Budget;
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(2) the extent, if any, to which that amount may be satisfied out of (a)
funds (in excess of a proper amount of working capital set aside for the
purposes of the Corporation) previously contributed to the Corporation, or (b)
receipts of income resulting from operations which may reasonably be expected to
be received during the subject fiscal quarter;
(3) credits, if any, to the Corporation, including those arising from
adjustments of accruals to actual expenditures; and
(4) the estimated amount of expenses that will be required to be paid
during the subject fiscal quarter in accordance with the approved Budget.
The quarterly cash budget shall include an amount to cover the quarterly
general expenses, an amount to cover the anticipated expenditure during the
succeeding quarter for approved operations, and an amount required to maintain
working capital.
Section 2. Books and Records.
The fiscal year of the Corporation shall be as determined by the Board of
Directors, using a cash or accrual basis of accounting as permitted under the
Internal Revenue Code and as determined by the Board of Directors. The
Corporation shall keep or cause to be kept complete and accurate books of
account, in which shall be entered each transaction of the Corporation. At the
close of each fiscal year and at the termination of this Corporation, the books
and records of the Corporation shall be examined by such independent firm of
certified public accountants as may from time to time be selected by the Board
of Directors. The Corporation shall also, within thirty (30) days after the end
of each fiscal quarter, cause a quarterly financial statement of the Corporation
to be prepared in accordance with generally accepted accounting principles.
Section 3. Reports to Stockholders.
The Board of Directors shall send an annual report to the stockholders of
the Corporation, not later than 120 days after the close of the fiscal year of
the Corporation. The annual report shall include a balance sheet as of the close
of the fiscal year of the Corporation and an income statement and statement of
changes in financial position for such fiscal year. The financial statement
shall be prepared from and in accordance with the books of the Corporation, in
conformity with generally accepted accounting principles applied on a consistent
basis, and shall be certified by an independent firm of certified public
accountants.
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Section 4. Inspection of Corporate Records.
The Corporation shall keep correct and complete books and records of
account and shall also keep minutes of all meetings of stockholders and
directors. Additionally, a record shall be kept at the principal executive
office of the Corporation, giving the names and addresses of all stockholders,
and the number of shares held by each. Any person who is the holder of a voting
trust certificate or who is the holder of record of at least ten percent (10%)
of the outstanding voting shares of the Corporation shall have the right to
examine and copy, in person or by agent or attorney, at any reasonable time or
times, for any proper purpose, the books and records of account of the
Corporation, the minutes, and the record of stockholders. On the written request
of my stockholder, the Corporation shall mail to such stockholder within ten
(10) days after receipt of such request, a balance sheet as of the close of its
latest fiscal quarter and a profit and loss statement for such fiscal quarter.
If such request is received by the Corporation before such financial statements
are available for its latest fiscal quarter, the Corporation shall mail such
financial statements within ten (10) days after they become available, but in
any event within forty (40) days after the close of its latest fiscal quarter.
ARTICLE XII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the Chief Financial Officer or by an Assistant
Secretary or Assistant Financial Officer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation
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shall, in the performance of his or her duties, be fully protected in relying in
good faith upon the books of account or other records of the Corporation and
upon such information, opinions, reports or statements presented to the
Corporation by any of its officers or employees or committees of the Board of
Directors so designated, or by any other person as to matters which such
director or committee member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
Section 4. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event, calendar days
shall be used, the day of the doing of the act shall be excluded, and the day of
the event shall be included.
ARTICLE XIII
AMENDMENT
These Bylaws may be amended or repealed by the Board of Directors at any
meeting or by the stockholders at any meeting.
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RESTATED AND AMENDED
CERTIFICATE OF INCORPORATION
OF
NATURAL GAS VEHICLE SYSTEMS, INC.
FIRST
Name of Corporation: The name of the Corporation is NATURAL GAS VEHICLE
SYSTEMS, INC.
SECOND
Registered Office: The address of the registered office of the Corporation
in the State of Delaware is 1209 Orange Street, County of New Castle,
Wilmington, Delaware 19801.
Name of Registered Agent: The name of the registered agent of the
Corporation at such address is THE CORPORATION TRUST COMPANY.
THIRD
Purpose of Corporation: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH
Authorized Shares of Stock: (a) The total number of shares of stock which
the Corporation shall be authorized to issue is twenty million (20,000,000)
shares of Common Stock which shall have a par value of $0.01 per share, and two
million (2,000,000) shares of Preferred Stock and shall have a par value of
$0.01 per share.
(b) The Board of Directors is authorized, subject to limitations prescribed
by
<PAGE>
law and the provisions of this Article FOURTH, to provide for the issuance of
the shares of Preferred Stock in series, and by filing a certificate pursuant to
the applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(v) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
date upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions and
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<PAGE>
at different redemption dates;
(vi) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of
shares of that series;
(viii) Any other relative rights, preferences and limitations of that
series.
Dividends of outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding up
of the corporation, the assets available for distribution to holders of shares
of Preferred Stock of all series shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
(c) Each share of common stock outstanding as of October 10, 1996 shall be
exchanged for one-third (1/3) of a share of common stock pursuant to a
one-for-three reverse stock split. The Corporation shall arrange for the
disposition of fractional interests by those entitled thereto. This reverse
stock split has been approved by the Board of Directors and by the Shareholders
of the Corporation in accordance with
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<PAGE>
Section 242(b)(1) of the General Corporation Law of the State of Delaware.
FIFTH
Management of Corporation: The business and affairs of the Corporation
shall be managed by the Board of Directors. The members of the Board of
Directors need not be elected by ballot unless required by the By-laws of the
Corporation. The qualifications for members of the Board of Directors and the
procedures governing board elections shall be set forth in the By-laws, as
amended from time to time.
SIXTH
By-Laws: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, as amended from time to time, the Board of
Directors is expressly authorized to adopt, amend or repeal the By-laws of the
Corporation.
SEVENTH
Actions of Officers and Directors: No person shall be liable to the
Corporation or its stockholders for any loss or damage suffered by it or them on
account of any action taken or omitted to be taken by him as a director of the
Corporation, except that this provision shall not eliminate or limit the
liability of any director (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability
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<PAGE>
of the directors of the Company shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation law, as so amended. Any
repeal or modification of this Article by the stockholders of the Company shall
not adversely affect any right or protection of a director of the Company
existing at the time of such repeal or modification.
No person shall be liable to the Corporation for any loss or damage
suffered by it on account of any action taken or omitted to be taken by him as
an officer of the Corporation in good faith, if such person (i) exercised or
used the same degree of diligence, care, and skill as an ordinarily prudent
person would have exercised or used under the circumstances in the conduct of
his own affairs, or (ii) took, or omitted to take, such action in reliance upon
advice of counsel for the Corporation or upon statements made or information
furnished by officers or employees of the Corporation, which he had reasonable
grounds to believe to be true, or upon a financial statement of the officer of
the Corporation in charge of its accounts or certified by a public accountant or
a firm of public accountants. If the Delaware General Corporation Law is amended
to authorize corporate action further eliminating or limiting the personal
liability of the officers of the Company, then the liability of the officers of
the Company shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of this Article by the stockholders of the Company shall not adversely affect
any right or protection of an officer of the Company existing at the time of
such repeal or modification.
EIGHTH
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Indemnification: Every person who was or is a party or is threatened to be
made a party to or is involved in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including any action or suit by or in the right of the Corporation) by reason
of the fact that he or a person whom he is the legal representative is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by the Corporation to the fullest extent
legally permissible under the General Corporation Law of the State of Delaware,
as amended from time to time, against all expenses, liabilities, and losses
(including attorneys' fees, judgments, fines, and amounts paid in settlement)
actually and reasonably incurred or suffered by him in connection with such
suit, action or proceeding. Such right of indemnification shall be a contract
right, which may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right that such directors,
officers or representatives may have or hereafter acquire and, without limiting
the generality of such statement, they shall be entitled to their respective
rights of indemnification under any By-laws, agreement, vote of stockholders,
provision of the General Corporation Law of the State of Delaware, as amended
from time to time, or otherwise, as well as their rights under this Article
EIGHTH.
The Board of Directors may adopt By-laws from time to time with respect to
indemnification permitted by the General Corporation Law of the State of
Delaware,
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as amended from time to time, and may cause the Corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent or another corporation,
partnership, joint venture, trust of other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the Corporation would have the power to indemnify
such person against such liability.
NINTH
Amendment/Repeal of Certificate of Incorporation: The Corporation reserves
the right to amend and/or repeal any provision contained in this Certificate of
Incorporation in the manner prescribed by the General Corporation Law of the
State of Delaware, as amended from time to time. All rights conferred herein are
granted subject to that reservation of authority.
I, THE UNDERSIGNED, being the Chairman and CEO of the Corporation, for the
purpose of amending and restating the Certificate of Incorporation of the
Corporation, having been adopted pursuant to Section 245(c) of the General
Corporation Law of the State of Delaware, do make, file, and record this Amended
and Restated Certificate of Incorporation, do certify that the facts stated
herein are true and, accordingly, have hereunto set my hand and seal this _____
day of October, 1996.
-----------------------------------
Howard T. Phelan
7
AMENDED AND RESTATED
NATURAL GAS VEHICLE SYSTEMS, INC.
STOCK OPTION PLAN
ARTICLE I
The Plan
1.1 Name. This plan amends and restates the "1992 NGV Systems Executive
Stock Option Plan" and shall be known as the "Stock Option Plan" (hereinafter
the "Plan").
1.2 Purpose. The purpose of the Plan is to advance the interests of Natural
Gas Vehicles Systems Co., Inc. (hereinafter the "Company"), its shareholders and
its subsidiaries by encouraging and enabling selected officers and other key
employees upon whose judgment, initiative and effort the Company is largely
dependent for the successful conduct of its business, to acquire and retain a
proprietary interest in the Company by ownership of its stock. Options granted
under the Plan are not "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986.
1.3 Effective Date. The Plan shall become effective upon its approval by
the Board of Directors of the Company.
ARTICLE II
Definitions
2.1 "Board" shall mean the Board of Directors of the Company.
2.2 "Committee" shall mean the body appointed by the Board to administer
the Plan as further described in Article III hereof.
2.3 "Common Stock" shall mean the Company's $.0l par value Common Stock.
2.4 "Company" shall mean Natural Gas Vehicle Systems, Inc.
2.5 "Option" shall mean an option to purchase Common Stock granted pursuant
to the provisions of Article VI hereof.
2.6 "Optionee" shall mean a person to whom an Option has been granted
under the Plan.
<PAGE>
2.7 "Plan" shall mean the Stock Option Plan, the terms of which are set
forth herein.
2.8 "Stock Option Agreement" shall mean the agreement between the Company
and the Optionee under which the Optionee may purchase Common Stock hereunder.
2.9 "Subsidiary" shall mean any corporation, the majority of the
outstanding capital stock of which is owned, directly or indirectly, by the
Company.
ARTICLE III
Administration
3.1 Appointment, Duties and Powers of Committee. The Plan will be
administered by a committee (the "Committee") which shall consist of two (2)
directors appointed by the Board. Any vacancies in the Committee will be
promptly filled by the Board. The Committee shall have full power to
construct and interpret the Plan and to establish and amend rules and
regulations for its administration. Members of the Committee shall not be
eligible to participate in the Plan while serving on the Committee, and the
Chairman of the Board shall not be eligible to participate in the Plan without
separate approval of his participation by the Board of Directors. No member of
the Committee shall be liable for any action or determination in respect
thereto, if made in good faith. Subject to the express provisions of the Plan,
the Committee shall have the sole discretion and authority to determine, from
among eligible employees, which employees shall be granted Options, and the
number of shares of Common Stock to be subject to each Option. Options under the
Plan shall be granted upon such terms and conditions as the Committee may
prescribe.
3.2 Majority Rule, Reporting to Board. Two members of the Committee shall
constitute a quorum, and any action taken unanimously at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all members of the Committee, shall constitute the action of the
Committee. The Committee shall report to the Board of Directors annually the
names of those key employees granted Options during the preceding year,
indicating the number of shares covered by each Option, the applicable Option
prices, and all other material terms applicable to such Options the Committee
has granted.
3.3 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible employees,
their employment, death, retirement, disability or other termination of
employment, and such
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other pertinent facts as the Committee may require. The Company shall furnish
the Committee with such clerical and other assistance as is necessary in the
performance.
ARTICLE IV
Eligibility
Any officer or other key employee or consultant of the Company or its
Subsidiaries shall be eligible to participate in the Plan; provided, however,
that no member of the Committee shall be eligible to participate while serving
on the Committee, and the Chairman of the Board shall not be eligible to
participate without separate approval of his participation by the Board of
Directors. In determining the employees or consultants to whom Options shall be
granted and the number of shares to be covered by each Option, the Committee may
take into account the nature of the services rendered by the respective officers
and other key employees, their present and potential contributions to the
Company's success and such other factors as the Committee in its sole
discretion, shall deem relevant. An employee who has been granted an Option
under the Plan may be granted an additional Option or Options under the Plan if
the Committee shall so determine.
ARTICLE V
Common Stock Subject to Options
5.1 Limitations. The aggregate number of shares of the Company's Common
Stock which may be issued upon the exercise of Options granted under the Plan
shall not exceed three hundred thousand (300,000), subject to adjustment under
the provisions of Article 5.2. The shares of Common Stock to be issued upon the
exercise of options may be authorized but unissued shares, shares issued and
reacquired by the Company or shares bought on the market for the purposes of the
Plan. In the event any Option shall, for any reason, terminate or expire or be
surrendered without having been exercised in full, the shares subject to such
Option but not purchased thereunder shall again be available for Options to be
granted under the Plan.
5.2 Anti Dilution. In the event that the outstanding shares of Common Stock
hereafter are changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, or stock dividend:
(a) The aggregate number and kind of shares subject to options which
may be granted hereunder shall be adjusted appropriately;
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(b) Rights under outstanding Options granted hereunder both as to the
number of subject shares and Option price shall be adjusted appropriately;
(c) where dissolution or liquidation of the Company or any merger or
combination in which the Company is not a surviving corporation is involved,
each outstanding option granted hereunder shall terminate, but the Optionee
shall have the right, immediately prior to such dissolution, liquidation,
merger, or combination, to exercise his Option in whole or in part, to the
extent that it shall not have been exercised, without regard to installment
exercise provisions, if any.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee, and any such adjustment
may provide for the elimination of fractional share interests.
ARTICLE VI
Options
6.1 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or written consent of the Committee and by
written Stock Option Agreement dated as of the date of grant and executed by
the Company and Optionee, which Agreement shall set forth such terms and
conditions as may be determined by the Committee consistent with the Plan.
6.2 Option Price. The purchase price per share of Common Stock purchasable
under Options granted pursuant to the Plan shall not be less than 100% of the
fair market value at the time the Options are granted. For all purposes of this
Plan, the fair market value of the Common Stock of the Company shall be
determined in good faith at the time of the grant of any Option by decision of
the Committee. In making such determination, the Committee shall not take into
account the effect of any restrictions in the Common Stock other than
restrictions which, by their terms, will never lapse.
6.3 Option Period. Each Option granted hereunder must be granted within ten
(10) years from the effective date of the Plan. The period for the exercise of
each Option shall be determined by the Committee, but in no instance shall such
period exceed ten (10) years from the date of grant of the Option.
6.4 Option Exercise. (a) Options granted hereunder may not be exercised
unless and until the Optionee shall have been or remained in the employ of the
Company or its Subsidiaries for one (1) year, except as otherwise provided in
Article 6.6 hereof.
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(b) Options may be exercised in whole at any time, or in part from time to
time with respect to whole shares only, within the period permitted for exercise
thereof; and shall be exercised by written notice of intent to exercise the
Option with respect to a specified number of shares delivered to the Company at
its principal office, and payment in full to the Company at said office of the
amount of the Option price for the number of shares of Stock with respect to
which the Option is then being exercised.
6.5 Nontransferability of Option. No Option shall be transferred by an
Optionee otherwise than by will or the laws of descent and distribution. During
the lifetime of an Optionee, the Option shall be exercisable only by him.
6.6 Effect of Death or Other Termination of Employment.
(a) If, prior to a date one year from the date of employment of the
Optionee with the Company, the Optionee's employment with the Company or its
Subsidiaries shall be terminated by the Company or Subsidiary with or without
cause, or by the act of the optionee, the Optionee's right to exercise such
Option shall terminate and all rights thereunder shall cease.
(b) If, on or after one year from the date of employment of the
Optionee with the Company, an Optionee's employment with the Company or its
Subsidiaries shall be terminated for any reason other than death or permanent
and total disability, the Optionee shall have the right, during the period
ending three months alter such termination, to exercise such Option to the
extent that it was exercisable at the date of such termination of employment and
shall not have been exercised.
(c) If an Optionee shall become permanently and totally disabled
while in the employ of the Company or its Subsidiaries, the Optionee shall have
the right, during the period ending one year after such disability, to exercise
such Option to the extent that it was exercisable at the date of such disability
and shall not have been exercised.
(d) If an Optionee shall die while in the employ of the Company or its
Subsidiaries, the executor or administrator of the estate of the decedent or the
person or persons to whom an Option granted hereunder shall have been validly
transferred by the executor or the administrator pursuant to will or the laws of
descent and distribution shall have the right, during the period ending one year
after the date of the Optionee's death, to exercise the Optionee's Option to the
extent that it was exercisable at the date of termination of employment by death
or otherwise and shall not have been exercised.
(e) No transfer of an Option by the Optionee by will or by the laws
of descent and distribution shall be effective to bind the Company unless the
Company shall have been
-5
<PAGE>
furnished with written notice thereof and an authenticated copy of, the will
and/or such other evidence as the Committee may deem necessary to establish the
validity of the transfer and the acceptance by the transferee or transferees of
the terms and conditions of such Option.
6.7 Rights as Shareholder. An Optionee or permitted transferee of an Option
shall have no rights as a shareholder with respect to any shares subject to such
Option prior to the purchase of such shares by exercise of such Option as
provided heroin.
6.8 Restrictions. The exercise of each Option shall be subject to the
condition that if at any time the Company shall determine in its discretion that
the satisfaction of withholding tax or other withholding liabilities, or that
the listing, registration, or qualification of any shares otherwise deliverable
upon such exercise upon any securities exchange or under any state of federal
law, or that the consent or approval of any regulatory body, is necessary or
desirable as a condition of, or in connection with, such exercise or the
delivery or purchase of shares pursuant hereto, then in any such event, such
exercise shall not be effective unless such withholding, listing, registration,
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Company.
ARTICLE VII
Proceeds
The proceeds received by the Company from the sale of the Common Stock
pursuant to the exercise of Options granted under the Plan shall be added to the
Company's general funds and used for general corporate purposes.
ARTICLE VIII
Termination, Amendment, and Modification of Plan
The Board may at any time suspend or terminate the Plan or may amend it
from time to time in such respects as the Board may deem advisable in order that
the Options granted thereunder may conform to any changes in the law or in any
other respect which the Board may deem to be in the best interests of the
Company; provided, however, that without approval by the shareholders of the
Company representing a majority of the voting power, no such amendment shall
(a) except as specified in Article 5.2, increase the number of shares
for which Options may be granted under the Plan;
-6-
<PAGE>
(b) change the provisions of Article 6.2 relating to the establishment
of the Option price;
(c) change the provisions of Article 6.3 relating to the expiration
date of each Option; or
(d) change the provisions of the second sentence of this Article VIII
relating to the term of this Plan.
Unless the Plan shall theretofore have been terminated by the Board or as
provided in Article 1.3, the Plan shall terminate ten (10) years after the
effective date of the Plan. No Option may be granted during any suspension or
after the termination of the Plan. Except as provided in Article 1.3, no
amendment, suspension or termination of the Plan shall, without an Optionee's
consent, alter or impair any of the rights or obligations under any Option
theretofore granted to such Optionee under the Plan.
ARTICLE IX
Miscellaneous
9.1 Employment. Nothing in the Plan or in any option granted hereunder or
in any Stock Option Agreement relating thereto shall confer upon any employee
the right to continue in the employ of the Company or any Subsidiary.
9.2 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company or any
Subsidiary from establishing any other forms of incentive or other compensation
for employees of the Company or any Subsidiary.
9.3 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
9.4 Singular, Plural; Gender. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
9.5 Headings, Etc., No Part of Plan. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
9.6 Governing Law. This Plan shall be governed and interpreted in
accordance with the laws of the State of California including choice of law
rules.
-7-
AGREEMENT
The following is a MODIFICATION AGREEMENT to lease dated August 23, 1989 and all
modifications related thereto between S.S.T. Properties ("Lessor") and N.G.V.
Systems, Inc. ("Lessee") for the property known as 2040 Cherry Industrial
Circle, Long Beach, CA. 90805.
1. The current rent of $7,581.00 per month NNN, will remain in effect for the
full term of the lease.
2. Term of the lease will be extended to January 31, 1997.
3. The period February 1, 1995 through February 28, 1995 shall be rent free.
4. The premises are taken in "as is" condition.
5. Concurrently herewith, N.G.V. Systems Inc. and S.S.T. Properties are
executing a lease on 5580 Cherry Industrial Circle. Both leases and all
modifications related thereto are hereby cross collateralized wherein
default on one is default on both.
6. All other terms of this lease to remain in full force and effect.
7. The commencement of this agreement and our releasing you from your lease
obligations on the 2250 building is contingent upon our concurrently
executing a lease with Medway Plastics on that building.
8. All leases to be current in order for these changes to occur.
Please indicate your acceptance of these terms and conditions by signing below.
S.S.T. Properties Agreed and accepted
N.G.V. Systems, Inc.
/s/ Rogers A. Severson /s/ John R. Bacon
- -------------------------------------- ----------------------------------
Rogers A. Severson, partner John Bacon, President
N.G.V. Systems, Inc.
Date: 2-1-95 Date: 1-20-95
<PAGE>
STANDARD INDUSTRIAL LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. Parties. This Lease, dated, for reference purposes only, August 23, 1989, is
made by and between S.S.T. Properties P.O. Box 17899, Irvine, CA 92713 (herein
called "Lessor") and Caithness/NCF Company (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Los Angeles, State of
California, commonly known as 2040 Cherry Industrial Circle, Long Beach, CA
90805 and described as approximately 18,050 square feet of warehouse/office
space. Said real property including the land and all improvements therein, is
herein called "the Premises".
3. Term.
3.1 Term. The term of this Lease shall be for Five (5) Years commencing on
September 1, 1989 and ending on August 31, 1994 unless sooner terminated
pursuant to any provision hereof.
3.2 Delay In Possession. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's 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;
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. It Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $7,220.00 in advance, on the 1st day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $14,440.00 as rent for
the month of September 1, 1989 through September 30, 1989 in the amount if
$7,220.00, and security deposit in the amount of $7,220.00. Rent for any period
during the term hereof which is for less than one month shall be a pro rata
portion of the monthly installment. Rent shall be payable in lawful money of the
United Slates to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$7,220.00 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Lessee's failure
to do so shall be a material breach of this Lease. If the monthly rent shall,
from time to time, increase during the term of this Lease. Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for consultants for
product and technology development or any other use which is reasonably
comparable and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the dale of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 8.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs and Alterations.
7.1 Lessee's Obligations. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and non structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises.
7.2 Surrender. On the test day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned
<PAGE>
by the installation or removal of Lessee's trade fixtures, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing and
fencing on the premises in good operating condition.
7.3 Lessor's Rights. If Lessee fails to perform Lessee's obligations under
this Paragraph 7, or under any other paragraph of this Lease, Lessor may at its
option (but shall not be required to) enter upon the Premises after ten (10)
days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate then allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 Lessor's Obligations. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation 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 nor the building located thereon nor the equipment therein, whether
structural or nonstructural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.5
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) 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 in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in 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 lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor 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, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.5(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 1.5(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2.
8. Insurance Indemnity.
8.1 Insuring Party. As used in this Paragraph 8, the term "insuring party"
shall mean the party who has the obligation to obtain the Property Insurance
required hereunder. The insuring party shall be designated in Paragraph 46
hereof. In the event Lessor is the insuring party, Lessor shall also maintain
the liability insurance described in paragraph 8.2 hereof, in addition to, and
not in lieu of, the insurance required to be maintained by Lessee under said
paragraph 8.2, but Lessor shall not be required to name Lessee as an additional
insured on such policy. Whether the insuring party is the Lessor or the Lessee,
Lessee shall, as additional rent for the Premises, pay the cost of all insurance
required hereunder, except for that portion of the cost attributable to Lessor's
liability insurance coverage in excess of $1,000,000 per occurrence. If Lessor
is the insuring party Lessee shall, within ten (10) days following demand by
Lessor, reimburse Lessor for the cost of the insurance so obtained.
8.2 Liability Insurance. Lessee shall, at Lessee's expense obtain and keep
in force during the term of this Lease a policy of Combined Single Limit, Bodily
Injury and Property Damage insurance insuring Lessor and Lessee against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $500,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 Property Insurance.
(a) The insuring party shall obtain and keep in force during the term
of this Lease a policy or policies of insurance covering loss or damage to the
Premises, in the amount of the full replacement value thereof, as the same may
exist from time to time, which replacement value is now $900,000.00, but in no
event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail to procure and maintain said insurance the other party may, but shall
not be required to, procure and maintain the same, but at the expense of Lessee
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.
(b) 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, then Lessee shall pay for any increase in the property insurance of
such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, 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". The insuring party
shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be done
which shall invalidate the insurance policies referred to in Paragraph 8.3. If
Lessee does or permits to be done anything which shall increase the cost of the
insurance policies referred to in Paragraph 8.3, then Lessee shall forthwith
upon Lessor's demand reimburse Lessor for any additional premiums attributable
to any act or omission or operation of Lessee causing such increase in the cost
of insurance, if Lessor is the insuring party, and if the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall deliver to Lessee a written statement setting forth the amount of
any such insurance cost increase and showing in reasonable detail the manner in
which it has been computed.
8.5 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessor's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default In the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor, Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.7 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, 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, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury 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 or the means of repairing the some is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
-2-
<PAGE>
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
then replacement cost of the Premises. "Premises Building Partial Damage" shall
herein mean damage or destruction to the building of which the Premises are a
part to the extent that the cost of repair is less than 50% of the then
replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to, be covered by the insurance described in
paragraph 8.
9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraphs
9.4, 9.5 and 9.8, if at any time during the term of this Lease there is damage
which is an Insured Loss and which fails into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements unless the same have become a part of the Premises pursuant
to Paragraph 7.5 hereof as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the above, if the Lessee is
the insuring party, and if the insurance proceeds received by Lessor are not
sufficient to effect such repair, Lessor shall give notice to Lessee of the
amount required in addition to the insurance proceeds to effect such repair.
Lessee shall contribute the required amount to Lessor within ten days after
Lessee has received notice from Lessor of the shortage in the insurance. When
Lessee shall contribute such amount to Lessor. Lessor shall make such repairs as
soon as reasonably possible and this Lease shall continue in full force and
effect. Lessee shall in no event have any right to reimbursement for any such
amounts so contributed.
9.3 Partial Damage - Uninsured Loss. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense). 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 the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage, in the event Lessor elects to give such notice
of Lessor's intention to cancel and 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 intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible, if Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease there
is damage, whether or not an Insured Loss, (including destruction required by
any authorized public authority), which fails into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) if at any time during the last Six months of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage. Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period. 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 during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, 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 such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessee shall pay the real property tax, as defined
in paragraph 10.2, applicable 10 the Premises during the term of this Lease. All
such payments shall be made at least ten (10) days prior to the delinquency date
of such payment. Lessee shall promptly furnish Lessor with satisfactory evidence
that such taxes have been paid, if any such taxes paid by Lessee shall cover any
period of time prior to or after the expiration of the term hereof. Lessee's
share of such taxes shall be equitably prorated to cover only the period of time
within the tax fiscal year during which this Lease shall be in effect, and
Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to
pay any such taxes, Lessor shall have the right to pay the same, in which case
Lessee shall repay such amount to Lessor with Lessee's next rent installment
together with interest at the maximum rate then allowable by law.
10.2 Definition of "Real Property Tax". As used herein, the term "real
property tax" 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 on the Premises by any authority having the director
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.3 Joint Assessment. if the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone 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. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all of any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breech of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees
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of Lessee, without notifying Lessee, or any successor of Lessee, and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days alter written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice hereof from Lessor to Lessee:
provided, however, that if the nature of Lessee's default is such that more than
30 days are reasonably required for its cure, then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes 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 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 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 30 days, provided, however, in the event that
any provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any lime thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default 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 attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises, in such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
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 on Lessor by the
terms of any 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 ten (10) 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 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 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 rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums, 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 and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums 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 default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
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"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation. Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession, if Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or 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
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation. Lessor shall to the extent of severance damages received by
Lessor in connection with, such condemnation, 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 pay any amount in excess of
such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
N/A Licensed real estate broker(s), a lee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $ N/A, for brokerage
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sa1e
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such be is
due hereunder. Any 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. Said broker shall be a third party
beneficiary of the provisions of this Paragraph 15.
16. Estoppel Certificate.
(a) Lessee shall at any time up on not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be
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conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years financial statements of Lessee. 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 only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
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. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent Any monetary obligations of Lessee to Lessor under the terms
of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by 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 notice purposes. A
copy of all notices required or 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 notice to Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the reel property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be, Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. Attorney's Fees. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any lime place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor 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 without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. Options.
39.1 Definition. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option 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; (2) the option or 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; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right first offer to
purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase of Lessor or the right of
first offer to purchase other property of Lessor.
-5-
<PAGE>
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, any Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.1 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so 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 time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
has become payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject 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 39.4(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 monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee falls thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(5), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
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 Lessee, its agents and
Invitees from acts of third parties.
42. Easements. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications. Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
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 Lessee 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 on behalf of said entity. If Lessee is a corporation, trust or
partnership. Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Insuring Party. The insuring party under this lease shall be the Lessee.
47. Addendum. Attached hereto is an addendum or addenda containing paragraphs 48
through which constitutes a part of this Lease.
48. The established rent shall be automatically adjusted every twelve (12)
months based upon any increase that may occur each year in the All Urban
Consumers Index (Los Angeles-Anaheim-Riverside Area) as published by the United
States Department of Labor, Bureau of Labor Statistics.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY 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. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
Immediately adjacent to their respective signatures.
Executed at 111 W. Dyer Road, Suite F S.S.T. Properties
------------------------- ------------------------------------
on Santa Ana, CA 92707 By /s/ Kenneth W. Smith
---------------------------------- ----------------------------------
Kenneth W. Smith, Agent
Address (714) 549-5026 By
----------------------------- ----------------------------------
"LESSOR" (Corporate seal)
Executed at Long Beach, California Caithness/NCF Company
on August 30, 1989 By /s/ Norman Fawley
---------------------------------- ----------------------------------
Norman Fawley
Address 2320 Cherry Industrial Circle
Long Beach, CA 90805 "LESSEE" (Corporate seal)
- -------------------------------------
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa St., Los Angeles, CA 90071,
(213) 687-8777 Form 204n 780
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
January 19, 1995, is made by and between S.S.T. Properties ("Lessor") and N.G.V
Systems, Inc. ("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 5580 Cherry industrial Circle, Long Beach, Ca.
90805 located in the County of Los Angeles, State of California and generally
described as (describe briefly the nature of the property) approximately 26,100
square foot free standing, concrete titlt-up industrial building ("Premises").
(See Paragraph 2 for further provisions.)
1.3 Term: two (2) years and zero months ("Original Term") commencing
February 1, 1995 ("Commencement Date") and ending January 31, 1997 ("Expiration
Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: _____________ ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $ 8,874.00 per month ("Base Rent"), payable on the first day
of each month commencing February 1, 1995. (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: $ 8,874.00 as Base Rent for the period
February 1, 1995 thru February 1, 1995.
1.7 Security Deposit: $ 9,135.00 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: Consultants for product and technology development (See
Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 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): Tom Yost, ICP East.
represents
|X| Lessor exclusively ("Lessor's Broker"); |_| both Lessor and Lessee, and
______________________________________________________________ represents
|_| Lessee exclusively ("Lessee's Broker"); |_| both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by ______________________ ("Guarantor"). (See Paragraph 37 for
further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 51 and Exhibits ________ 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 alter 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. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and 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 same relate to Lessee's occupancy of the Premises and/or the
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.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
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.
PAGE 1
<PAGE>
3.3 Delay in Possession. if for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement 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; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
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 at 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 falls 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 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 disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
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 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 an 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, 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 at 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 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, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to 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 or storage
tank), 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 alter 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 Lender(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, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, 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 or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination, in any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility installations; Trade Fixtures and Alterations.
1.1 Lessee's Obligations.
(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), 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at a11
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs
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as a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired 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, the 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 system) and shall promptly, at Lessee'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, hut 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) healing, 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) and 14 (relating to condemnation 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 located 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.
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, air lines, 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 material 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, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined is 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 as extended 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 $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond 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 therein. 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 lien, claim or
demand, then 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 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.
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.
**Lessee to be insuring party.
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
caused 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 at 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 8.2(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
therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall 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 to the holders of any mortgages. deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss
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or damage to the Pemises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, 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
unless required by a Lender), 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 undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land user 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 extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. 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 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 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 either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, 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. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. 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.
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 certified copies of
policies of such insurance or 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 cancellable 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 indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, 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 obilgation 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
Lessor and Lessor 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 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 or 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 6.2(a), in, on, or under the
Premises.
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; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
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
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 this Lease shall
remain in full force and effect. If in such case Lessor does not so elect, then
this 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 any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
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9.3 Partial Damage-Uninsured Loss. If a Premises Partial Damage that is not
an insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense 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) 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 alter 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 Lessee'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 caused 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 8.6.
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 by 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 may 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; Lessee'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 or 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 and 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 dale not less than sixty (60) days following the
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 remediation 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) time the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor will, 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 provide 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 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 termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
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 payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor will, 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 equitably prorated to cover only the
period 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 this Lease 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 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 Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective evaluations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
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10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade 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 real 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.
(c) The involvement of Lessee or is assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the Index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
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) alter 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 such
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 responsible 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, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. 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, by 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.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(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 to 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 so 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.
(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
hereinafter 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. A "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 the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
NET
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(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee 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 1.1(b), (iii) the recission 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 shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day 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 of 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 this 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 by 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:
(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 which 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. 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 reserve therein the right to recover all or any part
thereof in a separate suit for such rent and for damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases 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 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, 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) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(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 initialed 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 10 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, become 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 then thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or 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 are 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"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shal1
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have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing. This Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Promises taken
bears to the total rentable floor area of the building located on the Premises.
No reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking of all or 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 fee, 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 its net 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 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
l5.2 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 $0.00) 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 Lessee 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 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 thereto.
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 (10) 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 may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part 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 title 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 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 or 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 thereto or with respect to any default or breach
hereof by either 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 malt 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 purpose of mailing or delivering notices to
Lessee. A copy of all notices required or 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
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date Is shown, the postmark thereon. If sent by regular
mail the notice 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 Stales Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, fire 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. It 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. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent 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 at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or by each by
Lessee of any provision hereof, oilier 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 deliver to the other a short form memorandum of this
Lease for recording purposes, the Party requesting recordation 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.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
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28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
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 Lessee 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 thereof,
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 of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one 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 that 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 required 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 or Broker brings an action or proceeding to
enforce the terms thereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such lees 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 include, without limitation, a Party or Broker 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 or Broker of its
claim or defense. The attorney's fee 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, fenders, or lessees, 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 Safe" signs and
Lessor may at any time during the last one hundred twenty (20) 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, nor 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 tile
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 Lessee
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,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and tile 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
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, 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 subtenancies. 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.
36. Consents.
(a) Except for Paragraph 33 hereof (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 consultants' 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(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment 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 then
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 the 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
Guarantor's 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 signatures 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 of the covenants, conditions and
provisions on Lessee's part 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 tease 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 from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
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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 notice 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 or not 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 39.4(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 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 or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. Multiple Buildings. if the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep arid observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading 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 such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. 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 be or she is duly authorized to execute and
deliver this Lease on 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.
45. Conflict. Any conflict between its printed provisions of tills Lease and the
typewritten or handwritten provisions shall be controlled 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. This 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
this 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
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which 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 or 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.
49. Lessee to take premises in "as is" condition.
50. Period February 7, 1995 through February 28, 1995 to be rent free.
51. This lease agreement and that for 2040 Cherry Industrial Circle, Long Beach,
CA. are Cross-Collateralized. Any default on either lease will be considered a
default on all the leases.
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.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at SANTA ANA, CA Executed at
--------------------------- -------------------------
on 2-1-95 on
--------------------------------- ----------------------------------
by LESSOR: by LESSEE:
S.S.T. Properties N.G.V. Systems, Inc.
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
By /s/ Brian K. Frank By /s/ John Bacon
---------------------------------- ----------------------------------
Name Printed: Brian K. Frank Name Printed: John Bacon
---------------------- -----------------------
Title: Agent Title: President
------------------------------ ------------------------------
By By
---------------------------------- ----------------------------------
Name Printed: Name Printed:
---------------------- -----------------------
Title: Title:
------------------------------ ------------------------------
Address: P.O. Box 17899 Address:
---------------------------- ----------------------------
Irvine, CA 92713
- ------------------------------------ ------------------------------------
Tel. No. (714) 546-7603 Tel. No. ( )
- ------------------------------------ ------------------------------------
Fax No. (714) 546-7605 Fax No. ( )
- ------------------------------------ ------------------------------------
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-6777
Fax No. (213) 687-8816.
Copyright 1990-By American Industrial Real Estate Association. All rights
reserved. No part of these works may be reproduced in any form without
permission in writing.
AMENDED CYLINDER LICENSE AGREEMENT
NORMAN C. FAWLEY AND
NCF INDUSTRIES, INC.,
LICENSOR,
AND
NATURAL GAS VEHICLE SYSTEMS, INC.,
LICENSEE,
AND
CNG CYLINDER CORPORATION,
AS WITHDRAWING LICENSEE.
<PAGE>
TABLE OF CONTENTS
Page
Introduction Information .................................................... 1
ARTICLE I DEFINITIONS
- ---------
1.1 Affiliate ........................................................... 2
1.2 Caithness/NCF ....................................................... 2
1.3 CNG Corp. ........................................................... 2
1.4 CNG L.P. ............................................................ 2
1.5 Confidential Data ................................................... 2
1.6 Effective Date ...................................................... 3
1.7 Fawley .............................................................. 3
1.8 Fawley Technology ................................................... 3
1.9 Improvement Patents ................................................. 3
1.10 License ............................................................. 3
1.11 License Agreement ................................................... 3
1.12 Licensed Products ................................................... 3
1.13 Licensed Territory .................................................. 3
1.14 Licensee ............................................................ 3
1.15 Licensor ............................................................ 4
1.16 NCF ................................................................. 4
1.17 NGVSI ............................................................... 4
1.18 Original Agreement .................................................. 4
1.19 Patent Rights ....................................................... 4
1.20 Returned Technology ................................................. 4
1.21 Secrecy Agreement ................................................... 4
i
<PAGE>
1.22 Settlement Agreement ............................................... 4
1.23 Sublicense Agreement ............................................... 4
1.24 Term ............................................................... 4
1.25 Termination Agreement .............................................. 5
1.26 Withdrawing Licensee ............................................... 5
ARTICLE II AMENDMENT OF THE LICENSE
- ----------
2.1 Replacement of Original Agreement ................................. 5
2.2 Grant of Exclusive License and Limitations ........................ 5
2.3 Licensor Covenant ................................................. 6
2.4 Purposes .......................................................... 6
2.5 Limitations ....................................................... 6
2.6 Cooperation by Licensor and Licensee .............................. 6
2.7 Acceptance ........................................................ 7
ARTICLE III FORBEARANCE AND REPRESENTATIONS
- -----------
3.1 Forbearance ....................................................... 8
3.2 Fawley's Acknowledgment of Representations ........................ 8
3.3 NGVSI's Acknowledgement of Representations ........................ 9
3.4 CNG Corp. Representations ......................................... 9
ARTICLE IV LICENSE FEES
- ----------
4.1 Amount ............................................................ 10
4.2 Liability of Licensee for Fees on Termination ..................... 11
4.3 License Fee Statements ............................................ 11
ii
<PAGE>
ARTICLE V DURATION AND TERMINATION
- ---------
5.1 Length of License ................................................ 12
5.2 Default, Termination and Notice .................................. 12
5.3 Duties on Termination ............................................ 12
5.4 Rights on Termination ............................................ 12
ARTICLE VI ASSIGNMENT OF LICENSE
- ----------
6.1 Limitations ....................................................... 13
ARTICLE VII CONFIDENTIAL OBLIGATIONS
- -----------
7.1 Confidentiality and Limitations ................................... 13
7.2 Right to Disclose ................................................. 14
7.3 Secrecy Agreement ................................................. 14
ARTICLE VIII IMPROVEMENTS
- ------------
8.1 ......................................................................... 14
ARTICLE IX PROSECUTION AND MAINTENANCE
- ---------- OF PATENT APPLICATIONS AND PATENTS
9.1 ......................................................................... 14
ARTICLE X DEFENSE OF LICENSED PATENTS
- ---------
10.1 ........................................................................ 16
10.2 ........................................................................ 17
ARTICLE XI EXPORT
- ----------
11.1 ........................................................................ 17
ARTICLE XII SUCCESSORS AND ASSIGNS
- -----------
12.1 ........................................................................ 17
iii
<PAGE>
ARTICLE XIII NOTICES
- ------------
13.1 ........................................................................ 17
ARTICLE XIV WAIVERS
- -----------
14.1 ........................................................................ 18
ARTICLE XV SEVERABILITY
- ----------
15.1 ........................................................................ 19
ARTICLE XVI ARBITRATION OF DISPUTES
- -----------
16.1 ........................................................................ 19
ARTICLE XVII ATTORNEY'S FEES
- ------------
17.1 ........................................................................ 20
ARTICLE XVIII CAPTIONS
- -------------
18.1 ........................................................................ 20
ARTICLE XIX GOVERNING LAW
- -----------
19.1 ........................................................................ 20
ARTICLE XX CONFIRMATION AND ACKNOWLEDGMENT
- ----------
20.1 ........................................................................ 20
EXHIBIT 1.12 PORTFOLIO OF LICENSED PRODUCTS
EXHIBIT 1.12(A) RETURNED TECHNOLOGY
EXHIBIT 1.22 AGREEMENT OF MARCH 4, 1993
EXHIBIT 2.2(B) RESERVED RIGHTS OF LICENSOR
EXHIBIT 2.2(C) POTENTIAL DISPUTE
EXHIBIT 2.6(A) NCF INDUSTRIES SECRECY AGREEMENT
EXHIBIT 2.6(B) CNG CYLINDER CORPORATION SECRECY AGREEMENT
iv
<PAGE>
AMENDED CYLINDER LICENSE AGREEMENT
THIS AGREEMENT made as of the 25th day of May, 1993 by and among NORMAN C.
FAWLEY ("Fawley") and NCF INDUSTRIES, INC. ("NCF"), as their interests may
appear, individually and collectively as Licensor
-and-
NATURAL GAS VEHICLE SYSTEMS, INC. ("NGVSI"), as Licensee, CNG CYLINDER
CORPORATION ("CNG Corp."), a California corporation, as Withdrawing Licensee
-and-
CAITHNESS/NCF COMPANY ("Caithness/NCF") and CAITHNESS RESOURCES, INC., a New
Jersey corporation.
WITNESSETH THAT:
1. On February 9, 1990, Fawley, as licensor, executed and delivered that
certain license agreement (the "Original Agreement") to CNG Corp. as licensee.
2. On February 9, 1990, CNG Corp., as sublicensor, executed and delivered
to CNG Cylinder Company of North America, L.P. ("CNG LP"), as sublicensee, that
certain sublicense agreement (as amended on March 25, 1991, pursuant to which
Fawley and CNG Corp. agreed to expand CNG LP's sublicense to a worldwide
sublicense, collectively referred to as the "Sublicense Agreement").
3. On May 25, 1992, by consent of Fawley and CNG Corp., and by reason of
the execution, delivery and implementation of CNG LP's Plan of Reorganization of
even date therewith, NGVSI assumed all rights, duties and obligations of CNG LP
arising under the Sublicense Agreement.
4. Each of Fawley, CNG Corp., and NGVSI desire to (i) amend the Original
Agreement in the manner herein set forth and (ii) cause the Sublicense Agreement
to be replaced and superceded by this License Agreement.
NOW THEREFORE, in consideration of the covenants and agreements contained
in this License Agreement, Fawley, NCF, CNG Corp., NGVSI, Caithness Resources,
Inc. and Caithness/NCF agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms are defined terms and shall
have the meaning attributed to them:
1.1 "Affiliate" means any person or entity related to either Licensor or
Licensee in such a way that either Licensor or Licensee or such person or entity
directly or indirectly controls or is controlled by or is under common control
with the other. For this purpose "control" means the power, direct or indirect,
to direct or cause direction of management and policies through ownership of
voting securities, contracts, voting trusts or otherwise.
1.2 "CAITHNESS/NCF" shall mean Caithness/NCF Company, a joint venture
formed under the laws of the State of California pursuant to a Joint Venture and
License Agreement dated October 11, 1989, as amended and restated by the Amended
and Restated Joint Venture and License Agreement dated February 9, 1990 which
Agreement is being terminated concurrently herewith.
1.3 "CNG Corp." shall mean CNG Cylinder Corporation, a California
corporation, and as further described on page 1.
1.4 "CNG LP" shall mean CNG Cylinder Company of North America, L.P., a
Delaware limited partnership, and as further described on page 1.
1.5 "Confidential Data" shall mean all transferable technical information,
including but not limited to, data, reports, programs, methods, tapes, recorded
notes, computer-generated data, tests, studies and other written documents or
computer programs, and any and all other information embodied in a tangible form
relating to the Fawley Technology or Licensed Products licensed pursuant to this
License Agreement and disclosed to the nontransferring party in tangible form.
Such technical information, data and other items referenced in the preceding
sentence shall be deemed to be "confidential" within the meaning hereof when,
and so long as, it relates to the Fawley Technology or Licensed Products and
applications thereof; is not in the possession of the transferring party without
binder of secrecy prior to the disclosure thereof (except in the event same is
wrongfully obtained by, or wrongfully disclosed to, the transferring party); or
is not then and does not become part of the public knowledge and literature
through the fault of the transferring party; or is not thereafter received from
a third party other than an Affiliate without binder of secrecy. For purposes
hereof, Confidential Data shall also mean all such information, data and other
items referenced in the first
2
<PAGE>
sentence of this Section 1.5 which relate to the Fawley Technology or Licensed
Products, which information, data and other items are developed by Licensor or
Licensee during the Term.
1.6 "Effective Date" of this License Agreement shall be the date upon which
it is made as set out in the introductory language of this License Agreement.
1.7 "Fawley" means Norman C. Fawley, an individual having a principal place
of business located at 2320 Cherry Industrial Circle, Long Beach, California
90805.
1.8 "Fawley Technology" shall mean the know-how of Licensor or NCF,
including, but not limited to, confidential manufacturing techniques,
copyrights, claims, trade secrets, manufacturing information, equipment designs,
technical assistance, data, design information relating to, associated with or
now existing or hereafter created with respect to the Licensed Products defined
in Section 1.12 (i) and (ii).
1.9 "Improvement Patents" shall mean any patentable modification of the
Fawley Technology or Licensed Products.
1.10 "License" means the license by Fawley and NCF to NGVSI referred to in
Section 2.2.
1.11 "License Agreement" means this Amended Cylinder License Agreement as
it may be amended from time to time, together with all exhibits to it, which are
incorporated herein by this reference.
1.12 "Licensed Product(s)" means any and all products or processes now
existing or hereinafter developed or acquired, using the Fawley Technology
related to: (i) Composite Reinforced Cylinders and Tubes; and (ii) all
supplements, enhancements, replacements, by-products and proceeds of the
Licensed Product identified in a portfolio delivered by Licensor to CNG Cylinder
Corporation as licensee under the Original Agreement, which portfolio contains a
detailed, functional description of the Licensed Products and is attached as
Exhibit 1.12 hereto and made a part hereof which together with this description
constitutes the Licensed Products, except as modified by the Settlement
Agreement.
1.13 "Licensed Territory" means the entire world and all nations,
countries, territories, states and areas therein contained.
1.14 "Licensee" means NGVSI and its permitted assigns.
3
<PAGE>
1.15 "Licensor" means Norman C. Fawley and NCF Industries, Inc., as their
interests may appear, individually and collectively.
1.16 "NCF" means NCF Industries, Inc., a California corporation having its
principal place of business at 2320 Cherry Industrial Circle, Long Beach,
California 90805.
1.17 "NGVSI" means Natural Gas Vehicle Systems, Inc., a Delaware
corporation having its principal place of business at 2250 Cherry Industrial
Circle, Long Beach, California 90805.
1.18 "Original Agreement" has the meaning ascribed to it in Section 1 on
page 1.
1.19 "Patent Rights" means, to the extent and only to the extent licensed
to Licensee, all rights to and in patent applications filed in any Country in
the world and patents issuing in any country in the world to Licensor which
pertain to the Licensed Products, or patents under which Licensor or any
Affiliate of Licensor has rights that cover, or any claim thereof that covers
the Fawley Technology or Licensed Products, and any continuation, divisional or
reissue applications with respect thereto.
1.20 "Returned Technology" shall have the meaning ascribed to it in Exhibit
l.12A of which each section thereof is related to this License Agreement except
for Section 3.
1.21 "Secrecy Agreement" shall mean the secrecy agreements referred to in
Section 2.6(A) and shall be applicable as referred to in the context of this
License Agreement.
1.22 "Settlement Agreement" shall mean the Agreement dated March 4, 1993
and the signatories thereto including Fawley, NCF and NGVSI as set forth in
Exhibit 1.22 hereto and made a part hereof as amended in part by Exhibit l.12A
("Returned Technology") which exhibit has pertinence to this License Agreement.
1.23 "Sublicense Agreement" has the meaning ascribed in Section 2 on page
1.
1.24 "Term" The Term of this License Agreement shall be measured from
February 9, 1990 and shall continue until the later of (i) fifteen years after
such date or (ii) until termination of any commercial sales, manufacturing,
distribution, licensing or sublicensing of Licensed Products commenced within
fifteen years of February 9, 1990, each subject to earlier termination as
hereinafter set forth. Notwithstanding any provision hereof to the contrary, in
the event of termination of this License
4
<PAGE>
Agreement, the License granted in Section 2.2 hereof shall terminate in
accordance with the provisions hereof.
1.25 "Termination Agreement" shall mean that certain Termination Agreement
executed and delivered on even date herewith.
l.26 "Withdrawing Licensee" shall mean CNG Corp.
ARTICLE II
AMENDMENT OF THE LICENSE
2.1 Replacement of Original Agreement. Licensor and Licensee agree to and
hereby do amend and restate the Original Agreement as herein set forth. CNG
Corp. hereby withdraws as a licensee under the Original Agreement. Licensor,
Licensee and CNG Corp. further acknowledge and agree that the Original Agreement
is hereby replaced and superceded by this License Agreement with the result that
Licensor hereby establishes a direct license with Licensee as herein provided.
2.2 Grant of Exclusive License and Limitations. Licensor hereby grants to
Licensee, and Licensee hereby accepts from Licensor, upon the terms and
conditions hereinafter specified, an exclusive world-wide license in the
Licensed Territory under the Patent Rights, Improvement Patents, Licensed
Products, Confidential Data and Fawley Technology to (i) manufacture, use,
exploit and sell Licensed Products; and (ii) with the express prior written
consent of Licensor, which Licensor shall not unreasonably withhold, sublicense
to credit-worthy and commercially capable parties the right to manufacture, use
and sell, Licensed Products and to utilize the Patent Rights, Improvement
Patents, Confidential Data and the Fawley Technology in connection therewith.
(A) The license described in the preceding sentence of this Section
2.2 shall be noncancellable during the Term of this License Agreement, except in
the event of termination of the License as specifically permitted under the
provisions of this License Agreement.
(B) Notwithstanding the foregoing, Licensor and Licensee expressly
acknowledge and agree that the exclusive and sole world-wide license in the
Licensed Territory granted to Licensee in Section 2.2 above is subject to and
limited by the reserved rights of Licensor set forth on Exhibit 2.2(B) attached
hereto and made a part hereof.
5
<PAGE>
(C) There is a potential dispute between NCF and Swiss Aluminum Ltd.
of Zurich, Switzerland with respect to certain of the Fawley Technology, which
is further described in Exhibit 2.2(C) attached hereto and made a part hereof.
2.3 Licensor Covenant. Licensor covenants and agrees that the License
granted herein to Licensee is hereby permitted under the terms hereof.
2.4 Purposes. The purpose of this License Agreement is for Licensee:
(A) To use and exploit Fawley Technology in order to develop,
manufacture and market Licensed Products, within the Licensed
Territory.
(B) To enter into arrangements or contracts for the manufacture
and/or distribution or sale, by others, of Licensed Products; and
(C) To acquire all or any interest in, or form, or as permitted,
sublicense other companies to be engaged in the design,
development, manufacture or sale of Licensed Products, or
products or technologies similar to the Fawley Technology or
Licensed Products.
Further, Licensee will use commercially reasonable efforts in its
business judgment to profitably use this license.
2.5 Limitations. Nothing in this License Agreement shall be construed:
(A) To create a general partnership among Licensor and Licensee for
any other purpose;
(B) To authorize Licensor or Licensee to act as agent for the other
except as may be provided in this License Agreement;
(C) To permit Licensor or Licensee to undertake the conduct of any
other business on behalf of the other.
2.6 Cooperation by Licensor and Licensee. (A) Licensor on or about May 18,
1989, disclosed to Caithness Resources Confidential Data pursuant to the terms
of that certain Secrecy Agreement, executed and delivered between Licensor and
Caithness Resources on May 18, 1989, a true copy of which is attached hereto as
Exhibit 2.6(A) and made a part hereof. Subsequent thereto, and on or about
February 9, 1990, Licensor disclosed
6
<PAGE>
Confidential Data to CNG Corp. pursuant to the Original Agreement. On or about
February 9, 1990, CNG Corp. disclosed to CNG LP Confidential Data pursuant to
the terms of that Certain Secrecy Agreement dated February 9, 1990, by and
between CNG Corp. and CNG LP, a true copy of which is attached hereto as Exhibit
2.6(B) and made a part hereof. Licensor acknowledges and agrees that the duties
and rights of CNG LP arising under the Secrecy Agreement referred to in the
preceding sentence have been assumed and acquired by Licensee as of May 29,
1992. Licensee acknowledges and agrees that the duties and rights of CNG Corp.
arising under said Secrecy Agreement have been assumed and acquired on said date
by Licensee. Said acquisitions and assumptions are confirmed by Licensee by
reason of the consummation of the transactions contemplated under the
Termination Agreement, including without limitation the liquidation and
dissolution of CNG Corp. and the termination of the Original Agreement.
(B) During the Term of this License Agreement, Licensor shall make
available at the time of the Quarterly Business Review meeting described in
NGVSI's letter to Norman C. Fawley dated May 25, 1993 to Licensee all
Confidential Data and all other transferable technical information relating to
the Fawley Technology or Licensed Products pursuant to the terms of the Secrecy
Agreement referred to in Exhibit 2.6(B). Licensee shall make a reasonable effort
to make available to Licensor within thirty (30) days of the Effective Date all
Confidential Data and all transferrable technical information relating to any
improvements made by Licensee or C/NCF in the Fawley Technology or Licensed
Products prior to or during the term of the Original Agreement and the
Sublicense Agreement and shall make available to Licensor from and after the
Effective Date all Confidential Data and all transferrable technical information
relating to any improvements made by Licensee in the Fawley Technology or
Licensed Products during the Term of this License Agreement. Licensor shall
safeguard the confidential nature of such information of Caithness/NCF,
CNG,NGVSI or CNG LP that is Confidential Data. The agreement by Licensor and
Licensee, C/NCF, CNG and CNG LP pursuant to the Secrecy Agreements and this
License Agreement not to disclose, and to maintain the confidentiality of, the
Confidential Data shall survive the termination of this License Agreement, the
Original Agreement and the Sublicense Agreement.
2.7 Acceptance. (A) Licensee accepts the appointment as the exclusive and
sole licensee throughout the Licensed Territory of the Patent Rights,
Improvement Patents, Confidential Data, Licensed Products and Fawley Technology,
licensed in Section 2.2 hereinabove, and acknowledges the prior reservation of
rights specified in Section 2.2(B).
7
<PAGE>
(B) Licensee covenants that its Licensed Products shall be reasonably
and readily identified as "Manufactured under License from NCF Industries,
Inc.".
ARTICLE III
FORBEARANCE AND REPRESENTATIONS
3.1 Forbearance. During the Term of this License Agreement, Licensor
covenants that he and it shall not develop or design or exploit in any fashion
the Fawley Technology or Licensed Products, nor develop improvements,
enhancements or substitutions therefor either alone or in connection with any
other person or entity, other than with, in and through Licensee as contemplated
herein. The foregoing covenant shall not be deemed violated by Licensor because
of the activity specified in Section 2.2(B) hereof or activity undertaken in
connection with the returned technology as described in the Settlement
Agreement.
3.2 Fawley's Acknowledgment of Representations. Fawley acknowledges that he
made the following representations contained in the CAITHNESS/NCF Joint Venture
Agreement dated February 9, 1990 at Section 2.15 which provides as follows:
(A) he has read this Agreement and all attachments and Exhibits hereto
and that (x) the license granted in Section 2.9(A) hereof, and (y) the Patent
Rights, Confidential Data, NCF Technology and Improvement Patents (if any)
licensed and/or disclosed to the Joint Venture, contains or represents all the
technical information which exists in the possession or control of Fawley as of
the Effective Date which is, or may reasonably be, required by the Joint Venture
to effect the purposes of the Joint Venture set forth in Section 2.3;
(B) except as set forth in Exhibit 2.9(C) annexed hereto Fawley has
not licensed, nor has he permitted any Affiliate to license, any of the Patent
rights, Licensed Products, Confidential Data, NCF Technology or Improvement
Patents to any third party under any form of agreement, contract, partnership,
business entity or other arrangement, nor has he formed any entity with any
third party with which to exploit, develop or in any way engage in business
associated with any of the NCF Technology;
(C) except as otherwise disclosed in this Agreement (including any and
all exhibits thereto), to the best of Fawley's knowledge and belief, there are
pending or threatened no claims or suits for infringement or violation of any
patent, trademark, copyright, trade secret or other confidential business asset
instituted by any third party against Fawley or any of his
8
<PAGE>
Affiliates pursuant to which such third party alleges or claims that the NCF
Technology or Confidential Data or Licensed Products in any way infringe upon or
violate such third party's patent, trademark, copyright, trade secret or other
confidential business asset.
3.3 NGVSI's Acknowledgment of Representations. In order to induce Licensor
and NCF to enter into this License Agreement, and recognizing that Licensor is
relying upon the truthfulness and completeness hereof, NGVSI hereby represents
that:
(A) NGVSI is a corporation duly organized, validly existing, duly
qualified to do business, and in good standing under the laws of the State of
Delaware and in all other states in which it conducts business. It has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted under this License Agreement.
(B) The execution, delivery and performance of this License Agreement
by it has been duly and validly authorized by all required corporate action and
constitutes the valid and binding obligation of NGVSI enforceable against it in
accordance with its terms.
(C) Neither the execution and delivery of this License Agreement nor
the consummation by NGVSI of the transactions contemplated hereby or compliance
with any of the provisions hereof will: (a) conflict with or result in a breach
of its Articles of Incorporation or By-laws; (b) violate any statute, law, rule
or regulation, or any order, writ, injunction or decree of any court or
governmental authority; (c) except as otherwise disclosed in this Agreement
(including any and all exhibits thereto), violate or conflict with or constitute
a default under any agreement or writing of any nature to which it is a party;
or (d) require the consent of any governmental body or agency or of any other
person, except to the extent previously obtained.
(D) Except as otherwise disclosed in this License Agreement (including
any and all exhibits thereto), to the best of NGVSI's knowledge and belief,
there are no claims, actions, litigation or proceedings pending or, threatened
against NGVSI relating to the transactions contemplated by this License
Agreement.
3.4 CNG Corp. Representations. In order to induce Licensor and NCF to enter
into this License Agreement, and recognizing that Licensor is relying upon the
truthfulness and completeness hereof, CNG Corp. hereby represents that:
(A) CNG Corp. is a corporation duly organized, validly existing, duly
qualified to do business, and in good standing
9
<PAGE>
under the laws of the State of California and in all other states in which it
conducts business. It has all requisite corporate power and authority to carry
on its business as now conducted and as proposed to be conducted under this
License Agreement.
(B) The execution, delivery and performance of this License Agreement
by it has been duly and validly authorized by all required corporate action and
constitutes the valid and binding obligation of CNG Corp. enforceable against it
in accordance with its terms.
(C) Neither the execution and delivery of this License Agreement nor
the consummation by CNG Corp. of the transactions contemplated hereby or
compliance with any of the provisions hereof will: (a) conflict with or result.
in a breach of its Articles of Incorporation or By-laws; (b) violate any
statute, law, rule or regulation, or any order, writ, injunction or decree of
any court or governmental authority; (c) except as otherwise disclosed in this
License Agreement (including any and all exhibits thereto), violate or conflict
with or constitute a default under any agreement or writing of any nature to
which it is a party; or (d) require the consent of any governmental body or
agency or of any other person, except to the extent previously obtained.
(D) Except as otherwise disclosed in this License Agreement (including
any and all exhibits thereto), to the best of CNG Corp.'s knowledge and belief,
there are no claims, actions, litigation or proceedings pending or, threatened
against CNG Corp. relating to the transactions contemplated by this License
Agreement.
ARTICLE IV
LICENSE FEES
4.1 Amount. (A) For the rights and privileges granted under this License
Agreement, Licensee shall pay to Licensor, his executors, heirs or
administrators, in the manner hereinafter provided, a license fee of three
percent (3%) of the F.O.B. shop selling price of each Licensed Product sold and
shipped by Licensee, or an Affiliate, or any sublicensee, after reduction of
said price for allowances actually made or paid by Licensee, any Affiliate, or
any sublicensee, for claims, returns, promotional discounts and the like, and
Licensee shall pay to Licensor, his executors, heirs or administrators, three
percent (3%) of the amount of any research and development contract received by
Licensee or any Affiliate, or any sublicensee, which relates principally to the
Licensed Products or Fawley Technology.
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(B) Payment by Licensee, any Affiliate or any sublicensee to Licensor
for Licensed Products as provided in Section 4.1 shall be made commencing on
June 10, 1993 and on the tenth day of each month thereafter during the term
hereof. The sums called for in Section 4.1(A) shall be based on payments
received in the prior month by the Licensee or an Affiliate or any sublicensee,
for Licensed Products sold and shipped and amounts received pursuant to any
research and development contract. The payment due June 10, 1993 shall include
all unpaid sums for any month prior thereto during the term of the License
Agreement or the Original Agreement.
(C) Sales or transfers to Affiliates, or sublicensees, or
interdivisional sales or transfers shall not be included in the payment
calculation until the actual sale and shipment by such Affiliate, or
sublicensee, to a third party except if such Affiliate or sublicensee is an end
user of the Licensed Products. Under such circumstances, the license fee shall
be based on the lowest sales price of Licensed Products charged to others for
the calendar quarter in which the Licensed Product is shipped to such Affiliate
or sublicensee which calendar quarter shall be the calendar quarter of payment;
provided that such transactions with Affiliates shall be on prevailing market
terms taking into account volumes of purchases, but for transactions with "tech
centers" and Affiliates, products may be offered at the maximum discounts
available to any person. If no such shipment has occurred, such payment shall be
based on the average sales price of the total quantity of the Licensed Products
(separated as to category, if any) in the previous calendar quarter (exclusive
of sales to Affiliates or sublicensees) in which sales have occurred. If no such
sales have occurred, such payment shall be based on the then prevailing market
price.
4.2 Liability of Licensee for Fees on Termination. In the event the Term
hereof expires or the License is terminated in accordance with the provisions of
Article V, Licensee shall remain liable to pay such royalties to Licensor with
respect to payment for Licensed Products which have been sold prior to
expiration of the Term of the License.
4.3 License Fee Statements. Licensee shall furnish Licensor statements
supporting license fee payments in sufficient detail so that the basis for the
payment can be readily ascertained which statements should be similar to that
currently furnished to Licensor. Licensor at reasonable times and places and
with notice to Licensee shall have the right to have independent Certified
Public Accountants inspect the relevant records of Licensee in order to confirm
the correctness of the license fee payment; provided that such Certified Public
Accountants agree in writing to maintain the confidentiality of the matters
disclosed to them in connection therewith except as
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may be required in accordance with generally accepted accountancy practices. If
such payment is more than 5% less than it should be, Licensee shall pay the
reasonable costs of such examination. Licensee shall maintain and allow Licensor
to inspect all necessary records at reasonable times and places.
ARTICLE V
DURATION AND TERMINATION
5.1 Length of License. This License Agreement shall, unless sooner
terminated as hereinafter provided, remain in full force and effect during the
Term.
5.2 Default, Termination and Notice. In the event that Licensee shall at
any time (i) fail to make payments to Licensor, or otherwise abide by the
material obligations herein provided, or (ii) in the event that Licensee is
dissolved, ceases to do business, terminates its existence, or becomes insolvent
or unable to pay its debts as they mature, or (iii) upon the appointment of a
receiver of any part of the property of Licensee, the assignment for the benefit
of creditors of Licensee, or the filing of a voluntary or involuntary petition
by or against Licensee, then Licensor shall have the right to notify Licensee of
such default and that Licensor intends to terminate this License Agreement
unless such default is corrected. Unless such default shall be corrected by
Licensee within thirty (30) days from the receipt by it of such notice or for
non-monetary obligations such time as Licensee may reasonably require to correct
such default but in no event more than 120 days, then, in such event, this
License Agreement and the license and rights granted pursuant to this License
Agreement, shall thereupon automatically terminate.
5.3 Duties on Termination. Upon any termination becoming effective,
Licensor or Licensee shall be relieved of all duties and obligations hereunder
except that the obligations of confidentiality as provided in Article VII of
this License Agreement shall survive any termination under Article V hereof and
Licensee shall pay to Licensor license fees accrued or thereafter accruing and
unpaid up to such time; provided, however, that Licensee shall under no
circumstances be entitled to a return of license fees previously paid or to a
reduction of license fees accrued and paid on the effective date of termination.
5.4 Rights on Termination. Termination of this License Agreement for any
reason shall be without prejudice to Licensor's right to receive all payments
accrued and unpaid at the effective date of such termination and to the remedy
of either party hereto
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in respect of any previous breach of any of the covenants herein contained.
ARTICLE VI
ASSIGNMENT OF LICENSE
6.1 Limitations. This License Agreement may not be sold, exchanged, gifted,
contributed, encumbered, assigned or otherwise transferred by Licensee without
the prior written consent of Licensor which he may withhold in his discretion;
provided, however, that Licensee may assign to or sublicense any Affiliate of
Licensee without such consent, so long as such assignment shall not materially
or adversely affect Licensor's rights hereunder and provided such sublicensee
agrees to be bound by the terms and conditions hereof. Licensee guarantees the
payment by each assignee or sublicensee of Licensee of all payments which become
due or payable to Licensor and all of Licensee's obligations hereunder shall
continue during the Term hereof. Licensee shall also require any and all such
sublicensees and any assignee to agree to hold in confidence the Fawley
Technology and Confidential Data on terms and conditions commensurate with those
set forth in Article VII. Licensor shall have the same rights as to any such
sublicensee or assignee as Licensor has as to Licensee.
ARTICLE VII
CONFIDENTIAL OBLIGATIONS
7.1 Confidentiality and Limitations. Licensee and any assignee or
sublicensee of Licensee and all of their shareholders, officers, partners,
employees, consultants and agents shall take reasonable precautions, including
those in accordance with procedures they follow with respect to their own
confidential information, including the use of such secrecy agreements as they
deem necessary, to maintain in confidence for a period of ten (10) years from
the Effective Date of this License Agreement or the date of disclosure,
whichever is longer, the Fawley Technology and Confidential Data provided by
Licensor. However, the confidential obligations imposed herein shall not apply
to any information which:
(A) is or later becomes generally available to members of the public
in the form of a publication or otherwise through no act or fault of Licensee or
any assignee thereof or sublicensee or their shareholders; or
(B) is lawfully obtained by Licensee or any assignee or sublicensee
thereof or their shareholders from a third party having no confidential
obligation to Licensor.
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7.2 Right to Disclose. To the extent necessary for the use of Fawley
Technology and Confidential Data, Licensee, any permitted assignee or
sublicensee thereof shall have the right to disclose such Fawley Technology and
Confidential Data to governmental entities and their agents and designees as
reasonably necessary in connection with patent or licensing applications or
otherwise and to Licensee's Affiliates or permitted sublicensees provided that
such subsidiary or permitted sublicensee agrees in writing before such
disclosure to be bound by the same secrecy obligations to Licensor which are
imposed by Licensor upon Licensee in this License Agreement and to not use such
Fawley Technology and Confidential Data except for the account of Licensee as
specified above. Nothing in this License Agreement shall be interpreted as
restricting the Licensee or any assignee or sublicensee thereof from obtaining
commercially available equipment for manufacturing Licensed Products from any
third party whatsoever so long as Licensee discloses to such third party no
Fawley Technology or Confidential Data which Licensee is required to hold in
confidence in accordance with Section 7.1 above.
7.3 Secrecy Agreement. The rights and duties under the Secrecy Agreement
are not modified by this License Agreement.
ARTICLE VIII
IMPROVEMENTS
8.1 During the term of this License Agreement, Licensor and Licensee shall
promptly disclose to one another all improvements in Fawley Technology and
Patent Rights which relate to the Licensed Products and which Licensor or
Licensee owns, develops or controls and which either one may lawfully transmit.
ARTICLE IX
PROSECUTION AND MAINTENANCE
OF PATENT APPLICATIONS AND PATENTS
9.1 (A) Licensee shall bear the cost of maintaining (and shall maintain)
all original patent positions relating to the Patent Rights. In addition
Licensee shall obtain and maintain all Improvement Patents for inventions
conceived by Licensor with respect to the Licensed Products or Fawley Technology
licensed hereunder or under the Original Agreement. Licensor shall retain sole
title in and to such Patents Rights originally licensed hereunder and such
Improvement Patents, as Licensor shall have or does conceive, the rights under
which shall be governed by this License Agreement.
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(B) Licensee shall bear the cost of obtaining and maintaining (and
shall maintain) Improvement Patents for inventions conceived by Licensee and
present and past Affiliate employees. Licensee shall retain sole title in and to
any Improvement Patents conceived by Licensee and present and past Affiliate
employees.
(C) Licensee shall bear the cost of obtaining and maintaining (and
shall maintain) Improvement Patents conceived jointly by Licensor and Licensee,
and title thereto shall be held jointly by Licensor and Licensee. The rights
under any jointly developed Improvement Patents shall be governed by this
License Agreement.
(D) The obtaining and maintaining of patent positions and/or copyright
and/or trademark registration or protection on each Licensed Product and in each
country by Licensee, together with related costs, as set forth in subsections
(A), (B) and (C) hereinabove shall be within the sole discretion of Licensee
except as to original patent patent positions relating to the Patent Rights.
Prior to or at the quarterly Owner's Committee as described in the letter from
NGVSI to Licensor, Licensor and Licensee will each inform the other of all new
potential patent related developments of the Licensed Products. Either Licensor
or Licensee may call for the obtaining and maintaining of patent protection in
connection with any such development, and Licensor and Licensee shall then
proceed as agreed. The abandonment of maintenance of patent positions may be
discussed and agreed to by Licensor and Licensee. If the parties do not agree on
a course of conduct, for a period of 30 days after which meeting, either
Licensor or Licensee; (i) can call for mediation and proceed with mediation if
both Licensor and Licensee agree on mediation, or (ii) if there is no such
agreement on mediation, either Licensor or Licensee may demand arbitration. If
the arbitrator concludes that Licensee should not be required to obtain and
maintain a patent at that time, unless mutually agreed between Licensor and
Licensee, the subject matter may not be brought up again for one year. If the
arbitrator concludes that the Patent Protection should be obtained and
maintained as to a specific country or countries or otherwise, Licensee shall
have the sole discretion as to whether or not it should obtain and maintain such
protection. Should Licensee decide not to obtain patent protection and/or
copyright and/or trademark registration or protection on a particular Licensed
Product in any specific country at its own expense, then Licensor can obtain
such patent protection and/or copyright and/or trademark registration or
protection in Licensor's own name and expense and license others in such country
with respect to such patent; provided, however, that Licensor shall first give
written notice to the Licensee, that Licensor intends to exercise the rights
afforded in the preceding clause of this sentence, whereupon the Licensee shall
15
<PAGE>
have 60 days after receipt of said notice to perform its duties set forth above
and upon the Licensee performing said duties, Licensor's rights under the
preceding clause of this sentence shall be nullified and rendered void. If
Licensee fails to perform within said time period, then all such rights
(including the right to license such Licensed Products in such country) with
reference to the patent position(s) of such Licensed Products shall revert to
Licensor.
(E) All employees or independent contractors of Caithness/NCF have
been and those of Licensee have been, are and shall be required to execute and
perform under a form of appropriate intellectual property and confidentiality
agreement, as a condition of employment or engagement, in form and substance
(from and after the Effective Date) satisfactory to Licensor and Licensee.
(F) All references to Licensor in this Article IX shall be deemed to
include Fawley and NCF except as Fawley may otherwise disclose by notice to
Licensee.
(G) In the event during the Term of this License Agreement, Licensee
or any Affiliate incurs expenses in filing, maintaining or prosecuting Licensed
Patents in the United States of America all such expenses shall be reimbursed by
GRI pursuant to the Licensing Agreement shall belong to and be received by
Licensee. In the event during the Term of this License Agreement, Licensee
incurs expenses in filing, maintaining or prosecuting such Licensed Patents
outside the United States of America, any contribution required to be made by
GRI with respect thereto pursuant to Article II of the Licensing Agreement shall
belong to and be received by Licensee.
ARTICLE X
DEFENSE OF LICENSED PATENTS
10.1 In the event that Licensee shall become aware of any infringement of
any patent within the Patent Rights, Licensee shall immediately notify Licensor
of such infringement and shall be entitled by itself to initiate and maintain
proceedings against such infringement, at its own expense and for its own
benefit as regards any damages and costs recovered. Licensor shall be entitled,
if Licensor so elects, to be represented at such proceedings by Licensor's own
counsel at Licensor's own expense and for its own benefit as regards any damages
and costs recovered.
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10.2 In the event Licensee (a) fails to initiate and maintain proceedings
against infringement of Patent Rights as provided in Section 10.1 within one (1)
year after first becoming aware of such infringement, or (b) advises Licensor in
writing during such time period that Licensee does not intend to initiate or
maintain such proceedings, Licensor shall be entitled by itself to initiate and
maintain proceedings against such infringement to the exclusion of Licensee, at
Licensor's own expense and for Licensor's own benefit as regards any damages and
costs recovered.
ARTICLE XI
EXPORT
11.1 Licensor and Licensee acknowledge that the laws and regulations of the
United States may restrict the export and re-export of technical data of United
States origin, including the Licensed Products, the Fawley Technology, the
Patent Rights and the Confidential Data. The parties agree that they will not
export or re-export any of the Licensed Products, the Fawley Technology, the
Patent Rights and the Confidential Data, or any portion of them in any form
without the appropriate United States and foreign government licenses.
ARTICLE XII
SUCCESSORS AND ASSIGNS
12.1 This License Agreement shall be binding upon the heirs, executors,
administrators, representatives, agents, successors and assigns of any person
that is a party hereto and the directors, officers, stockholders,
representatives, employees, agents, successors and assigns of Licensee.
ARTICLE XIII
NOTICES
13.1 All notices requested or permitted by this License Agreement shall be
sufficiently given as of the date posted by registered or certified mail with
proper postage, correctly addressed to the person to be notified. The addresses
of the parties shall be as set forth below, unless changed by like notice to the
other party:
17
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Licensor: Norman C. Fawley, President
NCF Industries, Inc.
2320 Cherry Industrial Circle
Long Beach, California 90805
NCF Industries, Inc.
2320 Cherry Industrial Circle
Long Beach, California 90805
with copy to: Jerry Fine, Esq.
Sanders, Barnet, Goldman, Simons & Mosk
1901 Avenue of the Stars, Suite 850
Los Angeles, California 90067
Licensee: Natural Gas Vehicle Systems, Inc.
2250 Cherry Industrial Circle
Long Beach, California 90805
Other Parties: Caithness Resources, Inc.
1114 Avenue of the Americas
35th Floor
New York, New York 10036-7790
Caithness/NCF Company
1114 Avenue of the Americas
35th Floor
New York, New York 10036-7790
CNG Cylinder Corporation
2250 Cherry Industrial Circle
Long Beach, California 90805
CNG Cylinder Corporation of
North America, L.P.
c/o Caithness Resources, Inc.
1114 Avenue of the Americas
35th Floor
New York, New York 10036-7790
ARTICLE XIV
WAIVERS
14.1 The failure of Licensor or Licensee to enforce at any time any of the
provisions of this License Agreement shall in no way constitute or be construed
as a waiver of that or any other provision of this License Agreement, nor in any
way to affect the
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validity of such a party to enforce thereafter each and every provision of this
License Agreement. No waiver of any breach of this License Agreement shall be
held to be a waiver of any other or subsequent breach.
ARTICLE XV
SEVERABILITY
15.1 Each provision of this License Agreement shall be considered separable
and if for any reason any provision which is not essential to the effectuation
of the basic purpose of this License Agreement is determined to be invalid and
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect those provisions of this License Agreement which are
valid.
ARTICLE XVI
ARBITRATION OF DISPUTES
16.1 Any controversy or claim arising out of or relating to this contract,
or the breach thereof, shall be settled by arbitration in Los Angeles,
California, administered by the American Arbitration Association in accordance
with its Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitrator shall have the power to provide any form of relief authorized by law,
including, but not limited to damages, punitive damages, equitable relief and
declaratory relief. Any party hereto may seek any provisional or interim relief,
including, but not limited to injunctive relief and attachment, in a court of
competent jurisdiction, without waiving the right to arbitration hereunder.
The parties shall mutually attempt to designate the arbitrator. Either
party may at any time request that the arbitrator be designated in accordance
with the rules of the American Arbitration Association. If either party so
requests, the selection of the arbitrator shall be expedited so that the
arbitrator can be designated as quickly as practicable. The arbitrator shall be
selected from a list of retired California appellate justices, retired Los
Angeles Superior Court judges or the American Arbitration Association panel for
Large, Complex Disputes.
If requested by any of the parties, the award of the arbitrator shall be
accompanied by a statement of the reasons upon which such award is based. The
arbitrator shall have no jurisdiction to render an award which is not in
conformity with the substantive law of the State of California.
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The award of the arbitrator shall include (a) interest at such rate and
from such date as the arbitrator may deem appropriate; (b) an apportionment
between the parties of all or part of the fees and expenses of the American
Arbitration Association and the compensation and expenses of the arbitrator; and
(C) an award of costs, including reasonable attorneys' fees, to the prevailing
party.
ARTICLE XVII
ATTORNEYS' FEES
17.1 In the event that any party to this License Agreement shall commence
any suit or action permitted by the arbitration provision set out in Section
16.1 to interpret or enforce this License Agreement, the prevailing party in
such action shall recover such party's costs and expenses incurred in connection
therewith, including attorney's fees and costs of appeal, if any.
ARTICLE XVIII
CAPTIONS
18.1 The captions of the sections of this License Agreement are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions of this License Agreement.
ARTICLE XIX
GOVERNING LAW
19.1 This License Agreement shall be construed in accordance with and
governed by the laws of California and any legal proceedings brought by a party
to this License Agreement shall be brought in Los Angeles County, California.
ARTICLE XX
CONFIRMATION AND ACKNOWLEDGMENT
20.1 By their signatures hereunder each of NCF, CNG, CNG LP, Caithness
Resources, Inc. and Caithness/NCF confirm that the language in this License
Agreement, as it refers to each of them, is correct and each (for itself) agrees
to be bound thereby and perform each and every act, if any, that is required of
each of them.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed by their proper representatives thereunto duly authorized.
WITNESS: Licensor:
/s/Jerry Fine /s/Norman C. Fawley
- --------------------- ---------------------------
Norman C. Fawley
WITNESS: NCF Industries, Inc.
/s/Jerry Fine By: /s/Norman C. Fawley
- --------------------- -----------------------
Its: President
----------------------
ATTEST: Licensee:
NATURAL GAS VEHICLE SERVICES, INC.
/s/Howard T. Phelan By: /s/ [ILLEGIBLE]
- --------------------- -----------------------
Its: E. Vice President
----------------------
Withdrawing Licensee
ATTEST: CNG CLYINDER CORPORATION
/s/ [ILLEGIBLE] By: /s/Howard T. Phelan
- --------------------- -----------------------
Its: Chairman
----------------------
ATTEST: CNG CYLINDER CORPORATION OF
NORTH AMERICA, L.P.
/s/ [ILLEGIBLE] By: /s/Caithness Resources, Inc. G.P.
- --------------------- ---------------------------------
Its: /s/ [ILLEGIBLE]
---------------------------
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
Its: Chairman
ATTEST: CAITHNESS RESOURCES, INC.
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ---------------------- --------------------------
Its: /s/S.V.P.
-------------------------
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ATTEST: CAITHNESS NCF COMPANY
/s/ [ILLEGIBLE] By: /s/Howard T. Phelan
- ---------------------- --------------------------
Its: /s/Chairman
-------------------------
22
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PORTFOLIO OF LICENSED PRODUCTS
REQUIRED PURSUANT TO SECTION 1.10
OF LICENSE AGREEMENT
The Licensed Products licensed by Norman C. Fawley to Natural Gas Vehicle
Systems, Inc. means any and all products or processes now existing or
hereinafter developed or acquired, using the Fawley Technology, including but
not limited to:
Composite Reinforced Cylinders and Tubes. Composite reinforced cylinders or
tubes are spun, produced from either aluminum or steel, or other metals, and
then reinforced with high-strength composite material. Patents held by
sublicensor pertaining to the products described herein include: U.S. #4,589,562
"Structures Reinforced by a composite material", and related foreign patents;
U.S. #4,559,974.
------------------------------------
Norman C. Fawley
Exhibit 1.12
<PAGE>
The Returned Technology transferred and assigned to Norman C. Fawley
pursuant to that certain Settlement Agreement dated May, 1993 includes all
technology, patent rights, improvement patents and confidential data, invented,
authored, owned, developed or acquired by Norman C. Fawley or NCF Industries,
Inc., relating to the following products or processes.
1. Composite Reinforced Pipe Without Autofrettage, being pipe produced of
any metal which is reinforced with high-strength composite on the outside to
prevent propagating ductile fractures or to increase the burst pressure. Patents
pertaining to the product described herein include: U.S. #4,589,562 "Structures
Reinforced by a Composite Material", and related foreign patents; and U.S.
#4,676,276 "Method of Treating a Pipe and Product Produced Thereby" and related
foreign patents.
2. Composite Reinforced Pipe with Autofrettage, being pipe produced of any
metal which is reinforced with high-strength composite on the outside to prevent
propagating ductile fractures or to increase the burst pressure of the pipe.
After hydraulically or mechanically, past its yield point to induce a negative
or compressive stress on the pipe itself at zero pressure. Patents held by
Licensor pertaining to the products described herein include: U.S. #4,589,562
"Structures Reinforced by a Composite Material", and related foreign patents;
and U.S. #4,676,276 "Method of Treating a Pipe and Product Produced Thereby" and
related foreign patents.
3. Composite Reinforcement Rehabilitation Systems, being products or
processes composed of, or utilizing products composed of lightweight,
non-metallic, high tensile strength filaments in a resin matrix wound around or
otherwise applied in shops, fabricators or pipe manufacturing facilities,
facilities to pipe or other objects for the purpose of (i) preventing a
propagating ductile fracture in, or to increase the burst strength of, such pipe
or other object or (ii) reinforcing, repairing or rehabilitating objects, such
as pipe. Patents held by Licensor pertaining to the products or processes
described herein include: U.S. #4,589,562 "Structures Reinforced by a Composite
Material", and related foreign patents; U.S. #4,559,974 "Apparatus and Method of
Arresting Ductile Fracture Propagation" and related foreign patents; U.S.
#4,676,276 "Method of Treating a Pipe and Product Produced Thereby" and related
foreign patents;
Exhibit 1.12A
<PAGE>
and U.S. #4,700,752 "Clock Spring Crack Arrestor" and related foreign patents
and other patents pending.
4. Storage Tank Rehabilitation Systems, being systems which involve the use
of composite technology described in (1) hereinabove ("Composite Reinforced Pipe
Without Autofrettage") to reinforce large diameter liquid storage tanks,
typically 100' to 300' in diameter to prevent a catastrophic rupture of these
tanks. Patents held by Licensor pertaining to the Products described herein
include: U.S. #4,589,562 "Structures Reinforced by a Composite Material", and
related foreign patents; U.S. #4,559,974 "Apparatus and Method of Arresting
Ductile Fracture Propagation" and related foreign patents; U.S. #4,676,276
"Method of Treating a Pipe and Product Produced Thereby" and related foreign
patents. A pending U.S. patent application held by Licensor and pertaining to
the products described herein is Serial No. 07/274,278, "Method of Preventing
Bursting of Storage Tanks and Burstproof Tanks Products Thereby".
5. Gas Transport Module being a product which involves the use of 30" to
42" diameter line pipe, configured in 80' sections, with heads welded on each
end, sidewalls reinforced and then subjected to Autofrettage. The tubes could be
placed on barges and collect gas from offshore wells. Similar applications are
also envisioned for onshore facilities. In this case, these tubes might be
either spun tubes or have heads welded on them. Patents held by Licensor
pertaining to the products described herein include: U.S. #4,589,562 "Structures
Reinforced by a Composite Material", and related foreign patents; and U.S.
#4,676,276 "Method of Treating a Pipe and Product Produced Thereby" and related
foreign patents.
Exhibit 1.12A
<PAGE>
A G R E E M E N T
This is an Agreement by and among NORMAN C. FAWLEY, NCF INDUSTRIES, INC.,
CAITHNESS/NCF COMPANY, CAITHNESS/NCF LIMITED PARTNERSHIP, CLOCK SPRING COMPANY
OF NORTH AMERICA, L.P., CNG CYLINDER CORPORATION, CAITHNESS RESOURCES, INC.,
CAITHNESS COMPOSITES, INC. and NATURAL GAS VEHICLE SYSTEMS, INC., dated March 4,
1993.
R E C I T A L S:
1. Natural Gas Vehicle Systems, Inc. ("NGVSI") has requested Norman C.
Fawley ("Fawley") and NCF Industries, Inc. ("NCF") to issue a limited, one-time
waiver of certain of Fawley and NCF's remedies in the form attached hereto as
Exhibit A in connection with NGVSI's loan and stock purchase settlements with
Amoco Oil Company and Hanseatic Corporation.
2. NCF and Fawley are willing to issue the aforesaid limited, one-time
waiver in the form attached hereto as Exhibit A provided that NGVSI consents and
agrees to the items hereinbelow set forth and simultaneously upon closing
between NGVSI and Hanseatic and Amoco makes the payments and transfers
hereinbelow recited.
NOW, THEREFORE in consideration of the foregoing and of the mutual promises
hereinbelow set forth the parties agree as follows:
1. Simultaneously upon the closing and transfer of funds between Amoco and
Hanseatic, as lenders and stock purchasers and NGVSI as issuer and borrower
(collectively the "Closing"), Fawley and NCF shall authorize to be released to
NGVSI and Hanseatic and Amoco an original executed for of limited waiver
substantially in the form set forth as Exhibit A hereto.
2. Simultaneously upon Closing NGVSI shall remit to NCF the sum of $100,000
in payment to NCF of NCF's performance under its Independent Contractor
Agreement by and between Caithness NCF Company and NCF in and for the year of
1992.
3. Simultaneously upon the Closing NGVSI shall cause the sum of $37,500 to
be remitted to the firm of Sanders, Barnet, Goldman, Simons & Mosk in full
payment of all legal fees owed by NGVSI or its affiliates to said law firm.
4. Simultaneously upon the Closing NGVSI shall pay to Fawley the license
fee due under section 4.5 of the CNG Cylinder Company of North America Limited
Partnership and Sublicense Agreement dated February 9, 1990 with respect to the
sale of Licensed Products in and for the fourth quarter of 1992.
Exhibit 1.22
<PAGE>
5. Simultaneously upon the Closing NGVSI, Caithness/NCF Company, Clock
Spring Company of North America, LP, Caithness/NCF Limited Partnership, CNG
Cylinder Corporation and Caithness Resources, Inc. shall and hereby undertake to
withdraw with prejudice all notices of default which each or any of them may
have served or issued upon NCF or Fawley prior to March 4, 1993 arising under
any agreement of document between or among said parties.
6. Simultaneously with the Closing Caithness/NCF Company shall and hereby
does transfer and reassign without recourse to Fawley the technology described
on Exhibit B hereto, constituting the "Returned Technology." Following said
transfer and reassignment Caithness/NCF Company, Caithness Resources, Inc. and
Caithness/NCF Limited Partnership hereby agree that neither or any of them shall
have any right whatsoever to enjoy or exploit said Returned Technology.
7. Immediately following the Closing NCF, Caithness Resources, Inc. and
Caithness NCF L.P. shall use their best efforts to reach agreement in order to
liquidate and dissolve Caithness NCF Company. If for any reason the dissolution
and liquidation of Caithness/NCF Company is not effected before April 4, 1993,
then in that event NCF shall have the option to cause Caithness/NCF Company, and
Caithness/NCF Limited Partnership to issue to NCF, NCF's pro rata amount of
shares of common stock of NGVSI as partial liquidation of NCF's interest in
Caithness/NCF Company and as a special distribution by Caithness/NCF Limited
Partnership. For purposes of the foregoing undertaking Caithness/NCF Company
shall, upon the exercise of said option by NCF, cause to be issued and
registered in the name of NCF, NCF's pro rata portion of NGVSI common stock then
owned by Caithness NCF Company. Caithness/NCF Limited Partnership through its
general partner Caithness Composites, Inc. shall further, upon the exercise of
said option by NCF cause to be issued and registered in the name of NCF shares
of common stock of NGVSI equal to 5% of the aggregate shares of common stock of
NGVSI then owned by Caithness/NCF Limited Partnership.
8. The parties hereto acknowledged, and agrees that this Agreement shall in
no way affect, modify, serve to amend or supplement any or other agreement now
existing or hereafter entered into by or among any of the said parties. Further,
all parties hereto agree that this Agreement shall not affect the settlement or
compromise or create or give rise to a waiver of release by any of the parties
hereto of their respective rights, remedies, duties or obligations arising under
any agreement to which they are a party except as expressly agreed to herein.
-2-
Exhibit 1.22
<PAGE>
9. Simultaneously upon Closing, all parties hereto other than Fawley and
NCF shall acknowledge, permit and abide Fawley and/or NCF conducting a business,
whether alone, or in conjunction with others, relating to the conversion of
diesel powered vehicles to "dual-fuel vehicles" and relinquish any claim to
profits or income therefrom.
10. Promptly after Closing NGVSI shall use its best efforts to have the
shares of common stock of NGVSI attributable to NCF as noted in Paragraph 7
above to be treated as Registrable Securities as described in the Registration
Rights Agreement between NGVSI and Hanseatic Corporation. Pursuant to such
consent NCF shall have the same rights and duties with respect to the
Registrable Securities except that any rights of registration may only be
instituted by the party or parties referred to in such agreement. Further, to
the extent that such joinder by NCF exceeds the acceptable dollar amount of
shares to be registered as described in said agreement, any reduction in shares
to be registered pursuant to the rights acquired by Hanseatic shall be met first
and totally by NCF. No other registration rights or opportunities afforded to
shareholders of NGVSI in general are affected by the foregoing consent and
grant.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: __________________________________
CAITHNESS/NCF COMPANY
By: __________________________________
CAITHNESS/NCF LIMITED PARTNERSHIP
By: __________________________________
NCF INDUSTRIES, INC.
By: __________________________________
-3-
Exhibit 1.22
<PAGE>
_______________________________________
NORMAN C. FAWLEY
CLOCK SPRING COMPANY OF NORTH
AMERICA, L.P.
By: __________________________________
CNG CYLINDER CORPORATION
By: __________________________________
CAITHNESS RESOURCES, INC.
By: __________________________________
CAITHNESS COMPOSITES, INC.
By: __________________________________
-4-
Exhibit 1.22
<PAGE>
EXHIBIT A
LIMITED WAIVER
DATED MARCH 4, 1993
The undersigned, for valuable consideration received, hereby grants to CNG
Cylinder Corporation and Natural Gas Vehicle Systems, Inc. a limited and
one-time waiver of the undersigned's rights arising under the License Agreement
dated February 9, 1990 and the CNG Cylinder Company of North America Limited
Partnership and Sublicense Agreement dated February 9, 1990 to terminate the
License or Sublicense respectively therein described, based upon or as the
result of any "Notice of Defaults" or any fact or circumstance directly or
indirectly forming the basis of any such notice issued by or on behalf of the
undersigned to CNG Cylinder Corporation; or Natural Gas Vehicle Systems, Inc.;
or Caithness/NCF Company; or Caithness/NCF Limited Partnership.
The undersigned represents that this is a limited, and one-time waiver, and
shall not constitute a waiver of any of the undersigned's other rights and
remedies arising under or in connection with the afore License Agreement, the
CNG Cylinder Company of North America Limited Partnership and Sublicense
Agreement, or otherwise.
_______________________________________
NORMAN C. FAWLEY
NCF INDUSTRIES, INC.
By: __________________________________
NORMAN C. FAWLEY
Exhibit 1.22
<PAGE>
EXHIBIT B
"Returned Technology"
As of March 4, 1993, all Fawley Technology relating to Patent Rights
relating to Improvement Patents relating to, Confidential Data relating to and
all products or processes relating to:
(i) Composite Reinforced Pipe without Autofrettage. Pipe produced of any
metal which is reinforced with high-strength composite on the outside to prevent
propagating ductile fractures or to increase the burst pressure products
described herein include: U.S. #4,589,562 "Structures Reinforced by a composite
material", and related foreign patents; and U.S. #4,676,276 "Method of Treating
a Pipe and Product Produced Thereby" and related foreign patents.
(ii) Composite Reinforced Pipe and Autofrettage. Products of any metal
which are reinforced with high-strength composite on the outside to prevent
propagating ductile fractures or to increase the burst pressure of the pipe.
After reinforcement, the pipe is pressurized internally, either hydraulically or
mechanically, past its yield point to induce a negative or compressive stress on
the pipe itself at zero pressure. Patents held by Fawley pertaining to the
products described herein include: U.S. #4,589,562 "Structures Reinforced by a
composite material", and related foreign patents; and U.S. #4,676,276 "Method of
Treating a Pipe and Product Produced Thereby" and related foreign patents.
(iii) Except as exclusively licensed to Clock Spring Company as set forth
on Exhibit A attached to the Agreement to which this Exhibit C is attached,
Composite Pipeline Rehabilitation Systems. These systems use the products and
technology described in (i) hereinabove ("Composite Reinforced Pipe without
Autofrettage") or (ii) hereinabove ("Composite Crack Arrestors") in applications
in shop, facilities or yards, but not in situ or in over the ditch settings, in
order to repair or reinforce other structures. Patents held by Fawley pertaining
to the products described herein include: U.S. #4,589,562 "Structures Reinforced
by a composite material", and related foreign patents; U.S. #4,559,974
"Apparatus and Method of Arresting Ductile Fracture Propagation" and related
foreign patents; U.S. #4,676,276 "Method of Treating a pipe and product produced
thereby" and related foreign patents; and U.S. #4,700,752 Clock Spring Crack
Arrestore.
(Superceded by Exhibit 1.12A)
<PAGE>
(iv) Storage Tank Rehabilitation System. Storage Tank Rehabilitation
Systems involve the use of composite technology described in (i) hereinabove
("Composite Reinforced Pipe Without Autofrettage") to reinforce large diameter
liquid storage tanks, typically 100' to 300' in diameter to prevent a
catastrophic rupture of these tanks. Patents held by Fawley pertaining to the
products described herein include: U.S. #4,589,562 "Structures Reinforced by a
composite material", and related foreign patents; U.S. #4,559,974 "Apparatus and
Method of Arresting Ductile Fracture Propagation" and related foreign patents;
U.S. #4,676,276 "Method of Treating a pipe and product produced thereby" and
related foreign patents. A pending U.S. patent application held by Fawley and
pertaining to the products described herein is Serial No. 07/274,278, "Method of
Preventing Bursting or Storage Tanks and Burstproof Tanks Products Thereby".
(v) Gas Transport Module. Gas Transport Module involves the use of 30" to
42" diameter line pipe, configured in 80' sections, with heads welded on each
end, sidewalls reinforced and then subjected to Autofrettage. The tubes could be
placed on barges and collect gas from offshore wells. Similar applications are
also envisioned for onshore facilities. In this case, these tubes might be
either spun tubes or have heads welded on them. Patents held by Fawley
pertaining to the products described herein include: U.S. #4,589,562 "Structures
Reinforced by a composite material", and related foreign patents; and U.S.
#4,676,276 "Method of Treating a pipe and product produced thereby" and related
foreign patents.
(Superceded by Exhibit 1.12A)
<PAGE>
RESERVED RIGHTS OF LICENSOR
NCF Industries will continue to produce Fibralume cylinders for Union
Carbide-Linde, with all costs and revenue accruing to NCF.
Exhibit 2.2(B)
<PAGE>
POTENTIAL DISPUTE
There is a potential dispute between NCF and Swiss Aluminum Ltd.
("Alusuisse") of Zurich, Switzerland with respect to certain of the NCF
Technology. In late 1980 Alusuisse invited Fawley to make a presentation of the
NCF Technology to its technical staff in Zurich for the purpose of entering into
either a joint venture between Fawley and Alusuisse or long-term exclusive
license agreement to be granted Alusuisse by Fawley. During three of four days
of presentation Fawley discussed and disclosed proprietary NCF Technology with
and to Alusuisse personnel. Following said meeting, by letter dated January 22,
1981, Alusuisse informed Fawley that Alusuisse had filed a patent position in
mid-1980 regarding fiber reinforced cylinders and suggested that Fawley simply
consult for Alusuisse and that Fawley would be offered some undefined equity
position in an Alusuisse company producing fiber reinforced vessels. A copy of
the letter from Alusuisse dated January 22, 1981, the responses from Fine,
Perzik & Friedman, attorneys for Fawley and NCF, dated April 10, 1981 and July
31, 1981, and the responding letter from Alusuisse dated November 17, 1981 have
been provided Caithness by NCF.
Exhibit 2.2(C)
<PAGE>
NCF INDUSTRIES
SECRECY AGREEMENT
This agreement is made on May 18 1989 among NCF Industries ("NCF"), NORMAN
C. FAWLEY ("FAWLEY") and CAITHNESS RESOURCES, INC. ("RECIPIENT").
Whereas NCF and FAWLEY possess specialized information and know-how in the
marketing and production of products for use in the Compressed Gas and Composite
Reinforced Metals Industries and CNG-powered vehicles, which products are
identified on Attachment 1 hereto (the "Products");
Whereas NCF and/or FAWLEY have the right to disclose to RECIPIENT the
information and know-how relating to the Products;
Whereas RECIPIENT desires to evaluate the Products in connection with
assessing the business opportunities presented for its consideration by NCF and
FAWLEY.
It is therefore agreed:
1. Disclosure. NCF and FAWLEY shall disclose to the designated employees
and agents of RECIPIENT, information which includes drawings, designs, plans,
proposals, marketing and sales plans, financial information, costs, pricing
information and concepts and ideas reasonably related to the Products (the
"Trade Secrets"), and such other information and assistance requested
Exhibit 2.6(A)
<PAGE>
by RECIPIENT which is reasonably necessary to enable it to understand and
evaluate the Trade Secrets and Products. Such disclosure shall be in written
form and marked Confidential. Disclosures made other than in written form, i.e.,
verbally or by observation, must be reduced to writing, marked Confidential and
delivered to RECIPIENT within thirty (30) days of disclosure in order to be
considered Trade Secrets hereunder.
2. Confidential Data. RECIPIENT acknowledges and agrees that Trade Secrets
shall be communicated by NCF and FAWLEY and received by RECIPIENT in confidence.
RECIPIENT further acknowledges and agrees that the Trade Secrets are proprietary
information of NCF and FAWLEY. It is understood that RECIPIENT receives such
Trade Secrets in trust solely for its own benefit or use and RECIPIENT agrees
that, absent prior written consent by or agreement with NCF or FAWLEY, the Trade
Secrets shall not be directly or indirectly disclosed by RECIPIENT to any other
person or entity, governmental or private.
RECIPIENT shall at all times preserve the secrecy of the Trade Secrets and
shall prevent the disclosure of any Trade Secrets and shall prevent the
disclosure of any Trade Secrets received hereby by any of RECIPIENT's employees,
officers, directors, business associates, subcontractors, vendors, subsidiaries,
affiliates or any other person obtaining knowledge of the Trade Secrets through
RECIPIENT. In view of this obligation, RECIPIENT agrees and warrants that it
shall use its best efforts, including the use of such secrecy agreements as it
-2-
Exhibit 2.6(A)
<PAGE>
deems necessary, to prevent any such disclosure.
All reasonable expenses incurred by FAWLEY and NCF in furnishing the
assistance and information pursuant to this Section, including travel and per
diem expenses for FAWLEY, and all other business-related expenses for NCF and
FAWLEY, shall be paid by RECIPIENT within ten (10) days of submission of said
expenses. Any other special expenses agreed to in advance by RECIPIENT, such as
testing, shall also be paid by RECIPIENT within ten (10) days of submission of
said expenses.
3. Duty to Examine and Report. RECIPIENT shall diligently and thoroughly
examine and analyze the Products and Trade Secrets to assess their marketability
and development potential. Within sixty (60) days of the date hereof, RECIPIENT
shall prepare and deliver to NCF or FAWLEY a confidential report setting forth
the specific efforts undertaken with respect to such examination and analysis,
as well as any findings, recommendations or conclusions reached by RECIPIENT.
Such report shall also indicate whether RECIPIENT is interested in negotiating a
commercial licensing agreement for development of any or all of the Products or
Trade Secrets.
4. Restrictions on Use of Products and Trade Secrets. RECIPIENT agrees that
it will not make use of the Products or the Trade Secrets obtained from NCF or
FAWLEY, except for purposes of examination and analysis as set forth in Section
3 hereinabove, or pursuant to a commercial license agreement with NCF or FAWLEY.
-3-
Exhibit 2.6(A)
<PAGE>
RECIPIENT specifically agrees that except pursuant to such a commercial
licensing agreement, it will not engage in any manner in the manufacture of
products the same as or essentially similar to the Products and will not engage
in any other activity that would tend to reduce the value of Products or Trade
Secrets.
5. Return of Materials. RECIPIENT agrees that, if no commercial licensing
agreement is executed between the parties within ninety (90) days of the date
hereof, it shall promptly return to NCF and FAWLEY all written information,
samples, models, documents, reports, drawings, designs, tools, equipment, plans,
proposals, marketing and sales plans, and other materials supplied to it by NCF
or FAWLEY pursuant to this Agreement (the "Materials"). In the event the parties
do enter into any commercial licensing agreement, RECIPIENT agrees that upon
termination of such commercial licensing agreement it shall promptly return the
Materials to NCF or FAWLEY.
6. No Assignment. RECIPIENT acknowledges and agrees that nothing in this
agreement shall be construed to assign to RECIPIENT any right, title or interest
in the Trade Secrets or the Products, or in any patents that may be granted
related thereto in the United States or any foreign country, or in any
application for such patent.
7. Waiver. If NCF or FAWLEY should at any time waive their rights due to a
breach by RECIPIENT of any provisions of this Agreement, such waiver is not
construed as a continuing
-4-
Exhibit 2.6(A)
<PAGE>
waiver of other breaches of the same or other provisions of this Agreement.
8. Arbitration and Controlling Law. Any controversy or claim arising out of
this Agreement or the breach thereof shall be finally settled by arbitration in
the State of California, County of Los Angeles, under the Rule of Conciliation
and Arbitration of the American Arbitration Association, by one or more
arbitrators appointed in accordance with said Rules, and such determination
shall be final and binding on both parties and either party may file the
findings of said arbitration as a final judgment in a competent court or agency
of any jurisdiction. The arbitrators shall construe this Agreement in accordance
with the Laws of the State of California and shall apply said Laws in the
resolution of any dispute hereunder.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
10. RECIPIENT's Use of Information Other Than Trade Secrets. RECIPIENT
shall not be restricted from disclosing or using, nor shall RECIPIENT have any
other obligations relating to, data or other information which are not Trade
Secrets. Trade Secrets shall not include any data or other information received
-5-
Exhibit 2.6(A)
<PAGE>
from NCF or FAWLEY which:
a) Prior to such receipt was known to RECIPIENT.
b) After receipt was disclosed to RECIPIENT by a third party who is
lawfully in possession of the Trade Secrets and is not under an
obligation of confidentiality to NCF or FAWLEY, or
c) Prior to receipt, or which after receipt, becomes through no
fault of RECIPIENT available to the public in the same form as
information received by RECIPIENT from NCF or FAWLEY.
11. Binding Effect. This Agreement shall bind and inure to the benefit of
the parties and their respective heirs, legal representatives, successors and
assigns.
The parties hereto have executed this Agreement as of the date first above
written.
NCF INDUSTRIES
RECIPIENT: /s/CAITHNESS RESOURCES INC.
---------------------------
BY: /s/[Illegible] BY: /s/[Illegible]
---------------------------- ------------------------
TITLE: /s/President TITLE: /s/President
---------------------------- ------------------------
/s/Norman C. Fawley
-------------------------
-6-
Exhibit 2.6(A)
<PAGE>
ATTACHMENT 1
"PRODUCTS"
HIGH PRESSURE REDUCED WALL AUTO-FRETTAGE COMPOSITE-
REINFORCED LINE PIPE SYSTEM (CRLP)
COMPOSITE REINFORCED PIPE
COMPOSITE CRACK ARRESTOR
COMPOSITE PIPELINE REPAIR SYSTEM
COMPOSITE REINFORCED CYLINDERS & TUBES
CLOCK SPRING PIPELINE REINFORCEMENT SYSTEMS
COMPOSITE REINFORCED STORAGE TANKS
Exhibit 2.6(A)
<PAGE>
CNG CYLINDER CORPORATION
SECRECY AGREEMENT
This Agreement is made on February 9, 1990 by CNG CYLINDER CORPORATION (the
"CORPORATION") and CNG CYLINDER COMPANY OF NORTH AMERICA, L.P. ("RECIPIENT").
WHEREAS, the CORPORATION possesses specialized know-how, trade secrets,
patentable inventions, technologies and patent rights with respect to the CNG
Technology, as that term is defined in that certain Agreement of Limited
Partnership and Sublicense Agreement between Caithness/NCF Company, Korte
Investments, Inc., Caithness/NCF Limited Partnership, CNG Cylinder Corporation
and CNG Cylinder Company of North America, L.P.;
WHEREAS the CORPORATION has the right to disclose to RECIPIENT the
know-how, trade secrets, patentable inventions, technologies and patent rights
with respect to the CNG Technology;
WHEREAS RECIPIENT desires to evaluate the CNG Technology in connection with
assessing the business opportunities presented for its consideration by the
CORPORATION;
Exhibit 2.6(B)
<PAGE>
It is therefore agreed:
1. Disclosure. The CORPORATION shall disclose to the designated employees
and agents of RECIPIENT, information which includes drawings, designs, plans,
proposals, marketing and sales plans, financial information, costs, pricing
information and concepts and ideas reasonably related to the CNG Technology (the
"Trade Secrets"), and such other information and assistance requested by
RECIPIENT which is reasonably necessary to enable it to understand and evaluate
the Trade Secrets and CNG Technology. Such disclosure shall be in written form
and marked Confidential. Disclosures made other than in written form, i.e.,
verbally or by observation, must be reduced to writing, marked Confidential and
delivered to RECIPIENT within thirty (30) days of disclosure in order to be
considered Trade Secrets hereunder.
2. Confidential Data. RECIPIENT acknowledges and agrees that Trade Secrets
shall be communicated by the CORPORATION and received by RECIPIENT in
confidence. RECIPIENT further acknowledges and agrees that the Trade Secrets are
proprietary information of the CORPORATION. It is understood that RECIPIENT
receives such Trade Secrets in trust solely for its own benefit or use and
RECIPIENT agrees that, absent prior written consent by or agreement with the
CORPORATION, the Trade Secrets shall not be directly or indirectly disclosed by
-2-
Exhibit 2.6(B)
<PAGE>
RECIPIENT to any other person or entity, governmental or private.
RECIPIENT shall at all times preserve the secrecy of the Trade Secrets and
shall prevent the disclosure of any Trade Secrets received hereby by any of
RECIPIENT's employees, officers, directors, business associates, subcontractors,
vendors, subsidiaries, affiliates or any other person obtaining knowledge of the
Trade Secrets through RECIPIENT. In view of this obligation, RECIPIENT agrees
and warrants that it shall use its best efforts, including the use of such
secrecy agreements as it deems necessary, to prevent any such disclosure.
All reasonable expenses incurred by the CORPORATION in furnishing the
assistance and information pursuant to this Section, including travel and per
diem expenses, and all other business-related expenses for the CORPORATION,
shall be paid by RECIPIENT within ten (10) days of submission of said expenses.
Any other special expenses agreed to in advance by RECIPIENT, such as testing,
shall also be paid by RECIPIENT within ten (10) days of submission of said
expenses.
3. Duty to Examine and Report. RECIPIENT shall diligently and thoroughly
examine and analyze the CNG Technology and Trade Secrets to assess their
marketability and development potential. Within sixty (60) days of the date
-3-
Exhibit 2.6(B)
<PAGE>
hereof, RECIPIENT shall prepare and deliver to the CORPORATION a confidential
report setting forth the specific efforts undertaken with respect to such
examination and analysis, as well as any findings, recommendations or
conclusions reached by RECIPIENT. Such report shall also indicate whether
RECIPIENT is interested in negotiating a commercial licensing agreement for
development of any or all of the CNG Technology or Trade Secrets.
4. Restrictions on Use of Clock Spring Technology and Trade Secrets.
RECIPIENT agrees that it will not make use of the CNG Technology or the Trade
Secrets obtained from the CORPORATION, except for purposes of examination and
analysis as set forth in Section 3 hereinabove, or pursuant to a commercial
license agreement with the CORPORATION. RECIPIENT specifically agrees that
except pursuant to such a commercial licensing agreement, it will not engage in
any manner in the manufacture of products the same as or essentially similar to
the CNG Technology and will not engage in any other activity that would tend to
reduce the value of the CNG Technology or Trade Secrets.
5. Return of Materials. RECIPIENT agrees that, if no commercial licensing
agreement is executed between the parties within ninety (90) days of the date
hereof, it shall promptly return to the CORPORATION all written information,
samples, models, documents, reports, drawings, designs, tools,
-4-
Exhibit 2.6(B)
<PAGE>
equipment, plans, proposals, marketing and sales plans, and other materials
supplied to it by the CORPORATION pursuant to this Agreement (the "Materials").
In the event the parties do enter into any commercial licensing agreement,
RECIPIENT agrees that upon termination of such commercial licensing agreement it
shall promptly return the Materials to the CORPORATION.
6. No Assignment. RECIPIENT acknowledges and agrees that nothing in this
Agreement shall be construed to assign to RECIPIENT any right, title or interest
in the Trade Secrets or the CNG Technology, or in any patents that may be
granted related thereto in the United States or any foreign country, or in any
application for such patent.
7. Waiver. If the CORPORATION should at any time waive its rights due to a
breach by RECIPIENT of any provisions of this Agreement, such waiver is not
construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement.
8. Arbitration and Controlling Law. Any controversy or claim arising out of
this Agreement or the breach thereof shall be finally settled by arbitration in
the State of California, County of Los Angeles, under the Rule of Conciliation
and Arbitration of the American Arbitration Association, by one or more
arbitrators appointed in accordance with said Rules, and such determination
shall be final and
-5-
Exhibit 2.6(B)
<PAGE>
binding on both parties and either party may file the findings of said
arbitration as a final judgment in a competent court or agency of any
jurisdiction. The arbitrators shall construe this Agreement in accordance with
the Laws of the State of California and shall apply said Laws in the resolution
of any dispute hereunder.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original.
10. RECIPIENT's Use of Information Other Than Trade Secrets. RECIPIENT
shall not be restricted from disclosing or using, nor shall RECIPIENT have any
other obligations relating to data or other information which are not Trade
Secrets. Trade Secrets shall not include any data or other information received
from the CORPORATION which:
a) Prior to such receipt was known to RECIPIENT;
b) After receipt was disclosed to RECIPIENT by a third party who is
lawfully in possession of the Trade Secrets and is not under an
obligation of confidentiality to the CORPORATION; or
c) Prior to receipt, or which after receipt, becomes through no fault of
RECIPIENT, available to the public in the same form as information
received by RECIPIENT from the CORPORATION.
-6-
Exhibit 2.6(B)
<PAGE>
11. Binding Effect. This Agreement shall bind and inure to the benefit of
the parties and their respective heirs, legal representatives, successors and
assigns.
The parties hereto have executed this Agreement as of the date first above
written.
CAITHNESS/NCF COMPANY
RECIPIENT: CNG CYLINDER COMPANY
OF NORTH AMERICA, L.P.
BY: /s/Howard T. Phelan BY: /s/NCF
---------------------------- ---------------------------
Howard T. Phelan Norman C. Fawley
TITLE: Chairman TITLE: President
---------------------------- ---------------------------
-7-
Exhibit 2.6(B)
C/4017
TECHNOLOGY TRANSFER AGREEMENT
THIS TECHNOLOGY TRANSFER AGREEMENT, entered into this 23rd day of February,
1993, by and among the parties: NGV SYSTEMS, INC. (hereafter "NVSI"), a Delaware
corporation having a place of business at 2250 Cherry Industrial Circle, Long
Beach, California 90805; ALCOA COMPOSITES, INC. (hereafter "ACI"), a Delaware
corporation, and a wholly-owned subsidiary of Aluminum Company of America
("Alcoa"), ACI having a place of business at 605 E. Huntington Drive, Suite 200,
Monrovia, California 91016; and AUDIE L. PRICE, P.E. (hereafter "PRICE"), an
individual residing at 4437 Via Precipicio, San Diego, California 92122.
WITNESSETH:
WHEREAS, PRICE represents that he has developed and owns technology
relating to processes and equipment designs for winding high service pressure
cylinders (hereafter "Tank Technology"); and
WHEREAS, on April 24, 1992, ACI obtained from PRICE an exclusive license
for the Tank Technology; and
WHEREAS, ACI is willing to transfer, and NGVSI desires to obtain, ACI's
exclusive license to continue developing and marketing compressed gas cylinders
for self-contained breathing systems, compressed natural gas storage tanks and
other related applications under the terms and conditions of this Technology
Transfer Agreement; and
<PAGE>
WHEREAS, PRICE is willing to assent to the transfer of ACI's exclusive
license to NGVSI, and NGVSI desires to obtain PRICE's other related technology
rights in order that NGVSI can further develop and commercially use such
technology under the terms and conditions of this Technology Transfer Agreement.
NOW, THEREFORE, in consideration of this mutual premises and covenants, and
intending to be legally bound, the parties agree as follows:
ARTICLE I - DEFINITIONS
For purposes of this Technology Transfer Agreement, the following terms
shall have the following respective meanings:
Section 1.1. Technology. The term "Transferred Technology" means (i) all
models, samples, know-how, technical data, methods, equipment, designs,
specifications, drawings, compositions and other information developed or
acquired by PRICE prior to June 25, 1990, PRICE's employment date with ACI,
which models, samples, know-how, technical data, methods, equipment, designs,
specifications, drawings, compositions and other information relate to the
fabrication of pressure cylinders by a winding process in which the cylinder is
fabricated using a combination of plastic molding which may include layers of
broadstock, metal or nonmetallic materials, and/or metal or nonmetallic
weldment, such constructions serving as an essentially non-fixture supported
mandrel suitable to support winding operations (hereafter "ACI Licensed
Technology"); and (ii) any and all modifications, enhancements, redesigns or
improvements to the ACI Licensed Technology developed by either ACI or PRICE (or
its agents, employees, consultants, independent contractors or affiliates) or
PRICE (or his agents, employees, consultants, independent
-2-
<PAGE>
contractors or affiliates) from June 25, 1990 through the date of this
Technology Transfer Agreement first written above. Expressly excluded from
Transferred Technology are any technologies pertaining to ACI's fiber wound
tanks for containment of aviation fuel and other liquids.
Section 1.2. Technology Patents. The term "Technology Patents" means any
United States patent or pending application pertaining to Transferred Technology
and owned by ACI or PRICE as of the date of execution of this Technology
Transfer Agreement.
Section 1.3. Technology Products. The term "Technology Products" means any
pressure cylinder including, but not limited to, the firemens' breathing system
(hereafter "FBS") bottles and compressed natural gas (hereafter "CNG") tanks,
which cylinders are fabricated by NGVSI, or a licensee of NGVSI, using the
Transferred Technology. Technology Products shall pertain to only the
aforementioned pressure cylinders and not include any ancillary or peripheral
equipment not integral with the cylinder such as valves, fittings, regulators,
shields or the like.
Section 1.4. Improvements. The term "Improvements" means any modification,
enhancement, redesign or improvement to the Transferred Technology, whether
patentable or unpatentable, which is conceived or reduced to practice by either
PRICE, or NGVSI, throughout the term of this Technology Transfer Agreement.
Section 1.5. Net Selling Price. The term "Net Selling Price" means: (a) the
actual net amount received by NGCSI, or a commercial manufacturing licensee of
NGVSI (other than a research and development licensee), for Technology Products
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sold to any third party less any amount actually paid or credited by NGVSI for
any Technology Products returned for refund; and (b) the net price at which
Technology Products are being sold or offered for sale in similar quality and
quantity on the date when such Technology Products are delivered for use by
either NGVSI or a licensee thereof under circumstances where NGVSI or such
licensee are the end users of such Technology Products.
ARTICLE II - TECHNOLOGY TRANSFER
Section 2.1. ACI hereby transfers to NGVSI all rights, property interests
acquired and obligations under its License Agreement with PRICE, and PRICE
hereby consents to such transfer thereby granting exclusively to NGVSI, full
right, title and license to make, have made, use and sell Technology Products
throughout the world, subject to the reversionary rights at Section 9.4 hereof
for the first ten (10) years from the date of execution of this Technology
Transfer Agreement. The parties acknowledge and agree that, at the end of said
ten (10) year period, said reversionary rights shall lapse, and thereupon ACI
shall have no rights, title or interest whatsoever to the Transferred
Technology, improvements, Technology Patents or Technology Products.
Section 2.2. ACI acknowledges that NGVSI is the exclusive owner of all
Improvements, subject to the reversionary rights at Section 9.4 hereof for the
first ten (10) years from the date of execution of this Technology Transfer
Agreement. The parties acknowledge and agree that, at the end of said ten (10)
year period, said reversionary rights shall lapse and thereupon ACI shall have
no rights, title or interest to said improvements.
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Section 2.3. PRICE hereby transfers to NGVSI all his rights and property
interests to the Transferred Technology and PRICE hereby creates in and grants
to NVGSI full right, title and license to make, have made, use and sell
Technology Products and Improvements, subject to the reversionary rights at
Section 9.4 until the cumulative Net Selling Price received by NGVSI or its
licensees with respect to the sale of Technology Products cumulatively equals
One Hundred Million Dollars ($100,000,000.00). The parties acknowledge and agree
that, after said Net Selling Price cumulatively equals said sum, said
reversionary rights shall lapse, and PRICE shall have no rights, title or
interest whatsoever to the Transferred Technology Products or Improvements.
ARTICLE III - ROYALTIES
Section 3.1. In consideration of the transfer of the Transferred Technology
and other rights granted in this Agreement, NGVSI shall:
(a) assume all obligations owned by ACI to PRICE under the License
Agreement dated April 24, 1992, including paying directly to PRICE:
(i) a minimum annual royalty of Sixty Thousand Dollars ($60,000),
payable at the rate of Five Thousand Dollars ($5,000) per month
during the term of this Technology Transfer Agreement. Any
difference between the annual royalties payable under Section 3.1
(a) (iii) hereof and the annual minimum royalty payable hereunder
shall be credited against annual royalties under Section 3.1(a)
(iii), for a three year carry-forward period; and
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(ii) a Fifty Thousand Dollar ($50,000) bonus to be divided $25,000 for
FBS bottles and $25,000 for CNG tanks due promptly after NGVSI
receives "Exemption" approval from DOT to sell such bottles and
tanks made using the Transferred Technology, provided that such
DOT approvals are received prior to April 25, 1995; and
(iii) a running royalty of one and one-half percent (1.5%) of the Net
Selling Price of Technology Products sold for the first One
Hundred Million Dollars ($100,000,000) in Net Sales after which
said royalty payment obligation shall expire; and
(b) In addition to the foregoing assumed obligations, pay to PRICE a
non-refundable Technology Transfer fee of Twenty Five Thousand Dollars ($25,000)
payable promptly after execution of this Technology Transfer Agreement by all
parties, and pay to ACI:
(i) a non-refundable Technology Transfer fee of Two Hundred and
Eighty-Seven Thousand Dollars ($287,000) payable in semi-annual
installments of Fifty Thousand Dollars ($50,000) each, except
that the last and final installment shall be in the amount of
Thirty-Seven Thousand Five Hundred Dollars ($37,500.00), with the
first of said payments being due one year from the date of
execution of this Technology Transfer Agreement by all parties;
(ii) a running royalty of one and one-half percent (1.5%) of the Net
Selling Price of Technology
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Products sold by NGVSI during the next ten (10) years from the
date of execution of this Technology Agreement after which said
royalty payment obligation shall expire;
(iii) a running royalty of one and one-half percent (1.5%) of the Net
Selling Price of Technology Products sold by any license of NGVSI
hereunder during the next ten (10) years after which said royalty
payment obligation shall expire; and
(iv) twenty-five percent (25%) of any royalty/transfer fees (lump sum
or up-front payments) that NGVSI demands from any licensee
hereunder during the next ten (10) years, after which said
royalty payment obligation shall expire. The parties agree that
in the event NGVSI, by reason of its receipt of any such fees, is
obligated to credit its licensee with respect to royalties
thereafter otherwise arising with respect to said licensee's
sales of Technology Products, then and in such event, NGVSI shall
receive a credit under Section 3(b)(iii) hereof from ACI equal to
such credit provided to its licensee.
Section 3.2. For purposes of determining when royalty obligations accrue
under Section 3.1, Technology Products shall be considered to be sold when NGVSI
or a licensee of NGVSI has received payment from its customers for said
Technology Products.
Section 3.3. NGVSI agrees to commit, and provide ACI with written evidence
that it has committed, at least Two Hundred
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Thousand Dollars ($200,000) in working capital and resources toward exploitation
of the Transferred Technology during the next three (3) years, said amount
including a Six Thousand Dollar ($6,000) reimbursement for ACI's U.S. patenting
costs and expenses. Should NGVSI fail to make such commitments during the next
three (3) years, ACI shall have the option to terminate this Technology
Transfer Agreement subject to the terms of Section 9.3 and 9.4 hereof.
ARTICLE IV - RECORDS AND PAYMENT
Section 4.1. NGVSI agrees to keep written records showing the Net Selling
Price of any Technology Products sold by NGVSI, and reportedly sold by any
licensee of NGVSI, together with a calculation of royalties due to both ACI and
PRICE on any such sales. Such records shall be available for inspection at
NGVSI's designated office upon reasonable prior written notice by ACI or PRICE
to NGVSI, at reasonable intervals and during regular business hours by a
certified public accountant acceptable to NGVSI. Any fees and expenses
associated with such inspections shall be paid by the party requesting such
inspection, either ACI or PRICE. This record keeping requirement shall cease
when the cumulative Net Selling Price of Technology Products equals One Hundred
Million Dollars ($100,000,000) or on the tenth (10th) anniversary of this
Technology Transfer Agreement, whichever occurs later.
Section 4.2. Royalties under this Technology Transfer Agreement shall be
calculated and paid based on calendar quarters ending March 31, June 30,
September 30 and December 31, respectively. NGVSI agrees to make quarterly
reports to both ACI and PRICE on or before the last day of February, May, August
and November of each year showing:
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(a) the cumulative Net Selling Price of all Technology Products sold by
NGVSI, and reported by NGVSI by its licensees as sold by them during the
preceding calendar quarter;
(b) the royalties due and payable to both ACI and PRICE on such sales,
after a reduction of the royalty by any credits or deductions allowed under this
Agreement; and
(c) the status of all other fees and bonuses payable by NGVSI to both
ACI and PRICE hereunder.
Each quarterly report shall be accompanied by NGVSI's payment of the royalties
due and payable to both ACI and PRICE.
ARTICLE V - TECHNOLOGY AND PATENTS
Section 5.1. Promptly after execution of this License Agreement, ACI and
PRICE shall fully disclose and provide NGVSI with a complete written description
of the Transferred Technology to the extent they have not already done so.
Section 5.2. PRICE and NGVSI, at NGVSI's expense, shall be jointly
responsible for applying for DOT certification of any Technology Products
requiring such certification, and NGVSI shall keep both ACI and PRICE fully
aware of the status of any such certification applications.
Section 5.3.
(a) Promptly after the execution of this Technology Transfer Agreement by
all parties, ACI shall reassign its rights in all Technology Patents to NGVSI
thereby transferring to NGVSI primary control over the prosecution and
maintenance
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of any such Technology Patents. PRICE consents to the aforementioned
reassignment, ACI and PRICE shall continue to cooperate and assist in such
prosecution and maintenance, including executing any such documents and taking
such actions as NGVSI shall deem necessary in connection with the Technology
Patents. PRICE consents to the aforementioned reassignment.
(b) In the event NGVSI elects to discontinue prosecuting or maintaining any
Technology Patents, NGVSI shall notify ACI of its intent to do so after which
ACI may elect to assume full responsibility for the prosecution and/or
maintenance of such Technology Patents following their reassignment from NGVSI
to ACI.
Section 5.4. NGVSI shall keep ACI and PRICE notified of its intentions
to seek equivalent patent protection on any Transferred Technology in any
foreign countries at NGVSI's sole expense.
ARTICLE VI - LITIGATION
Section 6.1. ACI, PRICE and NGVSI agree to notify each other in the event
that any party becomes aware of any infringement of Technology Patents by any
third party. The assignee of record for such Technology Patents shall have the
right to initiate and maintain proceedings against such infringers at its own
expense and for its own benefit.
Section 6.2. In the event that a third party brings litigation against
NGVSI regarding NGVSI's use of the Transferred Technology, NGVSI shall decide
whether to defend such action at its own expense. NGVSI has the right to deduct
from subsequent royalties due ACI or PRICE under this
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Technology Transfer Agreement all out-of-pocket expenses, legal fees and other
costs incurred by NGVSI in the defense of such third party litigation.
Section 6.3. The parties agree to cooperate with each other in any patent
proceeding brought by or against NGVSI relating to the Transferred Technology.
ARTICLE VII - WARRANTIES
Section 7.1. ACI makes no warranties and representations as to the accuracy
of any Transferred Technology or Technology Patents, or as to any third party
infringement through NGVSI's use of the same, provided, however, that ACI and
PRICE represent and warrant to NGVSI that to the best of their knowledge none of
the Transferred Technology, as used heretobefore by ACI, infringes upon the
rights of third parties in existence as of the date this Technology Transfer
Agreement. All rights provided by ACI to NGVSI under this Technology Transfer
Agreement are being transferred with all faults "AS IS, WHERE IS".
Notwithstanding the foregoing, ACI represents and warrants that, following the
execution and delivery of this Technology Transfer Agreement, neither it or any
affiliate will possess any Transferred Technology or Improvements unless it
receives same by operation of the reversionary provisions of Section 9.4 hereof.
Section 7.2. With respect to any Technology Products made by NGVSI, ACI
makes no warranties and/or representations, including but not limited to
warranties of merchantability and/or fitness for a particular purpose.
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ARTICLE VIII - CONFIDENTIALITY
AND NON-COMPETITION
Section 8.1. For a period of one (1) year from the termination date of this
Technology Transfer Agreement for any reason, ACI, NGVSI and PRICE shall take
reasonable precautions to treat any proprietary information relating to the
Transferred Technology in confidence, and except as permitted in this Agreement,
and shall not disclose such proprietary information to third parties without the
consent of the other parties; and NGVSI and PRICE shall have the right to use
such proprietary information only in accordance with this Technology Transfer
Agreement.
Section 8.2. The foregoing obligations of confidentiality, limited use and
nondisclosure shall not apply to any proprietary information which:
(a) is now or hereafter becomes available to the public through no fault of the
parties; such as by public disclosure in an issued U.S. patent;
(b) was known to the receiving party prior to the date of its disclosure to
said party; or
(c) is received from a third party having no secrecy obligation to any of the
parties hereunder.
Section 8.3. This Technology Transfer Agreement shall not relieve PRICE of
his obligations to disclose inventions to NGVSI by virtue of PRICE's employment
or PRICE's Employee Agreement with NGVSI (a copy of which is attached as Exhibit
A). ACI acknowledges and agrees that PRICE is authorized to make disclosures as
to the Transferred Technology to NGVSI in
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order to consummate this Technology Transfer Agreement.
Section 8.4. During the term of this Agreement, and provided NGVSI is not
in default of its obligations to pay royalties in the amount and at the time
herein provided, neither ACI, or its affiliates, nor PRICE, or his affiliates,
shall compete, directly or indirectly, with the business of NGVSI relating to
the manufacture, design, fabrication, development, testing or sale of Technology
Products, nor interfere with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between NGVSI and any of its customers, clients,
suppliers, consultants, employees or any research support to it, provided,
however, that nothing herein contained shall prevent ACI from engaging in the
business of manufacturing, designing, fabricating, developing, testing or
selling fiber wound tanks for containment of aviation fuel and other liquids.
Section 8.5. In consideration of the royalties payable hereunder any NGVSI,
during the term of this Agreement, PRICE agrees, without charge, to promptly
disclose to NGVSI and, as directed in writing by NGVSI to NGVSI's licensees, any
improvements, modifications, upgrades, enhancements, or advancements, with
respect to the Transferred Technology, Technology Products or Improvements, made
by PRICE.
ARTICLE IX - TERM AND TERMINATION
Section 9.1. This Technology Transfer Agreement shall be effective as
of the date first written above and, unless earlier terminated as provided
herein, extend (i) as to PRICE's transfer to NGVSI and NGVSI's obligations of
payment and performance hereunder in connection therewith until the
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receipt by NGVSI of cumulative Net Selling Price for Technology Products equal
to One Hundred Million Dollars ($100,000,000.00) as provided in Section 3.1(a)
(iii) hereof; and (ii) as to ACI's transfer to NGVSI and NGVSI's obligations or
payment and performance hereunder in connection therewith until the tenth (10th)
anniversary date of the date this Technology Transfer Agreement is executed.
Section 9.2. NGVSI may unilaterally terminate this Agreement by providing
ACI with ninety (90) days prior notice to an effective date of termination
selected by NGVSI. In such event:
(a) all rights in any Technology Patents (and Improvements) shall
automatically revert to ACI who shall be free to utilize the Transferred
Technology or license it in whole or in part to any third parties;
(b) NGVSI shall return all ACI and/or PRICE proprietary information to ACI,
and discontinue its use of the Transferred Technology and Technology Patents
until the last U.S. patent in the Technology Patents expires.
(c) NGVSI shall have the option to obtain a nonexclusive worldwide license
from ACI and/or PRICE as to the Transferred Technology, Technology Patents,
Technology Products and Improvements on terms mutually satisfactory to the
parties.
Section 9.3. ACI or PRICE may terminate this Technology Transfer Agreement
if NGVSI, at any time, defaults in its payment of royalties due hereunder by
giving NGVSI sixty (60) days written notice of its intent to terminate provided
NGVSI does not pay such due royalties to ACI or PRICE before the expiration of
this sixty (60) day period.
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Section 9.4. Should this Technology Transfer Agreement be terminated early
for default of royalty payments by NGVSI to either ACI or PRICE, all Transferred
Technology shall revert to ACI and rights to all Improvements shall
automatically be reassigned from NGVSI to ACI, provided, however, that NGVSI
shall have the right and privilege in such event to retain a nonexclusive
worldwide license to the Transferred Technology, Technology Patents, Technology
Products and Improvements on terms mutually satisfactory to the parties. Should
the parties not agree on mutually satisfactory terms for this non-exclusive
license, any remaining terms under the exclusive license between ACI and PRICE
shall be revised to the extent such terms have not already been discharged
through the prior acts or payments of NGVSI to PRICE.
ARTICLE X - ASSIGNABILITY
Section 10.1. This Technology Transfer Agreement may not be fully assigned
by any party without the prior consent of the other parties except that ACI may
assign its rights, specifically including the right to receive all or any
portion of NGVSI's consideration under Article III hereof and its obligations,
to its parent, ALCOA, or to any entity directly or indirectly controlling or
controlled by ALCOA, without NGVSI's prior written consent. In any event, this
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors, heirs and assigns.
ARTICLE XI - MISCELLANEOUS
Section 11.1. Notice. All notices required or permitted to be given under
this Technology Transfer Agreement shall be in writing, postage prepaid, and
shall be deemed to be
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properly given if sent by certified or registered mail to the party entitled to
receive such notice at the respective addresses set forth below, or in
accordance with the last written instructions received from such party
concerning the mailing addresses to be used for any notice. The date of said
notices shall be the date shown on the postmark if the same shall be sent by
certified or registered mail.
Address for ACI: Alcoa Composites, Inc.
605 East Huntington Drive
Suite 200
Monrovia, CA 91016
Facsimile: ______________________
Attention: ______________________
cc: M.D. Scott and
G.P. Topolosky
Aluminum Company of America
Legal Dept., Patent Division
100 Technical Drive
Alcoa Center, PA 15069-0001
Address for NGVSI: NGV Systems, Inc.
2250 Cherry Industrial Circle
Long Beach, CA 90805
Facsimile: (310) 630-1382
Attention: Arthur L. Boschen, Executive Vice
President and Chief
Operating Officer
Address for PRICE: Audie L. Price, P.E.
4427 Via Precipicio
San Diego, CA 92122
Facsimile: (619) 457-2236
Section 11.2. Integration. This Technology Transfer Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof, and unless otherwise stated supersedes all previous negotiations,
commitments, writings and agreements including the Memorandum of Understanding
dated August 27, 1992.
Section 11.3. Waiver. None of the terms, covenants and
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conditions of the Technology Transfer Agreement may be waived except by the
express written consent of the party waiving compliance thereto. The failure of
any party to assert any right hereunder or to insist upon compliance with any
term or condition of the Technology Transfer Agreement shall not constitute a
waiver of that right or excuse any subsequent failure to perform such other
terms or conditions by any party.
Section 11.4. Modification. In the event that any provision of this
Technology Transfer Agreement is declared invalid by a court of competent
jurisdiction from which no appeal can be taken, the remainder hereof shall be
deemed to remain in effect as modified in conformity with that court's
declaration.
Section 11.5. Warranty and Representation. PRICE and ACI represent and
warrant that they: (a) are the sole owners of the Transferred Technology; (b)
have the right to transfer to NGVSI the Transferred Technology set forth herein;
and (c) are not aware of any claim or controversy involving the Transferred
Technology or Technology Patents.
Section 11.6. Applicable Law. This Technology Transfer AGREEMENT shall be
construed, interpreted and applied according to the laws of the State of
California, not including, however, rules relating to choice or conflict of law.
Section 11.7. Arbitration. It is the intent of the parties to this
Agreement that any dispute relating to its terms and administration be resolved
as quickly as possible. To that end, the parties agree that disputes in the
United States shall be submitted to arbitration in the State of California
pursuant to the commercial arbitration rules of the American Arbitration
Association then existing. If the parties
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can agree, a single arbitrator is deemed to be desirable. If such an agreement
cannot be reached, a panel of three arbitrators shall be utilized.
IN WITNESS WHEREOF, the parties hereto have executes this Technology
Transfer Agreement in triplicate as of the date first written above.
WITNESS: ALCOA COMPOSITES, INC.
By: /s/[Illegible] By: /s/[Illegible]
--------------------------- --------------------------
Title: President A.C.I.
WITNESS: NGV SYSTEMS, INC.
By: /s/[Illegible] By: /s/Arthur L. Boschen 2/23/93
--------------------------- --------------------------
Arthur L. Boschen
Title: Executive Vice President and
Chief Operating Officer
WITNESS: AUDIE L. PRICE
By: /s/[Illegible] By: /s/Audie L. Price 2/23/93
--------------------------- --------------------------
Audie L. Price
Title:
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NGV ECOTRANS TECHNOLOGY CENTER
NATURAL GAS VEHICLE DEVELOPMENT COMPANY INC.
AND
ECOTRANS AFTERMARKET CORPORATION
A
JOINT VENTURE
MAY 1, 1993
================================================================================
<PAGE>
JOINT VENTURE AGREEMENT
INDEX
Page
----
1. Definitions 1
2. The Joint Venture 4
3. Contributions by Parties 9
4. Interests and Undertakings of Parties 10
5. Management Committee 12
6. Manager 14
7. Programs and Budgets 17
8. Accounts and Settlements 18
9. Distribution and Allocation of Income and Loss 20
10. Insurance 21
11. Representations and Warranties 22
12. Parties' Defaults and Remedies:
Arbitration of Disputes 23
13. Indemnification 25
14. Termination 26
15. Transfer of Interest 27
16. General Provisions 29
Exhibit "A" 1993 and 1994 Budget
Exhibit "B" Cylinder Pricing Schedule
Exhibit "C" Tax Matters
Exhibit "D" Schedule of Equity Contributions
<PAGE>
JOINT VENTURE AGREEMENT
THIS AGREEMENT is made as of the 1st day of May 1993 (the "Effective Date")
by and between Natural Gas Vehicle Development Company Inc., a California
corporation ("NGVD") and EcoTrans Aftermarket Corporation, a California
corporation ("ECA"). The parties hereby agree to form a Joint Venture upon the
terms and conditions set forth in this Agreement.
RECITALS
Whereas, NGVD and ECA wish to enter into a Joint Venture for certain
business, technical, and public interest purposes with its primary goal being to
generate a profit by providing superior equipment and services necessary to
contribute to the development of a credible natural gas vehicle market.
NOW, THEREFORE, in consideration of the covenants and agreements contained
in this Agreement, NGVD and ECA agree as follows:
ARTICLE I
DEFINITIONS
1.1 Intentionally omitted.
1.2 "Affiliate" means any person or entity related to a Party in such a way
that either the Party or such person or entity directly or indirectly controls
or is controlled by or is under common control with the other. For this purpose,
"control" means the power, direct or indirect, to direct or cause direction of
management and policies through ownership of voting securities, contract, voting
trust or otherwise.
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1.3 "Agreement" means this Joint Venture Agreement, as it may be amended
from time to time, together with all exhibits to it.
1.4 "Assets" means all real and personal property of the Joint Venture,
tangible and intangible, transferred to, held, developed or acquired for the
benefit of the Joint Venture.
1.5 "Authorized Person" means the officers, directors, principals and
employees of a Party and its Affiliates whom a party designates as an Authorized
Person by notification to the Management Committee.
1.6 "Budget" means a detailed estimate of all costs to be incurred by the
Joint Venture with respect to a Program and a schedule of cash advances to be
made.
1.7 "Change in Control" means the occurrence, in the case of a corporation,
of any Person becoming the beneficial owner, directly or indirectly, through a
purchase, merger or other acquisition transaction or series of transactions, of
shares of capital stock of the corporation entitling such person to exercise
greater than 50% of the total voting power of all shares of capital stock of the
corporation entitled to vote in the election of directors.
1.8 "CNG Cylinders" means compressed natural gas cylinders which are
manufactured by CNG Cylinder Company a division of NGV Systems, Inc., a Delaware
corporation with offices at 2250 Cherry Industrial Circle, Long Beach,
California 90805.
1.9 "Contract Year" means the period from the Effective Date through
December 31, 1993 for the first Contract Year, and the calendar year (January 1
- - December 31) for each subsequent year.
1.10 "Defaulting Party" shall have the meaning set forth in section 12.1
1.11 "Effective Date" means the date this Agreement is set forth by the
Parties, as shown in the initial paragraph of this Agreement.
1.12 "Equity Contribution" means the contributions which each Party agrees
to make to the Joint Venture pursuant to Article III of this Agreement.
1.13 "Insolvent Party" shall have the meaning ascribed to it in Section
15.5.
1.14 "Internal Revenue Code" means the United States Internal Revenue Code
of 1986, as amended from time to time.
1.15 "Joint Venture" means that entity created by this Agreement.
1.16 "Joint Venture Financing" means financing arranged by the Joint
Venture to fund approved Budgets and Programs.
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1.17 "NGV Conversion Kit" means the components and apparatus required to
convert a gasoline or diesel engine to enable it to be fueled by natural gas.
1.18 "Management Committee" means the committee established under Article
V.
1.19 "Manager" means the person appointed pursuant to Article VI.
1.20 "NGV" means Natural Gas Fueled Vehicle.
1.21 "NGVD" means Natural Gas Vehicle Development Company Inc., a
California corporation with an office at 2250 Cherry Industrial Circle, Long
Beach, California 90805.
1.22 "Non-Defaulting Party" shall have the meaning set forth in Section
12.1.
1.23 "Notice of Default" shall have the meanings set forth in Section 12.2,
as the context requires.
1.24 "Notices" shall have the meaning set forth in Section 16.1.
1.25 "Operations" means the activities carried out under this Agreement in
accordance with approved Programs and Budgets.
1.26 "Participating Interests" means the respective percentage ownership
interest of a Party in the Joint Venture.
1.27 "Party" or "Parties" means the persons or entities that from time to
own participating interests.
1.28 "Person" means an individual, a partnership, a corporation or any
other legal entity.
1.29 "Program" means a description in reasonable detail of Operations to be
conducted by the Joint Venture for a designated period, which is adopted by the
Management Committee under Article VII.
1.30 "ECA" means EcoTrans Aftermarket Corporation, a California Corporation
with its principal office at 555 West Fifth Street, Los Angeles, California
90013-1011.
1.31 "Tax Matters Partner" shall have the meaning set forth in Exhibit "C"
which is attached to this Agreement.
3
<PAGE>
ARTICLE II
THE JOINT VENTURE
2.1 Formation. NGVD and ECA hereby enter into and form a Joint Venture,
which shall be a general partnership under the laws of the State of California
for the limited purposes set forth in this Agreement. The Assets shall be held
in the Joint Venture name and not in the names of the individual Parties, and no
Party shall have any individual ownership in such property except for its
property rights as a Party to this Joint Venture. All agreements, permits and
transactions regarding the Assets, shall be executed and performed by the Joint
Venture in its own name and not in the names of the individual Parties. The
Joint Venture shall operate in accordance with the terms and conditions of this
Agreement.
2.2 Name and Principal Place of Business. The Joint Venture shall conduct
its business under the trade names "NGV EcoTrans Technology Center". Its
principal place of business shall be Los Angeles, California. The principal
place of business may be changed from time to time, and other places of business
may be established by actions taken in accordance with the provisions of this
Agreement governing management of the Joint Venture's business and affairs. The
Joint Venture shall make any registration required by applicable trade name,
assumed name or fictitious name statutes and similar statutes.
2.3 Purpose. This Joint Venture, a profit oriented business, is formed for
the following limited purposes and to perform any operations or activities
necessary, appropriate or incidental to the conduct of the Joint Venture:
(1) Business Purposes.
(a) Conversions:
(i) To undertake the conversion of vehicles to natural gas power;
(ii) To furnish information concerning, but not to provide, customer
financing for NGV conversion and equipment costs;
(iii) To provide quality NGV conversions at reasonable prices and in
accordance with customers desires;
(iv) To be the recognized leader within the NGV conversion industry in
the southwestern United States.
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(b) Testing:
(i) To acquire and operate an Environmental Protection Agency/Federal
Test Procedure ("EPA/FTP") laboratory and emissions testing
facility for natural gas powered vehicles; and
(ii) To solicit emissions testing work from underhood equipment
manufacturers, testing laboratories, original equipment
manufacturers (OEMs), the Federal Department of Energy, the
California Air Resources Board, and others.
(c) Outside Cylinder and Kit Sales:
(i) To be a distributor and stocking warehouse of CNG Cylinders; and
(ii) To act as a distributor and/or operate a stocking warehouse for
related parts and equipment that are necessary for operation of
the NGV business or to ensure availability of such parts and
equipment to customers of the Joint Venture.
(d) Consultation:
(i) To provide consultation, training and maintenance services for
NGV's and related equipment.
(2) Technical Purposes.
(a) Promote the establishment of emissions, performance, and safety
standards for NGV conversions;
(b) Develop data base of NGVs' performance including: emissions
degradation, catalyst performance, lubrication oil degradation, and
horsepower change;
(c) Establish installation quality standards;
(d) Evaluate diesel conversion methods;
(e) Exchange NGV data with other technical sources; and
(f) Provide specification writing capability for conversion projects.
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(3) Public Interest Purposes:
(a) Strategy:
(i) Promote economic advantages of natural gas;
(ii) Support favorable taxation of natural gas over other fuels;
(iii) Educate legislators and governmental officials to the benefits
of natural gas for vehicle operation;
(iv) Support California Air Resources Board (CARB) vehicle emissions
standards in the United States for NGV conversion equipment;
(v) Support tax incentives for clean fuel vehicles;
(vi) Promote or support other incentives for clean fuel delivery
vehicles, such as double parking approval or express lane
permits; and
(vii) Support federal funding for natural gas fueled transit fleet
vehicles in California.
(b) Implementation: The Joint Ventures' public interest strategy shall be
developed and implemented only through close coordination with the
Management Committee. NGVD and ECA shall support and assist with the
implementation of the Joint Venture's public interest strategy,
provided however, that the Joint Venture shall not incur any cost of
implementing the public interest strategy.
2.4 Powers. In furtherance of the purposes of the Joint Venture as set
forth in Section 2.3 hereof, the Joint Venture shall have the following powers:
(1) To acquire from other Persons interests in real or personal property of
any kind or description, including, but not limited to leases, licenses,
patents, processes, techniques, machinery, equipment, or contractual rights to
acquire such interests;
(2) To borrow or otherwise raise money on behalf of the Joint Venture, from
any source, including one or more of the Parties, upon such terms and conditions
as the Management Committee may deem advisable and proper, to execute promissory
notes, drafts, bills of exchange and other instruments and evidences of
indebtedness and to secure the payment thereof by mortgage, pledge or assignment
of or security interest in all or any part of any property or interest then
owned or thereafter acquired by the Joint Venture, and to refinance, recast,
modify or extend any of the obligations of the Joint Venture and the instruments
securing those obligations;
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(3) To sell, transfer, relinquish, release, abandon or otherwise dispose of
any Joint Venture property or any interest therein or contractual right to
acquire the same from any Person;
(4) To hold and administer Joint Venture property and to purchase and
maintain inventories of equipment, material, and machinery, and to hold, invest
and reinvest the assets of the Joint Venture;
(5) To employ and retain any Person or Persons as agent, employee,
consultant or independent contractor of the Joint Venture, and to employ such
legal, accounting, and engineering services and other professional advice as the
Management Committee shall deem advisable;
(6) To contract for third party services and equipment;
(7) To engage in all such other activities related to the purposes of the
Joint Venture as are not prohibited by applicable law or the provisions of this
Agreement.
2.5 Limitations. Unless the Parties otherwise agree in writing, operations
of the Joint Venture shall be limited to the purposes stated in Section 2.3 and
the powers stated in Section 2.4. Nothing in this Agreement shall be construed:
(1) To authorize any Party to act as agent for another Party except as
provided in this Agreement; or
(2) To permit any Party to undertake the conduct of any other business on
behalf of another Party; or
(3) To enable the Joint Venture to incur any cost for implementing the
public interest strategy; or
(4) To enable any Party to borrow money or incur obligations or behalf of
the Joint Venture, to use the credit of another Party or of the Joint Venture
for any purpose, or to pledge, assign or otherwise encumber the Assets except as
provided in this Agreement; or
(5) To cause the Joint Venture to be responsible for the development of the
refueling station infrastructure except for refueling facilities on the Joint
Venture's premises; or
(6) To enable the Joint Venture to provide financing of customer
conversions.
2.6 Other Business Opportunities. Except as expressly provided in this
Agreement, each Party shall have the right to independently engage in and
receive full benefits from other business activities, whether or not competitive
with the operations of the Joint Venture, without consulting the other Parties.
During the term of this
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Agreement, NGVD shall not engage in, directly or indirectly, business activities
competitive with the business of the Joint Venture ("Competitive Activities") in
the Territory. Notwithstanding the foregoing, NGVD and its affiliates may
continue to sell CNG Cylinders and NGV Conversion Kits to the Joint Ventures'
competitors in the "Territory." As used herein, "Territory" means southern
California, including and south of the counties of San Luis Obispo and Fresno.
2.7 Term. The term of this Agreement shall commence on the Effective Date
and shall continue until terminated by the occurrence of any one of the
conditions described in Section 14.1 and thereafter until all Assets have been
disposed of and a final accounting has been made between the Parties as provided
in Section 14.3.
2.8 Tax Election, Tax Returns, and Allocations. The Parties recognize that
this Agreement creates a partnership for federal and state income tax purposes,
and the Parties do hereby agree not to elect to be excluded from the application
of Subchapter K of Chapter I of Subtitle A of the Internal Revenue Code or any
similar state statute. Federal, state and foreign partnership income tax returns
shall be timely filed by the Joint Venture with no more extensions than are
reasonably required. The Tax Matters Partner, in consultation with the Manager,
shall prepare and file the partnership tax returns and make appropriate
elections and allocations on such returns in accordance with the accounting
procedures described in Exhibit "C".
2.9 Termination of Rights to Assets. Except as otherwise provided in this
Agreement, no Party shall permit or cause all or any part of its interest in the
Assets or the Joint Venture to be sold, exchanged, encumbered, surrendered,
abandoned or otherwise terminated.
2.10 Staff.
(1) The Joint Venture's staff will include the Manager, a controller and
such mechanics, technicians, and support personnel as are necessary to carry out
the business purposes of the Joint Venture efficiently and profitably.
(2) The Joint Venture intends not to discriminate on the basis of union
affiliation or the lack thereof.
2.11 Office and Work Facilities.
(1) The Joint Venture shall lease a facility (primary facility) in the Los
Angeles marketing area. The Los Angeles facility will be outfitted with a full
FTP emissions testing and systems analysis laboratory. All initial leasehold
improvements specific to the laboratory installation and the activities of the
Joint Venture shall be at the expense of the Joint Venture as described in the
approved budget. All initial leasehold improvements normally and regularly
provided by the property owner will be provided by the landlord, all of which
shall be identified in the lease.
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(2) The early conversion work will be performed at the NGVD facility in
Long Beach or in facilities leased on a monthly basis until the Primary Facility
is ready for occupancy (estimated January 1, 1994).
(3) The Joint Venture will make office space and support services available
to a University (to be selected by the Management Committee) for its oversight
activities.
2.12 Development of Funding
(1) Customer Financing:
The Joint Venture will not provide financing for any of its products
and services;
(2) Lab Testing:
The Joint Venture will pursue federal grants and other sources of
outside funding to support the lab testing function.
2.13 Market Area. The market area for the Joint Venture will be the
Territory as defined in Section 2.6.
2.14 Expert Oversight Agency. The Joint Venture will seek to establish a
University (to be selected by the Management Committee) as an expert oversight
agency to monitor and document natural gas vehicle emissions and performance.
2.15 Start-up Costs. Each Party shall absorb its own costs related to the
formation of the Joint Venture.
ARTICLE III
CONTRIBUTIONS BY PARTIES
3.1 Aggregate Equity Contributions by the Parties will be $2,070,000
Dollars. Total contributions to be paid by each of the Parties is as follows:
NGVD: One Million Thirty-Five Thousand Dollars ($1,035,000)
ECA: One Million Thirty-Five Thousand Dollars ($1,035,000)
3.2 NGVD's Equity Contribution. At the time of its execution of this
Agreement NGVD shall deliver to the capital of the Joint Venture its One Million
Thirty-Five Thousand Dollars ($1,035,000) non-interest bearing capital
contribution promissory note (See Exhibit "D") which shall be secured by NGVD's
interest in the Joint Venture and which shall be payable in unequal payments as
shown on Exhibit "A". NGVD shall contribute as in kind, equity contributions,
its technical expertise in
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regard to underhood technology, cylinder application, conversion quality and
vehicle performance standards, management expertise in organizing and operating
this type of facility, goods and services and its existing laboratory upgraded
to perform gas speciation analysis.
3.3 ECA's Equity Contribution. At the time of its execution of this
Agreement ECA shall deliver to the capital of the Joint Venture its One Million
Thirty-Five Thousand Dollars ($1,035,000) non-interest bearing capital
contribution promissory note (See Exhibit "D") which shall be secured by ECA's
interest in the Joint Venture and which shall be payable in unequal payments as
shown on Exhibit "A".
3.4 Additional Contributions. After the Parties have made their Equity
Contributions, the Management Committee may, for approved Programs and Budgets
and subject to the consent of all of the Parties to this Agreement, call for
additional contributions from the Parties. In response to such call for
additional contributions, each Party shall contribute additional funds or
In-Kind Contributions in proportion to its Participating Interest. The
Management Committee may also reduce the amount of contributions required of
the parties.
3.5 In-Kind Contributions. All or a portion of any Party's Equity
Contributions, including NGVD's In-Kind Contributions described in Section 3.2
(above) and any other capital contributions, may be comprised of in-kind
contributions ("In-Kind Contributions") of laboratory equipment for use by the
Joint Venture, CNG cylinders and underhood kit materials to stock the Joint
Venture's inventory and other real or personal property. All such In-Kind
Contributions that are additional to those described on Attachment "D" must be
approved in advance by the Management Committee. All In-Kind Contributions shall
be free and clear of any liens or encumbrances. For In-Kind Contribution
credits: (i) the personal property and real property shall be valued at, subject
to independent appraisal, its fair market value, considering age and condition;
and (ii) CNG Cylinders shall be valued in accordance with the terms and
conditions of Section 6.3. A prototype of an NGVD Master Distributor Price Sheet
is attached to this Joint Venture Agreement as Exhibit "B".
3.6 Late Payments. Any party that fails to make equity contributions will
be subject to the default provisions (Article XII).
ARTICLE VI
INTERESTS AND UNDERTAKINGS OF PARTIES
4.1 Participating Interests.
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(1) The two Parties shall have equal Participating Interests in the
profits, losses, assets and notes of the Joint Venture:
NGVD: Fifty Percent (50%)
ECA: Fifty Percent (50%)
4.2 NGVD Undertakings. In addition to its other obligations and
responsibilities enumerated in this Agreement, including Exhibit "D" NGVD agrees
to:
(1) Provide specialized technical assistance, as approved in advance by the
Management Committee.
(2) Provide training for conversion workers.
(3) Support the Joint Venture's marketing activities.
(4) Assist with the development and maintenance of a system of Internal
Controls which shall be implemented by NGVD and approved by the Management
Committee to provide reasonable assurance that:
(a) The Joint Venture's assets are safeguarded against loss or
unauthorized use; and
(b) The Joint Venture's financial records are adequate and reliable
for preparation of financial statements and other financial
data.
4.3 ECA Undertakings. In addition to its other obligations and
responsibilities enumerated in this Agreement, ECA agrees to:
(1) Act as the Tax Matters Partner;
(2) Assist with the development and maintenance of a system of internal
controls which shall be implemented by NGVD and approved by the Management
Committee to provide reasonable assurance that:
(a) The Joint Venture's assets are safeguarded against loss or
unauthorized use; and
(b) The Joint Venture's financial records are adequate and reliable
for preparation of financial statements and other financial data.
(3) Provide access to the NGV marketing information that is available to
the general public at ECA.
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(4) Provide oversight for the Joint Venture's real estate activities.
ARTICLE V
Management Committee
5.1 Organization and Composition. The Parties shall conduct the business of
the Joint Venture through a Management Committee, which shall determine overall
policies, objectives, procedures, methods and actions under this Agreement. NGVD
and ECA shall each appoint two members to the Management Committee. Each Party
may appoint one or more alternates to act in the absence of a regular member.
Any alternate so acting shall be deemed to be a member. Appointments shall be
made or changed by written notice to the other Parties. Each committee member
may bring such technical and other advisors as it deems appropriate to all
Management Committee meetings.
5.2 Chairmanship. One of NGVD's members of the Management Committee will be
designated as chairman of the Management Committee for the balance of 1993.
Thereafter, the chairmanship will be alternated between the members designated
by each Party, beginning with ECA's member in 1994.
1994 - ECA's member
1995 - NGVD's member
1996 - ECA's member
5.3 Decisions. Each Party shall vote and act through its appointed members
on the Management Committee, unless otherwise provided in this Agreement.
Decisions made by the Management Committee shall be by the unanimous consent of
all members of the Management Committee. In the event of an impasse having a
materially adverse effect on Joint Venture operations, the matter shall be
determined by binding arbitration in accordance with Section 12.4; provided,
however, that, without its express written consent, no Party shall be required,
through arbitration or otherwise, to make any additional contributions, advances
or loans to, or to pay or guarantee any obligations or indebtedness of, the
Joint Venture except as expressly provided in this Agreement.
5.4 Meetings. The Management Committee shall hold regular meetings at least
quarterly at any mutually agreed place. Unless otherwise agreed, the quarterly
meetings shall be held at 10:00 a.m. on the first Friday in March, June,
September and December in Los Angeles, California. The Manager shall give the
Parties thirty (30) days notice of regular meetings, but receipt by all Parties
of such thirty (30) day notice shall not be a prerequisite for the holding of a
regular meeting. Any Party may call a special meeting upon ten (10) days notice
to the other Party. In case of emergency, reasonable notice of a special meeting
shall suffice.
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Notice may be waived by the written consent of the Management Committee
members. A quorum for any meeting shall consist of one member representing each
Party. However, if any Party fails to attend two consecutive properly called
meetings, then a quorum shall consist of the members representing the other
Party and such Parties' vote shall be considered a unanimous vote for the
purposes of the conduct of all business properly noticed.
Each meeting notice shall include an itemized agenda prepared by the
Manager and including all matters proposed for the consideration by any Party in
the case of a regular meeting, or by the Party calling the meeting in the case
of a special meeting, nut any matters may be considered if any Party adds the
matter to the agenda by notice to the other Parties at least 48 hours before the
meeting. Each notice shall include a copy of any document as to which action is
to be taken. Supplemental information may be requested by any Party.
The Manager shall prepare minutes of each meeting and shall distribute
copies of the minutes to the Parties within three (3) days after the meeting.
Each Party shall return to the Manager signed minutes or specific objections
within thirty (30) days of receipt. If an objection to the minutes is received
and not resolved by the Parties at least three (3) days prior to the next
meeting of the Management Committee, the minutes in dispute shall again be
considered at the next meeting of the Management Committee when final minutes
shall be agreed upon. The minutes, when signed by all Parties, shall be the
official record of the decisions made by the Management Committee and shall be
binding on the Parties.
The Manager shall attend all Management Committee meetings unless the
Management Committee requests that he not be in attendance at a specific
Management Committee meeting. By specific request of the Management Committee,
other personnel employed in Joint Venture operations also may be required to
attend a Management Committee meeting. Reasonable costs incurred in connection
with such Management Committee meeting attendance by the Manager and other
Joint Venture personnel shall be Joint Venture costs.
5.5 Action Without Meeting. In lieu of meetings, the Management Committee
may hold telephone conferences, so long as minutes of such meetings are promptly
distributed to the Parties and shall become effective when signed by the members
of the Management Committee and returned to the Chairman. The Management
Committee, in lieu of deciding any matter at a meeting or by telephone
conference, may act by instrument in writing signed by each member of the
Management Committee.
5.6 Matters Requiring Management Committee Approval. The Management
Committee shall have exclusive authority to make all major policy, financial and
operating decisions associated with the Joint Venture and with this Agreement,
including but not limited to
(1) Requiring additional capital contributions from the Parties in
accordance with Section 3.4 of this Agreement;
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(2) Approving Joint Venture Financing
(3) Approving plans or standards for distribution of Joint Venture cash;
(4) Approving acquisition or disposition of Assets of the Joint Venture,
which exceeds Five Thousand Dollars ($5,000) in value or is not in the budget;
(5) Approving the assumption, guarantee or approval of the incurrence of
any obligation for borrowed money, or the approval of other Joint Venture
Financing arrangements on behalf of or in the name of the Joint Venture
including any obligation for borrowed money secured by any encumbrance in
respect of the Joint Venture, even though the Joint Venture has not assumed or
become liable for the payment of such obligation;
(6) Approving making any investment not in the ordinary course of business,
whether by stock purchase, capital contribution, loan or advance or by purchase
of property or otherwise, on behalf of or in the name of the Joint Venture;
(7) Approving the sales of any notes or accounts receivable of the Joint
Venture with recourse, at a discount or otherwise, for less than the fair market
value thereof. Notwithstanding this provision, the Manager shall have the
ability, within guidelines to be established by the Management Committee, to
give volume discounts and other price allowances on the sale of goods or
services by the Joint Venture;
(8) Retaining any law firm or accounting firm to represent the Joint
Venture;
(9) Determining actual sales and marketing programs for the Joint Venture;
(10) Selection of General Manager and Controller; and
(11) Approving Transfer of Management or Key Personnel.
ARTICLE VI
MANAGER
6.1 Appointment. The Management Committee shall appoint a manager with
overall responsibility for all Operations from the Effective Date. The Manager
shall serve in such capacity until he resigns or is replaced. The Parties direct
the Manager to perform the duties of the Manager of the Joint Venture subject to
the terms and conditions of this Agreement. The Parties agree that at all times
the Manager shall be the agent of the Joint Venture for conducting Operations
on behalf of the Joint Venture and for the performance of such other duties as
are imposed on the Manager by the Parties under or pursuant to the provisions of
this Agreement. The Manager shall consult freely with the Management Committee.
The Manager shall receive compensation for the performance of his duties in an
amount to be determined by the Management Committee.
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6.2 Powers and Duties of Manager. Subject to the terms and provisions of
this Agreement, approved Programs and Budgets, and the supervision and direction
of the Management Committee, the Manager shall have the powers and duties to:
(1) Manage, direct and control all Operations in accordance with approved
Programs and Budgets and in accordance with the other provisions of this
Agreement;
(2) Take all actions, perform all duties and make or incur such
expenditures as are required to maintain the titles and interests of the Joint
Venture in and to the Assets;
(3) Arrange for and carry out Operations, including but not limited to
obtaining such competent consultants, technicians, agents, employees and
independent contractors as may be required and purchasing and selling such
materials, supplies, equipment and services as may be required in connection
with Operations and entering into such contracts exclusively on behalf of the
Joint Venture as may be necessary in connection therewith in accordance with
contracting guidelines approved by the Management Committee. Such contracting
guidelines shall, among other things, specify that such contracts shall not be
for a term greater than 12 months, nor for a quantity in excess of that which
the Joint Venture is reasonably expected to consume in such period; (ii) that
the vendor/contractor protect, indemnify and/or insure the Joint Venture against
(a) personal injury and property damage arising from defects in materials and
labor supplied and (b) claims of infringement and unlawful use of patents,
know-how and proprietary rights, and (iii) that the terms of such contracts
otherwise be at least as favorable to the Joint Venture as those usual and
customary in the industry. As to Operations conducted pursuant to an approved
Program and Budget, the Manager may not exceed five percent (5%) of any budgeted
line item and shall not exceed the Budget by more than Five Thousand Dollars
($5,000) in the aggregate without the prior approval of the Management
Committee. Fixed assets may be sold by the Manager without Management Committee
approval only if the sale meets all of the following criteria:
(a) It is no longer required for Operations; and
(b) It has fair market value of Five Thousand Dollars ($5,000) or less;
and
(c) The fair market value equals or exceeds the net book value of the
equipment.
All fixed asset sales and purchases over Five Thousand Dollars ($5,000) must be
specifically approved by the Management Committee as part of a Program and
Budget;
(4) Protect the interest of the Parties in connection with the valuation of
the Assets by public authorities for tax purposes;
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(5) Conduct Operations in compliance with all applicable statutes,
regulations and orders of federal, state and local governmental bodies,
including but not limited to those relating to safety requirements, working
conditions, equal opportunity and affirmative action, workers' compensation,
employee benefits, and environmental protection, and secure all licenses,
permits and approvals necessary for Operations;
(6) Supervise the keeping of full and accurate records and accounts of all
transactions' entered into on behalf of the Parties and of all Joint Venture
costs and of all funds disbursed by it or under its direction in accordance with
the Joint Venture's accounting procedures;
(7) Supervise the preparation and distribution of reports of each Party on
Operations and Finances in accordance with Article VIII;
(8) Prepare and maintain minutes of all Management Committee meetings and
related correspondence;
(9) In case of emergency, take any action the Manager deems necessary to
protect life, limb or property, to protect the Assets or to comply with law or
government regulation;
(10) Notify the Management Committee of any material event or action
affecting Operations as soon as possible following such event or action;
(11) Undertake compliance with all relevant State and Federal withholding
tax and unemployment tax requirements with respect to Joint Venture employees;
and
(12) Have such additional powers and duties as the Management Committee may
direct.
6.3 Transactions with Parties or their Affiliates. If the Manager engages
Affiliates of the Parties to provide products and services to be used in the
conduct of the Joint Venture business, be shall do so on terms no less
favorable to the Joint Venture than would be the case with unrelated persons in
arm's-length transactions and shall do so only with the approval of the
Management Committee. The purchase price for CNG Cylinders purchased from CNG
Cylinder Company shall be the lesser of: (a) Eighty-Six percent (86%) of the
price shown on the then effective Price Sheet of its Master Distributor Pricing;
or (b) the lowest price (net of freight costs) then being charged for similar
quantities to any other NGVD customer in the United States. The Joint Venture's
purchase price for NGV Conversion Kits shall be no more than the lowest price
(net of freight costs) then being charged for similar quantities to any other
NGVD customer in the United States.
6.4 Standard of Care and Liability. The Manager shall conduct and manage
the Operations and perform all of his obligations as Manager in a workmanlike
and commercially reasonable manner, using his prudent business judgment for the
benefit of the Joint Venture.
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ARTICLE VII
PROGRAMS AND BUDGETS
7.1 Operations Pursuant to Programs and Budgets. Operations shall be
conducted, expenses shall be incurred, and Assets shall be acquired only
pursuant to Programs and Budgets approved by the Management Committee.
7.2 Content of Programs and Budgets. Each annual Program and Budget shall
describe in reasonable detail the full nature and extent of the proposed
operations. The Budget for each year shall also include, as applicable, all
anticipated costs and expenses, including but not limited to development,
operation and maintenance expenditures, capital expenditures, working capital
requirements, and a statement of all anticipated cash calls for the ordinary,
necessary operating costs of the Joint Venture, as well as extraordinary capital
or acquisition expenses. Each Budget shall also include quarterly production and
marketing schedules and forecasts, as applicable, with costs estimates and
budgets in sufficient detail to conform with industry standards.
7.3 Presentation of Programs and Budgets. Proposed Programs and Budgets
shall be prepared by the Manager and, after the initial Program and Budget,
shall be for one Contract Year. Each adopted Program and Budget, regardless of
how many years it covers, shall be reviewed at least once a year at the December
regular meeting of the Management Committee.
7.4 Program and Budget for Initial Period. The Program and Budget for the
period from the Effective Date through December 31, 1993 and the 1994 program
are attached as Exhibit "A", and are hereby adopted.
7.5 Review and Approval of Proposed Program and Budget.
7.5.1 Presentations. The Manager will present the proposed Program and
Budget to each member of the Management Committee of this Joint Venture no later
than thirty (30) days before the date of the December quarterly Management
Committee meeting. Within ten (10) days after receipt of the Manager's proposed
Program and Budget, a Party may propose modifications to the Manager's proposal
or alternatives to the proposed Program and Budget. At the meeting, the
Management Committee will consider the proposed Program and Budget and any
suggested modifications or alternatives and will vote to approve or reject a
Program and Budget.
7.5.2 Deadlock. If the Management Committee for any reason fails to approve
a Program and Budget within the time provided in Section 7.5.1 for any Contract
Year, then no cash of the Joint Venture may be distributed to the Parties from
the date of such deadlocked December quarterly meeting until a Program and
Budget for such Contract Year is approved.
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7.5.3 Modifications. The Management Committee will monitor the Joint
Venture's actual results versus the approved Program and Budget regularly and
will make modifications to the Program and Budget as necessary.
ARTICLE VIII
ACCOUNTS AND SETTLEMENTS
8.1 Monthly Cash Budget. The Manager shall promptly submit to the Parties
monthly statements of account reflecting in reasonable detail the charges and
credits to the Joint Venture. The monthly statement shall show:
(1) The estimated amount that will be required to be raised during the
succeeding calendar month (or such longer period as may be determined by the
Management Committee) for the approved Program and Budget;
(2) The portion of any Joint Venture Financing debt which is due and
payable in the succeeding calendar month;
(3) The extent, if any, to which the above amounts may be satisfied by
funds (in excess of a proper amount of Joint Venture working capital) previously
furnished to the Joint Venture under this Agreement or Gross Proceeds on hand;
(4) Credits to the Joint Venture, if any, including those arising from
adjustment of accruals to the actual expenditures; and
(5) A summary of the Joint Venture's activities and the results of such
activities.
(6) Such other information as the Management Committee may direct.
The monthly cash budget shall include an amount to cover the monthly
general expenses of the Joint Venture, an amount to cover the anticipated
expenditures during the succeeding month for approved Operations and an amount
required to maintain reasonable working capital.
8.2 Accounts. The Manager shall maintain at the Joint Venture's principal
office complete financial books and records, on the accrual basis for financial
reporting in accordance with generally accepted accounting principles, showing
all costs, expenditures, sales, receipts, disbursements, assets and liabilities,
and profits and losses. These accounts shall include general ledgers and
supporting and subsidiary journals, invoices, checks and other customary
documentation. The Manager shall also maintain at such offices all other records
necessary, convenient or incidental to the recording of the Joint Venture's
affairs. The accounts shall be retained for the duration of the period allowed
the Parties for audit or the period required by the Internal Revenue Code or the
needs of any Party.
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8.3 Audits
8.3.1 Independent Audits. The Joint Venture's financial statements shall be
audited annually by an independent certified public accounting firm selected by
the Management Committee. Such audit will take place annually and will be
completed within three (3) months after the end of each Contract Year. The cost
of such audit shall be borne by the Joint Venture. The Parties and any
Authorized Person shall have the right at any time to meet and discuss affairs,
finances and accounts of the Joint Venture with the independent public
accountants conducting any such audit. The Manager shall promptly deliver the
Management Committee a copy of any report as to the material inadequacies in
accounting controls, or the absence thereof, submitted by the independent public
accountants in connection with any audit of the Joint Venture.
8.3.2 Party's Audits. Any Party and any Authorized Person may, upon
reasonable notice, at its sole expense and at reasonable times, inspect, examine
and audit the accounts and records of Operations under this Agreement. Upon the
request of a Party, the Manager shall provide a detailed accounting reconciling
beginning and ending balances in any of the Joint Venture accounts.
8.3.3 Resolution of Audit Disputes. Any disputes arising out of audits
shall be addressed promptly by the Management Committee at a meeting called for
such purpose. If the Management Committee fails to resolve such dispute to the
satisfaction of all Parties, then the Parties shall be left with all their
remedies at law and equity and all of their remedies under this Agreement. All
written exceptions to the independent audit shall be made within the 12-month
period after the auditor's report for the period under examination is made
available to the Parties.
8.4 Annual Reports and Records. Within ninety (90) days after the end of
each Contract Year, the Manager shall furnish to each of the Parties: (a) a
detailed report on the activities of the Joint Venture during that Contract
Year, reporting the results of all Operations; and (b) an annual Joint Venture
financial statement, which shall include statements of income, cash flow and
balance sheets prepared in conformity with generally accepted accounting
principles (consistently applied) for the Contract Year then ended and any
additional information that the Parties may reasonably require.
8.5 Monthly Report. On or before the 20th day of each month, the Manager
shall prepare and submit to the Parties a monthly report showing the actual
results of Operations for the preceding month in sufficient detail for
computation and monitoring of all phases of Operations. The report shall also
include other information Consistent with generally accepted accounting
principles (consistently applied) and cost accounting procedures consistent with
standards in the industry. The monthly report shall include information
comparing actual Joint Venture expenditures to budgeted expenditures,
anticipated Operations over the next six months with notations of any material
events, and explanations of any significant differences between actual results
and those budgeted or previously forecast. The Management Committee shall review
such reports on at least a quarterly basis.
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8.6 Inspection and Access. The Parties or any Authorized Person shall be
permitted, at any and all reasonable times, to inspect and copy the Manager's
books, records and data pertaining to the Joint Venture.
8.7 Additional Information. Each Party or its Authorized Person shall have
the right to discuss the affairs, finances and accounts of the Joint Venture
with the officers and employees of the Joint Venture. The Manager shall, in
addition to the foregoing, make available to the Parties and their Authorized
Persons such other information relating to the affairs of the Joint Venture as
the Party or any Authorized Person may from time to time reasonably request.
ARTICLE IX
DISTRIBUTION AND ALLOCATION OF INCOME AND LOSS
9.1 Distribution of Partnership Cash or Property. Excess Partnership Cash.
After providing for the payment of any amounts due on the indebtedness of the
Joint Venture, current operating costs, working capital, reserves for
contingencies and other obligations, and subject to Section 7.5.2 and other
limitations of this Agreement, the Management Committee will twice per year at
reasonable intervals (or at such other times as the Management Committee shall
unanimously agree to) distribute any remaining cash or property in kind of the
Joint Venture to the Parties in proportion to their Participating Interests
(provided however, that in the event of dissolution, all distributions shall be
made pursuant to Section 14.3 hereof).
9.2 Net Income and Net Gain. The net income and net gains of the Joint
Venture for each fiscal year of the Joint Venture shall be allocated to the
Parties in proportion to their Participating Interests.
9.3 Net Loss. Net loss of the Joint Venture for each fiscal year of the
Joint Venture shall be allocated to the Parties in proportion to their
Participating Interests.
9.4 Joint Loss of Title. Any failure or loss of title to the Assets shall
be charged to the Joint Venture and allocated among the Parties in proportion to
their Participating Interests, provided however that, with respect to assets
contributed to the Joint Venture in-kind by a Party, such failure or loss shall
be borne solely by the contributing Party and such Party shall indemnify and
hold harmless the Joint Venture and the other Parties with respect to such
failure or loss. All costs of defending title shall be charged to the Joint
Venture or to the Party contributing such assets, as the case may be.
9.5 Liability or Loss in Excess of Insurance. Any liability, loss, damage,
claim, or expense resulting from occurrences not covered by or in excess of
insurance carried for the Joint Venture shall be borne by the parties hereto in
accordance with Article XIII.
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ARTICLE X
INSURANCE
10.1 Prior to the Joint Venture's commencing business, a comprehensive
property and casualty insurance program for the Joint Venture shall be developed
by NGVD and ECA and submitted to the Management Committee for approval. The
insurance program shall include the following coverages which shall be
maintained with insurers approved by the Management Committee in amounts
determined by the Management Committee:
(1) Workers' compensation insurance as may be required under the laws of
any relevant jurisdiction;
(2) Employer's Liability Insurance;
(3) Comprehensive general liability insurance covering the contractual
liability of the Joint Venture. This policy shall also cover liability of the
Joint Venture related to bodily injury, death or property damage occurring:
(a) in or about any premises owned or occupied by the Joint Venture; or
(b) as a result of the use of products manufactured, constructed or sold
by the Joint Venture; or
(c) as a result of the services rendered by and the completed operations
of the Joint Venture.
(4) Automobile liability insurance for bodily injury, death or property
damage arising as a result of the ownership, maintenance or operation by the
Joint Venture of any automobile, truck or other motor vehicle or related to
uninsured motorists; and
(5) Such other insurance coverage as is required by the Management
Committee.
10.2 With the exception of Workers' Compensation, Employers Liability, and
General Partnership Liability insurance, each Party and its owner, directors,
officers, Management Committee Members, and employees shall be additional
insureds on all of the Joint Venture's policies with respect to claims or
liabilities arising out of actions or omissions in conducting Joint Venture
activities. However, any person or entity providing products which are used by
the Joint Venture in the conversion of vehicles to natural gas power including
Affiliates (other than the Joint Venture) of such persons or entities, shall not
be covered under any of the Joint Venture's insurance policies for claims
arising therefrom. NGVD and ECA shall require the appropriate representative or
agent of the insurance company affording coverage to provide each
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party with a certificate of insurance for each coverage which states the
effective dates and expiration dates of the policies and provides that the
policy will not be changed or canceled until thirty (30) days written notice has
been given to each party. NGVD and ECA shall insure that each party obtains a
true, correct and complete copy of the insurance policies as soon as
practicable.
10.3 NGVD and ECA shall be responsible for maintaining the approved
insurance program in full force and effect for the benefit and at the expense of
the Joint Venture. Invoices for insurance payments shall be certified by the
Management Committee for payment by the Manager.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
11.1 Capacity of Parties. Each of the Parties represents and warrants as
follows:
(1) That it is a legal entity duly organized and in good standing in itS
state of organization and that it is, or will promptly take all actions
necessary to become, qualified to do business in the State of California;
(2) That it has the capacity to enter into and perform this Agreement and
all transactions contemplated herein and that all corporate or other actions
required to authorize it to enter into and perform this Agreement have been
properly taken;
(3) That it will not breach any other agreement or arrangement by entering
into or performing this Agreement and that this Agreement has been duly executed
and delivered by it and is valid and binding upon it in accordance with its
terms;
(4) That it has fully compensated or will fully compensate any broker or
finder that has acted on its behalf in connection with the negotiation,
execution or delivery of this Agreement; and
(5) That it has not made any assignment for the benefit of creditors, filed
any petition in bankruptcy, been adjudicated insolvent or bankrupt, petitioned
or applied to any tribunal for any receiver, conservator or trustee of it under
any reorganization arrangement, readjustment of debt, conservation, dissolution
or liquidation law or statute of any jurisdiction, and no such action or
proceeding has been commenced against it by any creditor, claimant, governmental
agency or other person.
11.2 Compliance with other Agreements. Each Party agrees that it will
comply with all of the terms, conditions and provisions on its part to be
observed or performed under any lease, agreement or other instrument pursuant to
which Assets have been acquired provided, however: (1) that breaches and
defaults that are timely cured under any such lease, agreement or instrument,
and failures to comply with the terms of any such lease, agreement or instrument
that do not jeopardize the title to
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Assets, Operations or other material interests of the Joint Venture shall not be
considered events of default under Article XII, and (2) that the Party will not
terminate or cancel any such lease, agreement or other instrument and will take
all actions requisite on its part to prevent any termination or cancellation
thereof, other than termination by the consent of the Parties or Termination for
reasons beyond the control of both Parties. Each Party agrees to notify the
other Party promptly in writing if it receives notice of any default or alleged
default under any such lease, agreement or instrument, or notice of any title
defect or alleged title defect affecting the Assets.
ARTICLE XII
PARTIES' DEFAULTS AND REMEDIES: ARBITRATION OF DISPUTES
12.1 Events of Default. The following events shall constitute events of
default:
(1) Any transfer by a Party of its interest in the Joint Venture in
contravention of the provisions of Article XV;
(2) Failure of a Party to make any portion of an Equity Contribution when
due;
(3) Failure of a Party to perform any other obligation imposed upon such
Party by this Agreement;
(4) Filing of a petition in bankruptcy by or against a Party if such
petition is not withdrawn or dismissed within sixty (60) days after its filing;
(5) Assignment by a Party for the benefit of creditors; or
(6) Allowance by a Party of the appointment of a receiver or trustee for
all or any part of its property if such receiver or trustee is not discharged
within sixty (60) days after his appointment.
Upon the occurrence of any such event, the Party failing to perform shall
be deemed to be in default hereunder and shall be referred to as the "Defaulting
Party", and any other Party shall be referred to as a "Non-Defaulting Party".
12.2 Notice of Default. Any Non-Defaulting Party shall have the right to
give the Defaulting Party a Notice of Default, which shall be in writing, shall
set forth the nature of the event of default, and shall set forth the date by
which such default must be cured, which date shall be at least thirty (30) days
after receipt of the Notice of Default, except as to subsections (1), (4), (5)
and (6) of Section 12.1, as to which there will be no cure period. Failure of
any Non-Defaulting Party to give any such notice shall not release the
Defaulting Party from any of its obligations under this Agreement.
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12.3 Opportunity to Cure. If within such thirty (30) day cure period,
except with respect to events of default under Subsection (2) of Section 12.1,
the Defaulting Party cures such default, or if the failure is one that cannot in
good faith be corrected within thirty (30) days and the Defaulting Party begins
correction of such failure to perform within such thirty (30) days and continues
corrective efforts with reasonable diligence until a cure is effected, the
Notice of Default shall be inoperative, and the Defaulting Party shall lose no
rights hereunder. If, within such specified periods, the Defaulting Party does
not cure or commence to cure such default as provided above, or if within such
thirty (30) day period the Defaulting Party notifies the Non-Defaulting Parties
that it disputes the existence of the alleged default and the Defaulting Party
shall not have commenced correction of the default within thirty (30) days after
the entry of an arbitrator's decision under Section 12.4 confirming the
existence of the alleged default, the Non-Defaulting Parties at the expiration
of such period, or upon notice where no cure period is allowed, shall have the
rights specified in Section 12.5.
12.4 Arbitration of Disputes. Disputes between or among the Parties arising
out of or relating to this Agreement (other than routine management decisions)
shall be resolved through binding arbitration according to the commercial rules
of the American Arbitration Association ("Association"), except to the extent
that such rules are inconsistent with the terms of this Section. Unless
otherwise agreed by the Parties, such arbitration shall not be conducted under
the auspices of the Association. All arbitrations shall occur in Los Angeles,
California. Notwithstanding this agreement to arbitrate all disputes, each Party
shall be entitled to petition in a court of law for any relief necessary to
prevent irreparable harm to such Party prior to the entry of the arbitrators'
decision and each Party shall have the right to discovery conducted in
accordance with the Federal Rules of Civil Procedure, except that the
arbitrators shall have and exercise the powers allocated to the court by such
Rules. The arbitration committee will consist of three arbitrators. One
arbitrator will be appointed by each Party to a given dispute with the third
arbitrator to be selected by the two arbitrators designated by the disputing
Parties. An arbitration hearing will commence within thirty (30) days after
appointment of the arbitration committee. Unless the arbitrators find that
exceptional circumstances justify delay, the hearing will be completed, and an
award will be rendered in writing, within forty (40) days after commencement of
the hearing. If the arbitrators determine that a dispute is frivolous, they may
assess the Joint Venture's and the "winning" Party's costs resulting from the
arbitration proceeding to the losing party. In the event of manifest injustice
the arbitrators award shall be subject to judicial review, with respect to
issues of law only. The Parties hereby waive trial by jury in any proceedings
arising out of or relating to this Agreement.
12.5 Rights upon Default. After providing notice and an opportunity to cure
as provided in Sections 12.2 and 12.3 above, and, in the event of a dispute with
respect to the alleged default, after the entry of an Arbitrators' decision
confirming the default, the Non-Defaulting Party shall be entitled (but not
required) to exercise any power or remedy now or hereafter exercisable at law or
in equity (including the right to specific performance), and each and every
power and remedy may be exercised
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from Time to time and as often and in such order as may be deemed expedient. All
such powers and remedies shall be cumulative, and the exercise of one shall not
be deemed a waiver of the right to exercise any other or others. No delay or
omission in the exercise of any such power or remedy shall impair any such power
or remedy or shall be construed to be a waiver of any default or an acquiescence
therein. The Defaulting Party shall cease to have the right to participate in
the management of the Joint Venture beginning immediately after the period for
cure expires and continuing for so long as the default continues, and the
Defaulting Party during such period shall have no vote in Management Committee
decisions. In continuing to manage the Joint Venture, the Non-Defaulting Party
shall have absolute discretion and may remove and replace the Manager and manage
the Operations in conformity with Article VI above. No action taken by the
Non-Defaulting Party shall subject it to claims for breach of duty, on the
ground of conflict of interest, negligence or any other theory, except fraud or
gross negligence. In no event shall any Party be liable for loss of profits, nor
for any punitive, incidental or consequential damages arising from any action or
inaction relating to this Agreement, except as required under Article XII,
Indemnity.
12.6 Non-Recourse Obligations. All obligations of NGVD hereunder shall be
the sole responsibility of NGVD and, in the absence of an express written
assumption thereof, neither ECA nor any party on its behalf shall have any
recourse to any other party (including, but not limited to NGVD's shareholders,
officers, directors or employees or NGVD's affiliates) for any breach by or
liability of NGVD arising Out of this Agreement; and likewise, all obligations
of ECA under this Agreement shall be the sole responsibility of ECA and, in the
absence of any express written assumption thereof, neither NGVD nor any party on
its behalf shall have any recourse against any other party (including, but not
limited to officers, directors, employees, shareholders or ECA's affiliates) for
any breach or liability of ECA arising out of this Agreement. The parties agree
that Southern California Gas Company shall have no obligations or liabilities
whatsoever under, or arising out of this Agreement.
ARTICLE XIII
INDEMNIFICATION
Each Party agrees to indemnify, defend and hold harmless the other Party
and its directors, officers, employees and agents and, to the extent set forth
below, each Affiliate of the other Party, from and against all claims, causes of
action, liabilities, payments, obligations expenses (including without
limitation reasonable fees and disbursements of counsel) or losses arising out
of a Joint Venture liability or obligation, to the extent necessary to
accomplish the result that no Party or its Affiliates shall bear any portion of
a liability or obligation of the Joint Venture in any manner other than in
accordance with its Participating Interest at the time the liability accrues.
Without limiting the generality of the foregoing, a claim, loss or liability
shall be deemed to arise out of a Joint Venture liability or obligation if it
arises Out of, or is based upon, the conduct of the business of the Joint
Venture or the ownership or operation of the Joint Venture Assets. The foregoing
indemnification shall be available to an Affiliate of a Party with respect to a
claim, liability or loss arising out
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of a Joint Venture liability or obligation that is paid by or incurred by such
Affiliate solely as a result of such Affiliate directly or indirectly owning or
controlling a Party. The foregoing indemnity shall apply only to a claim,
liability or loss to the. extent that it is uninsured by the Joint Venture and
shall survive the dissolution or other termination of the Joint Venture. The
foregoing provisions shall not inure to the benefit of any Party or Affiliate in
respect of any claim, liability or loss that (1) is a tax, levy or similar law
or governmental charge not imposed upon the Joint Venture or upon its Assets;
(2) arises out of, or is based upon, the gross negligence, willful
misconduct, breach of warranty, or unauthorized binding of the Joint Venture to
an obligation by such Party grits Affiliate; or (3) arises out of the provision
of products by a Party or its Affiliate which are used by the Joint Venture in
the conversion of vehicles to natural gas power. In each such case, such Party
or Affiliate shall indemnify, defend and hold harmless ether Party and its
directors, officers, employees and agents from and against any and all claims,
causes of action, liabilities, payments, obligations, expenses (including
reasonable attorneys' fees and disbursements of counsel) or losses arising out
of such Party or its Affiliate's: (1) gross negligence, willful misconduct,
breach of warranty, or unauthorized binding of the Joint Venture to an
obligation; or (2) provision of products which are used by the Joint Venture in
the conversion of vehicles to natural gas power.
ARTICLE XIV
TERMINATION
14.1 Termination. This Agreement is subject to termination as follows:
14.1.1 Termination by Agreement. The Parties may terminate this Joint
Venture at any time by written agreement.
14.1.2 Termination by Expiration. The Joint Venture shall terminate four
(4) years after Effective Date, and shall continue from year to year thereafter,
unless terminated on or after the fourth anniversary of the Effective Date by a
Party upon sixty (60 days prior written notice).
14.1.3 Termination by Bankruptcy. The Joint Venture shall terminate upon
the filing of a petition in bankruptcy by or against a Party if such petition
is now withdrawn or dismissed within sixty (60 days after its filing.
14.2 Continuing Obligations. On termination of this Agreement, the Parties
shall remain liable for continuing obligations hereunder until final settlement
of all accounts and for any liability, whether it arises before or after
termination, if it arises out of Operations during the term of the Agreement.
14.3 Disposition of Assets on Termination. Promptly after termination, the
Manager shall take all action necessary to wind up the activities of the Joint
Venture, and all costs and expenses incurred in connection with the winding up
of the Joint
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Venture shall be expenses chargeable to the Joint Venture. Exhibit "C" shall
control the distribution and application to the Parties of the net proceeds of
liquidation of the Joint Venture Assets or, if applicable, the Joint Venture
Assets themselves upon termination.
14.4 Right to Data After Termination. After termination of this Agreement
pursuant to Section 4.1 each Party shall be entitled to copies of all
information acquired hereunder as of the date of termination and not previously
furnished to it.
14.5 Continuing Authority. On termination of this Agreement, the Manager
shall have the power and authority, subject to control of the Management
Committee, to do all things on behalf of the Parties that are reasonable,
necessary, or convenient to: (1) wind up Operations and (2) complete any
transaction and satisfy any obligation unfinished or unsatisfied at the time of
such termination, if the transaction or obligation arises out of Operations
prior to such termination. The Manager shall have the power and authority to
grant or receive extensions of time or change the method of payment of an
already existing liability or obligation, prosecute and defend actions on behalf
of the Parties and the Joint Venture, mortgage assets, and take any other
reasonable action in any manner with respect to which the former Parties
continue to have, or appear or are alleged to have, a common interest or a
common liability.
ARTICLE XV
TRANSFER OF INTEREST
15.1 General. A Party shall have the right, subject to the preemptive right
under Section 15.3 and the limitations below, to transfer, grant, assign,
encumber, pledge or otherwise commit or dispose of ("Transfer") to any third
party all or part of its interest in or to this Agreement upon the written
consent of the other Party, which consent may not unreasonably be withheld.
15.2 Limitations on Free Transferability. The Transfer right of a Party in
Section 15.1 shall be subject to the following terms and conditions:
(1) No transferee of all of the interest of a Party to this Agreement shall
have the rights of a Party, unless and until the transferring Party has provided
to the other Parties notice of the Transfer, and the transferee, as of the
effective date of the Transfer, has committed in writing to be bound by this
Agreement to the same extent and nature as the transferring Party;
(2) No Transfer shall relieve the transferring Party of its share of any
liability, whether accruing before or after such Transfer, that arises out of
Operations conducted prior to such Transfer;
(3) The transferring Party and the transferee shall bear all tax
consequences of the Transfer;
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(4) No such Transfer shall occur within twenty-four (24) months from the
date of this Joint Venture Agreement, unless the Transfer is of a security
interest to secure a bona fide loan or other bona fide indebtedness; and
(5) If the Transfer is the grant of a security interest by mortgage, deed
of trust, pledge, lien or other encumbrance of its interest in this Agreement,
to Secure a loan or other indebtedness of a Party in a bona fide transaction,
such security interest shall be subordinate to the terms of this Agreement and
the rights and the interests of the other Parties hereunder. Upon any
foreclosure or other enforcement of rights in the security interest, the
acquiring third party shall be deemed to assume the position of the encumbering
party with respect to this Agreement and the other Parties, and it shall comply
with the terms and conditions of this Article XV.
15.3 Preemptive Right. Except as otherwise provided in Section 15.4, it a
Party desires to transfer all or part of its interest in this Agreement, the
other Party shall have a preemptive right to acquire such interest in addition
to such Party's right to reasonably withhold consent to the transfer under
Section 15.1.
15.3.1 A Party intending to transfer all or part of its interest in
this Agreement shall promptly notify the other Party of its intentions. The
notice shall state the price and all other pertinent items and conditions,
including contingent payments and royalties, if applicable, of the intended
transfer, which shall be for a monetary consideration only. The other Party
shall have thirty (30) days from the date such notice is delivered to notify the
transferring Party whether it elects to acquire the offered interest at the same
price and on the same terms and conditions as set forth in the notice. If the
other Party so elects, the transfer shall be consummated within sixty (60) days
after notice of such election is delivered to the transferring Party.
15.3.2 If the other Party does not elect within the period provided for in
Section 15.3.1, the transferring Party shall have ninety (90) days following the
expiration of such period to consummate the transfer to a third party at an
identical or greater price and on terms no less favorable to the transferring
party than those presented to the other Party and set forth in the notice
required in Section 15.3.1.
15.3.3 If the transferring Party fails to consummate the transfer to
execute a binding agreement to transfer to a third party within the period set
forth in Section 15.3.2, or upon change in the price or terms offered to the
third party, the preemptive right of the other Party in such offered interest
shall be deemed to be revived. Any subsequent proposal to transfer such
interest shall be conducted in accordance with all of the procedures set forth
in this Section 15.3.
15.4 Exceptions to Preemptive Right. Section 15.3 and the right of a Party
under Section 15.1 to reasonably withhold consent to a transfer shall not apply
to the following transfers:
(1) Transfer by a Party of all or any part of its interest in this
Agreement to an Affiliate; or
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(2) Incorporation of a Party or corporate merger, consolidation,
amalgamation of reorganization of a Party by which the surviving entity shall
possess substantially all of the stock, or all of the property rights and
interest, and be subject to substantially all of the liabilities and
obligations, including those created by this Agreement, of that Party; or
(3) The grant by a Party of a security interest in its interest in this
Agreement by mortgage, deed of trust, pledge, lien or other encumbrance.
15.5 Insolvency. If any Party commences a voluntary case under the federal
bankruptcy laws or under any other applicable federal or state law relating to
insolvency, if any order for relief or similar determination is entered in an
involuntary case under the federal bankruptcy laws or any other federal or state
law relating to insolvency, or if a receiver, liquidator, assignee, trustee,
custodian or other similar person is appointed voluntarily or involuntarily,
for the assets of any Party, then such Party (the "Insolvent Party") shall cease
to have the right to participate in the management of the Joint Venture, and the
Joint Venture thereafter shall be managed by the other Parties. In continuing to
manage the Joint Venture, the other Parties shall have absolute discretion and
no action taken by such other Parties shall subject such other Parties to a
claim for any breach of duty, on the ground of conflict of interest, negligence
or any other theory, except fraud or gross negligence. Any transfer, sale,
assignment, pledge or other encumbrance or disposition of the Insolvent Party's
interest in the Joint Venture by a trustee, debtor-in-possession or custodian
shall be subject to the provisions of Section 15.3.
ARTICLE XVI
GENERAL PROVISIONS
16.1 Notices. All notices, payments and other required communications
("Notices") to the Parties shall be in writing and shall be addressed
respectively as follows:
NGVD
If Mailed or Delivered:
Natural Gas Vehicle Development Company Inc.
2250 Cherry Industrial Circle
Long Beach, California 90805
Attn: Arthur L. Boschen
If by Fax: 310-630-1382
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ECA
If Mailed or Delivered:
EcoTrans Aftermarket Corporation
2325 Crenshaw Blvd.
Torrance, CA 90501-3335
P.O. Box 2815
Torrance, CA 90509-2815
Attention: Mr. Detlef Stevenson, Vice President
If by Fax: 310-781-7250
Copy to:
Southern California Gas Company Law Department
633 W. Fifth Street Suite 5400
Los Angeles, CA 90071
Attention: Mr. William A. Dorland
If by Fax: 213-629-9620
Copies of all Notices shall be given to the Manager at the Principal Office.
All Notices shall be given: (1) by personal delivery to the Party; or (2)
by registered or certified mail, return receipt requested; or (3) by electronic
communication ("Fax") followed within 24 hours by acknowledgment of receipt from
the receiving Party. The term "electronic communication" includes but is not
limited to telex and facsimile communication. All Notices shall be effective and
shall be deemed delivered: (1) if by personal delivery, on the date of delivery;
(2) if by electronic communication, on the date the acknowledgment of receipt is
postmarked by the United States Postal Service; and (3) if solely by mail on the
day five (5) days after the date delivered, with postage prepaid and properly
addressed, to the United States Postal Service as shown on the actual Certified
Mail receipt.
A Party may change its address from time to time by notice to the other
Party. Notice to the Management Committee shall be by notice to the Parties as
provided herein.
16.2 Waiver. The failure of a Party to insist on the strict performance of
any provision of this Agreement or to exercise any right, power or remedy upon a
breach hereof shall not constitute a waiver of any provision of this Agreement
or limit that Party's right thereafter to enforce any provision or exercise any
right.
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16.3 Modification. No modification of this Agreement shall be valid unless
made in writing and duly executed by all of the Parties nor, in any event,
through course of dealing, course of performance or usage of trades.
16.4 Governing Law and Jurisdiction. This Agreement shall be governed by
and interpreted in accordance with the internal laws of the State of California.
16.5 Rule Against Perpetuities. If any provision of this Agreement would
violate the rule against perpetuities or some analogous statutory provision, or
any other statutory or common law rule imposing time limits, then such provision
shall continue only until 21 years, less one day, after the death of the last
survivor of the individuals who executed this Agreement.
16.6 Further Assurance. Each of the Parties agrees that it shall take from
time to time such actions and execute such additional instruments as may be
reasonably necessary or convenient to implement and carry out the intent and
purpose of this Agreement.
16.7 Survival of Terms and Conditions. The provisions of this Agreement
shall survive its termination to the full extent necessary for their enforcement
and the protection of the Party in whose favor they run.
16.8 Confidentiality and Public Statements. Except as otherwise provided in
this Section 16.8, the terms and conditions of this Agreement and all data,
reports, records and other information of any kind whatsoever developed or
acquired by any Party in connection with this Joint Venture shall be treated by
the Parties as confidential (hereinafter "confidential information") and no
Party shall reveal or otherwise disclose such confidential information to the
third parties without the prior written consent of the other Parties.
Advertising and promotion materials are to be approved by the Management
Committee prior to their use.
The foregoing restrictions shall not apply to the disclosure of
confidential information to the following Persons on a need to know basis for
Joint Venture purposes, provided that reasonable steps are taken to insure that
such Persons shall also maintain the confidentiality of the confidential
information:
(1) Any Affiliate;
(2) Any Authorized Person;
(3) Any public or private financing agency or institution;
(4) Any contractors or subcontractors that the Parties may engage;
(5) Employees and consultants of the Joint Venture or the Parties;
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(6) Any third party to which a Party contemplates the transfer, sale,
assignment, encumbrance or other disposition of all or part of its Participating
Interest pursuant to Article XV; provided, however, that in any such case only
such confidential information as such third party shall have a legitimate
business need to know shall be disclosed;
(7) Confidential information that otherwise comes into the public domain;
or
(8) Confidential information that is required, in any Party's reasonable
opinion, to be disclosed to any federal, state or local government or
appropriate agencies and departments thereof or that is required, in any Party's
reasonable opinion, to be publicly announced, to the extent required by law,
rules, regulations or order of any such body.
The provisions of this Section 16.8 shall apply during the term of this
Agreement and shall continue to apply to any Party that forfeits, surrenders,
assigns, transfers or otherwise disposes of its Participating Interest for the
two-year period following the date of such occurrence.
Except as otherwise provided herein, no Party to this Agreement shall make
any public announcement or public disclosure with regard to the Joint Venture,
including confidential information without the prior written consent of the
other Parties as to the content and timing of such announcement or disclosure,
which shall not be unreasonably withheld.
16.9 Notice of Claim. Promptly after a Party learns of any event,
condition, circumstance, or a claim relating thereto, that has resulted, or may
result in a claim, liability, or cause of action of any kind against the Joint
Venture, or if any Party is sued or receives notice of a suit on an alleged
claim or cause of action arising out of Joint Venture operations, such Party
shall give notice to the other Parties.
16.10 Entire Agreement. This Agreement, including all attached Exhibits,
contains the entire understanding of the Parties and supersedes all prior
agreements and understandings between the Parties related to the subject matter
hereof.
16.11 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective successors and permitted assigns of
the Parties.
16.12 Memorandum. At the request of any Party, a short form of this
Agreement, which shall not disclose financial information contained herein,
shall be prepared and recorded by the Manager. This Agreement shall not be
recorded.
16.13 Use of Singular and Plural. As used in this Agreement and where the
context so requires, the singular shall be deemed to include the plural and the
plural shall be construed as the singular.
16.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
32
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
NATURAL GAS VEHICLE DEVELOPMENT EcoTrans Aftermarket Corporation
COMPANY INC.
By: /s/ Arthur L. Boschen By: /s/ Wilton E. Miller
----------------------------------- ----------------------------------
Title: Arthur L. Boschen, President Title: Wilton E. Miller, President
33
<PAGE>
AMENDMENT NO. 1 TO
JOINT VENTURE AGREEMENT
This Amendment No. 1 to Joint Venture Agreement (the "Amendment") is made
as of this 14 day of December, 1995, by and between Natural Gas Vehicle
Development Company Inc., a California corporation ("NGVD"), and EcoTrans
Aftermarket Corporation, a California corporation ("ECA"), amending the
Agreement referred to below. Unless otherwise defined herein, all capitalized
terms used herein shall have the same meanings as specified in the Agreement.
RECITALS
WHEREAS, NGVD and ECA are parties to that certain Joint Venture Agreement
dated as of May 1, 1993 (the "Agreement");
WHEREAS, NGVD and ECA desire to amend the Agreement as provided herein.
AGREEMENT
NOW, THEREFORE, NGVD and ECA agree as follows:
1. Section 2.10(1) of the Agreement shall be amended in its entirety to
provide as follows:
"(1) The Joint Venture's Staff will include the Manager, an Operations
Manager (if appointed pursuant to Section 6.5), a controller and such
mechanics, technicians, and support personnel as are necessary to carry out
the business purposes of the Joint Venture efficiently and profitably."
2. Section 5.1 of the Agreement shall be amended in its entirety to provide
as follows:
"5.1 Organization and Composition. The Parties shall conduct the
business of the Joint Venture through a Management Committee, which shall
determine overall policies, objectives, procedures, methods and actions
under this Agreement. NGVD and ECA shall each appoint two members to the
Management Committee; provided, however, that if the Participating
Interests of ECA shall become greater than 50%, but less than 75%, then ECA
shall appoint three members to the Management Committee and NGVD shall
appoint only one member to the
<PAGE>
Management Committee. Each Party may appoint one or more alternates to act
in the absence of a regular member. Any alternate so acting shall be deemed
to be a member. Appointments shall be made or changed by written notice to
the other Party. Each Management Committee member may bring such technical
and other advisors as it deems appropriate to all Management Committee
meetings."
3. Section 5.2 of the Agreement shall be deleted in its entirety through
December 31,1997 and reinstated thereafter.
4. The first sentence of the last paragraph of Section 5.4 of the Agreement
shall be deleted in its entirety.
5. Section 5.6(10) of the Agreement shall be amended in its entirety to
provide as follows:
"(10) Selection of Manager and Controller, subject to the provisions
of Section 6.1; and".
6. Section 6.1 of the Agreement shall be amended in its entirety to provide
as follows:
"6.1 Appointment. For the period commencing on the date hereof and
continuing until December 31,1997, ECA shall be the Manager. From and after
December 31,1997, the Management Committee may, upon review, select a
replacement Manager. The Manager shall have overall, day-to-day
responsibility for all Operations of the Joint Venture, including the
powers and duties set forth in Section 6.2. The Manager shall serve in such
capacity until he resigns or is replaced by the Management Committee. The
Parties direct the Manager to perform the duties of the Manager of the
Joint Venture subject to the terms and conditions of this Agreement. The
Parties agree that at all times the Manager shall be the agent of the Joint
Venture for conducting Operations on behalf of the Joint Venture and for
the performance of such other duties as are imposed on the Manager by the
Parties under or pursuant to the provisions of this Agreement. The Manager
shall consult freely with the Management Committee."
7. Section 6.2(8) of the Agreement shall be amended in its entirety to
provide as follows:
"(8) Preside over all Management Committee meetings and prepare and
maintain minutes of all Management Committee meetings and related
correspondence."
2
<PAGE>
8. A new last sentence shall be added to Section 6.3 of the Agreement as
follows:
"Subject to the approval of the Management Committee, in the event the
Manager engages Affiliates of the Parties to provide services in the
conduct of the Joint Venture and such Affiliates remain as employees of and
are paid by the applicable Party, the Joint Venture shall reimburse the
appropriate Party for all such expenses."
9. Section 6.4 of the Agreement shall be amended in its entirety to provide
as follows:
"6.4 Standard of Care and Liability. The Manager shall conduct the
Operations and perform all of the obligations of Manager in a workmanlike
and commercially reasonable manner, using prudent business judgment for the
benefit of the Joint Venture. The Manager shall not be liable to the
Parties for any action taken or the failure to act in connection with the
duties and powers of the Manager provided herein, except in the case of
gross negligence or willful misconduct."
10. A new Section 6.5 shall be added to the Agreement to provide as
follows:
"6.5 Operations Manager. The Manager may appoint an Operations Manager
to carry out such powers and duties of the Manager as the Manager may
delegate to the Operations Manager. The Operations Manager shall report
directly to the Manager. The Operations Manager shall receive compensation
for the performance of such duties in an amount to be determined by the
Manager with the consent of the Management Committee."
11. Section 12.1 of the Agreement shall be amended in its entirety to
provide as follows:
"12.1 Events of Default. The following events shall constitute events
of default:
(1) Any transfer by a Party of any part of its interest in the
Joint Venture in contravention of the provisions of Article XV;
(2) Failure of a Party to make any portion of an Equity
Contribution when due;
(3) Failure of a Party to perform any other obligation imposed
upon such Party by this Agreement;
3
<PAGE>
(4) Filing of a petition in bankruptcy by or against a Party, or
any person or entity directly or indirectly controlling Party, if such
petition is not withdrawn or dismissed within sixty (60) days after
its filing;
(5) Assignment by a Party, or any person or entity directly or
indirectly controlling Party, for the benefit of creditors; or
(6) Allowance by a Party, or any person or entity directly or
indirectly controlling Party, of the appointment of a receiver or
trustee for all or any part of its property if such receiver or
trustee is not discharged within sixty (60) days after his
appointment.
12. Section 15.5 of the Agreement shall be amended in its entirety to
provide as follows:
"15.5 Insolvency. If any Party, or any person or entity directly or
indirectly controlling Party, commences a voluntary case under the federal
bankruptcy laws or under any other applicable federal or state law relating
to insolvency, if any order for relief or similar determination is entered
in an involuntary case under the federal bankruptcy laws or any other
federal or state law relating to insolvency, or if a receiver, liquidator,
assignee, trustee, custodian or other similar person is appointed,
voluntarily or involuntarily, for the assets of any Party, or any person or
entity directly or indirectly Party, then such Party (the "Insolvent
Party") shall cease to have the right to participate in the management of
the Joint Venture, and the Joint Venture thereafter shall be managed by the
other Party. In continuing to manage the Joint Venture, the other Party
shall have absolute discretion and no action taken by such other Party
shall subject such other Party to a claim for any breach of duty, on the
ground of conflict of interest, negligence or any other theory, except
fraud or gross negligence. Any transfer, sale, assignment, pledge or other
encumbrance or disposition of the Insolvent Party's interest in the Joint
Venture by a trustee, debtor-in-possession or custodian shall be subject to
the provisions of Section 15.3."
13. Unless the context otherwise requires, all references to the Agreement
shall mean the Agreement as amended hereby.
14. This Amendment may be executed in one or more counterparts, all of
which taken together shall constitute one agreement and any party hereto may
execute this Amendment by signing any such counterpart.
4
<PAGE>
15. Except as provided herein, all provisions, terms and conditions of the
Agreement shall remain in full force and effect. As amended hereby, the
Agreement is ratified and confirmed in all respects.
IN WITNESS WHEREOF, NGVD and ECA have caused this Amendment to be executed
and delivered by their duly authorized officers as of the day and year first
above written.
NATURAL GAS VEHICLE DEVELOPMENT
COMPANY, a California corporation
By /s/ John R. Bacon
-------------------------------------
Title: President
ECOTRANS AFTERMARKET CORPORATION,
a California corporation
By /s/ [Illegible]
-------------------------------------
Title: Vice President
5
<PAGE>
AMENDMENT NO. 2
TO
JOINT VENTURE AGREEMENT
This Amendment No. 2 to Joint Venture Agreement (the "Amendment") is
made and shall become eftective as of the first day of January, 1996, by and
among Natural Gas Vehicle Development Company, a California corporation
("NGVD"), EcoTrans OEM Corporation, a California corporation ("OEM", formerly
known as EcoTrans Aftermarket Corporation), and Cardinal Automotive Incorporated
("CAI"). Unless otherwise specified herein, all references are to the Agreement
(as defined in the first paragraph of the Recitals) and initially capitalized
terms used herein shall have the same meanings as specified in the Agreement
RECITALS
WHEREAS, NGVD and OEM's predecessor in interest, EcoTrans Aftermarket
Corporation, are Parties to the Joint Venture Agreement dated as of May 1, 1993,
as amended by Amendment No. 1, dated as of December 14, 1995 (as so amended, the
"Agreement");
WHEREAS, CAI wishes to become, and NGVD and OEM wish to admit CAI as,
a member of the Joint Venture and a Party to the Agreement on the terms and
conditlons specified in this Amendment;
WHEREAS, OEM and CAI wish to make further contributions to the capital
of the Joint Venture on the terms and conditions specified in this Amendment,
resulting in a corresponding adjustment to the interests of all Parties so that
NGVD will have a 35% interest, CAI will have a 15% interest, and OEM will have a
50% interest; and
WHEREAS, NGVD, CAI and OEM desire to make conforming amendments to the
Agreement and to continue the business of the Joint Venture as a Limited
Liability Company organized under the laws of Delaware.
AGREEMENT
NOW, THEREFORE, NGVD, OEM and CAI agree as follows:
1. Article I is amended by adding the following definitions
"1.32 "CAI" means Cardinal Automotive Incorporated, a Michigan
corporation.
1.33 "OEM" means EcoTrans OEM Corporation, a CAIifornia
corporation, formerly known as "EcoTrans Aftermarket Corporation" or "ECA",
with its principal offices at 555 West Fifth Street, Los Angeles,
CAIifornia 90013-1011."
2. Substitute "OEM" for "ECA" throughout the Agreement.
3. Section 2.1 of Article II is amended in its entirety to provide as
follows:
"2.1 Reorganization as a Limited Liability Company.
<PAGE>
(a) The Parties hereby reorganize the Joint Venture as a
limited liability company under the laws of the State of Delaware for the
limited purposes and scope set forth herein. Such reorganization shall be
effective as of January 1, 1996, or as soon thereafter as a Certificate of
Formation has been duly filed in the Office of the Secretary of State of
Delaware in the form required by law. The parties intend that the Joint
Venture continue to be construed as a partnership or "flow through" tax
organization for purposes of federal, state and other taxes.
(b) The Joint Venture shall possess and may exercise all the
powers and privileges granted under, and its internal affairs shall be
governed by, the laws of Delaware pertaining to limited liability
companies, except as expressly limited by this Agreement.
(c) The liability of each Party for daims and obligations
relating to the Joint Venture and its activities is expressly limited to
its Equity Contribution to the fullest extent permitted by law. Without its
express written consent, upon the making of its Equity Contribution no
Party shall be required, through arbitration or otherwise, to make any
additional contributions, advances or loans to, or to pay or guarantee any
obligations or indebtedness of, the Joint Venture except as expressly
provided in Article XIII of this Agreement
(d) As is more fully specified in Section 6.1, OEM's
designated representative shall act as Manager of the Joint Venture until
resignation or replacement.
(e) The Assets shall be held in the Joint Venture name and
not in the names of the individual Parties, and no Party shall have any
individual ownership in such property except for its property rights as a
Party to this Joint Venture.
(f) All agreements, permits and transactions regarding the
Assets shall be executed and performed by the Joint Venture in its own name
and not in the names of the individual Parties.
(g) The Joint Venture shall operate in accordance with the
terms and conditions of this Agreement."
4. Section 2.2 of Article II is amended by the addition of the
following first sentence:
"2.2 Name and Principal Place of Business The name of the Joint
Venture shall be 'NGV EcoTrans Group, L.L.C."
5. Article III is amended by adding the following sections
"3.7 OEM's Additional Contributions. Prior to January 10, 1996,
OEM shall deliver to the capital of the Joint Venture the in-kind
contributions described on Schedule 1, which is attached hereto and
incorporated by reference herein as though fully set forth. Such in-kind
contributions have an agreed value in excess of $200,000 and shall be free
and clear of all liens and encumbrances, except as specified on Schedule 1.
3.8 CAI's Contributions. Prior to January 10, 1996, CAI shall
deliver to the capital of the Joint Venture the in-kind contributions
described on Schedule 2, which is attached hereto and incorporated by
reference herein as though fully set forth. Such nkind contributions have
an agreed value in excess of $200,000 and shall be free and clear of all
liens and encumbrances, except as specified on Schedule 2."
2
<PAGE>
6. Section 4.1 of Article IV is amended in its entirety to provide as
follows:
"4.1 Participating Interests. The Participating Interests of the
Parties in the profits, losses and assets of the Joint Venture shall be:
NGVD: Thirty-Five Percent (35%)
CAI: Fifteen Percent (15%)
OEM: Fifty Percent (50%)"
7. Section 5.1 of Article V is amended in its entirety to provide as
follows:
"5.1 Organization and Composition. The Parties shall conduct the
business of the Joint Venture thmugh a Management Committee, which shall
determine overall policies, objectives, procedures, methods and actions
under this Agreement. NGVD and OEM shall each appoint two members to the
Management Committee and CAI shall appoint one member. Each Party may
appoint one or more alternates to act in the absence of a regular member.
Any alternate so acting shall be deemed to be a member. Appointments shall
be made or changed by written notice to the other Parties. Each Management
Committee member may bring such techniCAI and other advisors as it deems
appropriate to all Management Committee meetings."
8. Section 5.2 of Article V is deleted in its entirety.
9. Section 5.3 and the first two paragraphs of Section 5.4 of Article
V are amended in their entirety to provide as follows:
"5.3 Decisions. Each Party shall vote and act through its
appointed members on the Management Committee, unless otherwise provided in
this Agreement. Decisions made by the Management Committee shall be by a
vote of sixty-five percent (65%) of the Participating Interests of the
Joint Venture. In the event of an impasse having a materially adverse
effect on Joint Venture operations, the matter shall be determined by
binding arbitration in accordance with Section 12.4; provided, however,
that, without its express written consent, no Party shall be required,
through arbitration or otherwise, to make any additional contributions,
advances or loans to, or to pay or guarantee any obligations or
indebtedness of, the Joint Venture except as expressly provided in this
Agreement.
5.4 Meetings. Unless otherwise agreed, the Manager shall give the
Parties thirty (30) days notice of meetings of the Management Committee,
but receipt by all Parties of such thirty (30) day notice shall not be a
prerequisite for the holding of a regular meeting. Any Party may call a
special meeting upon ten (10) days notice to the other Parties. In case of
emergency, reasonable notice shall suffice.
Notice may be waived by the written consent of the Management
Committee members. A quorum for any meeting shall consist of one member
representing each Party. However, if any Party fails to attend two
consecutive properly called meetings, then a quorum shall consist of the
member or members representing the other Party(s) and such Party(s) vote
shall be considered the vote required by Section 5.3 for the purposes of
the conduct of all business properly noticed."
10. Section 6.1 of Article VI is amended in its entirety to provide as
follows:
"6.1 Appointment. OEM shall designate one of its representatives
as Manager. The Manager shall have overall, day-to-day responsibility for
all
3
<PAGE>
Operations of the Joint Venture, including the powers and duties set forth
in Section 6.2. The Manager shall serve in such capacity until resignation,
replacement by OEM or replacement by vote of the Management Committee in
accordance with Section 5.3 of this Agreement. The Parties direct the
Manager to perform the duties of Manager of the Joint Venture subject to
the terms and conditions of this Agreement. The Parties agree that at all
times the Manager shall be the agent of the Joint Venture for conducting
Operations on behalf of the Joint Venture and for the performance of such
other duties as are imposed on the Manager by the Parties under or pursuant
to the provisions of this Agreement. The Manager shall consult freely with
the Management Committee."
11. Article X, Insurance, is amended by substituting "NGVD, CAI and
OEM" for "NGVD and ECA" throughout.
12. Section 12.6 of Article XII is amended in its entirety to provide
as follows:
"12.6 Non-Recourse Obligations
(a) All obligations of OEM hereunder shall be the sole
responsibility of OEM and, in the absence of any express written assumption
thereof, neither NGVD, CAI nor any person or entity on behalf of any of
them shall have any recourse to any person or entity other than OEM
(including, but not limited to OEM's shareholders, officers, directors or
employees or its affiliates) for any breach by or liability of OEM arising
out of this Agreement. Without diminishing the generality of the foregoing,
the parties agree that Southern California Gas Company and Pacific
Enterprises shall have no obligations or liabilities whatsoever under, or
arising out of, this Agreement.
(b) All obligations of NGVD hereunder shall be the sole
responsibility of NGVD and, in the absence of any express written
assumption thereof, neither OEM, CAI nor any person or entity on behalf of
any of them shall have any recourse to any person or entity other than NGVD
(including, but not limited to NGVD's shareholders, officers, directors or
employees or its affiliates) for any breach by or liability of NGVD arising
out of this Agreement.
(c) All obligations of CAI hereunder shall be the sole
responsibility of CAI and, in the absence of any express written assumption
thereof, neither OEM, NGVD nor any person or entity on behalf of any of
them shall have any recourse to any person or entity other than CAI
(including, but not limited to CAI's shareholders, officers, directors or
employees or its affiliates) for any breach by or liability of CAI arising
out of this Agreement."
13. Article XII, Indemnification, is amended in its entirety to
provide as follows:
"13.1 Indemnification of Manager by Joint Venture. The Joint
Venture shall indemnify, defend and hold harmless the Manager and the Party
designating the Manager (including such Party's officers, directors,
employees and agents) from any and all claims, expenses, costs (including
reasonable attorneys fees), loss and liability arising out of or connected
with Manager's performance under this Agreement, provided that Manager was
acting in good faith and in what (s)he believed to be the best interests of
the Joint Venture.
13.2 Indemnification of Joint Venture by Party Designating
Manager. The Party designating the Manager shall indemnify, defend and hold
harmless the Joint Venture from any and all claims, expenses, costs
(including reasonable attorneys fees), loss and liability arising out of or
connected with Manager's failure to
4
<PAGE>
act in good faith and in what (s)he believed to be the best interests of
the Joint Venture.
13.3 Indemnification of Joint Venture by all Parties. Each Party
shall indemnify, defend and hold harmless the Joint Venture and the other
Parties from any and all claims, expenses, costs (including reasonable
attorneys fees), loss and liability arising out of or connected with the
Joint Venture caused by the gross negligence, willful misconduct, breach of
warranty, or unauthorized binding of the Joint Venture to an obligation by
such Party or its Affiliate; provided that this provision shall not extend
to claims, expenses, costs, loss and liability arising out of the provision
of products by a Party or Affiliate which are used by the Joint Venture in
the conversion of vehicles to natural gas power, as such products are
covered by separate warranties.
13.4 Additional Provisions. The obligations of the Parties
pursuant to the provisions of Sections 13.1, 13.2 and 13.3 are subject to
the following additional rights and limitations:
13.4.1 The indemnification provided for by this Article XIII
available to a Party shall extend to an Affiliate of that Party with
respect to claims, expenses, costs (including reasonable attorneys fees),
loss and liability arising out of a Joint Venture liability or obligation
that is paid by or incurred by such Affiliate solely as a result of such
Affiliate directly or indirectly owning or controlling the Party.
13.4.2 The indemnification provided for by this Article XIII
shall not inure to the benefit of any Party or Affiliate in respect of any
claims, expenses, costs (including reasonable attorneys fees), loss or
liability to the extent that they
(a) Are a tax, levy or similar fee or governmental
charge which is not imposed upon the Joint Venture or upon its Assets;
(b) Arise out of, or is based upon, the gross
negligence, willful misconduct, breach of warranty, or unauthorized binding
of the Joint Venture to an obligation by the Party or Affiliate seeing to
be indemnified;
(c) Are covered by the insurance (exclusive of
self-insurance) of the Party or Affiliate seeking to be to be indemnified."
14. Section 14.1 of Article XIV is amended in its entirety to provide
as follows:
"14.1 The Joint Venture is dissolved and its affairs shall be
wound up upon the first to occur of the following:
14.1.1 Termination by Agreement. The Parties may dissolve
this Joint Venture at any Ume by written agreement.
14.1.2 Termination by Expiration. The Joint Venture shall be
dissolved on January 1, 2026, unless, to the extent permitted by law, the
business of the Joint Venture is continued by the consent of all Parties.
14.1.3 Termination by Disability. The Joint Venture shall be
dissolved upon the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Party or the occurrence of any other event which
terminates the continued membership of a Party in the Joint Venture unless
the business of the Joint Venture is continued by the consent of all the
remaining Parties within ninety (90) days following the occurrence of any
such event.
5
<PAGE>
14.1.4 Termination by Arbitration Decision or Judicial
Decree. The Joint Venture shall be dissolved for cause pursuant to
applicable law, if requested by a Party and required by a duly issued
decision of a board of arbitrators properly convened pursuant to Section
12.4 or ordered by a court of competent jurisdiction."
15. Section 15.1 of Article XV shall be amended in its entirety to
provide as follows:
"15.1 Consent to Transfer Participating Interest. Upon the
written consent of the remaining Parties, a Party may assign or transfer
all or a portion of its interest in the Joint Venture and the assignee or
transferee shall become a substitute member of the Joint Venture.
Notwithstanding the foregoing, a Party may grant a security interest in its
Participating Interest by mortgage, deed of trust, pledge, lien or other
encumbrance in a bona fide transaction, provided that, except as may be
agreed by the remaining Parties, such security interest is subordinate to
the terms of this Agreement and the rights and interests of the other
Parties hereunder and that upon any foreclosure or other enforcement of
rights in the security interest, the acquiring third party shall be deemed
to acquire only the right to receive any distributions from the Joint
Venture to which the transferring party would be entitled (absent such
security interest) and shall not thereby have any right to participate in
the management or operation of the Joint Venture through membership in the
Management Committee or otherwise."
16. Article XV, Transfer of Interest, is further amended by deleting
clause (5) of Section 15.2 and deleting Sections 15.3, Preemptive Right, and
15.4, Exceptions to Preemptive Right.
17. Section 16.1, Notices, of Article XVI is amended by Substituting
the name "Mr. John Weber" for that of "Mr. Detlef Stevenson" and by adding the
following address for notice for CAI:
"Cardinal Automotive Incorporated
7200 FIFTEEN MILE RD.
STERLING HEIGHTS MI
48312-4525
If by Fax: 810-268-6488"
18. Unless the context otherwise requires, all references to the
Agreement shall mean the Agreement as amended hereby and all references in the
Agreement to the singular shall include the plural and vice versa.
19. This Amendment may be executed in one or more counterparts, all of
which taken together shall constitute one agreement any Party may execute this
Amendment by signing any such counterpart.
20. Except as provided herein, all provisions, terms and conditions of
the Agreement, as previously amended, shall remain in full force and effect. As
hereby amended, the Agreement is ratified and confirmed in all respects.
6
<PAGE>
IN WITNESS WHEREOF, NGVD, CAI and OEM have caused this Amendment to be
executed and delivered by their duly authorized officers this __ day of
December, 1995, provided that this Amendment shall become eftective as of the
first Day of January, 1996.
NATURAL GAS VEHICLE CARDINAL AUTOMOTIVE
DEVELOPMENT COMPANY, INCORPORATED,
a corporation a corporation
By /s/ John R. Bacon By /s/ Todd W. Rogers
--------------------------- --------------------------
Title President Title President
------------------------ -----------------------
ECOTRANS OEM CORPORATION,
a corporation
By Warren I. Mitchell
---------------------------
Title President
------------------------
Attachments: Schedule 1 - Additional Capital Contribution of OEM (Section 3.7)
Schedule 2 - Additional Capital Contribution of CAI (Section 3.8)
7
<PAGE>
[STAMP]
December 20, 1995 RECEIVED
DEC 20 1995
To: John Bacon, Todd Rogers, John Weber
From: Ron Smith
Subject: Changes to Amendment 2
The following represent changes to Amendment 2 following yesterday's meeting
between John Bacon and John Weber.
References to "Manager" are clarified so as to refer to OEM's Designated
Manager, and Individual. (2.1(d), 8.1, 13.1 and 13.2)
5.1 has been amended to limit CAI to one Management Committee member.
5.2 is expressly deleted (under Amendment 1, it would "spring" into
validity in 1997)
14.1.4 has been clarified
18 defines singular to include the plural, to cover the many references
in the JV to the "other Party."
If there is any questions or concerns please let me know by pager 213-968-6162.
<PAGE>
AMENDMENT NO.3
TO
JOINT VENTURE AGREEMENT
This Amendment No.3 to Joint Venture Agreement (the "Amendment") is
made and shall become effective as of the first day of January, 1996, by and
among Natural Gas Vehicle Development Company, a California corporation
("NGVD"), EcoTrans OEM Corporation, a California corporation ("OEM", formerly
known as EcoTrans Aftermarket Corporation), and Cardinal Automotive Incorporated
("CAI").
RECITALS
WHEREAS, NGVD, OEM and CAI have entered into Amendment No. 2, dated as
of January 1, 1996 ("Amendment 2"), which amends that certain Joint Venture
Agrement dated as of May 1, 1993, as previously amended (as so amended, the
"JVA" or "Agreement"); and
WHEREAS, NGVD, OEM and CAI desire to further clarify Amendment 2.
AGREEMENT
NOW, THEREFORE, NGVD, OEM and CAI agree as follows:
1. Section 9 of Amendment 2 (amending Section 5.3 of the JVA) is amended by
substituting "unanimous vote" for "vote of sixty-five percent (65%)".
2. Section 10 of Amendment 2 (amending Section 6.1 of the JVA) is amended by
rephrasing the first sentence of Section 6.1 of the Agreement, as thereby
amended, to provide as follows:
"OEM shall designate one of its representatives as Manager, to serve
for an initial term of three (3) years, through January 1, 1999,
whereupon the Management Committee will have the right to approve the
Manager by unanimous vote in accordance with Section 5.3 of this
Agreement."
3. Section 13 of Amendment 2 (amending Article XIII of the JVA) is amended by
deleting the proviso "as such products are covered by separate warranties"
at the end of Section 13.3 and adding the following provision as
Section 13.4.3:
"13.4.3 Neither a Party nor the Joint Venture shall be liable by
reason of this Article XIII for any claims, expenses, costs, loss or
liability arising out of the provision of products by such Party or an
Affiliate or by the Joint Venture which are used by the Joint Venture
in the conversion of vehicles to natural gas power; provided that
nothing herein shall deprive a Party, an Affiliate, the Joint Venture,
or any other natural person or entity of remedies to which it would be
entitled in the absence of the foregoing provisions of this Article
XIII."
<PAGE>
4. Section 15 of Amendment 2 (amending Section 15.1 of the JVA) is modified by
amending tne first sentence thereof to provide as follows:
"Upon the written consent of the remaining Parties, which shall not be
unreasonably withheld, a Party may assign or transfer all or a portion
of its interest in the Joint Venture, and the assignee or transferee
shall become a substitute member of the Joint Venture."
5. Section 16 of Amendment 2 (further amending Article XV of the JVA), is
amended to reinstate the preemptive rights of the Parties (in proportion to
their Participating Interests) by amending that section to provide as
follows:
"16. Article XV, Transfer of Interest, is further amended by deleting
clause (5) of Section 15.2."
6. Section 17 of Amendment 2 (amending Section 16.1 of the JVA) is amended by
adding the following addresses for notice:
Cardinal Automotive Incorporated
Attn: Mr. Todd Rogers, President
7200 Fifteen Mile Road
Sterling Heights, MI 48312-4525
If by fax: (810) 268-6488
Natural Gas Vehicle Development Company
Attn: Mr. John R. Bacon, President
5580 Cherry Avenue
Long Beach, CA 90805
If by fax: (310) 630-1382
7. Attached hereto are corrected Schedules 1 and 2, which shall be inserted in
the Agreement as attachments to Amendment 2.
8. This Amendment may be executed in one or more counterparts, all of which
taken together shall constitute one agreement. Any Party may execute this
Amendment by signing any such counterpart.
9. Except as provided herein, all provisions, terms and conditions of the
Agreement, as previously amended, shall remain in full force and effect. As
hereby amended, the Agreement is ratified and confirmed in all respects.
2
<PAGE>
IN WITNESS WHEREOF, NGVD, CAI and OEM have caused this Amendment to be
executed and delivered by their duly authorized officers this ___ day of
December, 1995, provided that Amendment 2, as modified by this Amendment, shall
become effective as of the first day of January, 1996.
NATURAL GAS VEHICLE CARDINAL AUTOMOTIVE
DEVELOPMENT COMPANY, INCORPORATED,
a corporation a corporation
By /s/ John R. Bacon By /s/ Todd W. Rogers
--------------------------- --------------------------
Title President Title President
------------------------ -----------------------
ECOTRANS OEM
CORPORATION,
a corporation
By John Weber
---------------------------
Title Vice President
------------------------
3
<PAGE>
SCHEDULE 1
OEM EQUITY CONTRIBUTION
1. Fixtures and assets in building #3 or NGV Ecotrans' building that remain on
loan. Estimated value $200,000.
A. Cylinder hoists in both buildings
B. Vehicle hoists totaling 6 and located in both buildings
C. Computer systems including CAD systems located in both buildings
D. Phones and furniture located in both buildings
E. Gasoline siphoning pump system (pumps, piping, installation and permits)
F. Air Compressor, FRLs and auxiliary lines installed in 1994 and 1995
in bldg. #3
G. Roll up doors on the dyno area in building #3
H. New forklift converted to natural gas
<PAGE>
SCHEDULE 2
CARDINAL EQUITY CONTRIBUTION
1. Current backlog in excess of $1.5 million and 3% net profit of $45,000.
2. Expertise and goodwill established in S. California at $50K.
A. Established ship-to codes for 2424E. Olympic Blvd.
B. Experience and rapport established with a different set of customers
than NGV Ecotrans.
C. Industry recognition, Chrysler's Penastar quality award and resulting
Business from Chrysler for Cardinal - Western Operations. Ford's QVM
approval in Detroit.
D. Already established as an Impco/GM qualified upfitter through Feb. 1994
with the former GM program.
3. Current management and production philosophies at $50K.
4. Cardinal assets estimated at less than $50K.
<PAGE>
[LETTERHEAD OF LINDABURY, McCORMICK & ESTABROOK]
December 28, 1995
Via Facsimile
Mr. William Dorland
Pacific Enterprises Companies
P.O. Box 60043
M.L. 52M
Los Angeles, California 90060
Re: Natural Gas Vehicle Development Company, Inc.
Dear Mr. Dorland:
Please be advised that John Bacon has signed the Amendment No. 3 (the
"Amendment") to Joint Venture Agreement with one minor clarification. Paragraph
3 of the Amendment has been amended to read as follows:
"Section 13 of Amendment 2 (amending Article XIII of the JVA) is amended by
deleting the proviso. 'as such products are covered by separate warraties',
at the end of Section 13.3 and adding the following provision as Section
13.4.3:..."
If you have any questions, please do not hesitate to contact me.
Unfortunately, I will be out of the office for the remainder of Thursday,
December 28, 1995, but I will be in my office tomorrow. Thank you.
Very truly yours,
LINDABURY, McCORMICK & ESTABROOK
/s/ Colleen D. Brennan
Colleen D. Brennan
CDB:ms
CC: John Bacon
AMENDMENT TO
LOAN AND SECURITY AGREEMENT
(Originally dated as of March 8, 1996)
THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT (hereinafter referred to as
the "Amendment") is made and entered into as of the 21st day of May, 1996, by
and among NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware corporation, having its
principal place of business at 5580 Cherry Avenue, Long Beach, California 90805
(together with its successors and assigns, hereinafter referred to as the
"Borrower") and CAITHNESS CORPORATION, a Delaware corporation, having its
principal place of business at 1114 Avenue of the Americas, 35th Floor, New
York, New York 10036 (together with its successors and assigns, hereinafter
referred to as the "Lender").
RECITALS OF FACT AND PURPOSE:
A. The Borrower and Lender have entered into a certain Loan and Security
Agreement dated as of March 8, 1996 (hereinafter referred to as the "Loan
Agreement"), whereby the Lender agreed to arrange for a standby letter of credit
to be issued by The Bank of New York on account of the Borrower for the benefit
of Alcoa (as defined in the Loan Agreement) in the principal amount of SIX
HUNDRED THOUSAND DOLLARS ($600,000.00).
B. Certain of the recitals and provisions of the Loan Agreement refer to
the Lender providing said letter of credit directly.
C. The Borrower and Lender desire to clarify the recitals and terms of the
Loan Agreement to reflect the agreement between the parties as recited in A
above.
NOW, THEREFORE, in consideration of the facts recited hereinabove, as well
as the mutual promises and covenants set forth herein, and desiring to be
legally bound hereby, the parties hereto agree as follows:
1. Capitalized terms used but not defined in this Amendment shall have the
meanings ascribed to them in the Loan Agreement, unless a different meaning is
clearly required by the context hereof.
2. The second and third recitals of the Loan Agreement are hereby deleted
and replaced with the following:
WHEREAS, the Borrower has requested that the Lender provide its credit in
order to induce the Bank of New York to issue an irrevocable standby letter
of credit on the Borrower's behalf for the benefit of Alcoa in order to
support the purchase of aluminum tube stock from Alcoa by the Borrower as
aforesaid;
WHEREAS, the Lender has agreed to provide its credit in order to induce the
Bank of New York to provide the Letter of Credit for the benefit of Alcoa
in the
<PAGE>
maximum principal amount of SIX HUNDRED THOUSAND DOLLARS ($600,000.00) in
accordance with the terms and provisions of this Agreement.
3. All references made in the Loan Agreement to the Lender providing the
Letter of Credit directly shall be amended to state that the Lender has provided
its credit in order to induce the Bank of New York to establish the Letter of
Credit on Borrower's behalf for the benefit of Alcoa.
4. The Borrower hereby affirms that all representations and warranties made
by it in the Loan Agreement, continue to be true, accurate, and complete as of
the date of this Amendment, with the same effect as if such representations and
warranties were made on the date hereof.
5. From and after the execution hereof, all references to the "Loan
Agreement," whether or not defined as such, in the Loan Agreement or in any of
the Loan Documents, shall be deemed to be references to the Loan Agreement as
amended by this Amendment.
6. This Amendment has been duly executed and validly delivered by the
parties hereto, and constitutes the legal, valid, and binding obligations of the
parties hereto, enforceable against them in accordance with its terms.
7. Except to the extent expressly amended hereby (in which case the terms
hereof shall prevail) the various terms and provisions of the Loan Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
on the date and year first written above.
NATURAL GAS VEHICLE SYSTEMS, INC.
a Delaware corporation, as Borrower
By: /s/ John R. Bacon
-------------------------------------
John R. Bacon, President
CAITHNESS CORPORATION
a Delaware corporation, as Lender
By:
-------------------------------------
Christopher T. McCallion, Executive
Vice-President
Page 2
<PAGE>
maximum principal amount of SIX HUNDRED THOUSAND DOLLARS ($600,000.00) in
accordance with the terms and provisions of this Agreement.
3. All references made in the Loan Agreement to the Lender providing the
Letter of Credit directly shall be amended to state that the Lender has provided
its credit in order to induce the Bank of New York to establish the Letter of
Credit on Borrower's behalf for the benefit of Alcoa.
4. The Borrower hereby affirms that all representations and warranties made
by it in the Loan Agreement, continue to be true, accurate, and complete as of
the date of this Amendment, with the same effect as if such representations and
warranties were made on the date hereof.
5. From and after the execution hereof, all references to the "Loan
Agreement," whether or not defined as such, in the Loan Agreement or in any of
the Loan Documents, shall be deemed to be references to the Loan Agreement as
amended by this Amendment.
6. This Amendment has been duly executed and validly delivered by the
parties hereto, and constitutes the legal, valid, and binding obligations of the
parties hereto, enforceable against them in accordance with its terms.
7. Except to the extent expressly amended hereby (in which case the terms
hereof shall prevail) the various terms and provisions of the Loan Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
on the date and year first written above.
NATURAL GAS VEHICLE SYSTEMS, INC.
a Delaware corporation, as Borrower
By:
-------------------------------------
John R. Bacon, President
CAITHNESS CORPORATION
a Delaware corporation, as Lender
By: /s/ Christopher T. McCallion
-------------------------------------
Christopher T. McCallion, Executive
Vice-President
Page 2
<PAGE>
THIS LOAN AND SECURITY AGREEMENT (together with any written amendments,
supplements or modifications hereof or hereto from time to time, hereinafter
referred to as the "Agreement"), is dated as of March 8, 1996, by and between
NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware corporation, having its principal
place of business at 5580 Cherry Avenue, Long Beach, California 90805 (together
with its successors and assigns, hereinafter referred to as the "Borrower") and
CAITHNESS CORPORATION, a Delaware corporation, having its principal place of
business at 1114 Avenue of the Americas, 35th Floor, New York, New York 10036
(together with its successors and assigns, hereinafter referred to as the
"Lender").
WITNESSETH
WHEREAS, the Borrower purchases aluminum tube stock from Aluminum Company
of America, 17800 Castleton Street, Suite 403, City of Industry, California
91748 ("Alcoa") pursuant to credit arrangements established by Alcoa which
require that Borrower establish and maintain or cause to be established and
maintained a letter of credit for the benefit of Alcoa;
WHEREAS, the Borrower has requested that the Lender establish on its behalf
an irrevocable standby letter of credit (hereinafter referred to as the "Letter
of Credit") for the benefit of Alcoa in order to support the purchase of
aluminum tube stock from Alcoa by the Borrower as aforesaid;
WHEREAS, the Lender has agreed to provide the Letter of Credit for the
benefit of Alcoa in the maximum principal amount of SIX HUNDRED THOUSAND DOLLARS
($600,000.00) in accordance with the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the Lender's willingness to make the
Loan to the Borrower, and the Borrower's willingness to perform the duties of
payment and performance set forth in this Agreement, as well as the mutual
promises and covenants set forth herein, and desiring to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I -- DEFINITIONS
In this Agreement, unless a different meaning clearly appears from the
context, the following terms shall have the meanings herein specified:
"Account" or "Accounts" means the accounts of the Borrower, whether now
existing or hereafter arising, wherever so located, including without
limitation, all accounts receivable and contract rights and any other rights to
payment for goods sold or services rendered which are not evidenced by an
instrument or chattel paper, whether or not such rights have been earned by
performance.
"Account Debtor" means any Person liable for payment of any Account,
General Intangible, Instrument of Chattel Paper including any "account debtor"
as defined in the UCC.
"Advance" or "Advances" shall have the meaning ascribed in Section 2.1 (A)
of this Agreement.
<PAGE>
"Advances Limit" shall have the meaning ascribed in Section 2.1(A) of this
Agreement.
"Agreement" means this Loan and Security Agreement and any written
amendments, modifications and supplements thereto made in conformity herewith.
"Assignments" means the assignments of Accounts executed and delivered from
time to time by the Borrower to the Lender and on forms satisfactory to the
Lender.
"The Bank of New York Rate" means the prime rate of interest charged by The
Bank of New York pursuant to the Letter of Credit.
"Bankruptcy Code" shall mean Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time and any successor statute or
statutes.
"Borrower" shall have the meaning provided in the Preamble of this
Agreement.
"Business Day" shall mean any day excluding Saturday, Sunday and any day
which shall be in California a legal holiday or a day on which banking
institutions are authorized or required by law-or other government action to
close.
"Capitalized Lease" shall mean, with respect to any Person, (i) any lease
of property, real or personal, the obligations under which are capitalized on
the balance sheet of such Person, and (ii) any other such lease to the extent
that the then present value of the minimum rental commitment thereunder should,
in accordance with GAAP, be capitalized on a balance sheet of such person.
"Capitalized Obligations" shall mean, with respect to any Person, all
obligations of such person under or in respect of Capitalized Leases.
"Cash Collateral Accounts" shall mean any and all deposit account(s)
established or maintained pursuant to the Cash Collateral Agreement.
"Cash Collateral Agreement" shall have the meaning provided in Section 3.1
(A)(iv) of this Agreement.
"Closing Date" shall mean the date on which this Agreement is executed and
delivered by the Lender and the Borrower.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute, and all regulations, pronouncements or
rulings issued in connection therewith.
"Collateral" means Receivables; Machinery, Furniture, Fixtures and
Equipment; General Intangibles; Contract Rights and all other collateral
security established for the benefit of the Lender under the Loan Documents.
-2-
<PAGE>
"Contract Rights" shall mean and include all of Borrower's contract rights,
instruments, documents (including royalty and license agreements), chattel paper
(as all of the foregoing are defined in the UCC), whether secured or unsecured,
now existing or hereafter created and whether or not specifically assigned the
Lender.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Default Rate" shall have the meaning provided in Section 2.4.
"Event of Default" shall have the meaning provided in Section 7.1 of this
Agreement.
"Fiscal Year" means, with respect to the Borrower, each twelve month period
ending on the 31 St day of each December arising during the term of the Loan.
"GAAP" shall mean United States generally accepted accounting principles as
in effect from time to time.
"General Intangibles" shall have the meaning provided in the UCC, and shall
include, without limitation of the generality of the foregoing, customer lists
of the Borrower now existing or hereafter created.
"Indebtedness" includes all items that in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet as at the date as of which debt is to be determined, or to which
reference should be made by footnotes thereto, but also includes reimbursement
obligations, guaranties, endorsements (other than endorsements for collection or
deposit in the ordinary course of business), and other contingent obligations in
respect of, or to purchase or otherwise acquire or advance funds on account of
or otherwise service, obligations of others.
"Interest Rate" means The Bank of New York Rate plus two percent (2.0%) per
annum.
"Letter of Credit" shall mean that irrevocable standby letter of credit
issued by The Bank of New York, on account of the Borrower for the benefit of
Alcoa, as more particularly described in Exhibit I annexed hereto and made a
part hereof.
"Lien" shall mean any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same effect an
any of the foregoing and the filing of any financing statement or similar
instrument under the UCC or comparable law of any jurisdiction, domestic or
foreign.
-3-
<PAGE>
"Loan" means the aggregate unpaid principal balance of any Advances or
Advances, together with accrued interest thereon, plus the Transaction Costs
paid or accrued by the Lender from time to time.
"Loan Balance" shall have the meaning ascribed in Section 2.1(B).
"Loan Documents" means this Agreement, together with all Exhibits hereto,
the Assignments, the Note, the Cash Collateral Agreement, the Lock Box
Agreement, and all other documents or instruments executed and/or delivered
hereunder or thereunder or in connection herewith or therewith from time to
time.
"Lock Box Agreement" shall have the meaning provided in Section 3.l(A)(vi)
of this Agreement.
"Machinery, Equipment, Furniture and Fixtures" means all of the Borrower's
now owned or hereafter acquired machinery, equipment, furniture, fixtures,
furnishings, and all tangible personal property similar to any of the foregoing
including, without limitation fixtures, together with tools, machine parts, all
supplies used or consumed in the operation of any of the above items, and all
improvements, accessions, or appurtenances thereto, and any Proceeds, including
insurance Proceeds, thereof.
"Material Adverse Effect" shall mean a material adverse effect upon (i) the
business, operations, properties, assets, prospects or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole, or the
ability of the Borrower to perform, or of the Lender to enforce, any of the
Obligations.
"Note" means the promissory note in the maximum principal amount of
$600,000.00 executed and delivered by the Borrower to the Lender on the Closing
Date.
"Obligations" means (A) the full and timely payment of all amounts due
under the Note and the other Loan Documents, when and as same shall become due
in accordance with the terms hereof and thereof; and (B) the due and timely
performance of all obligations and observance of all covenants of the Borrower
thereunder and under the Note; and (C) the full and timely payment by Borrower
of all amounts due under any document, instrument, or agreement executed in
connection therewith.
"Person" shall mean and include any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or agency, department or instrumentality thereof.
"Proceeds" as used herein shall mean all proceeds and products of the
Collateral and all additions and accessions to, replacements of insurance or
condemnation proceeds of and documents covering the Collateral, all property
received wholly or partially in trade or exchange for the Collateral, all leases
of the Collateral and all rents, revenues, issues, profits and proceeds arising
from
-4-
<PAGE>
the sale, lease, license, encumbrance, collection, or any other temporary or
permanent disposition of the Collateral or any interest thereon.
"Products" shall have the meaning ascribed in the UCC.
"Receivables" means (i) all existing and future created or acquired
Accounts; (ii) receivables; (iii) rights of any kind of Borrower to receive
payment for goods sold or leased or for service rendered in the ordinary course
of its business, including but not limited to, rights to payments that have been
earned under any contract; (iv) Contract Rights; (v) customer lists; (vi)
documents; (vii) instruments: (viii) patent rights; (ix) royalties; (x) bills;
(xi) leases; (xii) rents; (xiii) chattel paper; (xiv) license rights; (xv)
rights to refund or indemnification; (xvi) acceptances; (xvii) tax refunds and
other general intangibles of every kind or nature and all forms of obligation
whatsoever owing, together with all instruments and all documents of title
representing the foregoing and all rights to any merchandise or goods which any
of the same may represent, together with all right, title, security and
guarantees, with respect to each receivable, including any right of stoppage in
transit, and together with all Products and Proceeds thereof, including the Cash
Collateral Accounts established in accordance with the Loan Documents.
"Subsidiary" of any Person shall mean and include (i) any corporation, 50%
or more of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries, or (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, is either a general partner or has a 50% or more equity interest
at the time.
"Termination Date" shall mean the earlier of October 1, 1996 or the date of
the Lender's written notice to the Borrower that a Default or Event of Default
has occurred under any of the Loan Documents.
"Transaction Costs" shall mean all costs and expenses paid or payable by
the Borrower relating to the Transactions including, without limitations
appraisal fees, legal fees, accounting fees, commissions, expenses, letter of
credit fees and other fees of The Bank of New York.
"Transactions" shall mean each of the transactions contemplated by the Loan
Documents or otherwise relating to the assets subjected to security interests or
assignments in connection therewith.
"UCC" shall mean the Uniform Commercial Code as in effect in any relevant
jurisdiction from time to time.
-5-
<PAGE>
ARTICLE II -- THE LOAN
Section 2.1. The Loan. (A) Subject to the terms and conditions of this
Agreement, the Lender agrees to provide the Letter of Credit on account of the
Borrower until October 1 1996, unless sooner terminated as provided herein. In
the event Alcoa presents a draft to The Bank of New York and thereby draws on
the Letter of Credit, said draw and any subsequent draws shall be deemed an
advance or advances hereunder to the Borrower by the Lender (said draws are
hereinafter referred to as an "Advance" or "Advances") which indebtedness shall
be evidenced by that certain demand Promissory Note dated even date herewith in
the maximum principal amount of $600,000.00 (hereinafter referred to as the
"Note"). The principal amount of all Advances and Transaction Costs shall not
exceed SIX HUNDRED THOUSAND DOLLARS ($600,000.00) (hereinafter the "Advances
Limit").
If, for any reason, the Lender shall have made an Advance or Advances to
the Borrower or the Lender has incurred any Transaction Costs which Advances or
Transaction Costs exceed the Advances Limit, then it is agreed that all Advances
or Transaction Costs made or incurred in excess of such Advances Limit shall
constitute Obligations under this Agreement and shall be entitled to the benefit
of all security provisions under this Agreement and the Loan Documents. The
amount by which the outstanding Advances or Transaction Costs under the Loan
exceeds the Advances Limit shall be repaid to the Lender in the manner provided
in Subsection 2.1(I) below.
(B) The Letter of Credit shall be available on account of the Borrower for
a period beginning on the Closing Date and terminating on the Termination Date.
The outstanding balance of the Loan (such sum is hereinafter referred to as the
"Loan Balance") together with accrued interest thereon shall be payable on
demand in accordance with the Note. Interest, not otherwise payable on demand as
aforesaid, on the Loan Balance shall be payable monthly in arrears, at the then
applicable rate as hereinbelow specified, commencing on the first (1st) day of
the first (1st) calendar month during the term of the Loan and continuing
thereafter on the first (1st) day of each calendar month during the term of the
Loan. The applicable rate shall equal, at any time and from time to time, the
Interest Rate unless an Event of Default shall have occurred, in which case the
Default Rate of interest shall apply to the Loan Balance in the manner provided
hereinafter.
(C) All Advances and Transaction Costs, to the extent the Borrower has not
paid the Transaction Costs as provided in section 2.1(D), shall be evidenced by
the Note. The Loan Balance, together with all accrued but unpaid interest
thereon at the rate of interest then applicable in accordance with the terms of
the Note, and all other Obligations of the Borrower shall be payable on demand
in accordance with the terms of the Note.
(D) The Borrower shall be responsible for the payment of any and all
Transaction Costs as each Transaction Cost is incurred. Payments on account of
the Transaction Costs shall be paid either directly by the Borrower or in the
event the Lender is billed for the Transaction Cost, the Borrower shall make
payment immediately upon receipt of an invoice or other statement from the
Lender for payment of the Transaction Cost. Any Transaction Costs not paid
immediately by the
-6-
<PAGE>
Borrower shall constitute Obligations under this Agreement and shall be entitled
to the benefit of all security provisions under this Agreement and the Loan
Documents.
(E) On or before the Closing Date, the Borrower shall have executed and
delivered the Lock Box Agreement by and between the Borrower and the Lender
dated as of the Closing Date. At any time during the term, the Lender, in its
sole discretion, may notify any or all of Borrower's Account Debtors or may
require Borrower to immediately notify all of Borrower's Account Debtors to send
their respective payments in regard to the Borrower's Receivables to the address
referenced in the Lock Box Agreement. All sums received in said account and all
other payments which may from time to time be received by the Borrower shall be
received irrevocably in trust by or for the benefit of the Lender and shall be
immediately and unconditionally deposited into the Cash Collateral Account
designated by the Lender and established pursuant to the Cash Collateral
Agreement by and between the Borrower, a financial institution acceptable to
Lender, and the Lender dated on the Closing Date. Any and all Cash Collateral
Accounts as may from time to time during the term of the Loan be established
pursuant to the Cash Collateral Agreement shall be and irrevocably remain the
sole possession and property of the Lender and shall be within its sole dominion
and control.
The Borrower, as the Lender's agent, may collect the Accounts, subject to
the Lender's direction and control. The Lender may, without cause and at any
time, terminate such agency and authority at any time before or after a Default
or Event of Default under this Agreement.
(F) All checks, drafts, cash and other remittances in payment of any
Account and any other Collateral and the Proceeds thereof so deposited in a Cash
Collateral Account shall be credited by the Lender to the Loan Balance, in the
following order of priority: first to payment of Transaction Costs, then payment
of interest, and then payment of principal; provided however, that any such
deposit made into any said Cash Collateral Account which shall not be in the
form of cash or other form of immediately available funds shall not be credited
against the Loan Balance until the fourth (4th) business day following the date
of deposit thereof. Periodically, in the Lender's sole and absolute discretion,
all or any part of the net collected proceeds in such Cash Collateral Account
shall be paid to Borrower.
(G) The aggregate balance amount of the Note shall serve as prima facie
evidence of the Loan Balance. The failure of the Lender to maintain an account
record upon the making of any Advance or the payment of any principal, interest,
fees or Transaction Costs, however, shall not limit or impair the rights and
remedies of the Lender if an Advance has actually been made or the rights and
remedies of the Borrower if a payment of principal, interest, fees or
Transaction Costs had been made in accordance with the provisions of this
Agreement and the Note.
(H) If the Note should be voluntarily prepaid by the Borrower in part or
repaid as required in Section 2.1(I), then such payment shall be applied first
to fees and Transaction Costs, then to accrued and unpaid interest and then to
principal.
(I) If at any time the Loan Balance made to the Borrower exceed the
Advances Limit, then the Borrower shall, immediately upon receipt of written
demand therefore from the Lender, repay the
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<PAGE>
amount by which the then Loan Balance exceeds the Advances Limit. All such
prepayments shall be made in accordance with the terms of Subsection 2.1(H)
hereinabove.
Section 2.2. Cross Collateral/Cross Default. The Borrower acknowledges and
agrees that, in consideration of the Loan and such other financial
accommodations as the Lender may make to the Borrower in the future, the
Collateral granted by the Borrower hereunder shall serve to collateralize any
and all other Indebtedness of the Borrower to the Lender, whether presently
existing or hereafter arising; and the parties further agree that: (i) an "Event
of Default" within the meaning of any loan agreement, note, security agreement
or other document or instrument relating to any other Indebtedness of the
Borrower to the Lender, whether presently existing or hereafter arising, shall
constitute an "Event of Default" hereunder and under the Loan Documents; and
(ii) that an "Event of Default" hereunder or under any of the Loan Documents, or
any other documents or instrument executed and delivered by the Borrower to the
Lender in connection therewith, shall constitute an "Event of Default" within
the meaning of any such other loan agreement, note, security agreement or other
document or instrument.
Section 2.3. Assignment of Accounts. Borrower hereby assigns to the Lender
all of its rights, title and interest in the Accounts. In addition, from time to
time during the term of the Loan, the Borrower shall, upon written request of
the Lender, execute and deliver in favor of the Lender absolute, irrevocable
assignment(s) of Accounts and/or other receivables substantially in the form of
the "Assignment" attached hereto as Exhibit 2.
Section 2.4. Default Rate. In the event that, and for so long as, any Event
of Default shall have occurred and be continuing, the Loan Balance, and, to the
extent permitted by law, the accrued but unpaid interest thereon, shall bear
interest at a rate per annum equal to the sum of the Interest Rate plus five
percent (5%) per annum.
Section 2.5. Method and Place of Payment. (A) Except as otherwise
specifically provided in Section 2.1 hereof, all payments and prepayments under
this Agreement and the Note shall be made to the Lender on the date when due and
shall be made in lawful money of the United States of America in immediately
available funds to the Lender's office.
(B) Whenever any payment to be made hereunder or under the Note shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable at the applicable rate during
such extension or, at the election of the Borrower, the Borrower may make such
payment on the last Business Day preceding such non-Business Day and the
applicable interest payments shall be calculated with respect to such Business
Day.
(C) All payments made by the Borrower hereunder and under the other Loan
Documents shall be made irrespective of, and without any reduction for, any set
off or counterclaims,
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(D) Notwithstanding the foregoing provisions of this Section 2.5 or of any
of the other Loan Documents, the Borrower hereby irrevocably authorizes and
directs the Lender on the due date of any installment of interest arising under
the Note to charge any account of the Borrower maintained for the benefit of
Lender, including without limitation, the Cash Collateral Account, for the full
amount of the payment then due.
ARTICLE III -- THE COLLATERAL
Section 3.1. The Collateral. (A) As collateral security for the due and
punctual payment of the Note and the performance by the Borrower of all of its
Obligations to the Lender under this Agreement and each of the Loan Documents;
and as collateral security for the Borrower's repayment of all sums due, and
performance of all acts required, under any other loan agreement, note, security
agreement or other document or instrument relating to any other Indebtedness of
the Borrower to the Lender, whether presently existing or hereafter arising, the
Borrower hereby grants to the Lender a first priority, security interest and
lien in and to all of the following, wheresoever located, and whether presently
owned by the Borrower or acquired hereafter, including without limitation:
(i) all of its Receivables, whether now existing or hereafter arising or
in which the Borrower now has or may hereafter acquire any rights,
together with any and all Proceeds thereof,
(ii) all Machinery, Equipment, Furniture, and Fixtures, wheresoever
located, now existing or hereafter acquired, together with any and all
Products or Proceeds thereof; and
(iii) all of its documents (within the meaning of the UCC);
(iv) all of its Contract Rights and General Intangibles whether presently
existing or hereafter arising, together with any and all proceeds
thereof;
(v) all bank balances of the Borrower in the name of the Lender, and of
its property in the possession of or deposited with or in the custody
of the Lender, including without limitation, all funds, deposits or
cash deposited in or maintained in the account(s) established pursuant
to the Cash Collateral Agreement and all present or future deposit
accounts as that term is defined in the UCC.
All of the foregoing are herein referred to collectively as the
"Collateral".
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to provide
the Letter of Credit, the Borrower makes the following representations and
warranties as of the Closing Date which shall
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survive the execution and delivery of this Agreement and the Note and the making
of each of the Advances.
Section 4.1. Power and Authority. The Borrower has the corporate power and
authority to execute, deliver and carry out the terms and provisions of the Loan
Documents and has taken an necessary corporate action to authorize the
execution, delivery and performance by it of such Loan Documents. The Borrower
has duly executed and delivered each such Loan Document, and each such Loan
Document constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and by general principles of equity.
Section 4.2. Security Interests and Liens. This Agreement creates, as
security, for the Obligations, valid and enforceable security interests in and
Liens on all of the Collateral, in favor of the Lender, and subject to no other
security interest and Liens other than those set forth on Exhibit 3 hereto. The
security interests in and Liens on the Collateral in favor of the Lender are
superior to and prior to the rights of all third parties except those set forth
on Exhibit 3. No further recordings or filings are or will be required in
connection with the creation, perfection or enforcement of such security
interests and Liens, other than the filing of continuation statements in
accordance with applicable law and the filing of UCC-2 termination statements by
Silicon Valley Bank.
Section 4.3. Deposit Accounts. Each of the deposit accounts of the Borrower
is listed on Exhibit 4 and the Borrower has executed a Cash Collateral Agreement
with respect to each such account.
Section 4.4. No Liens. No Lien exists upon any of the Collateral except for
the prior Liens listed on Exhibit 3 granted by the Borrower to the Persons
listed thereon.
ARTICLE V -- COVENANTS
Section 5.1. Information Covenants, The Borrower will furnish to the
Lender:
(A) Assignment, Aging and Collection Reports. On or before the fifteenth
(15th) day after the end of each calendar month, the Borrower shall submit to
the Lender a certificate, together with (i) a detailed aging report setting
forth the amount due and owing on Accounts on its books as of the close of the
preceding month, together with a reconciliation report reasonably satisfactory
to the Lender showing all sales, collections, payments and adjustments to
Accounts on its books as of the closing of the preceding month, (ii) a detailed
aging report setting forth the amount of the Borrower's accounts payable on its
books as of the close of the preceding month, listing the amount of all such
payables and the vendors or suppliers to whom said sums are owed, and (iii) a
booked orders report in form and substance satisfactory to the Lender.
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In addition to the deliveries required under the preceding paragraph, the
Borrower shall also provide to the Lender on a day-to-day basis and as
frequently as the Lender shall reasonably request one or more assignment and
collection reports, in form and content, as delivered, satisfactory to the
Lender.
(B) Notice of Default or Litigation. Promptly and in any event within two
(2) Business Days after the Borrower obtained knowledge thereof, notice of (i)
the occurrence of any Default or Event of Default, (ii) any litigation or
governmental proceeding pending or threatened against the Borrower which could
reasonably be expected to result in a Material Adverse Effect, and (iii) any
other event, act or condition which could reasonably be expected to result in a
Material Adverse Effect.
(C) Other Information. From time to time, such other information or
documents (financial or otherwise) as the Lender may reasonably request.
Section 5.2. Books. Records and Inspections. The Borrower shall keep proper
books of record and account in which full, true and correct entries, in
conformity with GAAP and all requirements of law, shall be made of all dealings
and transactions in relation to its business and activities. The Borrower shall
permit officers and designated representatives of the Lender to visit and
inspect any of the properties of the Borrower and to examine the books of record
and account of the Borrower, and discuss the affairs, finances and accounts of
the Borrower with, and be advised as to the same by, its officers and
independent accountants, all upon reasonable notice and at such reasonable times
as the Lender may desire.
Section 5.3. Maintenance of Insurance. The Borrower shall at all times
during the term of this Agreement, maintain insurance on its assets and
properties with insurance companies then having a "Bests" rating of A+ or better
or by companies otherwise satisfactory to the Lender, and in all cases licensed
to do business in the State of California in such amounts, in such manner, and
against such loss, damage or liability (including liability to third parties),
as is customary with companies in the same or similar business and located in
the same or similar areas. In all cases, insurance shall include:
(i) Public liability insurance insuring against any and all liability or
claims of liability arising out of, occasioned by, or resulting from
any accident or otherwise resulting in or about any premises occupied
by the Borrower, or resulting from any business activities conducted
by the Borrower, in such amounts as are acceptable to Lender;
(ii) Property damage and broad form fire and extended coverage insurance
with respect to all Collateral, including Borrower's principal place
of business located in Long Beach, California, and all of their other
assets and insurance insuring against such other hazards, casualties
and contingencies as Lender may require;
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(iii) Necessary worker's compensation insurance and any insurance that may
be required by law; and
(iv) Business interruption insurance.
Such insurance coverage may be affected under overall blanket or excess
coverage policies of the Borrower and shall be for amounts sufficient to prevent
the Borrower from being co-insurers within the terms of such policy. Each
insurance policy maintained pursuant to this Section 5.3 other than public
liability and working compensation insurance policies shall name the Lender as
loss payee and additional insured. Each insurance policy maintained pursuant to
this Section 5.3 shall contain a provision that such policy shall not be
cancelled or altered unless the Lender is notified in writing at least thirty
(30) days prior to such cancellation or alteration. At least thirty (30) days
prior to the expiration of any such policy, the Borrower shall furnish evidence
satisfactory to the Lender that such policy has been renewed or replaced.
In the event of any loss or damage to or taking or condemnation of
Collateral, the proceeds of any insurance policy or condemnation award covering
the same shall, as to their disposition, be and become the sole property and
asset of the Lender, which shall have sole dominion and control thereof, and at
the option of the Lender, shall be applied (1) to pay for the cost of making
such repairs, restorations, reconstructions or replacements of the Collateral
involved as are necessary to repair, restore or reconstruct said assets to
substantially their condition immediately prior to such event or to a condition
of at least equivalent value; or (2) prepay all or, to the extent that proceeds
are insufficient to prepay all, to prepay a portion of the then Loan Balance.
Any such prepayment of the Note shall be applied first to fees, then to accrued
interest and then to principal. In the event of a public liability occurrence,
the proceeds of any insurance policy covering the same shall be applied toward
satisfaction of any liability resulting from such occurrence.
Section 5.4. Certain Covenants Regarding Accounts. Without limiting the
generality of any preceding Sections of this Article V, the Borrower shall, at
all times:
(A) Keep and maintain at its own cost and expense, satisfactory and
complete records of its Accounts, including, but not limited to, records of all
payments received, all credits granted thereon, all merchandise returned and all
other dealings therewith, and the Borrower will make the same available to the
Lender for inspection at the Borrower's place of business, at the Borrower's own
costs and expense, at any and all reasonable times upon demand. At any time upon
written request of the Lender the Borrower shall, at its own cost and expense,
deliver all tangible evidence that the Lender may request of its Accounts
(including, without limitation all documents, instruments and chattel paper
evidencing the Accounts) and such books and records to the Lender or of its
representatives (copies of which evidence and books and records may be retained
by the Borrower) at any time upon its demand. The Borrower shall, at the request
of the Lender, legend, in form and manner satisfactory to the Lender, the
Accounts and other books, records and documents of the Borrower evidencing or
pertaining to the Accounts and any and all chattel paper and any and all
contracts held by it with an appropriate reference to the fact that the Accounts
and such chattel paper and such contracts have been assigned to the Lender and
that the Lender has a security interest therein.
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(B) Endeavor to cause to be collected from the Account Debtor (other than
an affiliate) named in each of its Accounts, as and when due (including, without
limitation, Accounts which are delinquent, such Accounts to be collected in
accordance with generally accepted collection procedures in accordance with all
applicable laws), any and all amounts owing under or on account of such Account,
and apply forthwith upon receipt thereof all such amounts as are so collected to
the outstanding balance of such Account. The costs and expenses (including,
without limitation, reasonable attorneys' fees) of collection, whether incurred
by the Borrower or the Lender, shall be borne by the Borrower.
(C) At its own expense, make, execute, endorse, acknowledge, file and/or
deliver to the Lender from time to time, such lists, schedules, descriptions and
designations of the Collateral, chattel paper, instruments, warehouse receipts,
receipts in the nature of warehouse receipts, bills of lading, documents of
title, vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
reports, notices and other assurances or instruments and take such further steps
relating to the Collateral and other property or rights covered by the security
interest granted or purported to be granted hereby, which the Lender reasonably
deems appropriate or advisable to create, perfect, preserve, protect or validate
such security interest in the Collateral or to enable the Lender to exercise
and enforce its rights under this Agreement with respect to such security
interest. The Borrower agrees to sign and deliver to the Lender such financing
and continuation statements, in form acceptable to the Lender, as the Lender may
from time to time reasonably request as necessary or desirable to establish and
maintain a valid, enforceable, perfected first-priority security interest in the
Collateral and to establish and maintain the other rights and security
contemplated hereby, all in accordance with the UCC or any other relevant law.
The Borrower will pay any applicable filing fees and the related expense of the
Lender relating to any of the foregoing. To the extent permitted by applicable
law, the Borrower authorizes the Lender to file any such financing and
continuation statements without the signature of the Borrower.
(D) The originals of all documents evidencing all Accounts of the Borrower
and the only original books of account and records of the Borrower relating
thereto and the originals of all chattel paper are, and will continue to be,
kept at the location indicated on Exhibit 5, or at such new location for such
books and records as the Borrower may establish in accordance upon written
notice to the Lender as herein required. All Accounts of the Borrower are, and
will continue to be, maintained at, and controlled and directed (including,
without limitation, for general accounting purposes) from such chief executive
office location as set forth on Exhibit 5, or such new location as each,
assignor may establish upon written notice to the Lender as herein set forth.
(E) As of the time when each of its Accounts arises, Borrower covenants and
agrees that it shall be deemed to have represented and warranted that such
Account and all records, papers and documents relating thereto (if any) are
genuine and in all material respects what they purport to be, and that all
papers and documents (if any) relating thereto (i) will be the only original
writings evidencing and embodying such obligation of the Account Debtor named
therein (other than copies created for purposes other than general accounting
purposes), (ii) will evidence true and valid obligations arising out of the
performance of labor or services or the sale or lease and delivery of the
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goods listed therein, or both and (iii) will be in compliance and will conform
with all applicable federal, state and local laws.
(F) Borrower hereby agrees that it will comply with all covenants set forth
in this Article V, including without limitation Borrower's obligation to
diligently collect all Accounts, regardless of whether an Event of Default has
occurred or an event of which the giving of notice and passage of time would
constitute an Event of Default.
ARTICLE VI -- NEGATIVE COVENANTS
The Borrower covenants and agrees that on and after the Closing Date until
the Obligations have been indefeasibly paid in full:
Section 6.1. Indebtedness. The Borrower shall not create, incur, assume,
suffer to exist or otherwise become or remain directly or indirectly liable with
respect to, any indebtedness, other than:
(A) Indebtedness hereunder and under the other Loan Documents;
(B) Indebtedness outstanding on the Closing Date and set forth on Exhibit 6
hereto;
Section 6.2. Liens. The Borrower shall not create, incur, assume or suffer
to exist, directly or indirectly, any Lien on any of its property now owned or
hereafter acquired, other than:
(A) Liens set forth on Exhibit 3 hereto;
(B) Liens for taxes not yet due or which are being contested in good faith
by appropriate proceedings diligently conducted and with respect to which
adequate reserves are being maintained in accordance with GAAP;
(C) Statutory Liens of landlords and Liens of carriers, warehouse men,
mechanics, material men and other Liens imposed by law (other than any Lien
imposed pursuant to any environmental law) created in the ordinary course of
business of the Borrower for amounts not yet due or which are being contested in
good faith by appropriate proceedings diligently conducted and with respect to
which adequate bonds have been posted;
(D) Liens (other than any Lien imposed pursuant to any environmental law)
incurred or deposits made in the ordinary course of business of the Borrower in
connection with workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); or
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(E) Liens granted to the Lender pursuant to this Agreement or any other
Loan Document securing the Obligations.
Section 6.3. Restriction on Fundamental Changes. Borrower will not, and
will not permit any Subsidiary to: (A) make any substantial change in its
present business or engage in any activities apart from its present business;
(B) dissolve, merge or consolidate with or into any corporation or otherwise
change its identity or corporate structure; (C) sell, lease, transfer, or
otherwise dispose of all or any substantial part of its assets (except in the
ordinary course of business), whether now owned or hereafter acquired; or (D)
change its corporate name or the use of any trade names; or (E) change its chief
executive office; or (F) change the location of any of the Collateral.
Section 6.4. Leases; Capital Expenditures; Investments. Borrower shall not,
and will not permit any Subsidiary to: (A) create, incur, assume, or suffer to
exist any lease obligation other than lease obligations incurred in the ordinary
course of business of Borrower and its Subsidiaries; (B) make capital
expenditures by lease, purchase, or otherwise, greater than the prior year 5
depreciation; (C) make any investment in, or make any loan or advance to, any
person, partnership, or corporation, including officers, stockholders, or
directors of Borrower; (D) purchase or otherwise invest in or hold securities,
nonoperating real estate, or other nonoperating assets, except direct
obligations of the United States of America or certificates of deposit or
equivalent securities issued by Lender; (E) purchase or acquire obligations owed
by others.
Section 6.5. Certain Restrictions. The Borrower shall not, and shall not
permit any Subsidiary or any Person controlling the Borrower to enter into any
agreement (other than the Loan Documents) which restricts the ability of the
Borrower or any Subsidiary to: (A) enter into amendments, modifications or
waivers of the Loan Documents, (B) sell, transfer or otherwise dispose of its
assets, (C) create, incur, assume or suffer to exit any Lien upon any of its
property, (D) create, incur, assume, suffer to exist or otherwise become liable
with respect to any Indebtedness, or (E) pay any dividend; provided, that
Capital Leases which contain restrictions of the types referred to in clauses
(B) or (C) with respect to the property covered thereby shall be permitted.
Section 6.6. Year; Fiscal Quarter. The Borrower shall not, and shall not
permit any of its Subsidiaries to, change its fiscal year or any of its fiscal
quarters,
Section 6.7. Certain Prohibited Acts Relating to Collateral; Business
Records. The Borrower shall not rescind or cancel any indebtedness evidenced by
any Account, instrument or chattel paper or modify any term thereof or make any
adjustment with respect thereto (other than issue credit memoranda in the
ordinary course of business), or extend or renew the same, or sell any Account
or instrument or any interest therein, (other than, in each case, in connection
with Accounts, Instruments or chattel paper of any Affiliate of the Borrower),
or compromise or settle any dispute, claim, suit or legal proceeding relating
thereto without prior written notice to the Lender. Borrower will duly fulfill
all Obligations on its part to be fulfilled under or in connection with the
Accounts and will do nothing to impair the rights of the Lender in the Accounts.
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ARTICLE VII -- EVENTS OF DEFAULT
Section 7.1. Events of Default. Each of the following events, acts,
occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation or law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any court or administrative or governmental body:
(A) Failure to Make Payments. The Borrower shall default in the payment on
demand of any principal of the Loan, or in the payment on demand or otherwise
when due of any interest on the Loan or in the payment when due of any fees or
any other amounts owing hereunder
(B) Breach of Representation or Warranty. Any representation or warranty
made by the Borrower herein or in any other Loan Document or in any certificate
or statement delivered pursuant hereto or thereto shall prove to be false or
misleading in any material respect on the date as of which made or deemed made.
(C) Default Under Other Agreements.
(i) The Borrower shall default in the payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) of any amount owing in respect of any Indebtedness
(other than the Obligations), or the Borrower shall default in
the performance or observance of any obligation or condition with
respect to any Indebtedness, or any other event shall occur or
condition shall exist, if the effect of such default, event or
condition is to accelerate the maturity of any Indebtedness, or
any such Indebtedness shall become or be declared to be due and
payable prior to its stated maturity, other than as a result of a
regularly scheduled payment; or
(ii) any default or event of default shall occur under any Agreement
to which the Borrower is a party.
(D) Bankruptcy, etc. (i) The Borrower shall commence a voluntary case
concerning itself under the Bankruptcy Code; or (ii) an involuntary case is
commenced against the Borrower and the petition is not controverted within ten
(10) days, or is not dismissed within thirty (30) days, after commencement of
the case; or (iii) custodian (as defined in the Bankruptcy Code) is appointed
for, or takes charge of, all or substantially all of the Collateral or other
property of the Borrower or the Borrower commences any other proceedings under
any reorganization, arrangement, adjustment of debt, relief for debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Borrower or there is
commenced against the Borrower any such proceeding which remains undismissed for
a period of thirty (30) days; or (iv) any order of relief or other order
approving any such case or proceeding is entered; or (v) the Borrower is
adjudicated insolvent or bankrupt; or (vi) the Borrower suffers any appointment
of any custodian or the like for its or any substantial part of its property to
continue undischarged or unstayed for a
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period of thirty (30) days; or (vii) the Borrower makes a general assignment for
the benefit of creditors; or (viii) the Borrower shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts generally
as they become due; or (ix) the Borrower shall call a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or (x) the
Borrower shall by any act or failure to act consent to, approve of or acquiesce
in any of the foregoing: or (xi) any corporate action is taken by the Borrower
for the purpose of effecting any of the foregoing.
(E) Security. Any of the security interests or Liens granted by the
Borrower to the Lender shall for any reason cease to be in full force and
effect, or shall cease to give the Lender the Liens, rights, powers and
privileges purported to be created thereby including, without limitation, a
perfected, priority security interest in, and Lien on, all of the Collateral in
accordance with the terms thereof.
(F) Judgment. One or more judgments or decrees in an aggregate amount of
$25,000 or more shall be entered by a court or courts of competent jurisdiction
against the Borrower (other than any judgment as to which, and only to the
extent, a reputable insurance company has acknowledged coverage without
reservation of such claim in writing) and (i) any such judgments or decrees
shall not be stayed, discharged, paid, bonded or vacated within thirty (30)
days, or (ii) enforcement proceedings shall be commenced by any creditor on any
such judgments or decrees.
(G) If in the Lender's reasonable judgment, the value of the Collateral so
substantially deteriorates or diminishes, that the Lender reasonably deems the
Obligations to be inadequately secured and Borrower, within two (2) days of
notice by the Lender, neither (i) provides additional collateral, nor (ii)
reduces the amount of the Obligation. Which action, in either such event, is
satisfactory to the Lender.
(H) Any loss, theft, or destruction of, or damage to, any substantial
portion of the Collateral for which there is either no insurance coverage or for
which, in the opinion of Lender, there is insufficient insurance coverage.
(I) Occurrence of any Material Adverse Change in the business operations,
properties or financial condition of Borrower or any Subsidiary.
(J) Any levy, seizure or attachment upon any collateral by any third
party.
(K) Borrower shall in any material respect fail to comply with any statute,
rule, regulation, ordinance, order or any law or judicial decree regarding
Borrower or is premises or assets.
Section 7.2. Rights and Remedies.
(A) Upon the occurrence of any Event of Default, the Loan Balance and any
and all accrued interest thereon and any and all accrued fees and other
Obligations shall automatically become immediately due and payable, together (as
permitted by law) with interest from time to time accrued thereon at the Default
Rate, all without presentment, demand, or protest or other requirements of any
kind.
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(B) Borrower agrees that if an Event of Default hereunder or under the Note
or under any Loan Document shall have occurred and be continuing, then, in
addition to any other rights and remedies provided for herein or which may
otherwise be available, the Lender may without any further demand, advertisement
or notice (except as expressly provided for below or as may be required by
mandatory provisions of law), exercise all the rights and remedies of a secured
party, under the UCC (whether or not the UCC applies to the affected
Collateral), and in addition: (i) may apply the moneys, if any, then held by or
on behalf of it as part of the Collateral to the Obligations, and (ii) may sell
or otherwise dispose of the Collateral, or any part thereof, as hereinafter
provided. Upon ten (10) days' prior written notice to the Borrower, which notice
Borrower acknowledges is sufficient, proper, and commercially reasonable, sell,
lease or otherwise dispose of the Collateral, at any time and from time to time,
in whole or in part, at public or private sale, without advertisement or notice
of sale, all of which are hereby waived and apply the proceeds of any such sale:
(x) first, to the expenses of the Lender in preparing the Collateral for sale,
selling and the like, including, without limitation, reasonable attorneys' fees
and expenses incurred by the Lender (including fees and expenses of any
litigation incident to the foregoing); (y) second, to the complete satisfaction
of all of the Obligations together with all interest accrued thereon; and (z)
then, to pay any excess to the Borrower. Borrower hereby waives the benefit of
any marshalling statute or similar legal doctrine and agree that the Lender may,
exercise its rights against the Collateral and apply the proceeds thereof to any
of the Obligations in any order which the Lender, in its sole discretion, deems
appropriate.
Upon the occurrence and during the continuance of an Event of Default, the
Lender shall have the right, at the expense of the Borrower, to enforce
collection of any amounts payable under any agreement, instrument or other
obligation (including, without limitation, the Accounts), to instruct the
obligor or obligors on any such agreement, instrument or obligation to make any
payment required by the terms of such instrument or agreement directly to the
Lender and require payment to the Lender of all such amounts, and to adjust,
settle or compromise the amount or payment thereof in the same manner and to the
same extent as the Borrower might have done, Upon the occurrence and during the
continuance of an Event of Default, the Borrower shall, upon the instruction of
the Lender, instruct the obligor or obligors on each such agreement, instrument
or obligation to make any such payment to the Lender.
(C) The Lender as attorney-in-fact pursuant to Article VIII hereof, may, in
the name and stead of the Borrower, make and execute an conveyances, assignments
and transfers of the Collateral sold pursuant to subsection (B) above, and the
Borrower hereby ratifies and confirms all that the Lender, as said
attorney-in-fact, shall do by virtue hereof. Nevertheless, the Borrower shall,
if so requested by the Lender, ratify and confirm any sale or sales by
executing and delivering to the Lender, or to such purchaser or purchasers, all
such instruments as may, in the judgment of the Lender, be advisable for the
purpose.
(D) The receipt by the Lender of the purchase money paid at any such sale
made by it shall be sufficient discharge therefore, sold as aforesaid; and no
purchaser (or the representatives or assigns of any purchaser), after paying
such purchase money and receiving such receipt, shall be bound to see to the
application of such purchase money or any part thereof or in any manner
whatsoever be answerable for any loss, misapplication or nonapplication of any
such purchase money, or any part
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<PAGE>
thereof, or be bound to inquire as to the authorization necessity expediency or
regularity of any such sale.
(E) If the Lender shall demand possession of the Collateral or any part
thereof pursuant hereto the Borrower will, at its own expense, forthwith cause
such Collateral or any part thereof designated by the Lender to be assembled
and made available and/or delivered to the Lender at any place reasonably
designated by the Lender.
(F) No sale or other disposition of all or any part of the Collateral by
the Lender pursuant to this Section shall be deemed to relieve the Borrower of
its Obligations (except to the extent the proceeds thereof are applied by the
Lender to the payment of such Obligations), and the Borrower shall remain liable
for any deficiency if the proceeds of any sale or disposition of Collateral are
insufficient to pay all amounts to which the Lender is entitled, including,
without limitation, all attorneys' fees, expenses and disbursements.
(G) The Borrower agrees to pay all costs of the Lender (including, without
limitation, attorneys' fees, expenses and disbursements) incurred in connection
with the collection of the Obligations and the enforcement by the Lender of its
rights hereunder.
(H) Any sale of, or the grant of options to purchase, or any other
disposition or realization upon, any Collateral, shall operate to divest all
right, title, interest, claim and demand, either at law or in equity, of the
Borrower therein and thereto, and shall be perpetual bar both at law and in
equity against the Borrower and against any and all Persons claiming or
attempting to claim the Collateral so sold, optioned or realized upon, or any
part thereof from, through and under the Borrower.
SECTION 7.3. WAIVER OF CLAIMS. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE BORROWER HEREBY WAIVES
NOTICE OR JUDICIAL HEARING IN CONNECTION WITH THE LENDER'S TAKING POSSESSION OR
THE LENDERS DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION,
ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND
ANY SUCH RIGHT WHICH THE BORROWER WOULD OTHERWISE HAVE UNDER THE CONSTITUTION
OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND THE BORROWER HEREBY
FURTHER WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAWS:
(A) ALL CLAIMS, DAMAGES AND DEMANDS WHICH ARE THE DIRECT RESULT OF SUCH
TAKING OF POSSESSION, RETENTION OR SALE OF THE COLLATERAL, EXCEPT ANY CLAIMS,
DAMAGES AND DEMANDS WHICH ARE THE FIRST RESULT OF THE LENDER'S NEGLIGENCE OR
WILLFUL MISCONDUCT;
(B) ALL CLAIMS, DAMAGES AND DEMANDS RESULTING FROM THE SALE OF ANY
COLLATERAL AT ANY PRIVATE SALE, EXCEPT ANY CLAIMS, DAMAGES AND
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DEMANDS WHICH ARE THE DIRECT RESULT OF THE LENDERS NEGLIGENCE OR WILLFUL
MISCONDUCT;
(C) ANY CLAIMS AGAINST THE LENDER ARISING BY REASON OF THE FACT THAT THE
PRICE AT WHICH THE COLLATERAL, OR ANY PART THEREOF, WAS SOLD IN A PRIVATE SALE
WAS LESS THAN MAY HAVE BEEN OBTAINED AT A PUBLIC SALE OR WAS LESS THAN THE
AGGREGATE AMOUNT OF THE OBLIGATIONS, EVEN IF THE LENDER ACCEPTS THE FIRST OFFER
RECEIVED WHICH THE LENDER IN GOOD FAITH DEEMS TO BE COMMERCIALLY REASONABLE
UNDER THE CIRCUMSTANCES AND DOES NOT OFFER THE COLLATERAL TO MORE THAN ONE
OFFEREE;
(D) EXCEPT TO THE EXTENT SPECIFICALLY REQUIRED HEREIN, ALL OTHER
REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF SALE OR OTHER REQUIREMENTS WITH
RESPECT TO THE ENFORCEMENT OF THE LENDER'S RIGHTS HEREUNDER; AND
(E) ALL RIGHTS OR REDEMPTION, APPRAISAL, VALUATION, STAY, EXTENSION OR
MORATORIUM NOW OR HEREAFTER IN FORCE UNDER ANY APPLICABLE LAW IN ORDER TO
PREVENT OR DELAY THE ENFORCEMENT OF THIS AGREEMENT OR THE ABSOLUTE SALE OF THE
COLLATERAL OR ANY PORTION THEREOF, AND THE BORROWER, FOR ITSELF AND ALL WHO MAY
CLAIM UNDER IT, INSOFAR AS IT OR THEY MAY NOW HEREAFTER LAWFULLY DO SO, HEREBY
WAIVES THE BENEFIT OF SUCH LAWS.
Section 7.4. Remedies Cumulative; No Waiver. Each and every right, power
and remedy hereby given to the Lender shall be in addition to every other right,
power and remedy specifically given under this Agreement or under any other Loan
Document now or hereafter existing at law or in equity, or by statute, and each
and every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time or simultaneously and as often and
in such order as may be deemed expedient by the Lender. All such rights, powers
and remedies shall be cumulative and the exercise or the beginning of exercise
of one shall not be deemed a waiver of the right to exercise of any other or
others. No delay or omission of the Lender in the exercise of any such right,
power or remedy and no renewal or extension of any of the Obligations shall
impair any such right, power or remedy or shall be construed to be a waiver of
any Default or Event of Default or an acquiescence thereto.
Section 7.5. Discontinuance of Proceedings. In case the Lender shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason, then and in every such
case, the Borrower and the Lender shall be restored to their former positions
and rights hereunder with respect to the Collateral subject to the security
interest created under this Agreement, and all rights, remedies and powers of
the Lender shall continue as if no such proceeding had been instituted.
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<PAGE>
ARTICLE VIII -- POWER OF ATTORNEY
Borrower hereby irrevocably constitutes and appoints Lender and any officer
or agent thereof, with full power of substitution, as its true and lawful
attorneys-in-fact with full irrevocable power and authority in the place and
stead of Borrower or in Lender's own name, for the purpose of carrying out the
terms of this Agreement, (including without limitation, the right to notify
Account Debtors to make payments directly to Lender) to take any and all
appropriate action and to execute any and all documents and instruments that may
be necessary or desirable to accomplish the purposes of this Agreement, granting
the Lender, as the attorney-in-fact of Borrower, full power of substitution and
full power to do any and all things necessary to be done in and about the
premises as fully and effectually as Borrower might or could do but for this
appointment, and hereby ratifying all that said attorney-in-fact shall
lawfully do or cause to be done by virtue hereof. This power of attorney. Is
coupled with an interest and shall be irrevocable so long as any part of the
Obligations shall remain outstanding.
ARTICLE IX -- MISCELLANEOUS
Section 9.1. Payment of Expenses, Indemnity, etc. The Borrower shall:
(A) whether or not the transactions hereby contemplated are consummated,
pay all reasonable out-of-pocket costs and expenses of the Lender in connection
with the negotiation, preparation, execution and delivery of the Loan Documents
and the documents and instruments referred to therein (including all fees,
commissions, charges and expenses in connection with the Letter of Credit), the
creation, perfection or protection of the Lender's Liens in the Collateral
(including, without limitation, reasonable fees and expenses for lien searches
and filing and recording fees), any amendment, waiver or consent relating to any
of the Loan Documents and any of the Transactions contemplated herein
(including, without limitation, reasonable fees and expenses for lien searches
and filing and recording fees), any amendment, waiver of consent relating to any
of the Loan Documents and any of the Transactions contemplated herein
(including, without limitation, as to each of the foregoing, the reasonable fees
and disbursements of counsel to the Lender any other consultants, advisors and
attorneys retained by the Lender, including such counsel as shall be an employee
of the Lender or an affiliate of the Lender) and of the Lender in connection
with the preservation of rights under, and enforcement of, the Loan Documents
and the documents and instruments referred to therein or in connection with any
restructuring or rescheduling of the Obligations (including, without limitation,
the fees and disbursements of counsel for the Lender);
(B) indemnify the Lender, its officers, directors, employees,
representatives and agents (each an "Indemnitee") from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements of any
kind or nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel for such Indemnitee in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, asserted against or incurred by any Indemnitee
as a result of, or arising
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<PAGE>
out of, or in any way related to or by reason of, (i) any of the Transactions or
the execution, delivey or performance of any Loan Document, (ii) any violation
by the Borrower of any applicable Law, (iii) the breach of any representation or
warranty contained in the Loan Documents, (iv) the grant to the Lender of any
Lien in any property or assets of the Borrower or any stock or other equity
interest in any of the Borrower, and (v) the exercise by the Lender of its
rights and remedies under any agreements relating to any such Lien (but
excluding, as to any Indemnitee, any such losses, liabilities, claims, damages,
expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements Incurred solely by reason of the negligence or willful misconduct
of such Indemnitee as finally determined by a court of competent jurisdiction).
The Borrower's obligations under this Section 9.1 shall survive the termination
of this Agreement and the payment of the Obligations.
Section 9.2. Notices. Any demand or notice required or permitted to be
given hereunder shall be deemed effective when deposited in the United States
mail, and sent by first-class, postage prepaid, by overnight courier, or by
hand, addressed in each case to Lender or to Borrower at their respective
address herein, or to such other address as either party shall designate for
itself in writing to the other party.
Section 9.3. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Borrower, the Lender, all future holders of the
Note and their respective successors and assigns, except that the Borrower may
not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the Lender.
Section 9.4. Amendments and Waivers. The provisions of this Agreement or
any other Loan Document may only be amended, supplemented, modified, waived,
discharged or terminated by an instrument in writing (and not orally) signed by
all parties hereto.
Section 9.5. Certain Performances. If Borrower fails to perform any
agreement contained herein, the Lender may upon the occurrence and continuance
of any Event of Default itself perform, or cause performance of, such agreement,
and the expenses of the Lender incurred in connection therewith shall be payable
by the Borrower on demand. It is expressly agreed, anything contained herein or
in any other Loan Document to the contrary notwithstanding, that the Borrower
shall remain liable to perform all of the obligations assumed by it with respect
to the Collateral and the Lender shall not have any obligations or liabilities
with respect to any Collateral by reason of or arising out of this Agreement,
nor shall the Lender be required or obligated in any manner to perform or
fulfill any of the Obligations of the Borrower under or with respect to any
Collateral. The Lender shall not have any duty to take any steps to preserve
rights against prior parties with respect to any instruments or chattel paper.
Section 9.6. Law: Submission to Jurisdiction.
(A) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM ANY THEREOF, THE
BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS
ADDRESS SET FORTH OPPOSITE IT'S SIGNATURE BELOW, THE BORROWER HEREBY IRREVOCABLY
WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO
ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM, NOTHING HEREIN SHALL EFFECT THE RIGHT OF
THE LENDER OR ANY HOLDER OF THE NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE BORROWER IN ANY OTHER JURISDICTION.
Section 9.7. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the, same instruments.
Section 9.8. Effectiveness. This Agreement shall become effective on the
date on which all of the parties hereto shall have signed a counterpart hereof
and shall have delivered the same to the Lender.
Section 9.9. Headings Descriptive. The headings of the several Sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
Section 9.10. Marshalling Recapture. The Lender shall not be under any
obligation to marshal any assets in favor of the Borrower or any other party or
against or in payment of any or all of the Obligations. To the extent the Lender
receives any payment by or on behalf of the Borrower, which payment or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid, and is repaid, by the Lender, to such
Borrower or its estate, trustee, receiver, custodian or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment, the obligation or part thereof which
has been paid, reduced or satisfied by the amount so repaid shall be reinstated
by the amount so repaid
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and shall be included within the Obligations of the Borrower to the Lender as of
the date such initial payment, reduction or satisfaction occurred.
Section 9.11. Severability. In case any provision in or obligation under
this Agreement or the Note or the other Loan Documents shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality, and enforceability
of the remaining provisions or obligations, or of such provision or obligation
in any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 9.12. Survival. All indemnities set forth herein, including without
limitation as set forth in Section 9.1, shall survive the execution and delivery
of this Agreement and the Note and the making and repayment of the Loan
hereunder.
Section 9.13. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ALL RIGHT
OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING
HEREUNDER OR THEREUNDER.
IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ John R. Bacon
-------------------------------------
CAITHNESS CORPORATION
By:_____________________________________
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<PAGE>
and shall be included within the Obligations of the Borrower to the Lender as of
the date such initial payment, reduction or satisfaction occurred.
Section 9.11. Severability. In case any provision in or obligation under
this Agreement or the Note or the other Loan Documents shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality, and enforceability
of the remaining provisions or obligations, or of such provision or obligation
in any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 9.12. Survival. All indemnities set forth herein, including without
limitation as set forth in Section 9.1, shall survive the execution and delivery
of this Agreement and the Note and the making and repayment of the Loan
hereunder.
Section 9.13. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ALL RIGHT
OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING
HEREUNDER OR THEREUNDER.
IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
NATURAL GAS VEHICLE SYSTEMS, INC.
By:
_____________________________________
CAITHNESS CORPORATION
By: /s/ Christopher T. McCallion
-------------------------------------
Vice President
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<PAGE>
EXHIBIT 1
LETTER OF CREDIT
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<PAGE>
EXHIBIT 2
ASSIGNMENT OF ACCOUNTS
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<PAGE>
EXHIBIT 3
SECURITY INTEREST AND LIENS
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<PAGE>
EXHIBIT 4
DEPOSIT ACCOUNTS
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<PAGE>
EXHIBIT 5
LOCATION OF COLLATERAL
Natural Gas Vehicle Systems, Inc.
5580 Cherry Avenue
Long Beach, California 90805
Natural Gas Vehicle Technology Centers, R.L.L.P.
6111 Highway 290 East
Austin, Texas 78728
Natural Gas Vehicle Technology Centers, R.L.L.P.
4700 Pollard Street
El Paso, Texas
NGV Southeast Technology Center
616 Highway 138 S.W.
Riverdale, Georgia 30274-3908
NGV Ecotrans Technology Center
2424 E. Olympic Boulevard, Bldg. #5
Los Angeles, California 90021-2902
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<PAGE>
EXHIBIT 6
INDEBTEDNESS
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<PAGE>
PROMISSORY NOTE
Not to Exceed $600,000.00 Long Beach, California
March 8, 1996
FOR VALUE RECEIVED, NATURAL GAS VEHICLE SYSTEMS, INC., a corporation duly
organized and validly existing under the laws of the State of Delaware, having
its principal office at 5580 Cherry Avenue, Long Beach, California 90805
(together with its respective successors and assigns, hereinafter referred to as
the "Borrower") hereby promises to pay ON DEMAND to CAITHNESS CORPORATION, a
Delaware Corporation, having its principal office at 1114 Avenue of the
Americas, 35th Floor, New York, New York 10036 (together with its successors and
assigns, hereinafter referred to as the "Lender"), or order, the principal sum
of SIX HUNDRED THOUSAND DOLLARS ($600,000.00), or, if less, the aggregate
outstanding Loan Balance made to the Borrower by the Lender pursuant to the Loan
and Security Agreement referred to below, in lawful money of the United States
of America in immediately available funds, and to pay interest thereon. ON
DEMAND in like funds at an interest rate equal, at any time and from time to
time, to the sum of the The Bank of New York Rate plus two percent (2.00%) per
annum, or to the Default Rate, as the case may be.
Capitalized terms in this Note shall have the meanings ascribed in that
certain Loan and Security Agreement bearing even date herewith by and between
the Borrower and the Lender (the "Loan and Security Agreement"). This Note is
the "Note" referenced in, and is subject to and is entitled to the benefits of,
the Loan and Security Agreement, and evidences the Advances and the Transaction
Cost, to the extent the Borrower has not paid the Transaction Costs as provided
in section 2.1(D) of the Loan and Security Agreement, whether in excess of the
Advances Limit or otherwise, made thereunder.
Interest on the unpaid Loan Balance, at the then applicable rate of
interest prescribed above, shall accrue from the date of each such Advance or
the date any Transaction Cost is incurred, subject to section 2.1(D) of the Loan
and Security Agreement, until the balance thereof shall have been paid in full.
Interest, not otherwise payable on demand as aforesaid, on the then Loan Balance
shall be payable monthly in arrears, at the then applicable rate, commencing on
the first month after each Advance is made or Transaction Cost is incurred,
subject to section 2.1(D) of the Loan and Security Agreement, and continuing
thereafter on the first (1st) day of each calendar month.
The Lender shall maintain an account record of the amount of all Advances
and Transaction Costs made to or on behalf of the Borrower and the payments of
principal, interest, fees and Transaction Costs made by the Borrower in
connection therewith, which
<PAGE>
account record shall serve as prima facie evidence of the Loan Balance. The
failure of the Lender to maintain an account record upon the making of any
Advance or the payment of principal, interest, fees or Transaction Costs
thereon, however, shall not limit or impair the rights and remedies of the
Borrower if a payment of principal, interest, fees or Transaction Costs has been
made in accordance with the provisions of the Loan and Security Agreement and
this Note.
Payment of all sums evidenced by this Note, whether principal, interest,
fees or Transaction Costs is secured by a first priority security interest and
Lien upon the Collateral granted by the Borrower to the Lender under and
pursuant to the Loan and Security Agreement. Reference is hereby made to the
Loan and Security Agreement for a more complete description of the security for
the repayment of the Obligations of the Borrower evidenced hereby.
Upon the occurrence of an Event of Default specified in the Loan and
Security Agreement, the aggregate outstanding Loan Balance hereof, together with
interest thereon at the Default Rate set forth in the Loan and Security
Agreement, shall be immediately due and payable.
The Borrower acknowledges that the Lender does not intend for the Loan
Balance to exceed, at any time, the Advances Limit. Notwithstanding the
foregoing, if, for any reason, the Lender should make an Advance or incur a
Transaction Cost, which, together with the then Loan Balance, exceeds the
Advances Limit, then the Borrower agrees that it will, immediately upon receipt
of written demand from the Lender, repay the amount by which the Loan Balance
exceeds the Advances Limit.
No reference herein to the Loan and Security Agreement and no provision of
this Note or any of the other Loan Documents shall alter or impair the
Obligations of the Borrower, which are hereby acknowledged to be absolute and
unconditional, to pay the principal, interest, fees or Transaction Costs on or
in connection with this Note, at the place, in the manner and in the currency
herein provided.
The Loan and Security Agreement provides for the Borrower to elect to
prepay the Loan Balance to the Lender, together with interest thereon at the
then applicable rate, at the times, in the manner, with the fees and upon the
notice therein prescribed.
In the event any payment required hereunder shall not be received by the
Lender within ten (10) days of demand therefore, or if not otherwise payable on
demand, within ten (10) days of the due date set forth herein, the Borrower
shall, to the extend permitted by law, pay the Lender a late charge of Five
Percent (5%) of the overdue payment (but in no event
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<PAGE>
less than $25.00 nor more than $2,500.00). My such late charge payable hereunder
shall be immediately due and payable.
The Borrower hereby irrevocably authorizes and directs the Lender on the
due date of any installment of payment arising hereunder to charge any account
of the Borrower maintained by the Borrower, including without limitation, any
demand account or Cash Collateral Account, for the full amount of the payment
the due hereunder.
This Note shall be governed by and construed in accordance with the laws of
the State of New York.
The Borrower, and any endorser, guarantor or otherwise, hereby waive
presentation, demand, or protest or other requirements of any kind (including,
without limitation, valuation and appraisement, diligence, notice of intent to
demand or accelerate and notice of acceleration) in connection with the payment
and enforcement of this Note except as may be expressly set forth in the Loan
and Security Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed on the day and year first above written.
WITNESS NATURAL GAS VEHICLE SYSTEMS, INC.
/s/ [Illegible] By: /s/ John M. Bacon
- ------------------------------ --------------------------------------
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LOAN AND SECURITY AGREEMENT
DATED: April 4, 1996
BY AND BETWEEN
NATURAL GAS VEHICLE SYSTEMS, INC.,
A Delaware Corporation,
Borrower
-And-
PAUL S. DOPP,
Lender
================================================================================
<PAGE>
THIS LOAN AND SECURITY AGREEMENT (together with any written amendments,
supplements or modifications hereof or hereto from time to time, hereinafter
referred to as this "Agreement"), is dated as of April 4, 1996, by and between
NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware corporation, having its principal
place of business at 5580 Cherry Avenue, Long Beach, California 90805 (together
with its successors and assigns, hereinafter referred to as the "Borrower") and
PAUL S DOPP, residing at 58 Lyons Place, Basking Ridge, New Jersey 07920
(together with his heirs and assigns, hereinafter referred to as the "Lender").
WITNESSETH
WHEREAS, the Borrower has requested that the Lender provide it with a loan
in the principal amount of SIX HUNDRED THOUSAND DOLLARS ($600,000.00)
(hereinafter referred to as the "Loan"); and
WHEREAS, the Lender has agreed to make the Loan in accordance with the
terms and provisions of this Agreement and evidenced by that certain Promissory
Note dated on the Closing Date (hereinafter defined) in the principal amount of
SIX HUNDRED THOUSAND DOLLARS ($600,000.00)(hereinafter referred to as the
"Note").
NOW, THEREFORE, in consideration of the Lender's willingness to make the
Loan to the Borrower, and the Borrower's willingness to perform the duties of
payment and performance set forth in this Agreement, as well as the mutual
promises and covenants set forth herein, and desiring to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
In this Agreement, unless a different meaning clearly appears from the
context, the following terms shall have the meanings herein specified:
"Bankruptcy Code" shall mean Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time and any successor statute or
statutes.
"Borrower" shall have the meaning provided in the Preamble of this
Agreement.
"Business Day" shall mean any day excluding Saturday, Sunday and any day
which shall be in New Jersey a legal holiday or a day on which banking
institutions are authorized or required by law-or other government action to
close.
"Closing Date" shall mean the date on which this Agreement is executed and
delivered by the Lender and the Borrower.
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<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute, and all regulations, pronouncements or
rulings issued in connection therewith.
"Collateral" means that certain three-roller "Leifeld" flow forming
machine, Model Number Leico St-65-132-CNC, owned by the Borrower.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Event of Default" shall have the meaning provided in Section 7.1 of this
Agreement.
"Fiscal Year" means, with respect to the Borrower, each twelve month period
ending on the 31st day of each December arising during the term of the Loan.
"GAAP" shall mean United States generally accepted accounting principles as
in effect from time to time.
"Indebtedness" includes all items that in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet as at the date as of which debt is to be determined, or to which
reference should be made by footnotes thereto, but also includes reimbursement
obligations, guaranties, endorsements (other than endorsements for collection or
deposit in the ordinary course of business), and other contingent obligations in
respect of, or to purchase or otherwise acquire or advance funds on account of
or otherwise service, obligations of others.
"Interest Rate" means twelve percent (12%) per annum.
"Lien" shall mean any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same effect an
any of the foregoing and the filing of any financing statement or similar
instrument under the UCC or comparable law of any jurisdiction, domestic or
foreign.
"Loan Documents" means this Agreement, together with all Schedules hereto,
the Note, and all other documents or instruments executed and/or delivered by
either Borrower or Lender, or both, hereunder or thereunder or in connection
herewith or therewith from time to time.
"Material Adverse Effect" shall mean a material adverse effect upon (i) the
business, operations, properties, assets, prospects or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole, or the
ability of the Borrower to perform, or of the Lender to enforce, any of the
Obligations.
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"Obligations" means (A) the full and timely payment of all amounts due
under the Note and the other Loan Documents, when and as same shall become due
in accordance with the terms hereof and thereof; and (B) the due and timely
performance of all obligations and observance of all covenants of the Borrower
thereunder and under the Note; and (C) the full and timely payment by Borrower
of all amounts due under any document, instrument, or agreement executed in
connection therewith.
"Person" shall mean and include any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or agency, department or instrumentality thereof.
"Subsidiary" of any Person shall mean and include (i) any corporation, 50%
or more of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries, or (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, is either a general partner or has a 50% or more equity interest
at the time.
"Termination Date" shall mean the earlier of December 31, 1996 or the date
of the Lender's written notice to the Borrower that a Default or Event of
Default has occurred under any of the Loan Documents.
"UCC" shall mean the Uniform Commercial Code as in effect in any relevant
jurisdiction from time to time.
ARTICLE II - THE LOAN
Section 2.1. The Loan. Subject to the terms and conditions hereof, the
Lender agrees to make the Loan to the Borrower on the Closing Date. The
principal amount of the Loan, together with accrued interest thereon at the rate
set forth hereinabove, shall be repaid in the following manner:
a. Commencing on May 1, 1996, and continuing thereafter on the first (1st)
day of each succeeding calendar month (hereinafter the "Monthly Payment Date"),
through and including December 1, 1996, the Borrower shall make payments of
interest only, at the rate described hereinabove on the unpaid principal amount
of the Loan.
b. Thereafter on December 31, 1996 (hereinafter referred to as the "Balloon
Payment Date") the Borrower shall make a final monthly payment consisting of the
entire principal amount of the Loan together with accrued interest thereon
calculated based on the rate of interest described above from the previous
Monthly Payment Date through and including the Balloon Payment Date.
Section 2.2. Cross Collateral/Cross Default. The Borrower acknowledges and
agrees that, in consideration of the Loan and such other financial
accommodations as the Lender may make to the Borrower in the future, the
Collateral granted by the Borrower hereunder shall serve to collateralize
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any and all other Indebtedness of the Borrower to the Lender, whether presently
existing or hereafter arising; and the parties further agree that: (i) an "Event
of Default" within the meaning of any loan agreement, note, security agreement
or other document or instrument relating to any other Indebtedness of the
Borrower to the Lender, whether presently existing or hereafter arising, shall
constitute an "Event of Default" hereunder and under the Loan Documents; and
(ii) that an "Event of Default" hereunder or under any of the Loan Documents, or
any other documents or instrument executed and delivered by the Borrower to the
Lender in connection therewith, shall constitute an "Event of Default" within
the meaning of any such other loan agreement, note, security agreement or other
document or instrument.
Section 2.3. Method and Place of Payment. (A) Except as otherwise
specifically provided in Section 2.1 hereof; all payments under this Agreement
and the Note shall be made to the Lender on the date when due and shall be made
in lawful money of the United States of America in immediately available funds
to the Lender's office.
(B) Whenever any payment to be made hereunder or under the Note shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable at the applicable rate during
such extension or, at the election of the Borrower, the Borrower may make such
payment on the last Business Day preceding such non-Business Day and the
applicable interest payments shall be calculated with respect to such Business
Day.
(C) All payments made by the Borrower hereunder and under the other Loan
Documents shall be made irrespective of, and without any reduction for, any set
off or counterclaims.
Section 2.4. Payment of Fee. As additional consideration for the making of
the Loan, Borrower shall pay to Lender a fee in the amount of $30,000.00. Said
fee shall be paid to the Lender by the Borrower by the Borrower's issuance to
Lender by overnight express delivery service immediately after receipt by the
Borrower of the proceeds of the Loan of a business check payable to the order of
the Lender in the amount of the aforesaid fee. In addition, Borrower shall pay
the reasonable legal fees and disbursements of Robinson, St. John and Wayne,
counsel to Lender, by issuance to said firm of by overnight express delivery
service immediately after receipt by the Borrower of the proceeds of the Loan of
a business check payable to the order of Robinson, St. John and Wayne in the
amount of such fees and disbursements.
ARTICLE III - THE COLLATERAL
Section 3.1. The Collateral. As collateral security for the due and
punctual payment of the Note and the performance by the Borrower of all of its
Obligations to the Lender under this Agreement and each of the Loan Documents;
and as collateral security for the Borrower's repayment of all sums due, and
performance of all acts required, under any other loan and security agreement,
note, or other document or instrument relating to any other Indebtedness of the
Borrower to the
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Lender, whether presently existing or hereafter arising, the Borrower hereby
grants to the Lender a first priority, security interest and lien in and to the
Collateral.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the Borrower
makes the following representations and warranties as of the Closing Date which
shall survive the execution and delivery of this Agreement and the Note.
Section 4.1. Corporate Status. The Borrower (i) is a duly organized and
validly existing corporation in good standing under the laws of the jurisdiction
of its organization, (ii) has the corporate power and authority to own its
property and assets and to transact the business in which it is engaged or
presently proposes to engage, and (iii) has duly qualified and is authorized to
do, business and is in good standing as a foreign corporation in every
jurisdiction in which it owns or leases real property or in which the nature of
its business requires it to be so qualified.
Section 4.2. Power and Authority. The Borrower has the corporate power and
authority to execute, deliver and carry out the terms and provisions of the Loan
Documents and has taken any necessary corporate action to authorize the
execution, delivery and performance by it of such Loan Documents. The Borrower
has duly executed and delivered each such Loan Document, and each such Loan
Document constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and by general principles of equity.
Section 4.3. No Violation. Neither the execution, delivery or performance
by the Borrower of the Loan Documents, (i) will contravene any applicable
provision of any law, statute, rule, regulation, order, writ, injunction or
decree of any court or governmental instrumentality, or (ii) will conflict or be
inconsistent with or result in any breach of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of the Borrower (except pursuant
hereto) pursuant to the terms of any indenture, mortgage, deed of trust,
agreement or other instrument to which the Borrower is a party or by which it or
any of its property or assets is bound or to which it may be subject, or (iii)
will violate any provision of the Certificate of Incorporation and By-Laws of
the Borrower.
Section 4.4. Litigation. There are no actions, suits or proceedings pending
or threatened (i) with respect to the Loan Documents, (ii) the making or the
borrowing of the Loan contemplated in the Loan Documents, or (iii) that could,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
Section 4.5. Security Interest and Lien. This Agreement creates, as
security for the Obligations, a valid and enforceable security interest in and a
Lien on the Collateral, in favor of the
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Lender, and subject to no other security interest and Lien other than those set
forth on Schedule 1 hereto. The security interest in and Lien on the Collateral
in favor of the Lender are superior to and prior to the rights of all third
parties except as set forth on Schedule 1 hereto. No further recordings or
filings are or will be required in connection with the creation, perfection or
enforcement of such security interest and Lien.
Section 4.6. Tax Returns and Payments. The Borrower has filed all tax
returns required to be filed by it and has paid all taxes and assessments
payable by it which have become due, other than those not yet delinquent or
those that are reserved against in accordance with GAAP which are being
diligently contested in good faith by appropriate proceedings.
Section 4.7. No Default. The Borrower is not in default under or with
respect to any agreement, instrument or undertaking to which it is a party or by
which it or any of its property is bound.
Section 4.8. Licenses, etc. The Borrower has obtained and holds in full
force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way and
other rights, consents and approvals which are necessary or useful for the
operation of its businesses as presently conducted.
Section 4.9. Compliance with Law. The Borrower is in compliance with all
laws, rules, regulations, orders, judgments, writs and decrees.
Section 4.10. No Liens. No Lien exists upon any of the Collateral except
for the prior Liens listed on Schedule 1 granted by the Borrower to the Persons
listed thereon.
Section 4.11. Financials. The audited financial statements of the Borrower
dated December 31, 1994, and the unaudited monthly financial statements of the
Borrower dated January 31, 1996 and February 29, 1996, attached hereto as
Exhibits 4.11(A), (B) and (C) respectively (1) fairly and accurately present the
financial position and results of operations of the as of and for the periods
indicated, and (2) reflect all of the Borrowers' material liabilities as of such
date.
ARTICLE V - COVENANTS
Section 5.1. Information Covenants, The Borrower will furnish to the
Lender:
(A) Notice of Default or Litigation. Promptly and in any event within two
(2) Business Days after the Borrower obtained knowledge thereof, notice of (i)
the occurrence of any Default or Event of Default, (ii) any litigation or
governmental proceeding pending or threatened against the Borrower which could
reasonably be expected to result in a Material Adverse Effect, and (iii) any
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other event, act or condition which could reasonably be expected to result in a
Material Adverse Effect.
(B) Monthly Financials. As soon as available and in any event within thirty
(30) days after the end of each of monthly period, a balance sheet of the
Borrower as of the end of such period, and financial statements of the Borrower
for such period, all in reasonable detail and all prepared in accordance with
GAAP consistently applied and certified by the chief financial officer of the
Borrower;
(C) Annual financial statements. As soon as available the audited financial
statements and balance sheets of the Borrower for fiscal year ending December
31, 1995 all in reasonable detail and all prepared in accordance with GAAP
consistently applied and certified by the chief financial officer of the
Borrower;
(D) Other Information. From time to time, such other information or
documents (financial or otherwise) as the Lender may reasonably request.
Section 5.2. Maintenance of Insurance. The Borrower shall at all times
during the term of this Agreement, maintain insurance on the property and assets
of the Borrower with insurance companies then having a "Best's" rating of A+ or
better or by companies otherwise satisfactory to the Lender, and in all cases
licensed to do business in the State of California in such amounts, in such
manner, and against such loss, damage or liability (including liability to third
parties), as is customary with companies in the same or similar business and
located in the same or similar areas. In all cases, insurance shall include:
(i) Public liability insurance insuring against any and all liability or
claims of liability arising out of; occasioned by, or resulting from
any accident or otherwise resulting in or about any premises occupied
by the Borrower, or resulting from any business activities conducted
by the Borrower, in a minimum amount of $1,000,000.00.
(ii) Property damage and broad form fire and extended coverage insurance in
an amount not less than 100% of the full replacement cost of its
principal place of business located in Long Beach, California, without
depreciation and as to the Collateral and all of its other assets in
an amount not less than $1,000,000.00 of primary coverage without
deduction for depreciation or obsolescence, and insurance insuring
against such other hazards, casualties and contingencies as the Lender
may require;
(iii) Necessary worker's compensation insurance and any insurance that may
be required by law; and
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(iv) Business interruption insurance.
Such insurance coverage may be affected under overall blanket or excess
coverage policies of the Borrower and shall be for amounts sufficient to prevent
the Borrower from being co-insurers within the terms of such policy. Each
insurance policy maintained pursuant to this Section 5.2 other than public
liability and working compensation insurance policies shall name the Lender as
loss payee and additional insured, and Borrower shall provide an ACCORD
Certificate of Insurance to Lender within fifteen (15) days of the Closing Date
which evidences such loss payee and additional insured status in favor of
Lender. At least thirty (30) days prior to the expiration of any such policy,
the Borrower shall furnish evidence satisfactory to the Lender that such policy
has been renewed or replaced.
In the event of any loss or damage to or taking or condemnation of
Collateral, the proceeds of any insurance policy or condemnation award covering
the same shall, as to their disposition, be and become the sole property and
asset of the Lender, which shall have sole dominion and control thereof, and at
the option of the Lender, shall be applied (1) to pay for the cost of making
such repairs, restorations, reconstructions or replacements of the Collateral
involved as are necessary to repair, restore or reconstruct said assets to
substantially their condition immediately prior to such event or to a condition
of at least equivalent value; or (2) prepay all or, to the extent that proceeds
are insufficient to prepay all, to prepay a portion of the principal balance of
the Loan together with all accrued interest thereon. Any such prepayment of the
Note shall be applied first to accrued interest and then to principal. In the
event of a public liability occurrence, the proceeds of any insurance policy
covering the same shall be applied toward satisfaction of any liability
resulting from such occurrence.
Section 5.3. Certain Meetings. So long as the principal indebtedness
evidenced by the Note shall be outstanding, Borrower shall invite Lender to
attend every meeting of the Finance Committee and the Board of Directors of the
Borrower and shall provide Lender with the same notice as provided to Board or
Committee members for such purpose. In connection therewith, Lender shall
execute and deliver for the benefit of the Corporation such undertakings and
agreements as to confidentiality with respect to matters discussed or materials
disclosed at any such meetings as may be requested from time to time by
Borrower.
ARTICLE VI - NEGATIVE COVENANTS
The Borrower covenants and agrees that on and after the Closing Date until
the Obligations have been indefeasibly paid in full:
Section 6.1. Restriction on Fundamental Changes. Borrower will not, and
will not permit any Subsidiary to: (A) make any substantial change in its
present business or engage in any activities apart from its present business;
(B) dissolve, merge or consolidate with or into any corporation or otherwise
change its identity or corporate structure; (C) sell, lease, transfer, or
otherwise dispose of all or any substantial part of its assets (except in the
ordinary course of business), whether now owned
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or hereafter acquired; or (D) change its corporate name or the use of any trade
names; or (E) change its chief executive office; or (F) change the location of
the Collateral.
Section 6.2. Leases; Capital Expenditures: Investments. Borrower shall not,
and will not permit any Subsidiary to: (A) create, incur, assume, or suffer to
exist any lease obligation other than lease obligations incurred in the ordinary
course of business of Borrower and its Subsidiaries; (B) make any investment in,
or make any loan or advance to, any person, partnership, or corporation,
including officers, stockholders, or directors of Borrower; (C) purchase or
otherwise invest in or hold securities, nonoperating real estate, or other
nonoperating assets, except direct obligations of the United States of America
or certificates of deposit or equivalent securities issued by Lender; or (D)
purchase or acquire obligations owed by others.
Section 6.3. Certain Restrictions. The Borrower shall not, and shall not
permit any Subsidiary or any Person controlling the Borrower to enter into any
agreement (other than the Loan Documents) which restricts the ability of the
Borrower or any Subsidiary to: (A) enter into amendments, modifications or
waivers of the Loan Documents, (B) sell, transfer or otherwise dispose of its
assets, (C) create, incur, assume or suffer to exit any Lien upon any of its
property, (D) create, incur, assume, suffer to exist or otherwise become liable
with respect to any Indebtedness, or (E) pay any dividend.
Section 6.4. Year; Fiscal Quarter. The Borrower shall not, and shall not
permit any of its Subsidiaries to, change its Fiscal Year or any of its fiscal
quarters,
ARTICLE VII - EVENTS OF DEFAULT
Section 7.1. Events of Default. Each of the following events, acts,
occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation or law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any court or administrative or governmental body:
(A) Failure to Make Payments. The Borrower shall default in the payment
when due of any interest or principal on the Loan or in the payment when due of
any other amounts owing hereunder.
(B) Breach of Representation or Warranty. Any representation or warranty
made by the Borrower herein or in any other Loan Document or in any certificate
or statement delivered pursuant hereto or thereto shall prove to be false or
misleading in any material respect on the date as of which made or deemed made.
(C) Default Under Other Agreements. (i) The Borrower shall default in the
payment when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) of any amount owing in respect of any
Indebtedness (other than the Obligations), or the Borrower shall default in the
performance or observance of any obligation or condition with respect to any
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Indebtedness, or any other event shall occur or condition shall exist, if the
effect of such default, event or condition is to accelerate the maturity of any
Indebtedness, or any such Indebtedness shall become or be declared to be due and
payable prior to its stated maturity other than as a result of a regularly
scheduled payment; or (ii) any default or event of default shall occur under any
Agreement to which the Borrower is a party.
(D) Bankruptcy, etc. (i) The Borrower shall commence a voluntary case
concerning itself under the Bankruptcy Code; or (ii) an involuntary case is
commenced against the Borrower and the petition is not controverted within ten
(10) days, or is not dismissed within thirty (30) days, after commencement of
the case; or (iii) custodian (as defined in the Bankruptcy Code) is appointed
for, or takes charge of, all or substantially all of the Collateral or other
property of the Borrower or the Borrower commences any other proceedings under
any reorganization, arrangement, adjustment of debt, relief for debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Borrower or there is
commenced against the Borrower any such proceeding which remains undismissed for
a period of thirty (30) days; or (iv) any order of relief or other order
approving any such case or proceeding is entered; or (v) the Borrower is
adjudicated insolvent or bankrupt; or (vi) the Borrower suffers any appointment
of any custodian or the like for its or any substantial part of its property to
continue undischarged or unstayed for a period of thirty (30) days; or (vii) the
Borrower makes a general assignment for the benefit of creditors; or (viii) the
Borrower shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or (ix) the Borrower
shall call a meeting of its creditors with a view to arranging a composition or
adjustment of its debts; or (x) the Borrower shall by any act or failure to act
consent to, approve of or acquiesce in any of the foregoing; or (xi) any
corporate action is taken by the Borrower for the purpose of effecting any of
the foregoing.
(E) Security. The security interest or Lien granted by the Borrower to the
Lender shall for any reason cease to be in full force and effect, or shall cease
to give the Lender the Liens, rights, powers and privileges purported to be
created thereby including, without limitation, a perfected. priority security
interest in, and Lien on, all of the Collateral in accordance with the terms
thereof.
(F) Judgment. One or more judgments or decrees in an aggregate amount of
$25,000 or more shall be entered by a court or courts of competent jurisdiction
against the Borrower (other than any judgment as to which, and only to the
extent, a reputable insurance company has acknowledged coverage without
reservation of such claim in writing) and (i) any such judgments or decrees
shall not be stayed, discharged, paid, bonded or vacated within thirty (30)
days, or (ii) enforcement proceedings shall be commenced by any creditor on any
such judgments or decrees.
(G) If in the Lender's reasonable judgment, the value of the Collateral so
substantially deteriorates or diminishes, that the Lender reasonably deems the
Obligations to be inadequately secured and Borrower, within two (2) days of
notice by the Lender, neither (i) provides additional collateral, nor (ii)
reduces the amount of the Obligation. Which action, in either such event, is
satisfactory to the Lender.
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(H) Any loss, theft, or destruction of, or damage to, any substantial
portion of the Collateral for which there is either no insurance coverage or for
which, in the opinion of Lender, there is insufficient insurance coverage.
(I) Occurrence of any Material Adverse Change in the business operations,
properties or financial condition of Borrower or any Subsidiary.
(J) Any levy, seizure or attachment upon any collateral by any third party.
(K) Borrower shall in any material respect fail to comply with any statute,
rule, regulation, ordinance, order or any law or judicial decree regarding
Borrower or is premises or assets.
Section 7.2. Rights and Remedies.
(A) Upon the occurrence of any Event of Default, the principal balance of
the Loan and any and all accrued interest thereon and any and all accrued fees
and other Obligations shall automatically become immediately due and payable,
all without presentment, demand, or protest or other requirements of any kind.
(B) Borrower agrees that if an Event of Default hereunder or under the Note
or under any Loan Document shall have occurred and be continuing, then, in
addition to any other rights and remedies provided for herein or which may
otherwise be available, the Lender may without any further demand, advertisement
or notice (except as expressly provided for below or as may be required by
mandatory provisions of law), exercise all the rights and remedies of a secured
party under the UCC (whether or not the UCC applies to the affected Collateral),
and in addition: (i) may apply the moneys, if any, then held by or on behalf of
it as part of the Collateral to the Obligations, and (ii) may sell or otherwise
dispose of the Collateral, or any part thereof, as hereinafter provided. Upon
ten (10) days prior written notice to the Borrower, which notice Borrower
acknowledges is sufficient, proper, and commercially reasonable, sell, lease or
otherwise dispose of the Collateral, at any time and from time to time, in whole
or in part, at public or private sale, without advertisement or notice of sale,
all of which are hereby waived and apply the proceeds of any such sale: (x)
first, to the expenses of the Lender in preparing the Collateral for sale,
selling and the like, including, without limitation, reasonable attorneys' fees
and expenses incurred by the Lender (including fees and expenses of any
litigation incident to the foregoing); (y) second, to the complete satisfaction
of all of the Obligations together with all interest accrued thereon; and (z)
then, to pay any excess to the Borrower. Borrower hereby waives the benefit of
any marshalling statute or similar legal doctrine and agree that the Lender may
exercise its rights against the Collateral and apply the proceeds thereof to any
of the Obligations in any order which the Lender, in its sole discretion, deems
appropriate.
Upon the occurrence and during the continuance of an Event of Default, the
Lender shall have the right, at the expense of the Borrower, to enforce
collection of any amounts payable under any agreement, instrument or other
obligation, to instruct the obligor or obligors on any such agreement,
instrument or obligation to make any payment required by the terms of such
instrument or agreement
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directly to the Lender and require payment to the Lender of all such amounts,
and to adjust, settle or compromise the amount or payment thereof in the same
manner and to the same extent as the Borrower might have done. Upon the
occurrence and during the continuance of an Event of Default, the Borrower
shall, upon the instruction of the Lender, instruct the obligor or obligors on
each such agreement, instrument or obligation to make any such payment to the
Lender.
(C) The Borrower agrees to pay all costs of the Lender (including, without
limitation, attorneys' fees, expenses and disbursements) incurred in connection
with the collection of the Obligations and the enforcement by the Lender of its
rights hereunder.
Section 7.3. Remedies Cumulative; No Waiver. Each and every right, power
and remedy hereby given to the Lender shall be in addition to every other right,
power and remedy specifically given under this Agreement or under any other Loan
Document now or hereafter existing at law or in equity, or by statute, and each
and every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time or simultaneously and as often and
in such order as may be deemed expedient by the Lender. All such rights, powers
and remedies shall be cumulative and the exercise or the beginning of exercise
of one shall not be deemed a waiver of the right to exercise of any other or
others. No delay or omission of the Lender in the exercise of any such right,
power or remedy and no renewal or extension of any of the Obligations shall
impair any such right, power or remedy or shall be construed to be a waiver of
any Default or Event of Default or an acquiescence thereto.
Section 7.4. Discontinuance of Proceedings. In case the Lender shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason, then and in every such case,
the Borrower and the Lender shall be restored to their former positions and
rights hereunder with respect to the Collateral subject to the security interest
created under this Agreement, and all rights, remedies and powers of the Lender
shall continue as if no such proceeding had been instituted.
ARTICLE VIII - MISCELLANEOUS
Section 8.1. No Agreement as to Future Borrowing. The Lender expressly
acknowledges and agrees that the Borrower's performance of its Obligations
hereunder or under any Loan Document shall not give rise to any claim by the
Lender or any third-party based on contract, implied contract, reliance or any
other foundation in law or in equity that the Borrower shall be obligated to
consummate or engage in negotiations for any borrowing or other transaction with
the Lender, International Asset Recovery ("IAR"), any respective successor,
assign or subsidiary of the Lender or IAR, or other third-party.
Section 8.2. Payment of Expenses. The Borrower shall pay all reasonable
out-of-pocket costs and expenses of the Lender in connection with the
negotiation, preparation, execution and delivery of the Loan Documents and the
documents and instruments referred to therein, the creation, perfection
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or protection of the Lender's Lien in the Collateral (including, without
limitation, reasonable fees and expenses for lien searches and filing and
recording fees), any amendment, waiver or consent relating to any of the Loan
Documents (including, without limitation, reasonable fees and expenses for lien
searches and filing and recording fees), any amendment, waiver of consent
relating to any of the Loan Documents (including, without limitation, as to each
of the foregoing, the reasonable fees and disbursements of counsel to the Lender
any other consultants, advisors and attorneys retained by the Lender, including
such counsel as shall be an employee of the Lender or an affiliate of the
Lender) and of the Lender in connection with the preservation of rights under,
and enforcement of, the Loan Documents and the documents and instruments
referred to therein or in connection with any restructuring or rescheduling of
the Obligations (including, without limitation, the fees and disbursements of
counsel for the Lender).
Section 8.3. Notices. Any demand or notice required or permitted to be
given hereunder shall be deemed effective when deposited in the United States
mail, and sent by first-class, postage prepaid, by overnight courier, or by
hand, addressed in each case to Lender or to Borrower at their respective
address herein, or to such other address as either party shall designate for
itself in writing to the other party.
Section 8.4. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Borrower, the Lender, all future holders of the
Note and their respective successors, heirs and assigns, except that neither
party to this Agreement may assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of the other party.
Section 8.5. Amendments and Waivers. The provisions of this Agreement or
any other Loan Document may only be amended, supplemented, modified, waived,
discharged or terminated by an instrument in writing (and not orally) signed by
all parties hereto.
Section 8.6. Certain Performances. If Borrower fails to perform any
agreement contained herein, the Lender may upon the occurrence and continuance
of any Event of Default itself perform, or cause performance of, such agreement,
and the expenses of the Lender incurred in connection therewith shall be payable
by the Borrower on demand. It is expressly agreed, anything contained herein or
in any other Loan Document to the contrary notwithstanding, that the Borrower
shall remain liable to perform all of the obligations assumed by it with respect
to the Collateral and the Lender shall not have any obligations or liabilities
with respect to any Collateral by reason of or arising out of this Agreement,
nor shall the Lender be required or obligated in any manner to perform or
fulfill any of the Obligations of the Borrower under or with respect to any
Collateral. The Lender shall not have any duty to take any steps to preserve
rights against prior parties with respect to any instruments or chattel paper.
Section 8.7. Law; Submission to Jurisdiction.
(A) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
-13-
<PAGE>
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW
JERSEY.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW JERSEY OR OF THE UNITED
STATES OF AMERICA FOR THE DISTRICT OF NEW JERSEY, AND, BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND APPELLATE COURTS FROM ANY THEREOF, THE BORROWER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN THE
PREAMBLE ABOVE, THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS
OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM, NOTHING HEREIN SHALL EFFECT THE RIGHT OF THE LENDER OR ANY
HOLDER OF THE NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION.
Section 8.8. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instruments.
Section 8.9. Effectiveness. This Agreement shall become effective on the
date on which all of the parties hereto shall have signed a counterpart hereof
and shall have delivered the same to the Lender.
Section 8.10. Headings Descriptive. The headings of the several Sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
Section 8.11. Marshalling Recapture. The Lender shall not be under any
obligation to marshal any assets in favor of the Borrower or any other party or
against or in payment of any or all of the Obligations. To the extent the Lender
receives any payment by or on behalf of the Borrower, which payment or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set
-14-
<PAGE>
aside or required to be repaid, and is repaid, by the Lender to such Borrower or
its estate, trustee, receiver, custodian or any other party under any bankruptcy
law, state or federal law, common law or equitable cause, then to the extent of
such payment or repayment, the obligation or part thereof which has been paid,
reduced or satisfied by the amount so repaid shall be reinstated by the amount
so repaid and shall be included within the Obligations of the Borrower to the
Lender as of the date such initial payment, reduction or satisfaction occurred.
Section 8.12. Severability. In case any provision in or obligation under
this Agreement or the Note or the other Loan Documents shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality, and enforceability
of the remaining provisions or obligations, or of such provision or obligation
in any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 8.13. Survival. All indemnities set forth herein, including without
limitation as set forth in Section 7.2, shall survive the execution and delivery
of this Agreement and the Note and the making and repayment of the Loan
hereunder.
Section 8.14. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ALL RIGHT
OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING
HEREUNDER OR THEREUNDER.
-15-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered
this Agreement as of the date first above written.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ John N. Bacon
-----------------------------
John Bacon, President
Lender:
PAUL S. DOPP
By: /s/ Paul S. Dopp
-----------------------------
-16-
<PAGE>
SCHEDULE 1
SECURITY INTEREST AND LIENS
Borrower granted a security interest to Caithness Corporation, a Delaware
corporation, in all of the machinery, equipment and accounts receivable of the
Borrower. Simultaneously with the closing of this Loan, Borrower will file a
UCC-2 financing statement with the Secretary of State of California for the
release of the security interest in the Collateral.
-17-
<PAGE>
SCHEDULE 2
INDEBTEDNESS
Loan and Security Agreement dated as of March 8, 1996 by and between
Borrower and Caithness Corporation evidencing Borrower's obligation to Caithness
Corporation which obligation is contingent on a draw by Aluminum Company of
America ("ALCOA") on that certain letter of credit issued by the Bank of New
York on account Borrower for the benefit of ALCOA.
-18-
<PAGE>
[Letterhead of KPMG Peat Marwick LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Natural Gas Vehicle Systems Inc.:
We have audited the accompanying consolidated balance sheets of Natural Gas
Vehicle Systems Inc. and subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of operations, shareholders' equity (deficiency)
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We do not audit the financial statements of NGV
Technology Center LLP, a 50% owned subsidiary, which statements reflect total
assets and revenues constituting 13 percent and 17 percent, respectively, of the
related consolidated totals as of and for the year ended December 31, 1994.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for NGV
Technology Center LLP, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Natural Gas Vehicle Systems Inc.
and subsidiaries as of December 31, 1994 and 1993 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company's recurring losses from
operations raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
February 20, 1995
Exhibit 4.11(A)
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 132,236 671,367
Accounts receivable, net of allowance
for doubtful accounts of $120,950 and
$243,001 as of December 31, 1994 and 1993, respectively 1,503,611 1,470,870
Due from related parties (note 9) 90,389 621,224
Inventories (note 4) 1,905,094 2,709,238
Other current assets 325,443 231,474
------------ ------------
Total current assets 3,956,773 5,704,173
Property and equipment, net (note 5) 4,710,898 4,528,539
Other assets 243,867 393,884
------------ ------------
$ 8,911,538 10,626,596
============ ============
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Notes payable to bank (note 6) $ 355,000 150,000
Current portion of long-term debt (note 7) 115,085 140,656
Note payable - other (note 9) 175,000 80,000
Note payable to related parties (note 9) 200,000 --
Accounts payable 2,087,995 1,694,524
Accrued expenses 1,608,576 801,778
Accrued restructuring costs (note 14) 300,000 --
------------ ------------
Total current liabilities 4,841,656 2,866,958
------------ ------------
Long-term debt, less current portion (note 7) 3,102,269 3,214,543
Long-term notes payable to related parties (note 9) 2,015,769 --
Minority interests 1,142,182 853,314
Shareholders' equity (deficiency) (note 10):
Preferred stock, $5 par value. Authorized
50,000 shares; none issued and outstanding -- --
Common stock, $.01 par value. Authorized
20,000,000 shares; issued and outstanding
3,576,584 and 3,520,834 shares as of
December 31, 1994 and 1993, respectively 35,765 35,208
Additional paid-in capital 13,873,768 13,489,326
Accumulated deficit (16,099,871) (9,832,753)
------------ ------------
Net shareholders' equity (deficiency) (2,190,338) 3,691,781
Commitments (note 13)
------------ ------------
$ 8,911,538 10,626,596
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC
AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Net sales (note 9) $ 8,938,296 9,424,055
Operating costs and expenses (note 9):
Cost of sales 10,178,860 8,870,511
Research and development 713,875 806,721
Selling 935,375 702,286
General and administrative 3,546,922 2,574,895
Restructuring charge (note 14) 482,100 --
------------ ------------
Loss from operations (6,918,836) (3,530,358)
------------ ------------
Other income (expense):
Interest income earned from related parties 13,509 32,566
Interest expense, net (375,205) (234,772)
Other income (expense), net (1,976) 15,088
------------ ------------
(363,672) (187,118)
------------ ------------
Loss before income taxes
and minority interests (7,282,508) (3,717,476)
Income taxes (note 8) -- --
------------ ------------
Loss before minority interests (7,282,508) (3,717,476)
Minority interests in net losses of subsidiaries 1,015,390 714,977
------------ ------------
Net loss $ (6,267,118) (3,002,499)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,267,118) (3,002,499)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 648,041 663,534
Minority interests in net loss of subsidiaries (1,015,390) (714,977)
Allowance for doubtful accounts (122,091) 232,427
Changes in assets and liabilities:
Accounts receivable 89,350 (728,861)
Due from related parties 530,835 (621,224)
Inventories 804,144 266,427
Other current assets (93,969) (203,309)
Other assets 150,017 (151,727)
Accounts payable 393,471 (952,667)
Accrued expenses 806,798 575,102
Accrued restructuring costs 300,000 --
Due to Caithness/NCF Company -- (282,333)
----------- -----------
Net cash used in operating activities (3,775,912) (4,920,150)
----------- -----------
Cash flows from investing activities - purchase of
property and equipment (830,400) (1,124,624)
----------- -----------
Cash flows from financing activities:
Proceeds from sales of common stock 384,999 3,537,412
Proceeds from issuance of notes
payable - related parties 2,215,769 --
Proceeds from issuance of long-term debt -- 3,044,082
Contribution by minority interests 1,304,258 812,697
Borrowings from banking 365,000 150,000
Proceeds from issuance of notes payable-other 95,000 80,000
Payment on long term debt (160,000) (7,336)
Payments on borrowings from notes payable to bank (137,845) (768,000)
Payment on note payable - other -- (200,000)
----------- -----------
Net cash provided by financing activities 4,067,181 6,648,855
----------- -----------
Net increase (decrease) in cash (539,131) 604,081
Cash at beginning of year 671,367 67,286
----------- -----------
Cash at end of year $ l32,236 671,367
=========== ===========
Supplemental disclosures of cash flow
information - cash paid during the year
for interest $ 51,000 134,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(1) Business
Natural Gas Vehicle Systems, Inc. and subsidiaries (the Company)
manufactures cylinders and distributes other products used in the
conversion of gasoline-powered vehicles to natural gas-powered vehicles.
The Company also sets up joint ventures with utility companies to convert
vehicles to using natural gas fueled engines and perform laboratory testing
of vehicular emissions.
(2) Basis of Presentation
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered
recurring losses from operations and expects to continue to incur losses
for the foreseeable future due to the significant costs incurred in
connection with manufacturing and marketing its products. In addition, the
Company intends to conduct research and development activities to develop
new technology applications. Management's plans are to reorganize and
streamline its existing operations and seek additional financing from
outside sources. Success of future operations is dependent upon, among
other things, the Company's ability to execute its plan. The Company is
subject to all of the risks inherent in new business enterprises and the
likelihood of the success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with a new business. These matters raise
substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
(3) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Natural Gas
Vehicle Systems Inc. (NGVSI), its wholly owned subsidiary, NGV Development,
Inc., its 50%-owned joint ventures, NGV Technology Centers, LLP. (NGV
Technology Center) and NGV Ecotrans Technology Center (NGV Ecotrans), and
its 33.33%-owned joint venture, NGV Southeast Technology Center (NGV
Southeast) (collectively, "Company"). The Company consolidates its
investments in joint ventures because management believes that the Company
exercises control through its ownership. Further, the joint ventures
purchase substantially all products from the Company. All material
intercompany accounts and transactions have been eliminated in
consolidation.
Inventories
Inventories are stated at the lower end of cost (first-in, first-out) or
market.
1
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the assets as follow:
Machinery and equipment 10 to 15 years
Furniture and fixtures 3 to 5 years
Tools and dies 5 years
Leasehold improvements Shorter of estimated useful life or lease term
Trucks 5 years
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS No 109),
"Accounting for Income Taxes." Under the asset and liability method of SFAS
No. 109, deferred income taxes reflect the impact of "temporary
differences" between assets and liabilities for financial reporting purpose
as such amounts are measured by tax laws and regulations.
Reclassifications
Certain reclassifications have been made to the 1993 financial statements
in order to conform with the current year's presentation.
(4) Inventories
Inventories at December 31, 1994 and 1993 are summarized as follows:
1994 1993
---------- ---------
Raw materials $ 106,941 804,631
Work in process 349,760 357,508
Finished goods 1,448,393 1,547,099
---------- ---------
$1,905,094 2,709,238
========== =========
2
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Property and Equipment
Property and equipment at December 31, 1994 and 1993, at cost, consists of
the following:
1994 1993
---------- ---------
Machinery and equipment $5,469,438 4,284,236
Furniture and fixtures 310,187 307,145
Tools and dies 278,691 419,888
Leasehold improvements 289,354 324,519
Trucks 86,923 86,923
Construction in progress 103,000 403,880
---------- ---------
6,537,593 5,826,591
Less accumulated depreciation
and amortization (1,826,695) (1,298,052)
---------- ---------
$4,710,898 4,528,539
========== =========
(6) Notes Payable to Bank
Notes payable to bank consists of NGVSI's note payable of $245,000 and NGV
Technology Center's promissory note of $110,000 as of December 31, 1994.
The Company has a credit agreement with its bank that provides for a
revolving line of credit of $245,000 collateralized by a $250,000 standby
letter of credit provided by a shareholder and all of the assets the
Company. Borrowings under the revolving line of credit bear interest at
prime rate (prime rate was 8.5% at December 31, 1994) and are secured by
100% of the outstanding borrowings under the line of credit of $245,000.
As part of the credit agreement, the Company granted warrants to its bank.
Such warrants are exercisable into 32,000 shares of preferred stock at $5
per share and 16,000 shares of common stock at $5 per share. The warrants
expire in August 1997. The value of the warrants was not considered
material when issued. The credit agreement expires on May 31, 1995.
NGV Technology Center has a promissory note of $110,000 with a bank bearing
interest at prime rate (prime rate was 8.5% at December 31, 1994) plus 2%,
secured by accounts receivable and inventory. This note is payable in
monthly installments of $10,000, due on November 15, 1995.
3
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Long-term debt
Long-term debt as of December 31, 1994 and 1993 is summarized as follows:
1994 1993
----------- ---------
Senior subordinated convertible note
annual interest at 7%, payable
quarterly, convertible into 133,333
shares of the Company's common stock
at $750 per share, due in three equal
installments of $333,333 in March
2001, 2002 and 2003 $ 1,000,000 1,000,000
Senior subordinated convertible note
bearing annual interest at 7%,
payable quarterly, convertible into
266,667 shares of the Company's
common stock at $7.50 per share, due
in three equal installments of
$666,667 in March 2001, 2002 and
2003. This note is senior to the
$1,000,000 note 2,000,000 2,000,000
Contracts payable in semiannual
installments of $50,000 with a final
installment of $37,500, due
August 1996 187,500 315,268
Other 29,854 39,931
----------- ---------
3,217,354 3,355,199
Less current installments 115,085 140,656
----------- ---------
$ 3,102,269 3,214,543
=========== =========
The $1,000,000 note holder has warrants to purchase 133,333 shares of
common stock at $7.50 per share. The warrants are subject to certain
adjustments. No value has been attributed to the warrants outstanding as
the impact on the results of operations is considered immaterial to the
Company.
(8) Income Taxes
Due to the Company's net operating losses, there is no income tax benefit
or expense for the years ended December 31, 1994 and 1993.
At December 31, 1994, the Company had net operating loss carryforwards of
approximately $13,200,000 expiring through 2009. The ultimate realization
of the net operating loss carryforward will be subject to certain
limitations due to any changes in the Company's ownership and will be
dependent upon the Company attaining future taxable earnings.
No benefit has been recorded in the consolidated financial statements for
net operating losses as the entire carryforward has been offset by a
valuation allowance.
4
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the tax loss
carryforward which can be utilized, which could result in a part of such
losses expiring before they are used.
(9) Related Party Transactions
The Company is affiliated with certain entities through common ownership.
There notes payable outstanding to related parties as of December 31, 1993.
Notes payable to related parties as of December 31, 1994 are summarized as
follows:
Promissory note to Caithness Composites, bearing
interest at prime rate (8.5% at December 31, 1994)
plus 3%, due on December 31, 1997 $1,225,914
Promissory note to Caithness NCF L.P. bearing interest
at prime rate plus 3%, due on December 31, 1997 499,799
Promissory note to NCF Industries bearing interest at
prime rate plus 3%, due on December 31, 1997 145,028
Promissory note to Clock Spring Inc., bearing interest
at prime rate plus 3%, due on December 31, 1997 145,028
Promissory note to shareholder, bearing interest at
13%, due on demand 150,000
Promissory note to shareholder and officer, bearing
interest at 8.5%, due on demand 50,000
----------
2,215,769
Less current portion 200,000
----------
$2,015,769
==========
The prime rate was 8.5% at December 31, 1994.
Amounts receivable from related parties at December 31, 1994 and
1993 were as follows:
1994 1993
------- -------
Caithness/NCF Company $ 1,868 64,663
Clock Spring Company 88,521 556,561
------- -------
$90,389 621,224
======= =======
5
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
These amounts receivable are attributable to an allocation of general and
administrative expenses shared by NGVSI and Clock Spring Company, an
affiliated company through common ownership, (Clock Spring) based on
certain established criteria. Clock Spring moved its operations to Houston,
Texas during 1994. The allocated amounts to Clock Spring Company as of
December 31, 1994 and 1993 were as follows;
1994 1993
-------- -------
Administrative $208,000 565,800
Rent 58,800 52,200
-------- -------
$266,800 638,000
======== =======
The Company paid certain fees to shareholders and employees under
established royalty agreements. Royalties paid for the years ended December
31, 1994 and 1993 totaled approximately $186,000 and $236,000,
respectively.
NGVSI converted accounts receivable due from NGV Technology Center LLP in
the amount of $92,833 to a capital contribution during 1994.
Econofuel, partner of NGV Technology Center LLP, converted a $50,000 and
note and accrued lease obligations of $22,808 into a capital contribution
to NGV Technology Center LLP. An affiliated company of Econofuel converted
accrued lease payments in the amount of $93,500 to contributed capital to
NGV Technology Center LLP during 1993.
NGV Technology Center LLP had sales of natural gas conversion kits to
affiliates of Econofuel during the year totaling $230,911 and $336,435 for
the years ended December 31, 1994 and 1993, respectively. At December 31,
1994, NGV Technology Center LLP had accounts receivable and other
receivables of $18,272 and $53,931, respectively, from Econofuel and its
affiliates and accounts payable of $41,840 to Econofuel and its affiliates.
These amounts were $137,349 and $26,949 for accounts receivable and other
receivables, respectively, and accounts payable of $49,620 as of December
31, 1993. Such receivables have been included in accounts receivable in the
accompanying consolidated balance sheets. NGV Technology Center LLP leases
its facilities from an affiliate of Econofuel, which resulted in rental
expense for the years ended December 31, 1994 and 1993 of $102,000 and
$50,000, respectively. This lease expires on April 30, 1995.
NGVSI contributed as in-kind, equity contributions inventory totaling
$115,934 to NGV Southeast during 1994, while its partners, Sonat NGV
Technology, Inc. (Sonat) and Georgia Energy Company (GEC), each made cash
contributions of $215,000. NGV Southeast had a demand note to Sonat of
$175,000 at December 31, 1994 bearing interest at prime rate. This note is
included in the accompanying consolidated balance sheet as note payable
other. NGV Southeast had sales of natural gas vehicle conversions to
affiliates of GEC during 1994 totaling $173,000.
6
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
NGV Southeast subleased an office to Atlanta Gas Company, parent of a joint
venture partner of NCV Southeast, for a monthly rent of $2,500 under a
noncancelable sublease which expires September 30, 1995.
NGVSI contributed as in-kind, equity contributions lab equipment of
$400,000 to NGV Ecotrans during 1994, while its partner, Ecotrans
Aftermarket Corporation (EAC), made cash contributions of $801,450. The
sales made by NGV Ecotrans to Southern California Gas Company, the parent
of EAC, totaled $374,000 and $141,000 for the years ended December 31, 1994
and 1993, respectively.
(10) Stock Option Plan
The Company has a nonqualified stock option plan for key employees,
including directors, and executive officers of the Company. The exercise
price of the options is established at the discretion of the Board of
Directors. The plan provides that the options are exercisable based on
vesting schedules, generally over a five year period. The options expire
ten years from the date of grant.
The Board of Directors has set aside 500,000 shares of the Company's common
stock for issuance under the plan. During 1994 and 1993, the Board of
Directors granted 210,000 and 205,000 options, respectively, to certain
employees at an exercise price of $5 to $6 per share. There were no options
exercised in 1994 or 1993, but 42,500 options were canceled during 1994. At
December 31, 1994, there were 365,500 options outstanding, all of which are
exercisable.
(11) 401(k) Plan
The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code (the 401(k) plan). The terms of the 401(k) plan provide that
employees over 21 years of age who were employed as of August 1, 1992 shall
be eligible to participate in the p1an. All employees who are hired after
August 1, 1992 shall be eligible to participate in the plan if they are 21
over years of age and have completed three consecutive months of
eligibility service during which the employee has 250 or more hours of
service or one year of eligibility service.
There were no Company contributions during 1994 or 1993.
(12) Deferred Compensation
The Company deferred a certain percentage of compensation to its key
employees beginning September 18, 1993 and ceased deferring such
compensation in November 1994, except for officers of the Company. No
deferred compensation has been paid to active employees or officers.
Repayment will be dependent upon the Company attaining net income for two
consecutive quarters or obtaining substantial outside financing, as
defined. The deferred compensation will accrue interest at the prime rate.
Upon notification of the Company's intention to pay deferred compensation,
employees may elect to purchase the Company's stock at $7.50 a share or
receive payments from the Company in six monthly installments. In addition,
the Company will grant
7
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
the employees options to purchase an additional share of the Company's
stock at an option price of $7.50 per share for each $15 of compensation
deferred. The shares of common stock that have been reserved for issuance
of options under the compensation deferral program are included in the
500,000 shares referred to in the stock option plan. See note 10.
As of December 31, 1994 and 1993, deferred compensation was $331,000 and
$92,000, respectively, which is included in accrued expenses in the
accompanying consolidated financial statements.
(13) Commitments
The Company and the join venture lease their facilities and various office
equipment under operating leases which expire through May 1998. Some annual
rental payments are subject to adjustments based on the consumer price
index.
Future minimum rental commitments under three operating leases are
summarized as follows:
Year ending December 31:
1995 $532,000
1996 299,000
1997 22,000
1998 2,000
--------
$855,000
========
Rent expenses incurred by the Company and its subsidiaries totaled
approximately $625,000 and $570,000 during 1994 and 1993, respectively.
(14) Restructuring Charge
During 1994, the Company implemented a plan to consolidate facilities and
reorganize its operations. As a result, the Company recorded a one-time
restructuring charge of $482,100 related to severance and relocation costs
and the disposal of certain equipment. As of December 31, 1994 an accrual
of $300,000 remains for the settlement of certain of these costs.
8
<PAGE>
NATURAL GAS VEHICLE SYSTEMS INC.
AND SUBSIDIARIES
Consolidated Statements Of Shareholders' Equity (Deficiency)
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Net
Common Stock Additional shareholders'
------------------------- paid-in Accumulated equity
Shares Amount capital deficit (deficiency)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 3,000,000 $ 30,000 9,957,122 (6,830,254) 3,156,868
Issuance of common stock 520,834 5,208 3,532,204 -- 3,537,412
Net loss -- -- -- (3,002,499) (3,002,499)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1993 3,520,834 35,208 13,489,326 (9,832,753) 3,691,781
Issuance of common stock 55,750 557 384,442 -- 384,999
Net loss -- -- -- (6,267,118) (6,267,118)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 3,576,564 $ 35,765 13,873,768 (16,099,871) (2,190,338)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NGV SYSTEMS INC.
================
FINANCIAL STATEMENTS
====================
For the One Month Period Ending: JANUARY 31ST 1996
==================================================
Note: Budget and Prior year restated to account for
consolidation under the equity method
Exhibit 4.11(B)
<PAGE>
EXECUTIVE SUMMARY - CONSOLIDATED NGV SYSTEMS INC.
=================================================
COMPARATIVE CONSOLIDATED INCOME STATEMENT
=========================================
MONTH For The One Month Period Ending: JANUARY 31st 1996
================================================================================
$(000's)
<TABLE>
<CAPTION>
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <S>
668.8 116.1% 976.0 117.6% 726.3 117.6% Gross Sales
92.5 16.1% 146.4 17.6% 108.5 17.6% Discounts/Allowances
-------- -------- -------- -------- -------- --------
576.3 100.0% 829.6 100.0% 617.8 100.0% Net Sales
499.8 86.7% 679.7 81.9% 490.2 79.3% Cost of Sales @ Standard
-------- -------- -------- -------- -------- --------
76.5 13.3% 149.9 18.1% 127.6 20.7% Gross Profit @ Standard
0.4 0.1% (8.3) -1.0% 7.5 1.2% Production Variances
101.5 17.6% 15.9 1.9% 99.1 16.0% Unabsorbed Overhead
-------- -------- -------- -------- -------- --------
(25.4) -4.4% 142.3 17.2% 21.0 3.4% Gross Profit (Loss)
32.3 5.6% 68.8 8.3% 39.4 6.4% R&D Expenses
66.6 11.6% 97.7 11.8% 72.7 11.8% Selling Expenses
101.2 17.6% 123.0 14.8% 111.6 18.1% Gen. & Admin.
-------- -------- -------- -------- -------- --------
200.1 34.7% 289.5 34.9% 223.7 36.2% Total Period Costs
-------- -------- -------- -------- -------- --------
(225.5) -39.1% (147.2) -17.7% (202.7) -32.8% Operating Inc/(Loss)
(1.9) -3.0% (2.0) -0.2% (1.5) -0.2% Other Inc/(Exp)
(11.1) -1.9% (10.3) -1.2% (44.6) -7.2% Interest Inc/(Exp)
-------- -------- -------- -------- -------- --------
(238.5) -41.4% (159.5) -19.2% (248.8) -40.3% Inc/(Loss) before Tech Ctrs
(80.8) -14.0% (72.5) -8.7% 10.0 1.6% Tech Center Income (Losses)
38.1 6.6% 34.0 4.1% (4.2) -0.7% Minority Interest in Tech Ctr.
4.6 0.8% 4.6 0.6% 4.6 0.7% Eliminations between NGVS
and Tech Ctrs
-------- -------- -------- -------- -------- --------
(276.6) -48.0% (193.5) -23.3% (238.4) -38.6% Inc/(Loss) after Min Interest
======== ======== ======== ======== ======== ========
<CAPTION>
YEAR TO DATE
=====================================================================
$(000's)
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross Sales 668.8 116.1% 976.0 117.6% 726.3 117.6%
Discounts/Allowances 92.5 16.1% 146.4 17.6% 108.5 17.6%
-------- -------- -------- -------- -------- --------
Net Sales 576.3 100.0% 829.6 100.0% 617.8 100.0%
Cost of Sales @ Standard 499.8 86.7% 679.7 81.9% 490.2 79.3%
-------- -------- -------- -------- -------- --------
Gross Profit @ Standard 76.5 13.3% 149.9 18.1% 127.6 20.7%
Production Variances 0.4 0.1% (8.3) -1.0% 7.5 1.2%
Unabsorbed Overhead 101.5 17.6% 15.9 1.9% 99.1 16.0%
-------- -------- -------- -------- -------- --------
Gross Profit (Loss) (25.4) -4.4% 142.3 17.2% 21.0 3.4%
R&D Expenses 32.3 5.6% 68.8 8.3% 39.4 6.4%
Selling Expenses 66.6 11.6% 97.7 11.8% 72.7 11.8%
Gen. & Admin. 101.2 17.6% 123.0 14.8% 111.6 18.1%
-------- -------- -------- -------- -------- --------
Total Period Costs 200.1 34.7% 289.5 34.9% 223.7 36.2%
-------- -------- -------- -------- -------- --------
Operating Inc/(Loss) (225.5) -39.1% (147.2) -17.7% (202.7) -32.8%
Other Inc/(Exp) (1.9) -3.0% (2.0) -0.2% (1.5) -0.2%
Interest Inc/(Exp) (11.1) -1.9% (10.3) -1.2% (44.6) -7.2%
-------- -------- -------- -------- -------- --------
Inc/(Loss) before Tech Ctrs (238.5) -41.4% (159.5) -19.2% (248.8) -40.3%
Tech Center Income (Losses) (80.8) -14.0% (72.5) -8.7% 10.0 1.6%
Minority Interest in Tech Ctr. 38.1 6.6% 34.0 4.1% (4.2) -0.7%
Eliminations between NGVS 4.6 0.8% 4.6 0.6% 4.6 0.7%
and Tech Ctrs
-------- -------- -------- -------- -------- --------
Inc/(Loss) after Min Interest (276.6) -48.0% (193.5) -23.3% (238.4) -38.6%
======== ======== ======== ======== ======== ========
</TABLE>
Note: elimination adjustments made to prior year and budget
PAGE: 1
<PAGE>
EXECUTIVE SUMMARY - CONSOLIDATED NGV SYSTEMS INC.
=================================================
COMPARATIVE INCOME STATEMENT
============================
MONTH For The One Month Period Ending: JANUARY 31st 1996
================================================================================
$(000's)
<TABLE>
<CAPTION>
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <S>
668.8 116.1% 976.0 117.6% 726.3 117.6% Gross Sales
92.5 16.1% 146.4 17.6% 108.5 17.6% Discounts/Allowances
-------- -------- -------- -------- -------- --------
576.3 100.0% 829.6 100.0% 617.8 100.0% Net Sales
499.8 86.7% 679.7 81.9% 490.2 79.3% Cost of Sales @ Standard
0.8 0.1% Labor variance
3.2 0.5% Overhead Variance
0.4 0.1% (8.3) -1.0% 3.5 0.6% Material variance
-------- -------- -------- -------- -------- --------
0.4 0.1% (8.3) -1.0% 7.5 1.2% Total Variances
169.1 29.3% 191.6 23.1% 201.7 32.6% Manufacturing Ovrhd
22.5 3.9% 24.2 2.9% 40.2 6.5% Maintenance
(15.1) -2.6% (27.1) -3.3% (30.6) -5.0% Applied Labor
(75.0) -13.0% (172.8) -20.8% (112.2) -18.2% Absorbed Overhead
-------- -------- -------- -------- -------- --------
101.5 17.6% 15.9 1.9% 99.1 16.0% Unabsorbed Overhead
-------- -------- -------- -------- -------- --------
601.7 104.4% 687.3 82.8% 596.8 96.6% Total Cost of Sales
-------- -------- -------- -------- -------- --------
(25.4) -4.4% 142.3 17.2% 21.0 3.4% Gross Profit(Loss)
32.3 5.6% 68.8 8.3% 39.4 6.4% R&D Expenses
66.6 11.6% 97.7 11.8% 72.7 11.8% Selling Expense
101.2 17.6% 123.0 14.8% 111.6 18.1% Gen. & Admin.
-------- -------- -------- -------- -------- --------
200.1 36.7% 289.5 34.9% 223.7 36.2% Total Period Costs
-------- -------- -------- -------- -------- --------
(225.5) -39.1% (147.2) -17.7% (202.7) -32.8% Operating Inc/(Loss)
(1.9) -0.3% (2.0) -0.2% (1.5) -0.2% Other Inc/(Exp)
(11.1) -1.9% (10.3) -1.2% (44.6) -7.2% Interest Inc/(Exp)
-------- -------- -------- -------- -------- --------
(238.5) -41.4% (159.5) -19.2% (248.8) -40.3% Net Income (Losses)
======== ======== ======== ======== ======== ========
<CAPTION>
YEAR TO DATE
=====================================================================
$(000's)
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross Sales 668.8 116.1% 976.0 117.6% 726.3 117.6%
Discounts/Allowances 92.5 16.1% 146.4 17.6% 108.5 17.6%
-------- -------- -------- -------- -------- --------
Net Sales 576.3 100.0% 829.6 100.0% 617.8 100.0%
Cost of Sales @ Standard 499.8 86.7% 679.7 81.9% 490.2 79.3%
Labor variance 0.8 0.1%
Overhead Variance 3.2 0.5%
Material variance 0.4 0.1% (8.3) -1.0% 3.5 0.6%
-------- -------- -------- -------- -------- --------
Total Variances 0.4 0.1% (8.3) -1.0% 7.5 1.2%
Manufacturing Ovrhd 169.1 29.3% 191.6 23.1% 201.7 32.6%
Maintenance 22.5 3.9% 24.2 2.9% 40.2 6.5%
Applied Labor (15.1) -2.6% (27.1) -3.3% (30.6) -5.0%
Absorbed Overhead (75.0) -13.0% (172.8) -20.8% (112.2) -18.2%
-------- -------- -------- -------- -------- --------
Unabsorbed Overhead 101.5 17.6% 15.9 1.9% 99.1 16.0%
-------- -------- -------- -------- -------- --------
Total Cost of Sales 601.7 104.4% 687.3 82.8% 596.8 96.6%
-------- -------- -------- -------- -------- --------
Gross Profit(Loss) (25.4) -4.4% 142.3 17.2% 21.0 3.4%
R&D Expenses 32.3 5.6% 68.8 8.3% 39.4 6.4%
Selling Expense 66.6 11.6% 97.7 11.8% 72.7 11.8%
Gen. & Admin. 101.2 17.6% 123.0 14.8% 111.6 18.1%
-------- -------- -------- -------- -------- --------
Total Period Costs 200.1 36.7% 289.5 34.9% 223.7 36.2%
Operating Inc/(Loss) (225.5) -39.1% (147.2) -17.7% (202.7) -32.8%
Other Inc/(Exp) (1.9) -0.3% (2.0) -0.2% (1.5) -0.2%
Interest Inc/(Exp) (11.1) -1.9% (10.3) -1.2% (44.6) -7.2%
-------- -------- -------- -------- -------- --------
Net Income (Losses) (238.5) -41.4% (159.5) -19.2% (248.8) -40.3%
======== ======== ======== ======== ======== ========
</TABLE>
PAGE: 2
<PAGE>
EXECUTIVE SUMMARY - NGV DEVELOPMENT COMPANY
===========================================
INCOME STATEMENT (INCLUDING TECH CENTERS)
=========================================
MONTH For The One Month Period Ending: JANUARY 31st 1996
================================================================================
$(000's)
<TABLE>
<CAPTION>
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <S>
Other NGVD expenses
1.9 JV (Losses) Inc. Austin
(18.3) JV (Losses) Inc. Atlanta
(80.8) (72.5) 26.1 JV (Losses) Inc. Ecotrans
-------- -------- -------- -------- -------- --------
(80.8) (72.5) 10.0 Income/(Loss)
======== ======== ======== ======== ======== ========
38.1 34.0 (4.2) Minority Interest
<CAPTION>
YEAR TO DATE
=====================================================================
$(000's)
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Other NGVD expenses
JV (Losses) Inc. Austin 1.9
JV (Losses) Inc. Atlanta (18.3)
JV (Losses) Inc. Ecotrans (80.8) (72.5) 26.1
-------- -------- -------- -------- -------- --------
Income/(Loss) (80.8) (72.5) 10.0
======== ======== ======== ======== ======== ========
Minority Interest 38.1 34.0 (4.2)
</TABLE>
NOTE: RESERVES WERE MADE IN 1995 FOR LOSSES OF $150K FOR AUSTIN
AND $25K FOR ATLANTA AFTER MINORITY INTEREST
EXECUTIVE SUMMARY - NGV SYSTEMS, INC. ELIMINATIONS
==================================================
For The One Month Period Ending: JANUARY 31st 1996
================================================================================
$(000's)
<TABLE>
<CAPTION>
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <S>
4.6 4.6 4.6 Gen. & Admin.
======== ======== ======== ======== ======== ========
<CAPTION>
YEAR TO DATE
=====================================================================
$(000's)
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gen. & Admin. 4.6 4.6 4.6
======== ======== ======== ======== ======== ========
</TABLE>
These eliminations are for organization expenses ($2.7k) charged to Ecotrans by
NGVS and for gain on the sale of a lab ($1.9k) to Ecotrans by NGVS.
PAGE: 3
<PAGE>
NGV SYSTEMS INC.
EXECUTIVE SUMMARY - CONSOLIDATED BALANCE SHEET
For the Period Ending: JANUARY 31st 1996
- --------------------------------------------------------------------------------
Actual Budget Prior Year
======== ======== ==========
ASSETS: $(000)
Cash (34.9) 293.3 50.5
Accounts Receivables, Net 913.6 841.4 1,510.5
Prepaid Expenses 43.7 124.0 134.9
Inventory 971.2 937.7 817.0
Other
Standby Letter of Credit 150.0
-------- -------- --------
Total Current Assets 1,893.6 2,346.4 2,512.9
Property, Plant and Equipment 5,200.2 5,245.0 4,924.0
Accumulated Depreciation 2,143.8 2,012.4 1,536.2
-------- -------- --------
Property, Plant & Equipment, Net 3,056.4 3,232.6 3,387.8
Investments in Tech Centers 145.0 166.1 725.6
Other Assets 47.7 190.8 232.2
-------- -------- --------
Total Property and Other Assets 3,249.1 3,589.5
Total Assets 5,142.7 5,935.9 6,858.5
======== ======== ========
LIABILITIES
Notes Payable - Bank 245.0 246.0 245.0
Notes Payable - Others 500.0
Notes Payable - Related Parties 475.0 525.0
Accts & Accrued Payable - Trade 1,373.0 1,650.7 1,844.6
Accts+Accd payables Rel parties
Accrued Wages & Benefits 247.4 363.1 965.3
Accrued Interest 35.6 401.8
Loans Payable - Short Term 87.5 87.5 100.0
Capital Leases - Current 4.8
-------- -------- --------
Total Current Liabilities 2,463.5 2,847.3 4,086.5
Long Term Liabilities
Notes Payable - Related Parties 2,015.8
Due to (from) Inter - Companies
Loans Payable - Long Term 87.5
Capital Leases - Long Term 2.0
Subordinated Debt 3,000.0
-------- -------- --------
Total Liabilities 2,463.5 2,847.3 9,191.8
SHAREHOLDER EQUITY:
Capital 68.2 69.3 35.9
Paid in Capital 23,334.7 23,641.4 13,873.6
Prior Years Retained Earnings (20,447.1) (20,428.7) (16,004.4)
Cur-Year Ret. Earnings 276.6 (193.5) (238.4)
-------- -------- --------
Total Shareholder Equity 2,679.2 3,088.6 (2,333.3)
Total Liabilities/Shareholder Equity 5,142.7 5,935.9 6,858.5
======== ======== ========
- --------------------------------------------------------------------------------
PAGE 4
<PAGE>
NGV SYSTEMS INC.
EXECUTIVE SUMMARY - CONSOLIDATED FLOW OF FUNDS
For the One Month Period Ending: JANUARY 31st 1996
$(000's)
- --------------------------------------------------------------------------------
Actual Budget Prior Year
====== ====== ==========
INCOME (LOSS) FROM OPERATIONS (276.6) (193.5)
Non Cash Operating Activities
Depreciation 44.0 52.4
-------- -------- --------
Cash Used By Operations (232.6) (141.1)
(Increase) Decrease In Assets:
Accounts Receivable (387.7) (91.4)
Prepaid expenses 30.8 26.0
Inventory 33.1 (264.7)
Other 6.9 (30.8)
Standby Letter of Credit 350.0 200.0
Increase (Decrease) In Liabilities
Accts+Accd payables Rel. parties
Accts & Accrued Payable - Trade (122.9) 357.3
Accrued Wages & Benefits 38.1 21.1
Accrued Interest 2.6
Capital Leases
-------- -------- --------
Net cash used by operations (281.7) 76.4
Cash flows for Investing Activities:
Capital Expenditures (20.0) (25.0)
Investment In Tech Centers 38.1 34.0
Net Cash Flows From Financing Activities:
Shareholders Equity 17.9
Short Term Notes and Loans..Others
Notes Payable - Bank
Notes Payable - Related Parties 150.0 (116.0)
Subordinated Debt
-------- -------- --------
Net Cash Increase (Decrease) (95.7) (30.6)
Cash at Beginning of Period 60.9 323.9
-------- -------- --------
Cash at End of Period (34.8) 293.3
======== ======== ========
- --------------------------------------------------------------------------------
PAGE 5
<PAGE>
NGV SYSTEMS INC.
================
FINANCIAL STATEMENTS
====================
For the Two Month Period Ending: FEBRUARY 29th 1996
===================================================
Note: Budget and Prior year restated to account for
consolidation under the equity method
Exhibit 4.11(C)
<PAGE>
EXECUTIVE SUMMARY - CONSOLIDATED NGV SYSTEMS INC.
=================================================
COMPARATIVE CONSOLIDATED INCOME STATEMENT
=========================================
MONTH For The Two Month Period Ending: FEBRUARY 29th 1996
================================================================================
$(000's)
<TABLE>
<CAPTION>
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <S>
443.2 117.2% 1,231.7 117.7% 569.4 116.4% Gross Sales
64.9 17.2% 184.8 17.7% 80.2 16.4% Discounts/Allowances
-------- -------- -------- -------- -------- --------
378.3 100.0% 1,046.9 100.0% 489.2 100.0% Net Sales
315.3 83.3% 861.1 82.3% 394.5 80.6% Cost of Sales @ Standard
-------- -------- -------- -------- -------- --------
63.0 16.7% 185.8 17.7% 94.7 19.4% Gross Profit @ Standard
(9.9) -2.6% 7.3 1.5% Production Variances
25.3 6.7% 4.5 0.4% (0.1) -0.0% Unabsorbed Overhead
-------- -------- -------- -------- -------- --------
47.6 12.6% 181.3 17.3% 87.5 17.9% Gross Profit (Loss)
21.9 5.8% 68.5 6.5% 33.7 6.9% R&D Expenses
49.3 13.0% 93.5 8.9% 72.6 14.8% Selling Expenses
82.2 21.7% 119.8 11.4% 111.4 22.8% Gen. & Admin.
-------- -------- -------- -------- -------- --------
153.4 40.5% 281.8 26.9% 217.7 44.5% Total Period Costs
-------- -------- -------- -------- -------- --------
(105.8) -28.0% (100.5) -9.6% (130.2) -26.6% Operating Inc/(Loss)
(0.8) -0.2% (2.0) -0.2% (4.3) -0.9% Other Inc/(Exp)
(12.6) -3.3% (10.3) -1.0% (46.1) -9.4% Interest Inc/(Exp)
-------- -------- -------- -------- -------- --------
(119.2) -31.5% (112.8) -10.8% (180.6) -36.9% Inc/(Loss) before Tech Ctrs
(18.8) -5.0% (13.8) -1.3% (75.0) -15.3% Tech Center Income (Losses)
7.1 1.9% 4.6 0.4% 40.9 -0.7% Minority Interest in Tech Ctr.
4.6 1.2% 4.6 0.4% 4.7 1.0% Eliminations between NGVS
and Tech Ctrs
-------- -------- -------- -------- -------- --------
(126.3) -33.4% (117.4) -11.2% (210.0) -42.9% Inc/(Loss) after Min Interest
======== ======== ======== ======== ======== ========
<CAPTION>
YEAR TO DATE
=====================================================================
$(000's)
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross Sales 1,112.0 116.5% 2,207.7 117.6% 1,295.7 117.0%
Discounts/Allowances 157.4 16.5% 331.2 17.6% 188.7 17.0%
-------- -------- -------- -------- -------- --------
Net Sales 954.6 100.0% 1,876.5 100.0% 1,107.0 100.0%
Cost of Sales @ Standard 815.1 85.4% 1,540.8 82.1% 884.7 79.9%
-------- -------- -------- -------- -------- --------
Gross Profit @ Standard 139.5 14.6% 335.7 17.9% 222.3 20.1%
Production Variances (9.5) -1.0% (8.3) -0.4% 14.8 1.3%
Unabsorbed Overhead 126.8 13.3% 20.4 1.1% 99.0 8.9%
-------- -------- -------- -------- -------- --------
Gross Profit (Loss) 22.2 2.3% 323.6 17.2% 108.5 9.8%
R&D Expenses 54.2 5.7% 137.3 7.3% 73.1 6.6%
Selling Expenses 115.9 12.1% 191.2 10.2% 145.3 13.1%
Gen. & Admin. 183.4 19.2% 242.8 12.9% 223.0 20.1%
-------- -------- -------- -------- -------- --------
Total Period Costs 353.5 37.0% 571.3 30.4% 441.4 39.9%
-------- -------- -------- -------- -------- --------
Operating Inc/(Loss) (331.3) -34.7% (247.7) -13.2% (332.9) -30.1%
Other Inc/(Exp) (2.7) -0.3% (4.0) -0.2% (5.8) -0.5%
Interest Inc/(Exp) (23.7) -2.5% (20.6) -1.1% (90.7) -8.2%
-------- -------- -------- -------- -------- --------
Inc/(Loss) before Tech Ctrs (357.7) -37.5% (272.3) -14.5% (429.4) -38.8%
Tech Center Income (Losses) (99.6) -10.4% (86.3) -4.6% (65.0) -5.9%
Minority Interest in Tech Ctr. 45.2 4.7% 38.6 2.1% 36.7 3.3%
Eliminations between NGVS 9.2 1.0% 9.2 0.5% 9.3 0.8%
and Tech Ctrs
-------- -------- -------- -------- -------- --------
Inc/(Loss) after Min Interest (402.9) -42.2% (310.9) -16.6% (448.4) -40.5%
======== ======== ======== ======== ======== ========
</TABLE>
Note: elimination adjustments made to prior year and budget
PAGE: 1
<PAGE>
EXECUTIVE SUMMARY - CONSOLIDATED NGV SYSTEMS INC.
=================================================
COMPARATIVE INCOME STATEMENT
============================
MONTH For The Two Month Period Ending: FEBRUARY 29th 1996
================================================================================
$(000's)
<TABLE>
<CAPTION>
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <S>
443.2 117.2% 1,231.7 117.7% 569.4 116.4% Gross Sales
64.9 17.2% 184.8 17.7% 80.2 16.4% Discounts/Allowances
-------- -------- -------- -------- -------- --------
378.3 100.0% 1,046.9 100.0% 489.2 100.0% Net Sales
315.3 83.3% 881.1 82.3% 394.5 80.6% Cost of Sales @ Standard
(0.5) -0.1% Labor variance
(1.6) -0.3% Overhead Variance
(9.9) -2.6% 9.4 1.9% Material variance
-------- -------- -------- -------- -------- --------
(9.9) -2.6% 7.3 1.5% Total Variances
159.3 42.1% 200.0 19.1% 205.3 42.0% Manufacturing Ovrhd
22.5 5.9% 23.6 2.3% 41.1 8.4% Maintenance
(22.3) -5.9% (29.7) -2.8% (44.1) -9.0% Applied Labor
(133.9) -35.4% (189.4) -18.1% (202.4) -41.4% Absorbed Overhead
-------- -------- -------- -------- -------- --------
25.3 6.7% 4.5 0.4% (0.1) -0.0% Unabsorbed Overhead
-------- -------- -------- -------- -------- --------
330.7 87.4% 865.6 82.7% 401.7 82.1% Total Cost of Sales
-------- -------- -------- -------- -------- --------
47.6 12.6% 181.3 17.3% 87.5 17.9% Gross Profit(Loss)
21.9 5.8% 68.5 6.5% 33.7 6.9% R&D Expenses
49.3 13.0% 93.5 8.9% 72.6 14.8% Selling Expense
82.2 21.7% 119.8 11.4% 111.4 22.8% Gen. & Admin.
-------- -------- -------- -------- -------- --------
153.4 40.5% 261.8 26.9% 217.7 44.5% Total Period Costs
-------- -------- -------- -------- -------- --------
(105.8) -28.0% (100.5) -9.6% (130.2) -26.6% Operating Inc/(Loss)
(0.8) -0.2% (2.0) -0.2% (4.3) -0.9% Other Inc/(Exp)
(12.6) -3.3% (10.3) -1.0% (46.1) -9.4% Interest Inc/(Exp)
-------- -------- -------- -------- -------- --------
(119.2) -31.5% (112.8) -10.8% (180.6) -36.9% Net Income (Losses)
======== ======== ======== ======== ======== ========
<CAPTION>
YEAR TO DATE
=====================================================================
$(000's)
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross Sales 1,112.0 116.5% 2,207.7 117.6% 1,295.7 117.0%
Discounts/Allowances 157.4 16.5% 331.2 17.6% 188.7 17.0%
-------- -------- -------- -------- -------- --------
Net Sales 954.6 100.0% 1,876.5 100.0% 1,107.0 100.0%
Cost of Sales @ Standard 815.1 85.4% 1,540.8 82.1% 884.7 79.8%
Labor variance 0.3 0.0%
Overhead Variance 1.6 0.1%
Material variance (9.5) -1.0% (8.3) -0.4% 12.9 1.2%
-------- -------- -------- -------- -------- --------
Total Variances (9.5) -1.0% (8.3) -0.4% 14.8 1.3%
Manufacturing Ovrhd 328.4 34.4% 391.6 20.9% 407.0 36.8%
Maintenance 44.7 4.7% 47.8 2.5% 81.3 7.3%
Applied Labor (37.4) -3.9% (56.8) -3.0% (74.7) -6.7%
Absorbed Overhead (208.9) -21.9% (362.2) -19.3% (314.6) -28.4%
-------- -------- -------- -------- -------- --------
Unabsorbed Overhead 126.8 13.3% 20.4 1.1% 99.0 8.9%
-------- -------- -------- -------- -------- --------
Total Cost of Sales 932.4 97.7% 1,552.9 82.8% 998.5 90.2%
-------- -------- -------- -------- -------- --------
Gross Profit(Loss) 22.2 -2.3% 323.6 17.2% 108.5 9.8%
R&D Expenses 54.2 5.7% 137.3 7.3% 73.1 6.6%
Selling Expense 115.9 12.1% 191.2 10.2% 145.3 13.1%
Gen. & Admin. 183.4 19.2% 242.8 12.9% 223.0 20.1%
-------- -------- -------- -------- -------- --------
Total Period Costs 353.5 37.0% 571.3 30.4% 441.4 39.8%
Operating Inc/(Loss) (331.3) -34.7% (247.7) -13.2% (332.9) -30.1%
Other Inc/(Exp) (2.7) -0.3% (4.0) -0.2% (5.8) -0.5%
Interest Inc/(Exp) (23.7) -2.5% (20.6) -1.1% (90.7) -8.2%
-------- -------- -------- -------- -------- --------
Net Income (Losses) (357.7) -37.5% (272.3) -14.5% (429.4) -38.8%
======== ======== ======== ======== ======== ========
</TABLE>
PAGE: 2
<PAGE>
EXECUTIVE SUMMARY - NGV DEVELOPMENT COMPANY
===========================================
INCOME STATEMENT (INCLUDING TECH CENTERS)
=========================================
MONTH For The Two Month Period Ending: FEBRUARY 29th 1996
================================================================================
$(000's)
<TABLE>
<CAPTION>
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <S>
Other NGVD expenses
(28.7) JV (Losses) Inc. Austin
(34.5) JV (Losses) Inc. Atlanta
(18.8) (13.8) (11.8) JV (Losses) Inc. Ecotrans
-------- -------- -------- -------- -------- --------
(18.8) (13.8) (75.0) Income/(Loss)
======== ======== ======== ======== ======== ========
7.1 4.6 40.9 Minority Interest
<CAPTION>
YEAR TO DATE
=====================================================================
$(000's)
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Other NGVD expenses
JV (Losses) Inc. Austin (26.8)
JV (Losses) Inc. Atlanta (52.8)
JV (Losses) Inc. Ecotrans (99.6) (86.3) 14.6
-------- -------- -------- -------- -------- --------
Income/(Loss) (99.6) (86.3) (85.0)
======== ======== ======== ======== ======== ========
Minority Interest 45.2 38.6 36.7
</TABLE>
NOTE: RESERVES WERE MADE IN 1995 FOR LOSSES OF $150K FOR AUSTIN
AND $25K FOR ATLANTA AFTER MINORITY INTEREST
EXECUTIVE SUMMARY - NGV SYSTEMS, INC. ELIMINATIONS
==================================================
For The Two Month Period Ending: FEBRUARY 29th 1996
================================================================================
$(000's)
<TABLE>
<CAPTION>
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <S>
4.6 4.6 4.7 Gen. & Admin.
======== ======== ======== ======== ======== ========
<CAPTION>
YEAR TO DATE
=====================================================================
$(000's)
% To % To Prior % To
Actual Sales Budget Sales Year Sales
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gen. & Admin. 9.2 9.2 9.3
======== ======== ======== ======== ======== ========
</TABLE>
These eliminations are for organization expenses ($2.7k) charged to Ecotrans by
NGVS and for gain on the sale of a lab ($1.9k) to Ecotrans by NGVS.
PAGE: 3
<PAGE>
NGV SYSTEMS INC.
EXECUTIVE SUMMARY - CONSOLIDATED BALANCE SHEET
For the Period Ending: FEBRUARY 29th 1996
- --------------------------------------------------------------------------------
Actual Budget Prior Year
======== ======== ==========
ASSETS: $(000)
Cash 19.7 153.9 33.2
Accounts Receivables, Net 999.1 1,563.8 1,125.5
Prepaid Expenses 21.1 98.0 114.7
Inventory 1,393.9 1,096.9 829.4
Other
Standby Letter of Credit 150.0
-------- -------- --------
Total Current Assets 2,433.8 3,062.6 2,102.8
Property, Plant and Equipment 5,204.0 5,270.0 5,210.9
Accumulated Depreciation 2,188.2 2,064.7 1,571.8
-------- -------- --------
Property, Plant & Equipment, Net 3,015.8 3,205.3 3,639.1
Investments in Tech Centers 137.9 261.5 739.6
Other Assets 39.0 193.4 222.5
-------- -------- --------
Total Property and Other Assets 3,192.7 3,660.2
Total Assets 5,626.5 6,722.8 6,704.0
======== ======== ========
LIABILITIES
Notes Payable - Bank 245.0 246.0 245.0
Notes Payable - Others 1,300.0
Notes Payable - Related Parties 539.5 525.0
Accts & Accrued Payable - Trade 1,957.9 1,734.3 1,849.9
Accts+Accd payables Rel parties
Accrued Wages & Benefits 202.1 383.6 984.9
Accrued Interest 41.6 445.7
Loans Payable - Short Term 87.5 87.5 100.0
Capital Leases - Current 4.8
-------- -------- --------
Total Current Liabilities 3,073.6 3,751.6 4,155.3
Long Term Liabilities
Notes Payable - Related Parties 2,015.8
Due to (from) Inter - Companies
Loans Payable - Long Term 87.5
Capital Leases - Long Term 1.2
Subordinated Debt 3,000.0
-------- -------- --------
Total Liabilities 3,073.6 3,751.6 9,259.8
SHAREHOLDER EQUITY:
Capital 68.2 69.3 35.9
Paid in Capital 23,334.7 23,641.4 13,873.6
Prior Years Retained Earnings (20,447.1) (20,428.7) (16,016.9)
Cur-Year Ret. Earnings (402.9) (310.9) (448.4)
-------- -------- --------
Total Shareholder Equity 2,552.9 2,971.2 (2,555.8)
Total Liabilities/Shareholder Equity 5,626.5 6,722.8 6,704.0
======== ======== ========
- --------------------------------------------------------------------------------
PAGE 4
<PAGE>
NGV SYSTEMS INC.
EXECUTIVE SUMMARY - CONSOLIDATED FLOW OF FUNDS
For the Two Month Period Ending: FEBRUARY 29th 1996
$(000's)
- --------------------------------------------------------------------------------
Actual Budget Prior Year
====== ====== ==========
INCOME (LOSS) FROM OPERATIONS (402.9) (310.9)
Non Cash Operating Activities
Depreciation 88.4 104.7
-------- -------- --------
Cash Used By Operations (314.5) (206.2)
(Increase) Decrease In Assets:
Accounts Receivable (473.2) (813.8)
Prepaid expenses 53.4 52.0
Inventory (389.6) (423.9)
Other 15.6 (33.4)
Standby Letter of Credit 350.0 200.0
Increase (Decrease) In Liabilities
Accts+Accd payables Rel. parties
Accts & Accrued Payable - Trade 462.0 440.9
Accrued Wages & Benefits (7.2) 41.8
Accrued Interest 8.6
Capital Leases
-------- -------- --------
Net cash used by operations (294.9) (742.6)
Cash flows for Investing Activities:
Capital Expenditures (23.8) (50.0)
Investment In Tech Centers 45.2 (61.5)
Net Cash Flows From Financing Activities:
Shareholders Equity 17.9
Short Term Notes and Loans..Others 800.0
Notes Payable - Bank
Notes Payable - Related Parties 214.5 (116.0)
Subordinated Debt
-------- -------- --------
Net Cash Increase (Decrease) (41.1) (170.0)
Cash at Beginning of Period 60.9 323.9
-------- -------- --------
Cash at End of Period 19.8 153.9
======== ======== ========
- --------------------------------------------------------------------------------
PAGE 5
<PAGE>
AGREEMENT FOR OPTION TO PURCHASE STOCK
THIS AGREEMENT FOR OPTION TO PURCHASE STOCK (hereinafter this "Agreement")
dated April 4, 1996, is made by and among Clock Spring, Inc., a Delaware
corporation, with its principal offices at 1114 Avenue of the Americas, 35th
Floor, New York, New York 10036; Caithness Composites, Inc., a Delaware
corporation, with its principal offices at 1114 Avenue of the Americas, 35th
Floor, New York, New York 10036 (Clock Spring, Inc. and Caithness Composites,
Inc. shall hereinafter be collectively referred to as the "Shareholders" and
each individually referred to as a "Shareholder"); Paul S. Dopp, whose address
is 58 Lyons Place, Basking Ridge, New Jersey (hereinafter "Dopp"); and
Lindabury, McCormick & Estabrook, a Professional Corporation, 53 Cardinal Drive,
Westfield New Jersey 07091 ("Lindabury, McCormick & Estabrook").
WITNESSETH
WHEREAS, the Shareholders own common stock in Natural Gas Vehicle Systems,
Inc., a Delaware corporation, (hereinafter the "Company") in the following
amounts:
Clock Spring, Inc. 54,023
Caithness Composites, Inc. 499,106
WHEREAS, provided the Shareholders execute, deliver and perform under this
Agreement, Dopp has agreed to lend the Company SIX HUNDRED THOUSAND DOLLARS
($600,000.00) pursuant to that certain Loan and Security Agreement between Dopp
and the Company dated on even date herewith (hereinafter the "Loan");
WHEREAS, the Shareholders will benefit from the Loan and have agreed to
enter into this Agreement in order to induce Dopp to make the Loan to the
Company;
WHEREAS, the Shareholders and Dopp desire that Lindabury, McCormick &
Estabrook serve as escrow agent hereunder;
NOW THEREFORE, in consideration of the aforestated recitals as well as the
mutual promises and covenants set forth herein, and desiring to be legally bound
hereby, the parties hereto agree as follows:
<PAGE>
ARTICLE I
Definitions
1.1 "Common Stock" shall mean the Company's $.01 par value common stock.
1.2 "Option" shall mean an option to purchase Common Stock, along with a
pro-rata portion of cash and/or any other assets deposited in the Share Escrow
(hereinafter defined) granted pursuant to the provisions of hereof.
1.3 "Optioned Shares" shall mean 500,000 shares of Common Stock owned by
the Shareholders on a pro-rata basis in the following amounts:
Clock Spring, Inc. 48,834 shares
Caithness Composites, Inc. 451,166 shares
or such other number and/or kind of shares as appropriate as the result of an
adjustment pursuant to Section 4.1 hereof.
1.4 "Option Price" shall mean $1.00 per share of Common Stock or such lower
price per share of Common Stock as may be appropriate as the result of an
adjustment pursuant to Section 4.1 hereof.
ARTICLE II
OPTION
2.1 The Option. Dopp may, at his option, purchase the Optioned Shares,
along with a pro rata portion of cash and/or any other assets deposited in the
Share Escrow (hereinafter defined) in whole or in part at the Option Price and
on the terms and conditions set forth herein; provided, however, that no partial
exercise of the Option hereunder granted to Dopp shall be permitted unless the
aggregate Option Price paid by Dopp in respect of any such partial exercise is
One Hundred Thousand Dollars ($100,000.00) or greater.
2.2 Option Period. The period for the exercise of the Option hereunder
shall be three (3) years from the date hereof (hereinafter the "Option Period").
At the end of the Option Period, this Agreement shall automatically terminate
and the parties shall have no further obligations to one another in connection
with the Option or this Agreement.
2
<PAGE>
2.3 Option Exercise. The Option may be exercised at any time within the
Option Period, and shall be exercised by seven (7) days written notice of intent
to exercise the Option (the "Notice Period") delivered to each Shareholder at
its principal offices. Such notice shall be accompanied by payment in full in
cash or other immediately available funds to the Shareholders at said offices in
the amount of the Option Price for the respective number of shares of Common
Stock with respect to which the Option is being exercised. Upon the expiration
of the Notice Period, Lindabury, McCormick and Estabrook shall release the
appropriate portion of the Share Escrow to Dopp in accordance with Section 3.2
hereof.
2.4 Limited Transferability of Option. The Option hereunder shall not be
transferred by Dopp otherwise than by (i) will or the laws of descent and
distribution or (ii) by gift or other transfer to his immediate family member(s)
or grandchildren or trusts created for his or their benefit. During Dopp's
lifetime, the Option shall be exercisable only by him.
2.5 No Pledge of Option. Dopp shall not pledge or otherwise encumber the
Option hereunder for any purpose whatsoever.
ARTICLE III
Share Escrow
3.1 Share Escrow. (a) Dopp and the Shareholders hereby designate and
appoint Lindabury, McCormick & Estabrook, as the escrow agent to hold and
deliver the Optioned Shares and to serve as escrow agent in accordance with the
terms and conditions of this Agreement. Lindabury, McCormick & Estabrook hereby
accepts such designation and appointment. The Shareholders shall concurrently
with the execution and delivery of this Agreement, deposit the Optioned Shares,
with duly executed stock powers endorsed in blank attached, with Lindabury,
McCormick & Estabrook or such account at a financial institution or other escrow
agent designated in accordance with subsection 3.1(g) hereof for the purposes
hereinafter set forth (hereinafter, together with such other securities, cash or
other assets as shall be required to be escrowed as set forth in Section 4.1
hereof, the "Share Escrow").
(b) Dopp and the Shareholders hereby jointly and severally agree to defend,
indemnify and hold Lindabury, McCormick & Estabrook harmless from and against
any and all claims, actions, judgments, losses, liabilities, objections,
damages, charges, costs and expenses of any nature whatsoever, including without
limitation reasonable attorneys' fees and expenses incurred by Lindabury,
McCormick & Estabrook arising directly or indirectly from, out of or incident to
its duties under this Agreement, excepting only those arising out of the
Lindabury, McCormick & Estabrook's gross negligence or intentional or deliberate
3
<PAGE>
misconduct. The regular fees of Lindabury, McCormick & Estabrook shall be the
obligation of the Shareholders.
(c) Copies of all notices and other communications by the other parties
hereto to each other, including without limitation, any notice of intent to
exercise the Option under this Agreement pursuant to the terms hereof, shall be
sent to Lindabury, McCormick & Estabrook in writing and in the same manner as
notices and other communications are to be given to the other parties hereto in
accordance with this Agreement. Lindabury, McCormick & Estabrook shall be under
no duty or responsibility to make any inquiry or investigation as to the
accuracy or adequacy of any such notice and shall be entitled to assume
conclusively, the correctness and completeness of any and all information given
in any notice, certificate, request statement or other communication received by
it under this Agreement. The other parties hereto shall hold Lindabury,
McCormick & Estabrook harmless from any act of Lindabury, McCormick & Estabrook
in reliance upon any notice, certificate, request, statement or other
communication believed (after appropriate due diligence) by Lindabury, McCormick
& Estabrook to be genuine and to have been signed by the proper party or
parties.
(d) Lindabury, McCormick & Estabrook shall not be liable for any error of
judgment, or any act done or step taken or omitted by it in good faith, or for
any mistake of fact or law, or for anything which it may do or refrain from
doing in connection herewith, excepting only its own gross negligence or
intentional or deliberate misconduct.
(e) In the event of any disagreement between by or all of the other parties
to this Agreement, or between them or any one of them and any other persons,
resulting in adverse claims or demands being made in connection with the Share
Escrow herein established or in the event that Lindabury, McCormick & Estabrook,
in good faith, is in doubt as to what action it should take hereunder, then
Lindabury, McCormick & Estabrook may, at its option, refuse to comply with any
claims or demands upon it, or refuse to take any other action hereunder, so long
as any such disagreement, claim, demand or uncertainty continues to exist, and
in any such event, Lindabury, McCormick & Estabrook shall not be or become
liable in any way to any person for its failure to act.
(f) Lindabury, McCormick & Estabrook shall be entitled to continue to
refrain from acting until (i) the rights of all parties shall have been fully
and finally adjudicated by a court of competent jurisdiction, or (ii) all
differences shall have been adjusted and all doubts resolved by written
agreement among all interested persons and the escrow agent shall have been so
notified in a writing signed by all such persons.
(g) Lindabury, McCormick & Estabrook may at any time resign hereunder by
giving at least five days' prior written notice thereof to Dopp and the
Shareholders. Upon
4
<PAGE>
the effective date of such resignation, the Share Escrow then held by Lindabury,
McCormick & Estabrook hereunder shall be delivered to joint designee of Dopp and
the Shareholders. Upon arranging for such delivery, all obligations of
Lindabury, McCormick & Estabrook hereunder shall cease and terminate. If no such
persons shall have been designated by the date validly set hereunder for
Lindabury, McCormick & Estabrook's resignation, nevertheless, all obligations of
Lindabury, McCormick & Estabrook hereunder shall cease and terminate, provided
that prior thereto it shall have made safe and reasonable deposit of the Share
Escrow held by it with a financial institution designated by Dopp.
(h) Dopp acknowledges that Lindabury, McCormick & Estabrook has acted and
is acting as legal counsel to the Company and the Shareholders in connection
with this Agreement and the transaction contemplated hereby. By acting as escrow
agent hereunder Lindabury, McCormick & Estabrook is merely acting as a
stakeholder and is, therefore, hereby authorized to continue to act as counsel
to the Company and the Shareholders after the date of execution hereof in
connection with transactions other than those arising hereunder.
3.2 Release of Share Escrow. The Optioned Shares shall be endorsed to Dopp
by Lindabury, McCormick & Estabrook and the contents of the Share Escrow,
including, without limitation, the Optioned Shares together with any cash or
other assets placed into the said Share Escrow in accordance with Section 4.1
hereof, shall be released to Dopp upon the proper exercise of the Option in
accordance with the terms and conditions hereof, and further upon confirmation,
satisfactory to Lindabury, McCormick & Estabrook that the appropriate Option
Price reflecting the appropriate number of Optioned Shares for which the Option
has been exercised has been transferred by Dopp to the Shareholders, as provided
for in Article II above. In the event Dopp does not exercise the Option within
the Option Period, the Optioned Shares, together with such other securities,
cash or other assets as shall be required to be escrowed as set forth in Section
4.1 hereof, shall be released from the Share Escrow and returned to the
Shareholders in accordance with their pro-rata interest therein.
3.3 Rights to Optioned Shares in Share Escrow. Dopp shall not be entitled
to the privileges of stock ownership in respect of any shares issuable upon
exercise of this Option, unless and until such shares have been released from
the Share Escrow and issued to Dopp as fully paid shares. Subject to the terms
of this Agreement, the Shareholders shall maintain all rights, including voting
rights and any and all other rights vested in them, by virtue of their
respective shareholder status in the Company, until such time as the Optioned
Shares are released from the Share Escrow and transferred to Dopp.
5
<PAGE>
ARTICLE IV
Miscellaneous
4.1 Adjustments, Dividends and Corporate Reorganizations. If the
outstanding shares of Common Stock subject to this Option are increased or
decreased, or are changed into or exchanged for a different number or kind of
shares or securities, as a result of one or more reorganizations, mergers,
recapitalization, stock splits, reverse stock splits, stock dividends or the
like (such increase or decrease, change or exchange hereinafter referred to as a
"Corporate Transaction") appropriate adjustments shall be made in the number
and/or kind of shares or securities for which this Option may thereafter be
exercised and the Option Price in effect immediately prior to such Corporate
Transaction shall be proportionately reduced; in the case of a Corporate
Transaction resulting in the conversion of the Optioned Shares into a greater
number of shares of Common Stock or other securities, and conversely, in case of
a Corporate Transaction resulting in the conversion of the Optioned Shares into
a lesser number of shares of Common Stock or other securities, the Option Price
in effect immediately prior to such Corporate Transaction shall be
proportionately increased; provided, however, no adjustment to the Option Price
shall be made under this paragraph in respect of shares deposited in the Share
Escrow which are not shares of voting Common Stock. No fractional share of stock
shall be issued under this Option or in connection with any such adjustment.
Such adjustment will be made by depositing the securities issued to the
Shareholders as the result of any such Corporate Transaction in the Share Escrow
in exchange for the share certificates deposited in the Share Escrow pursuant to
Article III hereof, and each Shareholder hereby covenants and warrants to Dopp
that it shall take such steps as shall be necessary to cause such securities
issued to it from time to time as the result of any such Corporate Transaction
to be immediately deposited into the Share Escrow (or such other escrow as may
be established pursuant to Section 3.1 (g) hereof) as herein required.
Further, in the event the Shareholders receive, or are entitled to receive
any dividends, distributions, or other payments in respect of the Optioned
Shares, otherwise than out of earned surplus, whether in cash, by issuance of
additional securities of Company of whatever class, or in kind, any such
property shall be deposited in the Share Escrow immediately upon Shareholder's
receipt or constructive receipt thereof, and each Shareholder hereby covenants
and warrants to Dopp that it shall take such steps as shall be necessary to
cause such property to be immediately deposited into the Share Escrow (or such
other escrow as may be established pursuant to Section 3.1 (g) hereof) as herein
required. Any such property as shall be deposited into the Share Escrow shall be
conveyed to Dopp, pro rata, at the time the Optioned Shares, or any portion
thereof, are released to Dopp as required in Section 3.2 hereof Lindabury,
McCormick and Estabrook shall invest any cash received into the Share Escrow in
an insured, interest bearing trust account at Summit Bank, Princeton, New
Jersey, for the benefit of the Shareholders and/Dopp as the case may be.
6
<PAGE>
4.2 Requirements of Law and of Stock Exchanges. By entering into this
Agreement, Dopp represents and agrees for himself and his transferees by will or
the laws of descent and distribution that, unless a registration statement under
the Securities Act of 1933 is in effect as to shares purchased upon the exercise
of this Option, (i) any and all shares so purchased shall be acquired for his
personal account and not with a view to or for sale in connection with any
distribution, and (ii) each notice of the exercise of any portion of this Option
shall be accompanied by a representation and warranty in writing, signed by the
person entitled to exercise the same, that the shares are being so acquired in
good faith for his personal account and not with view to or for sale in
connection with any distribution.
4.3 Singular, Plural; Gender. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
4.4 Governing Law. This Agreement shall be governed and interpreted in
accordance with the laws of the State of New Jersey including choice of law
rules.
4.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the, same instruments.
4.6 Effectiveness. This Agreement shall become effective on the date on
which all of the parties hereto shall have signed a counterpart hereof and shall
have delivered a copy thereof to Dopp.
4.7 Headings Descriptive. The headings of the several Sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
4.8 Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality, and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
4.9 Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR
THEREUNDER.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
CLOCK SPRING,INC.
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion,
Senior Vice President
CAITHNESS COMPOSITES, INC.
By: /s/ Christopher T. McCallion
--------------------------------
Christopher T. McCallion
Senior Vice President
PAUL S. DOPP
/s/ Paul S. Dopp
--------------------------------
LINDABURY, McCORMICK ESTABROOK
By:/s/ J. Ferd Convery III
--------------------------------
J. Ferd Convery III
8
<PAGE>
SECRETARY'S CERTIFICATE
I, J. Ferd Convery, III, hereby certifies as follows:
1. I am the Secretary of Natural Gas Vehicle Systems, Inc. (the "Company")
and as such am responsible for maintaining the minutes of the meetings of the
Board of Directors of the Company.
2. On March 6, 1996, a meeting of the Board of Directors of the Company was
held in New York, New York at which a quorum was present. At said meeting the
Board of Directors unanimously resolved that the Company borrow an amount up to
$600,000.00 from Paul S. Dopp payable not later than December 31, 1996 at a rate
of interest equal to 12% per annum (the "Loan").
3 . The Board further resolved to pledge the three roller "Leifeld" flow
forming machine, Model Number Leico ST65-132 CNC as collateral for the Loan.
/s/ J. Ferd Convery, III
--------------------------------
J. Ferd Convery, III
April 4, 1996
<PAGE>
PROMISSORY NOTE
$600,000.00 Long Beach, California
April 4, 1996
FOR VALUE RECEIVED, NATURAL GAS VEHICLE SYSTEMS, INC., a corporation duly
organized and validly existing under the laws of the State of Delaware, having
its principal office at 5580 Cherry Avenue, Long Beach, California 90805
(together with its successors and assigns, hereinafter referred to as the
"Borrower") hereby promises to pay to PAUL S. DOPP, residing at 58 Lyons Place,
Basking Ridge, New Jersey 07920 (together with his heirs and assigns,
hereinafter referred to as the "Lender"), or order, the principal sum of SIX
HUNDRED THOUSAND DOLLARS ($600,000.00), at the times and in the amounts set
forth hereinafter, and in lawful money of the United States of America, together
with accrued and unpaid interest thereon at an interest rate equal to twelve
percent (12%) per annum.
Capitalized terms in this Note shall have the meanings ascribed in that
certain Loan and Security Agreement bearing even date herewith by and between
the Borrower and the Lender (the "Loan and Security Agreement"). This Note is
the "Note" referenced in, and is subject to and is entitled to the benefits of,
the Loan and Security Agreement.
Interest on the unpaid principal amount of the Loan shall accrue on the
outstanding principal amount of the Loan from the date hereof, at the rate
prescribed hereinabove. All computations of interest shall be made on the basis
of the actual number of days elapsed and a year consisting of 360 days.
The principal amount of the Loan, together with accrued interest thereon at
the rate set forth hereinabove, shall be prepaid in the following manner:
A. Commencing on May 1, 1996, and continuing thereafter on the first (1st)
day of each succeeding calendar month (hereinafter the "Monthly Payment Date"),
through and including December 1, 1996, the Borrower shall make payments of
interest only, at the rate described hereinabove on the unpaid principal amount
of the Loan.
B. Thereafter on December 31, 1996 (hereinafter referred to as the "Balloon
Payment Date") the Borrower shall make a final monthly payment consisting of the
entire principal amount of the Loan together with accrued interest thereon
calculated based on the
<PAGE>
rate of interest described above from the previous Monthly Payment Date through
and including the Balloon Payment Date.
Borrower shall not have the privilege nor right of prepayment of the
outstanding principal balance hereof.
Payment of all sums evidenced by this Note is secured by a first priority
security interest and Lien upon the Collateral granted by the Borrower to the
Lender under and pursuant to the Loan and Security Agreement. Reference is
hereby made to the Loan and Security Agreement for a more complete description
of the security for the repayment of the Obligations of the Borrower evidenced
hereby.
Upon the occurrence of an Event of Default specified in the Loan and
Security Agreement, the outstanding principal balance hereof, together with
interest thereon shall be immediately due and payable.
No reference herein to the Loan and Security Agreement and no provision of
this Note or any of the other Loan Documents shall alter or impair the
Obligations of the Borrower, which are hereby acknowledged to be absolute and
unconditional, to pay the principal and interest, on or in connection with this
Note, at the place, in the manner and in the currency herein provided.
In the event any payment required hereunder shall not be received by the
Lender within ten (10) days of demand therefore, or if not otherwise payable on
demand, within ten (10) days of the due date set forth herein, the Borrower
shall, to the extent permitted by law, pay the Lender a late charge of Five
Percent (5%) of the overdue payment (but in no event less than $25.00 nor more
than $2,500.00). Any such late charge payable hereunder shall be immediately due
and payable.
This Note shall be governed by and construed in accordance with the laws of
the State of New Jersey.
The Borrower, and any endorser, guarantor or otherwise, hereby waive
presentment, demand, or protest or other requirements of any kind (including,
without limitation, valuation and appraisement, diligence, notice of intent to
demand or accelerate and notice of acceleration) in connection with the payment
and enforcement of this Note except as may be expressly set forth in the Loan
and Security Agreement.
-2-
<PAGE>
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER AND THE LENDER
HEREBY IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN
DOCUMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW JERSEY OR OF THE UNITED STATES OF
AMERICA FOR THE DISTRICT OF NEW JERSEY, AND BY EXECUTION AND DELIVERY OF THIS
NOTE, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND APPELLATE COURTS FROM ANY THEREOF, THE BORROWER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH HEREIN, THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTFR
HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENT
BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM,
NOTHING HEREIN SHALL EFFECT THE RIGHT OF THE LENDER OR ANY OTHER HOLDER OF THIS
NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed on the day and year first above written.
ATTEST: NATURAL GAS VEHICLE SYSTEMS, INC.
_____________________________ By:_______________________________
John Bacon, President
-3-
<PAGE>
TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN
DOCUMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW JERSEY OR OF THE UNITED STATES OF
AMERICA FOR THE DISTRICT OF NEW JERSEY, AND BY EXECUTION AND DELIVERY OF THIS
NOTE, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND APPELLATE COURTS FROM ANY THEREOF, THE BORROWER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES HEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PRE-PAID, TO THE BORROWER AT ITS ADDRESS SET FORTH HEREIN, THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENT
BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM,
NOTHING HEREIN SHALL EFFECT THE RIGHT OF THE LENDER OR ANY OTHER HOLDER OF THIS
NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed on the day and year first above written.
ATTEST: NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ John Bacon
- ----------------------------- ---------------------------------
John Bacon, President
-3-
<PAGE>
[LETTERHEAD OF LINDABURY, McCORMICK & ESTABROOK]
April 4, 1996
Paul S. Dopp
58 Lyons Place
Basking Ridge, New Jersey
RE: Natural Gas Vehicle Systems, Inc. $600,000.00 Loan
Dear Mr. Dopp:
This opinion is being rendered to you at your specific request in
connection with that certain promissory note dated as of April 4, 1996 in the
principal amount of $600,000.00 (the "Note") issued by the Borrower to you and
the Loan and Security Agreement dated as of April 4, 1996 (the "Loan Agreement")
by and between the Borrower and you. Capitalized terms used in our opinion and
not defined herein shall have the respective meanings indicated in the Loan
Agreement.
We are acting as counsel to the Borrower. In this capacity, we are
generally familiar with the affairs of the Borrower. In connection with the
foregoing transactions, we have also examined such mailers, documents,
certificates of officers of the Borrower, and certificates of public officials
and have considered such questions of law as we have deemed relevant and
necessary for the purposes of this opinion. In such examinations, we have
assumed the genuineness of all signatures, the authenticity of documents
submitted to us as originals, and the conformity to originals of all documents
submitted to us as certified, conformed and photostatic copies. In rendering the
opinion set forth herein, we have relied without investigation upon, and assumed
as true and correct, the representations, warranties and statements as to
factual matters contained in, and made pursuant to the Loan Documents.
Based upon the foregoing, we are of the opinion that:
(a) The Loan Agreement is a valid security agreement and creates a valid
security interest in the Collateral. The Loan Agreement, as a security
agreement, and the financing statement attached hereto as an Exhibit meet all
formal requirements of applicable provisions
<PAGE>
of the Uniform Commercial Code as enacted and in force in the State of New
Jersey. The said financing statement has been forwarded for filing in the office
of the Secretary of State of the State of California. The filing of the said
financing statement will perfect your security interest in the Collateral, and,
based solely upon our review of Uniform Commercial Code searches against the
Borrower conducted by Prentice Hall Infosearch at our request, your security
interest, when perfected, shall constitute a first priority lien on the
Collateral.
We are licensed to practice in the State of New Jersey and not in
California. The opinion hereinabove set forth is rendered to you with respect to
the laws of the State of New Jersey and we express no opinion herein with
respect to matters governed by the laws of any other jurisdiction.
Very truly yours,
LINDABURY, McCORMICK & ESTABROOK
/s/ LINDABURY, McCORMICK &
ESTABROOK
<PAGE>
STANDARD FORM
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
[ILLEGIBLE]
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code:
- --------------------------------------------------------------------------------
1. Debtor(s) (Last Name First) and address(es)
Natural Gas Vehicle Systems, Inc.
5580 Cherry Av., Long Beach CA 90805
Debtor's Trade Names:
CNG Cylinder Company
NGV Systems, NGV Technology Company
- --------------------------------------------------------------------------------
2. Secured Party(ies) and address(es)
Paul S. Dopp
58 Lyons Road
Basking Ridge NJ 07920
- --------------------------------------------------------------------------------
3. Maturity date (if any):
For Filing Officer (Date, Time, Number, and Filing Office)
- --------------------------------------------------------------------------------
Federal Tax ID No. 33-0515639
- --------------------------------------------------------------------------------
4. This financing statement covers the following types (or items) of property:
Debtor hereby grants the Secured Party a security interest in the three
roller "Leifeld" flow forming machine, Model Number Leico ST65/132-CNC
- --------------------------------------------------------------------------------
5. Assignee(s) of Secured Party and Address(es)
- --------------------------------------------------------------------------------
This statement is filed without the debtor's signature to perfect as security
interest in collateral. (check [X] if so)
[_] already subject to a security interest in another jurisdiction when it was
brought into this state.
[_] which is proceeds of the original collateral described above in which a
security interest was perfected:
- --------------------------------------------------------------------------------
Filed with:
Secretary of State
of California
- --------------------------------------------------------------------------------
Check [X] if covered: [_] Proceeds of Collateral are also covered. [_] Products
of Collateral are also covered. No. of additional sheets presented: ______
- --------------------------------------------------------------------------------
Natural Gas Vehicle Systems, Inc. _________________________________________
By:/s/ John N. Bacon Pres. By:
--------------------- ----- ------------------------------- -----
Signature(s) of Debtors Title Signature(s) of Secured Party(ies) Title
John Bacon
- --------------------------------------------------------------------------------
(1) Filing Officer Copy - Alphabetical
STANDARD FORM - FORM UCC-1.
(For Use in Most States)
<PAGE>
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code:
- --------------------------------------------------------------------------------
1. Debtor(s) (Last Name First) and address(es)
Natural Gas Vehicle Systems, Inc.
5580 Cherry Av., Long Beach CA 90805
Debtor's Trade Names:
CNG Cylinder Company
NGV Systems, NGV Technology Company
- --------------------------------------------------------------------------------
2. Secured Party(ies) and address(es)
Paul S. Dopp
58 Lyons Road
Basking Ridge NJ 07920
- --------------------------------------------------------------------------------
3. Maturity date (if any):
For Filing Officer (Date, Time, Number, and Filing Office)
9610060375
[BAR CODING]
FILED
SACRAMENTO, CA
APR 08, 1996 AT 1117
BILL JONES
SECRETARY OF STATE
- --------------------------------------------------------------------------------
Federal Tax ID No. 33-0515639
- --------------------------------------------------------------------------------
4. This financing statement covers the following types (or items) of property:
Debtor hereby grants the Secured Party a security interest in the three
roller "Leifeld" flow forming machine, Model Number Leico S165/132-CNC
4/8-4/12 #2
- --------------------------------------------------------------------------------
This statement is filed without the debtor's signature to perfect as security
interest in collateral. (check [X] if so)
[_] already subject to a security interest in another jurisdiction when it was
brought into this state.
[_] which is proceeds of the original collateral described above in which a
security interest was perfected:
- --------------------------------------------------------------------------------
Filed with:
Secretary of State
of California
- --------------------------------------------------------------------------------
Check [X] if covered: [_] Proceeds of Collateral are also covered. [_] Products
of Collateral are also covered. No. of additional sheets presented: ______
- --------------------------------------------------------------------------------
Natural Gas Vehicle Systems, Inc. _________________________________________
By:/s/ John N. Bacon Pres. By:
--------------------- ----- ------------------------------- -----
Signature(s) of Debtors Title Signature(s) of Secured Party(ies) Title
John Bacon
- --------------------------------------------------------------------------------
(2) Filing Officer Copy - Numerical
(For Use in Most States)
<PAGE>
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the California Uniform Commercial Code
- --------------------------------------------------------------------------------
1. FILE NO. OR ORIG. FINANCING STATEMENT
9607161041
- --------------------------------------------------------------------------------
1A. DATE OF FILING OF ORIG. FINANCING STATEMENT
3/8/96
- --------------------------------------------------------------------------------
1B. DATE OF ORIG. FINANCING STATEMENT
- --------------------------------------------------------------------------------
1C. PLACE OF FILING ORIG. FINANCING STATEMENT
- --------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST)
NATURAL GAS VEHICLE SYSTEMS, INC.
- --------------------------------------------------------------------------------
2A. SOCIAL SECURITY NO., FEDERAL TAX NO.
33-0515639
- --------------------------------------------------------------------------------
2B. MAILING ADDRESS
5580 Cherry Avenue
- --------------------------------------------------------------------------------
2C. CITY, STATE
Long Beach CA
- --------------------------------------------------------------------------------
2D. ZIP CODE
90805
- --------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST)
- --------------------------------------------------------------------------------
3A. SOCIAL SECURITY NO., FEDERAL TAX NO.
- --------------------------------------------------------------------------------
3B. MAILING ADDRESS
- --------------------------------------------------------------------------------
3C. CITY, STATE
- --------------------------------------------------------------------------------
3D. ZIP CODE
- --------------------------------------------------------------------------------
4. SECURED PARTY
NAME CAITHNESS CORPORATION
MAILING ADDRESS 1114 Avenue of the Americas
CITY New York STATE NY ZIP CODE 10036
- --------------------------------------------------------------------------------
4A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK TRANSIT AND A.B.A. NO.
- --------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY)
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
5A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK TRANSIT AND A.B.A. NO.
- --------------------------------------------------------------------------------
6.
A[_] CONTINUATION-The original Financing Statement between the foregoing
Debtor and Secured Party bearing the file number and date shown above is
continued. If collateral is crops or timber, check here [_] and insert
description of real property on which growing or to be grown in Item 7
below.
---------------------------------------------------------------------------
B[X] RELEASE-From the collateral described in the Financing Statement bearing
the file number shown above, the Secured Party releases the collateral
described in Item 7 below.
---------------------------------------------------------------------------
C[_] ASSIGNMENT-The Secured Party certifies that the Secured Party has assigned
to the Assignee above named, all the Secured Party's rights under the
Financing Statement bearing the file number shown above in the collateral
described in Item 7 below.
---------------------------------------------------------------------------
D[_] TERMINATION-The Secured Party certifies that the Secured Party no longer
claims a security interest under the Financing Statement bearing the file
number shown above.
---------------------------------------------------------------------------
E[_] AMENDMENT-The Financing Statement bearing the file number shown above is
amended as set forth in Item 7 below. (Signature of Debtor required on all
amendments.)
---------------------------------------------------------------------------
F[_] OTHER
- --------------------------------------------------------------------------------
The Secured Party releases its security interest in the three-roller
"Leifeld" flow forming machine, Model Number Leico ST65/132-CNC.
- --------------------------------------------------------------------------------
9. This Space for Use of Filing Officer
(Date, Time, Number, and Filing Office)
96100C0533
[BAR CODING]
FILED
SACRAMENTO, CA
APR 08, 1996 AT 1320
BILL JONES
SECRETARY OF STATE
- --------------------------------------------------------------------------------
(Date) April 3rd 1996
_________________________________________
By:____________________________________________________________________________
SIGNATURE(S) OF DEBTORS (TITLE)
CAITHNESS CORPORATION
_______________________________________________________________________________
By: /s/ Murray Buttner Senior V.P.
----------------------------------------------------------------------------
SIGNATURE(S) OF SECURED PARTY(IES) Murray Buttner (TITLE)
- --------------------------------------------------------------------------------
Return Copy to 4/8 4/12 #3
NAME P6-0000-785-0
ADDRESS Please return copy to:
CITY AND CT CORPORATION SYSTEM - UCC Services
STATE 1201 K Street, Ste. 1980
Sacramento, CA 95814
(2) Filing Officer Copy - Acknowledgement Requested to note date and hour of
filing on this copy and return to
the above party.
STANDARD FORM-FILING FEE UNIFORM COMMERCIAL CODE-FORM UCC-2
Approved by the Secretary of State
<PAGE>
AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT TO LOAN AND SECURITY AGREEMENT (hereinafter referred to as
the "Amendment") is made and entered into as of the 1st day of July, 1996, by
and between NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware corporation, whose
principal place of business is located at 5580 Cherry Avenue, Long Beach,
California 90805 (together with its successors and assigns, hereinafter referred
to as the "Borrower") and PAUL S. DOPP, residing at 58 Lyons Place, Basking
Ridge, New Jersey 07920 (together with his heirs and assigns, hereinafter
referred to as the "Lender").
RECITALS OF FACT AND PURPOSE:
A. Pursuant to a certain Loan and Security Agreement dated as of April 4,
1996 (hereinafter referred to as the "Agreement"), the Lender provided Borrower
with a loan in the principal amount of SIX HUNDRED THOUSAND DOLLARS
($600,000.00) (the "Loan").
B. The Loan is presently evidenced by a certain Promissory Note dated April
4, 1996, in the principal amount of $600,000.00.
C . The parties have agreed that the maturity date under the Agreement be
changed from December 31, 1996 to November 30, 1996.
NOW, THEREFORE, in consideration of the foregoing recitals of fact and the
mutual promises and covenants set forth herein, and the payment of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which is acknowledged. and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Capitalized terms used but not specifically defined in this Amendment
shall have the meanings ascribed to them in the Agreement, unless a different
meaning is clearly required by the context hereof.
2. The definition of "Termination Date" shall be amended to state
"Termination Date shall mean the earlier of November 30, 1996 or the date of the
Lender's written notice to the Borrower that a Default or Event of Default has
occurred under any of the Loan Documents".
<PAGE>
3. Section 2.1(a) of the Agreement is hereby amended by the deletion
therefrom of all references to the date "December 1, 1996," and the replacement
thereof by references to the date "November 1, 1996."
4. Section 2.1(b) of the Agreement is hereby amended by the deletion
therefrom of all references to the date "December 31, 1996," and the replacement
thereof by references to the date "November 30, 1996."
5. From and after the execution hereof, all references to the "Loan and
Security Agreement" or the "Agreement," whether or not defined as such, in the
Agreement or in any of the Loan Documents, shall be deemed to be references to
the Loan and Security Agreement, as amended by this Amendment.
6. This Amendment has been duly executed and validly delivered by the
parties hereto, and constitutes the legal, valid, and binding obligations of the
parties hereto enforceable against them in accordance with its terms.
7. Except to the extent inconsistent with this Amendment (in which case the
terms and provisions hereof shall prevail), the terms and provisions of the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first written above.
NATURAL GAS VEHICLE SYSTEMS INC.
By: /s/ John Bacon
-----------------------------
John Bacon, President
PAUL S. DOPP
/s/ Paul S. Dopp
--------------------------------
Page 2
<PAGE>
AMENDMENT TO
PROMISSORY NOTE
THIS AMENDMENT TO PROMISSORY NOTE (hereinafter referred to as the
"Amendment") is made and entered into as of the 1st day of July, 1996, by
NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware Corporation, whose principal place
of business is located at 5580 Cherry Avenue, Long Beach, California 90805
(together with its successors and assigns, hereinafter referred to as the
"Borrower") for the benefit of PAUL S. DOPP, (together with his heirs and
assigns, hereinafter referred to as the "Lender") residing at 58 Lyons Place,
Basking Ridge, New Jersey 07920.
RECITALS OF FACT AND PURPOSE
A. Pursuant to a certain Loan and Security Agreement dated as of April 4,
1996, the Lender provided Borrower with a loan in the principal amount of SIX
HUNDRED THOUSAND DOLLARS ($600,000) (the "Loan").
B. The Loan is presently evidenced by a certain Promissory Note dated April
4, 1996, in the principal amount of $600,000 (the "Note").
C. The parties have agreed that the maturity date under the Note be
changed from December 31, 1996 to November 30, 1996.
NOW, THEREFORE, in consideration of the foregoing recitals of fact and the
mutual promises and covenants set forth hereinafter and the payment by the
Borrower to the Lender of Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is acknowledged, and
intending to be legally bound hereby, the parties agree as follows:
1. Capitalized terms which are used but not defined herein shall have the
meanings ascribed to them in the Term Note, unless a different meaning is
clearly required by the context hereof.
2. Paragraph A of the Note is hereby amended by the deletion therefrom of
all references to the date "December 1, 1996", and the replacement thereof by
references to the date "November 1, 1996".
3. Paragraph B of the Note is hereby amended by the deletion therefrom of
all references to the date "December 31, 1996", and the replacement thereof of
references to the date "November 30, 1996".
<PAGE>
4. Except to the extent expressly amended hereby (in which case, the terms
of this amendment shall prevail), the various terms of provisions of the Note
shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Amendment on the day and year first written above.
NATURAL GAS VEHICLE SYSTEMS INC.
By: /s/ John Bacon
----------------------------
John Bacon, President
PAUL S. DOPP
/s/ Paul S. Dopp
----------------------------
================================================================================
LOAN AND SECURITY AGREEMENT
DATED: As of July 1, 1996
BY AND BETWEEN
NATURAL GAS VEHICLE SYSTEMS, INC.,
A Delaware Corporation,
Borrower
-And-
PAUL S. DOPP,
Lender
================================================================================
<PAGE>
THIS LOAN AND SECURITY AGREEMENT (together with any written amendments,
supplements or modifications hereof or hereto from time to time, hereinafter
referred to as this "Agreement"), is dated as of the 1st day of July, 1996, by
and between NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware corporation, having
its principal place of business at 5580 Cherry Avenue, Long Beach, California
90805 (together with its successors and assigns, hereinafter referred to as the
"Borrower") and PAUL S DOPP, residing at 58 Lyons Place, Basking Ridge, New
Jersey 07920 (together with his heirs and assigns, hereinafter referred to as
the "Lender").
WITNESSETH
WHEREAS, the Borrower has requested that the Lender provide it with a loan
in the principal amount of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00)
(hereinafter referred to as the "Loan"); and
WHEREAS, the Lender has agreed to make the Loan in accordance with the
terms and provisions of this Agreement and evidenced by that certain Promissory
Note dated on the Closing Date (hereinafter defined) in the principal amount of
FOUR HUNDRED THOUSAND DOLLARS ($400,000.00)(hereinafter referred to as the
"Note").
NOW, THEREFORE, in consideration of the Lender's willingness to make the
Loan to the Borrower, and the Borrower's willingness to perform the duties of
payment and performance set forth in this Agreement, as well as the mutual
promises and covenants set forth herein, and desiring to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
In this Agreement, unless a different meaning clearly appears from the
context, the following terms shall have the meanings herein specified:
"Bankruptcy Code" shall mean Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time and any successor statute or
statutes.
"Borrower" shall have the meaning provided in the Preamble of this
Agreement.
"Business Day" shall mean any day excluding Saturday, Sunday and any day
which shall be in New Jersey a legal holiday or a day on which banking
institutions are authorized or required by law-or other government action to
close.
"Closing Date" shall mean the date on which this Agreement is executed and
delivered by the Lender and the Borrower.
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"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute, and all regulations, pronouncements or
rulings issued in connection therewith.
"Collateral" means the 1992 Autospin 15" CNC Cylinder Necking Machine lathe
Model A.S.T. 13-80 with H.P. Electro Lodgic CNC Control and all attachments,
substitutions, parts and supplies pertaining thereto, owned by the Borrower.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Event of Default" shall have the meaning provided in Section 7.1 of this
Agreement.
"Fiscal Year" means, with respect to the Borrower, each twelve month period
ending on the 31st day of each December arising during the term of the Loan.
"GAAP" shall mean United States generally accepted accounting principles as
in effect from time to time.
"Indebtedness" includes all items that in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet as at the date as of which debt is to be determined, or to which
reference should be made by footnotes thereto, but also includes reimbursement
obligations, guaranties, endorsements (other than endorsements for collection or
deposit in the ordinary course of business), and other contingent obligations in
respect of, or to purchase or otherwise acquire or advance funds on account of
or otherwise service, obligations of others.
"Interest Rate" means twelve percent (12%) per annum.
"Lien" shall mean any mortgage, security interest, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same effect an
any of the foregoing and the filing of any financing statement or similar
instrument under the UCC or comparable law of any jurisdiction, domestic or
foreign.
"Loan Documents" means this Agreement, together with all Schedules hereto,
the Note, and all other documents or instruments executed and/or delivered by
either Borrower or Lender, or both, hereunder or thereunder or in connection
herewith or therewith from time to time.
"Material Adverse Effect" shall mean a material adverse effect upon (i) the
business, operations, properties, assets, prospects or condition (financial or
otherwise) of the Borrower and its Subsidiaries, taken as a whole, or the
ability of the Borrower to perform, or of the Lender to enforce, any of the
Obligations.
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"Obligations" means (A) the full and timely payment of all amounts due
under the Note and the other Loan Documents, when and as same shall become due
in accordance with the terms hereof and thereof; and (B) the due and timely
performance of all obligations and observance of all covenants of the Borrower
thereunder and under the Note; and (C) the full and timely payment by Borrower
of all amounts due under any document, instrument, or agreement executed in
connection therewith.
"Person" shall mean and include any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or agency, department or instrumentality thereof.
"Subsidiary" of any Person shall mean and include (i) any corporation, 50%
or more of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries, or (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, is either a general partner or has a 50% or more equity interest
at the time.
"Termination Date" shall mean the earlier of November 30, 1996 or the date
of the Lender's written notice to the Borrower that a Default or Event of
Default has occurred under any of the Loan Documents.
"UCC" shall mean the Uniform Commercial Code as in effect in any relevant
jurisdiction from time to time.
ARTICLE II - THE LOAN
Section 2.1. The Loan. Subject to the terms and conditions hereof, the
Lender agrees to make the Loan to the Borrower on the Closing Date. The
principal amount of the Loan, together with accrued interest thereon at the rate
set forth hereinabove, shall be repaid in the following manner:
a. Commencing on August 1, 1996, and continuing thereafter on the first
(1st) day of each succeeding calendar month (hereinafter the "Monthly Payment
Date"), through and including November 1, 1996, the Borrower shall make payments
of interest only, at the rate described hereinabove on the unpaid principal
amount of the Loan.
b. Thereafter on November 30, 1996 (hereinafter referred to as the "Balloon
Payment Date") the Borrower shall make a final monthly payment consisting of the
entire principal amount of the Loan together with accrued interest thereon
calculated based on the rate of interest described above from the previous
Monthly Payment Date through and including the Balloon Payment Date.
Section 2.2. Cross Collateral/Cross Default. The Borrower acknowledges and
agrees that, in consideration of the Loan and such other financial
accommodations as the Lender has made in the past and/or may make to the
Borrower in the future, the Collateral granted by the Borrower hereunder shall
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serve to collateralize any and all other Indebtedness of the Borrower to the
Lender, whether presently existing or hereafter arising, including without
limitation, that certain debt in the principal amount of $600,000.00 evidenced
by that certain Promissory Note dated April 4, 1996 executed by the Borrower for
the benefit of Lender and pursuant to the terms of that certain Loan and
Security Agreement dated April 4, 1996 by and between the Borrower and the
Lender (hereinafter referred to as the "April Debt"); and the parties further
agree that: (i) an "Event of Default" within the meaning of any loan agreement,
note, security agreement or other document or instrument relating to the April
Debt or any other Indebtedness of the Borrower to the Lender, whether presently
existing or hereafter arising, shall constitute an "Event of Default" hereunder
and under the Loan Documents; and (ii) that an "Event of Default" hereunder or
under any of the Loan Documents, or any other documents or instrument executed
and delivered by the Borrower to the Lender in connection therewith, shall
constitute an "Event of Default" within the meaning of any such other loan
agreement, note, security agreement or other document or instrument.
Section 2.3. Method and Place of Payment. (A) Except as otherwise
specifically provided in Section 2.1 hereof; all payments under this Agreement
and the Note shall be made to the Lender on the date when due and shall be made
in lawful money of the United States of America in immediately available funds
to the Lender's office.
(B) Whenever any payment to be made hereunder or under the Note shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable at the applicable rate during
such extension or, at the election of the Borrower, the Borrower may make such
payment on the last Business Day preceding such non-Business Day and the
applicable interest payments shall be calculated with respect to such Business
Day.
(C) All payments made by the Borrower hereunder and under the other Loan
Documents shall be made irrespective of, and without any reduction for, any set
off or counterclaims.
Section 2.4. Payment of Legal Fee. As additional consideration for the
making of the Loan, Borrower shall pay to the reasonable legal fees and
disbursements of counsel to Lender, by issuance to said firm of by overnight
express delivery service immediately after receipt by the Borrower of the
proceeds of the Loan of a business check payable to the order of counsel to
lender in the amount of such fees and disburesements.
ARTICLE III - THE COLLATERAL
Section 3.1. The Collateral. As collateral security for the due and
punctual payment of the Note and the performance by the Borrower of all of its
Obligations to the Lender under this Agreement and each of the Loan Documents;
and as collateral security for the Borrower's repayment of all sums due, and
performance of all acts required, under any other loan and security agreement,
note, or other document or instrument relating to any other Indebtedness of the
Borrower to the
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Lender, whether presently existing or hereafter arising, the Borrower hereby
grants to the Lender a first priority, security interest and lien in and to the
Collateral.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the Borrower
makes the following representations and warranties as of the Closing Date which
shall survive the execution and delivery of this Agreement and the Note.
Section 4.1. Corporate Status. The Borrower (i) is a duly organized and
validly existing corporation in good standing under the laws of the jurisdiction
of its organization, (ii) has the corporate power and authority to own its
property and assets and to transact the business in which it is engaged or
presently proposes to engage, and (iii) has duly qualified and is authorized to
do, business and is in good standing as a foreign corporation in every
jurisdiction in which it owns or leases real property or in which the nature of
its business requires it to be so qualified.
Section 4.2. Power and Authority. The Borrower has the corporate power and
authority to execute, deliver and carry out the terms and provisions of the Loan
Documents and has taken any necessary corporate action to authorize the
execution, delivery and performance by it of such Loan Documents. The Borrower
has duly executed and delivered each such Loan Document, and each such Loan
Document constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and by general principles of equity.
Section 4.3. No Violation. Neither the execution, delivery or performance
by the Borrower of the Loan Documents, (i) will contravene any applicable
provision of any law, statute, rule, regulation, order, writ, injunction or
decree of any court or governmental instrumentality, or (ii) will conflict or be
inconsistent with or result in any breach of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of the Borrower (except pursuant
hereto) pursuant to the terms of any indenture, mortgage, deed of trust,
agreement or other instrument to which the Borrower is a party or by which it or
any of its property or assets is bound or to which it may be subject, or (iii)
will violate any provision of the Certificate of Incorporation and By-Laws of
the Borrower.
Section 4.4. Litigation. There are no actions, suits or proceedings pending
or threatened (i) with respect to the Loan Documents, (ii) the making or the
borrowing of the Loan contemplated in the Loan Documents, or (iii) that could,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
Section 4.5. Security Interest and Lien. This Agreement creates, as
security for the Obligations, a valid and enforceable security interest in and a
Lien on the Collateral, in favor of the
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Lender, and subject to no other security interest and Lien other than those set
forth on Schedule 1 hereto. The security interest in and Lien on the Collateral
in favor of the Lender are superior to and prior to the rights of all third
parties except as set forth on Schedule 1 hereto. No further recordings or
filings are or will be required in connection with the creation, perfection or
enforcement of such security interest and Lien.
Section 4.6. Tax Returns and Payments. The Borrower has filed all tax
returns required to be filed by it and has paid all taxes and assessments
payable by it which have become due, other than those not yet delinquent or
those that are reserved against in accordance with GAAP which are being
diligently contested in good faith by appropriate proceedings.
Section 4.7. No Default. The Borrower is not in default under or with
respect to any agreement, instrument or undertaking to which it is a party or by
which it or any of its property is bound.
Section 4.8. Licenses, etc. The Borrower has obtained and holds in full
force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way and
other rights, consents and approvals which are necessary or useful for the
operation of its businesses as presently conducted.
Section 4.9. Compliance with Law. The Borrower is in compliance with all
laws, rules, regulations, orders, judgments, writs and decrees.
Section 4.10. No Liens. No Lien exists upon any of the Collateral except
for the prior Liens listed on Schedule 1 granted by the Borrower to the Persons
listed thereon.
ARTICLE V - COVENANTS
Section 5.1. Information Covenants, The Borrower will furnish to the
Lender:
(A) Notice of Default or Litigation. Promptly and in any event within two
(2) Business Days after the Borrower obtained knowledge thereof, notice of (i)
the occurrence of any Default or Event of Default, (ii) any litigation or
governmental proceeding pending or threatened against the Borrower which could
reasonably be expected to result in a Material Adverse Effect, and (iii) any
other event, act or condition which could reasonably be expected to result in a
Material Adverse Effect.
(B) Monthly Financials. As soon as available and in any event within thirty
(30) days after the end of each of monthly period, a balance sheet of the
Borrower as of the end of such period, and financial statements of the Borrower
for such period, all in reasonable
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detail and all prepared in accordance with GAAP consistently applied and
certified by the chief financial officer of the Borrower;
(C) Annual financial statements. As soon as available the audited financial
statements and balance sheets of the Borrower for fiscal year ending December
31, 1995 all in reasonable detail and all prepared in accordance with GAAP
consistently applied and certified by the chief financial officer of the
Borrower;
(D) Other Information. From time to time, such other information or
documents (financial or otherwise) as the Lender may reasonably request.
Section 5.2. Maintenance of Insurance. The Borrower shall at all times
during the term of this Agreement, maintain insurance on the property and assets
of the Borrower with insurance companies then having a "Best's" rating of A+ or
better or by companies otherwise satisfactory to the Lender, and in all cases
licensed to do business in the State of California in such amounts, in such
manner, and against such loss, damage or liability (including liability to third
parties), as is customary with companies in the same or similar business and
located in the same or similar areas. In all cases, insurance shall include:
(i) Public liability insurance insuring against any and all liability or
claims of liability arising out of, occasioned by, or resulting from
any accident or otherwise resulting in or about any premises occupied
by the Borrower, or resulting from any business activities conducted
by the Borrower, in a minimum amount of $1,000,000.00.
(ii) Property damage and broad form fire and extended coverage insurance in
an amount not less than 100% of the full replacement cost of its
principal place of business located in Long Beach, California, without
depreciation and as to the Collateral and all of its other assets in
an amount not less than $1,000,000.00 of primary coverage without
deduction for depreciation or obsolescence, and insurance insuring
against such other hazards, casualties and contingencies as the Lender
may require;
(iii) Necessary worker's compensation insurance and any insurance that may
be required by law; and
(iv) Business interruption insurance.
Such insurance coverage may be affected under overall blanket or excess
coverage policies of the Borrower and shall be for amounts sufficient to prevent
the Borrower from being co-insurers within the terms of such policy. Each
insurance policy maintained pursuant to this Section 5.2 other than public
liability and working compensation insurance policies shall name the Lender as
loss payee
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and additional insured, and Borrower shall provide an ACCORD Certificate of
Insurance to Lender within fifteen (15) days of the Closing Date which evidences
such loss payee and additional insured status in favor of Lender. At least
thirty (30) days prior to the expiration of any such policy, the Borrower shall
furnish evidence satisfactory to the Lender that such policy has been renewed or
replaced.
In the event of any loss or damage to or taking or condemnation of
Collateral, the proceeds of any insurance policy or condemnation award covering
the same shall, as to their disposition, be and become the sole property and
asset of the Lender, which shall have sole dominion and control thereof, and at
the option of the Lender, shall be applied (1) to pay for the cost of making
such repairs, restorations, reconstructions or replacements of the Collateral
involved as are necessary to repair, restore or reconstruct said assets to
substantially their condition immediately prior to such event or to a condition
of at least equivalent value; or (2) prepay all or, to the extent that proceeds
are insufficient to prepay all, to prepay a portion of the principal balance of
the Loan together with all accrued interest thereon. Any such prepayment of the
Note shall be applied first to accrued interest and then to principal. In the
event of a public liability occurrence, the proceeds of any insurance policy
covering the same shall be applied toward satisfaction of any liability
resulting from such occurrence.
Section 5.3. Certain Meetings. So long as the principal indebtedness
evidenced by the Note shall be outstanding, Borrower shall invite Lender to
attend every meeting of the Finance Committee and the Board of Directors of the
Borrower and shall provide Lender with the same notice as provided to Board or
Committee members for such purpose. In connection therewith, Lender shall
execute and deliver for the benefit of the Corporation such undertakings and
agreements as to confidentiality with respect to matters discussed or materials
disclosed at any such meetings as may be requested from time to time by
Borrower.
ARTICLE VI - NEGATIVE COVENANTS
The Borrower covenants and agrees that on and after the Closing Date until
the Obligations have been indefeasibly paid in full:
Section 6.1. Restriction on Fundamental Changes. Borrower will not, and
will not permit any Subsidiary to: (A) make any substantial change in its
present business or engage in any activities apart from its present business;
(B) dissolve, merge or consolidate with or into any corporation or otherwise
change its identity or corporate structure; (C) sell, lease, transfer, or
otherwise dispose of all or any substantial part of its assets (except in the
ordinary course of business), whether now owned or hereafter acquired; or (D)
change its corporate name or the use of any trade names; or (E) change its chief
executive office; or (F) change the location of the Collateral.
Section 6.2. Leases; Capital Expenditures; Investments. Borrower shall not,
and will not permit any Subsidiary to: (A) create, incur, assume, or suffer to
exist any lease obligation other than lease obligations incurred in the ordinary
course of business of Borrower and its Subsidiaries; (B)
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make any investment in, or make any loan or advance to, any person, partnership,
or corporation, including officers, stockholders, or directors of Borrower; (C)
purchase or otherwise invest in or hold securities, nonoperating real estate, or
other nonoperating assets, except direct obligations of the United States of
America or certificates of deposit or equivalent securities issued by Lender; or
(D) purchase or acquire obligations owed by others.
Section 6.3. Certain Restrictions. The Borrower shall not, and shall not
permit any Subsidiary or any Person controlling the Borrower to enter into any
agreement (other than the Loan Documents) which restricts the ability of the
Borrower or any Subsidiary to: (A) enter into amendments, modifications or
waivers of the Loan Documents, (B) sell, transfer or otherwise dispose of its
assets, (C) create, incur, assume or suffer to exit any Lien upon any of its
property, (D) create, incur, assume, suffer to exist or otherwise become liable
with respect to any Indebtedness, or (E) pay any dividend.
Section 6.4. Year; Fiscal Quarter. The Borrower shall not, and shall not
permit any of its Subsidiaries to, change its Fiscal Year or any of its fiscal
quarters,
ARTICLE VII - EVENTS OF DEFAULT
Section 7.1. Events of Default. Each of the following events, acts,
occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation or law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any court or administrative or governmental body:
(A) Failure to Make Payments. The Borrower shall default in the payment
when due of any interest or principal on the Loan or in the payment when due of
any other amounts owing hereunder.
(B) Breach of Representation or Warranty. Any representation or warranty
made by the Borrower herein or in any other Loan Document or in any certificate
or statement delivered pursuant hereto or thereto shall prove to be false or
misleading in any material respect on the date as of which made or deemed made.
(C) Default Under Other Agreements. (i) The Borrower shall default in the
payment when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) of any amount owing in respect of any
Indebtedness (other than the Obligations), or the Borrower shall default in the
performance or observance of any obligation or condition with respect to any
Indebtedness, or any other event shall occur or condition shall exist, if the
effect of such default, event or condition is to accelerate the maturity of any
Indebtedness, or any such Indebtedness shall become or be declared to be due and
payable prior to its stated maturity other than as a result of a regularly
scheduled payment; or (ii) any default or event of default shall occur under any
Agreement to which the Borrower is a party.
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(D) Bankruptcy, etc. (i) The Borrower shall commence a voluntary case
concerning itself under the Bankruptcy Code; or (ii) an involuntary case is
commenced against the Borrower and the petition is not controverted within ten
(10) days, or is not dismissed within thirty (30) days, after commencement of
the case; or (iii) custodian (as defined in the Bankruptcy Code) is appointed
for, or takes charge of, all or substantially all of the Collateral or other
property of the Borrower or the Borrower commences any other proceedings under
any reorganization, arrangement, adjustment of debt, relief for debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Borrower or there is
commenced against the Borrower any such proceeding which remains undismissed for
a period of thirty (30) days; or (iv) any order of relief or other order
approving any such case or proceeding is entered; or (v) the Borrower is
adjudicated insolvent or bankrupt; or (vi) the Borrower suffers any appointment
of any custodian or the like for its or any substantial part of its property to
continue undischarged or unstayed for a period of thirty (30) days; or (vii) the
Borrower makes a general assignment for the benefit of creditors; or (viii) the
Borrower shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or (ix) the Borrower
shall call a meeting of its creditors with a view to arranging a composition or
adjustment of its debts; or (x) the Borrower shall by any act or failure to act
consent to, approve of or acquiesce in any of the foregoing; or (xi) any
corporate action is taken by the Borrower for the purpose of effecting any of
the foregoing.
(E) Security. The security interest or Lien granted by the Borrower to the
Lender shall for any reason cease to be in full force and effect, or shall cease
to give the Lender the Liens, rights, powers and privileges purported to be
created thereby including, without limitation, a perfected. priority security
interest in, and Lien on, all of the Collateral in accordance with the terms
thereof.
(F) Judgment. One or more judgments or decrees in an aggregate amount of
$25,000 or more shall be entered by a court or courts of competent jurisdiction
against the Borrower (other than any judgment as to which, and only to the
extent, a reputable insurance company has acknowledged coverage without
reservation of such claim in writing) and (i) any such judgments or decrees
shall not be stayed, discharged, paid, bonded or vacated within thirty (30)
days, or (ii) enforcement proceedings shall be commenced by any creditor on any
such judgments or decrees.
(G) If in the Lender's reasonable judgment, the value of the Collateral so
substantially deteriorates or diminishes, that the Lender reasonably deems the
Obligations to be inadequately secured and Borrower, within two (2) days of
notice by the Lender, neither (i) provides additional collateral, nor (ii)
reduces the amount of the Obligation. Which action, in either such event, is
satisfactory to the Lender.
(H) Any loss, theft, or destruction of, or damage to, any substantial
portion of the Collateral for which there is either no insurance coverage or for
which, in the opinion of Lender, there is insufficient insurance coverage.
(I) Occurrence of any Material Adverse Change in the business operations,
properties or financial condition of Borrower or any Subsidiary.
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(J) Any levy, seizure or attachment upon any collateral by any third party.
(K) Borrower shall in any material respect fail to comply with any statute,
rule, regulation, ordinance, order or any law or judicial decree regarding
Borrower or is premises or assets.
Section 7.2. Rights and Remedies.
(A) Upon the occurrence of any Event of Default, the principal balance of
the Loan and any and all accrued interest thereon and any and all accrued fees
and other Obligations shall automatically become immediately due and payable,
all without presentment, demand, or protest or other requirements of any kind.
(B) Borrower agrees that if an Event of Default hereunder or under the Note
or under any Loan Document shall have occurred and be continuing, then, in
addition to any other rights and remedies provided for herein or which may
otherwise be available, the Lender may without any further demand, advertisement
or notice (except as expressly provided for below or as may be required by
mandatory provisions of law), exercise all the rights and remedies of a secured
party under the UCC (whether or not the UCC applies to the affected Collateral),
and in addition: (i) may apply the moneys, if any, then held by or on behalf of
it as part of the Collateral to the Obligations, and (ii) may sell or otherwise
dispose of the Collateral, or any part thereof, as hereinafter provided. Upon
ten (10) days prior written notice to the Borrower, which notice Borrower
acknowledges is sufficient, proper, and commercially reasonable, sell, lease or
otherwise dispose of the Collateral, at any time and from time to time, in whole
or in part, at public or private sale, without advertisement or notice of sale,
all of which are hereby waived and apply the proceeds of any such sale: (x)
first, to the expenses of the Lender in preparing the Collateral for sale,
selling and the like, including, without limitation, reasonable attorneys' fees
and expenses incurred by the Lender (including fees and expenses of any
litigation incident to the foregoing); (y) second, to the complete satisfaction
of all of the Obligations together with all interest accrued thereon; and (z)
then, to pay any excess to the Borrower. Borrower hereby waives the benefit of
any marshalling statute or similar legal doctrine and agree that the Lender may
exercise its rights against the Collateral and apply the proceeds thereof to any
of the Obligations in any order which the Lender, in its sole discretion, deems
appropriate.
Upon the occurrence and during the continuance of an Event of Default, the
Lender shall have the right, at the expense of the Borrower, to enforce
collection of any amounts payable under any agreement, instrument or other
obligation, to instruct the obligor or obligors on any such agreement,
instrument or obligation to make any payment required by the terms of such
instrument or agreement directly to the Lender and require payment to the Lender
of all such amounts, and to adjust, settle or compromise the amount or payment
thereof in the same manner and to the same extent as the Borrower might have
done. Upon the occurrence and during the continuance of an Event of Default, the
Borrower shall, upon the instruction of the Lender, instruct the obligor or
obligors on each such agreement, instrument or obligation to make any such
payment to the Lender.
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(C) The Borrower agrees to pay all costs of the Lender (including, without
limitation, attorneys' fees, expenses and disbursements) incurred in connection
with the collection of the Obligations and the enforcement by the Lender of its
rights hereunder.
Section 7.3. Remedies Cumulative; No Waiver. Each and every right, power
and remedy hereby given to the Lender shall be in addition to every other right,
power and remedy specifically given under this Agreement or under any other Loan
Document now or hereafter existing at law or in equity, or by statute, and each
and every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time or simultaneously and as often and
in such order as may be deemed expedient by the Lender. All such rights, powers
and remedies shall be cumulative and the exercise or the beginning of exercise
of one shall not be deemed a waiver of the right to exercise of any other or
others. No delay or omission of the Lender in the exercise of any such right,
power or remedy and no renewal or extension of any of the Obligations shall
impair any such right, power or remedy or shall be construed to be a waiver of
any Default or Event of Default or an acquiescence thereto.
Section 7.4. Discontinuance of Proceedings. In case the Lender shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason, then and in every such case,
the Borrower and the Lender shall be restored to their former positions and
rights hereunder with respect to the Collateral subject to the security interest
created under this Agreement, and all rights, remedies and powers of the Lender
shall continue as if no such proceeding had been instituted.
ARTICLE VIII - MISCELLANEOUS
Section 8.1. No Agreement as to Future Borrowing. The Lender expressly
acknowledges and agrees that the Borrower's performance of its Obligations
hereunder or under any Loan Document shall not give rise to any claim by the
Lender or any third-party based on contract, implied contract, reliance or any
other foundation in law or in equity that the Borrower shall be obligated to
consummate or engage in negotiations for any borrowing or other transaction with
the Lender, International Asset Recovery ("IAR"), any respective successor,
assign or subsidiary of the Lender or IAR, or other third-party.
Section 8.2. Payment of Expenses. The Borrower shall pay all reasonable
out-of-pocket costs and expenses of the Lender in connection with the
negotiation, preparation, execution and delivery of the Loan Documents and the
documents and instruments referred to therein, the creation, perfection or
protection of the Lender's Lien in the Collateral (including, without
limitation, reasonable fees and expenses for lien searches and filing and
recording fees), any amendment, waiver or consent relating to any of the Loan
Documents (including, without limitation, reasonable fees and expenses for lien
searches and filing and recording fees), any amendment, waiver of consent
relating to any of the Loan Documents (including, without limitation, as to each
of the foregoing, the reasonable fees and disbursements of counsel to the Lender
any other consultants, advisors and attorneys retained by the
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<PAGE>
Lender, including such counsel as shall be an employee of the Lender or an
affiliate of the Lender) and of the Lender in connection with the preservation
of rights under, and enforcement of, the Loan Documents and the documents and
instruments referred to therein or in connection with any restructuring or
rescheduling of the Obligations (including, without limitation, the fees and
disbursements of counsel for the Lender).
Section 8.3. Notices. Any demand or notice required or permitted to be
given hereunder shall be deemed effective when deposited in the United States
mail, and sent by first-class, postage prepaid, by overnight courier, or by
hand, addressed in each case to Lender or to Borrower at their respective
address herein, or to such other address as either party shall designate for
itself in writing to the other party.
Section 8.4. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Borrower, the Lender, all future holders of the
Note and their respective successors, heirs and assigns, except that neither
party to this Agreement may assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of the other party.
Section 8.5. Amendments and Waivers. The provisions of this Agreement or
any other Loan Document may only be amended, supplemented, modified, waived,
discharged or terminated by an instrument in writing (and not orally) signed by
all parties hereto.
Section 8.6. Certain Performances. If Borrower fails to perform any
agreement contained herein, the Lender may upon the occurrence and continuance
of any Event of Default itself perform, or cause performance of, such agreement,
and the expenses of the Lender incurred in connection therewith shall be payable
by the Borrower on demand. It is expressly agreed, anything contained herein or
in any other Loan Document to the contrary notwithstanding, that the Borrower
shall remain liable to perform all of the obligations assumed by it with respect
to the Collateral and the Lender shall not have any obligations or liabilities
with respect to any Collateral by reason of or arising out of this Agreement,
nor shall the Lender be required or obligated in any manner to perform or
fulfill any of the Obligations of the Borrower under or with respect to any
Collateral. The Lender shall not have any duty to take any steps to preserve
rights against prior parties with respect to any instruments or chattel paper.
Section 8.7. Law; Submission to Jurisdiction.
(A) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF MAY BE BROUGHT IN THE
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<PAGE>
COURTS OF THE STATE OF NEW JERSEY OR OF THE UNITED STATES OF AMERICA FOR THE
DISTRICT OF NEW JERSEY, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
APPELLATE COURTS FROM ANY THEREOF, THE BORROWER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH IN THE PREAMBLE ABOVE,
THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFOREMENTIONED ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM, NOTHING HEREIN SHALL EFFECT THE RIGHT OF THE LENDER OR ANY
HOLDER OF THE NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION.
Section 8.8. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instruments.
Section 8.9. Effectiveness. This Agreement shall become effective on the
date on which all of the parties hereto shall have signed a counterpart hereof
and shall have delivered the same to the Lender.
Section 8.10. Headings Descriptive. The headings of the several Sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
Section 8.11. Marshalling Recapture. The Lender shall not be under any
obligation to marshal any assets in favor of the Borrower or any other party or
against or in payment of any or all of the Obligations. To the extent the Lender
receives any payment by or on behalf of the Borrower, which payment or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid, and is repaid, by the Lender to such
Borrower or its estate, trustee, receiver, custodian or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment, the obligation or part thereof which
has been paid, reduced or satisfied by the amount so repaid shall be reinstated
by the amount so repaid and shall be included within the Obligations of the
Borrower to the Lender as of the date such initial payment, reduction or
satisfaction occurred.
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<PAGE>
Section 8.12. Severability. In case any provision in or obligation under
this Agreement or the Note or the other Loan Documents shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality, and enforceability
of the remaining provisions or obligations, or of such provision or obligation
in any other jurisdiction, shall not in any way be affected or impaired thereby.
Section 8.13. Survival. All indemnities set forth herein, including without
limitation as set forth in Section 7.2, shall survive the execution and delivery
of this Agreement and the Note and the making and repayment of the Loan
hereunder.
Section 8.14. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ALL RIGHT
OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING
HEREUNDER OR THEREUNDER.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered
this Agreement as of the date first above written.
Borrower:
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ John R. Bacon
-----------------------------
John Bacon, President
Lender:
PAUL S. DOPP
/s/ Paul S. Dopp
----------------------------------
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<PAGE>
SCHEDULE 1
SECURITY INTEREST AND LIENS
Borrower granted a security interest to Caithness Corporation, a Delaware
corporation, in all of the machinery, equipment and accounts receivable of the
Borrower. Simultaneously with the closing of this Loan, Borrower will file a
UCC-2 financing statement with the Secretary of State of California for the
release of the security interest in the Collateral.
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<PAGE>
SCHEDULE 2
INDEBTEDNESS
Loan and Security Agreement dated as of March 8, 1996 by and between
Borrower and Caithness Corporation evidencing Borrower's obligation to Caithness
Corporation which obligation is contingent on a draw by Aluminum Company of
America ("ALCOA") on that certain letter of credit issued by the Bank of New
York on account Borrower for the benefit of ALCOA.
Loan and Security Agreement dated as of April 4, 1996 by and between
Borrower and Lender evidencing Borrower's obligation to repay bridge financing
in the amount of $600,000.00 to the Lender.
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<PAGE>
PROMISSORY NOTE
$400,000.00 Long Beach, California
July 1, 1996
FOR VALUE RECEIVED, NATURAL GAS VEHICLE SYSTEMS, INC., a corporation duly
organized and validly existing under the laws or the State of Delaware, having
its principal office at 5580 Cherry Avenue, Long Beach, California 90805
(together with its successors and assigns, hereinafter referred to as the
"Borrower") hereby promises to pay to PAUL S. DOPP, residing at 58 Lyons Place,
Basking Ridge, New Jersey 07920 (together with his heirs and assigns,
hereinafter refereed to as the "Lender"), or order, the principal sum of FOUR
HUNDRED THOUSAND DOLLARS ($400,000.00), at the times and in the amounts set
forth hereinafter, and in lawful money of the United States of America, together
with accrued and unpaid interest thereon at an interest rate equal to twelve
percent (12%) per annum.
Capitalized terms in this Note shall have the meanings ascribed in that
certain Loan and Security Agreement bearing even date herewith by and between
the Borrower and the Lender (the "Loan and Security Agreement"). This Note is
the "Note" referenced in, and is subject to and is entitled to the benefits, of,
the Loan and Security Agreement.
Interest on the unpaid principal amount of the Loan shall accrue on the
outstanding principal amount of the Loan from the date hereof, at the rate
prescribed hereinabove. All computations of interest shall be made on the basis
of the actual number of days elapsed and a year consisting of 360 days.
The principal amount of the Loan, together with accrued interest thereon at
the rate set forth hereinabove, shall be prepaid in the following manner:
A. Commencing on August 1, 1996, and continuing thereafter on the first
(1st) day of each succeeding calendar month (hereinafter the "Monthly Payment
Date"), through and including December 1, 1996, the Borrower shall make payments
of interest only, at the rate described hereinabove on the unpaid principal
amount of the Loan.
B. Thereafter on November 30, 1996 (hereinafter referred to as the "Balloon
Payment Date") the Borrower shall make a final monthly payment consisting of the
entire principal amount of the Loan together with accrued interest thereon
calculated based on the rate of interest described above from the previous
Monthly Payment Date through and including the Balloon Payment Date.
<PAGE>
Borrower shall not have the privilege nor right of prepayment of the
outstanding principal balance hereof.
Payment of all sums evidenced by this Note is secured by a first priority
security interest and Lien upon the Collateral granted by the Borrower to the
Lender under and pursuant to the Loan and Security Agreement. Reference is
hereby made to the Loan and Security Agreement for a more complete description
of the security for the repayment of the Obligations of the Borrower evidenced
hereby.
Upon the occurrence of an Event of Default specified in the Loan and
Security Agreement, the outstanding principal balance hereof, together with
interest thereon shall be immediately due and payable.
No reference herein to the Loan and Security Agreement and no provision of
this Note or any of the other Loan Documents shall alter or impair the
Obligations of the Borrower, which are hereby acknowledged to be absolute and
unconditional, to pay the principal and interest, on or in connection with this
Note, at the place, in the mariner and in the currency herein provided.
In the event any payment required hereunder shall not be received by the
Lender within ten (10) days of demand therefore, or if not otherwise payable on
demand, within ten (10) days of the due date set forth herein, the Borrower
skill, to the extent permitted by law, pay the Lender a late charge of Five
Percent (5%) of the overdue payment (but in no event less than $25.00 nor more
than $2,500.00). Any such late charge payable hereunder shall be immediately due
and payable.
This Note shall be governed by and construed in accordance with the laws of
the State of New Jersey.
The Borrower, and any endorser, guarantor or otherwise, hereby waive
presentment, demand, or protest or other requirements of any kind (including,
without Limitation, valuation and appraisement, diligence, notice of intent to
demand or accelerate and notice of acceleration) in connection with the payment
and enforcement of this Note except as may be expressly set forth in the Loan
and Security Agreement.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER AND THE LENDER
HEREBY IRREVOCABLY WAIVE ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR THEREUNDER.
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<PAGE>
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN
DOCUMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW JERSEY OR OF THE UNITED STATES OF
AMERICA FOR THE DISTRICT OF NEW JERSEY, AND, BY EXECUTION AND DELIVERY OF THIS
NOTE, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND APPELLATE COURTS FROM ANY THEREOF, THE BORROWER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS SET FORTH HEREIN, THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENT
BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM,
NOTHING HEREIN SHALL EFFECT THE RIGHT OF THE LENDER OR ANY OTHER HOLDER OF THIS
NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed on the day and year first above written.
ATTEST: NATURAL GAS VEHICLE SYSTEMS, INC.
/s/ John N. Bacon By: /s/ Howard T. Phelan
- --------------------------- --------------------------------
Howard T. Phelan, Chairman & CEO
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<PAGE>
THE WARRANTS EVIDENCED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT.
WARRANT CERTIFICATE
100,000 Warrants
issued in consideration of the Holder's payment to the
Corporation of one mil (.001) per Warrant, to Subscribe
for and Purchase Common Stock, $.0l Par Value, of
NATURAL GAS VEHICLE SYSTEMS, INC.
THIS CERTIFIES that, for value received, Paul S. Dopp, an individual
residing at 58 Lyons Place, Basking Ridge, New Jersey (the "Holder"), or his
registered successors or assigns, is the owner of the number of Warrants set
forth above, each of which entitles the owner thereof to purchase from NATURAL
GAS VEHICLE SYSTEMS, INC., a Delaware corporation (hereinafter referred to as
the "Corporation"), at any time during the period from July 2, 1996 (hereinafter
referred to as the "Issuance Date") through 5:00 P.M., Eastern Standard Time,
June 30, 2001, One fully paid and nonassessable share of common stock, $.01 par
value, of the Corporation, as such stock is constituted on the Issuance Date,
subject to adjustment from time to time pursuant to the provisions hereinafter
set forth, at a price equal to $3.00 per share of common stock (hereinafter
referred to as the "Exercise Price"), subject to the conditions hereinafter set
forth. Notwithstanding any provision hereof to the Contrary, the 100,000
Warrants evidenced hereby shall at all times prior to and immediately after
consummation of a reverse stock split of the outstanding shares of Common stock
of the Corporation proposed by Commonwealth Associates entitle the holder hereof
to purchase 100,000 shares of common stock of the Corporation at the Exercise
Price.
This Warrant Certificate is subject to the following provisions, terms and
conditions:
1. The Warrant evidenced hereby may be exercised by the registered bolder
hereof, in whole or in part, by the surrender of this Warrant Certificate, duly
endorsed (unless endorsement is waived by the Corporation), at the principal
executive office of
<PAGE>
the Corporation, 5530 Cherry Avenue, Long Beach, California 90805 and upon
payment to it by certified or official bank check or checks of the Exercise
Price of the shares of Common Stock purchased. The Corporation agrees that the
shares of Common Stock so purchased shall be deemed to be issued to the
registered holder hereof on the date on which this Warrant Certificate shall
have been surrendered and payment made for such shares as aforesaid. The
certificates for such shares shall be delivered to the registered holder hereof
within a reasonable time, not exceeding five business days, after warrants
evidenced hereby shall have been exercised, and a new Warrant Certificate
evidencing the number of the Warrants, if any, remaining unexercised shall also
be Issued to the registered holder within such time unless such Warrants have
expired. No fractional shares of capital stock of the Corporation, or scrip for
any such fractional shares, shall be issued upon the exercise of any Warrants.
2. The number and kind of shares of Common Stock of the Corporation subject
to each Warrant evidenced hereby, and the Exercise Price, shall be subject to
adjustment as follows:
(a) Upon each adjustment of the Exercise Price as provided herein,
the holder of the Warrant evidenced hereby shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock (calculated to the nearest tenth of a share) obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(b) No fractional shares of Common Stock or scrip shall be issued
upon exercise of the Warrants evidenced hereby. Instead of any fractional shares
of Common Stock which would otherwise be issuable upon exercise of the Warrants
evidenced hereby (or portion hereof), the Corporation shall pay a cash
adjustment in respect of such fractional share of Common Stock in an amount
equal to the same fraction of the then current fair value of a share of Common
Stock, as determined in good faith by the Board of Directors of the Corporation.
(c) In case the Corporation shall declare a dividend upon the
.shares of Common Stock payable otherwise than out of earned surplus or
otherwise than in shares of Common Stock or convertible securities of the
Corporation, the Exercise Price in effect immediately prior to the declaration
of such dividend shall be reduced by an amount equal, in the case of a dividend
in cash, to the amount thereof payable per share of Common Stock or, in the case
of any other dividend, to the fair value thereof per
2
<PAGE>
share of Common Stock as determined in good faith by the Board of Directors of
the Corporation. For the purposes of the foregoing, a dividend other than in
cash shall be considered payable out of earned surplus only to the extent that
such earned surplus is charged an amount equal to the fair value of such
dividend as determined in good faith by the Board of Directors of the
Corporation. Such reductions shall take effect as of the date on which a record
is taken for the purpose of such dividend, or, if a record is not taken, the
date as of which the holders of shares of Common Stock of record entitled to
such dividend are to be determined.
(d) In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Corporation shall be combined into a smaller number of
shares of Common Stock, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased; provided however that any such
combination into a smaller number of shares effected pursuant to the matter
referred to in the last sentence of the first paragraph of this Warrant shall
not result in either an increase in the Exercise Price hereunder nor a reduction
of the number of shares of common stock which may be acquired by the holder
hereof in accordance with the terms hereof
(e) For purposes of this Warrant Certificate, the term "Common
Stock" shall mean shares of the common stock, $.01 par value, of the
Corporation, and shall also include any shares of capital stock of any class of
the Corporation hereinafter authorized which shall not be limited to a fixed Sum
or percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets Upon the voluntary liquidation,
dissolution or winding-up of the Corporation; provided, however, that the shares
of Common Stock receivable upon exercise of the warrants evidenced hereby shall
include only shares of Common Stock as constituted on the Issuance Date
including any stock into which it may be changed, reclassified or convened.
(f) If and whenever after the Issuance Date the Corporation shall
issue or sell any shares of its Common Stock for a consideration per share less
than the Exercise Price in effect immediately prior to the time of such issue or
sale, or without consideration, (the "Lesser Consideration") then, forthwith
upon each such Issue or sale, the Exercise Price shall be reduced to the price
equal to the Lesser Consideration. No adjustment of the Exercise Price however
shall he made in an amount less than $.001 per share, but any such lesser
adjustment shall be carried forward and shall be made at the
3
<PAGE>
time and together with the next subsequent adjustment which together with any
adjustments so carried forward shall amount to $.001 per share or more. For
purposes of this Paragraph (f) the following additional sub-paragraphs shall
apply:
(i) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any right to subscribe for or
to purchase, or any options for the purchase of Common Stock or any
stock or securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") whether or not such Options or the right
to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus
the aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such options, plus, in the case
of such Options which relate to convertible securities, the
aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof by (ii) the total maximum number of
shares of Common Stock issuable upon the exercise of such options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such options) shall be less than the
Exercise Price in effect immediately prior to the time of the
granting of such options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per share as of
the date of granting of such Options and thereafter shall be deemed
to be outstanding. Except as otherwise provided in Sub-Paragraph
(iii) of this Paragraph (f), no adjustment of the Exercise Price
shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any
such Convertible securities are immediately exercisable, and the
price per
4
<PAGE>
share for which Common Stock is issuable upon such Conversion or
exchange (determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the aggregate amount of
additional consideration, if any, payable to the Corporation upon
the conversion or exchange thereof; by (ii) the total maximum number
of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities) shall be less than the Exercise
Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities shall
be deemed to have been issued far such price per shares of the date
of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be outstanding, provided that (x) except as
otherwise provided in subparagraph (iii) of this Paragraph (f), no
adjustment of the Exercise Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible
Securities, and (y) if any such issue or sale of such Convertible
Securities is made upon exercises of any options to purchase any
such Convertible securities for which adjustments of the Exercise
Price have been or are to be made pursuant to other provisions of
this Sub-Paragraph (ii), no further adjustment of the Exercise Price
shall be made by reason of such issue or sale
(iii) Change in Option Price or Exercise. Rate Upon the
happening of any of the following events, namely, if the purchase
price provided for in any Option referred to in Sub-Paragraph (f) of
this Paragraph (t), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities
referred to in Sub-Paragraphs (i) or (ii) of this Paragraph (f), or
the rate at which any Convertible Securities referred to in
Sub-Paragraphs (i) or (ii) of this Paragraph (f) are convertible
into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect
against dilution), the Exercise Price in effect at the time of such
event shall forthwith be readjusted to the Exercise Price which
would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold; and on
the expiration of any such Option or the termination of any such
right to convert or exchange such Convertible Securities, the
Exercise Price then in effect hereunder shall forthwith be increased
to the Exercise Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible
5
<PAGE>
Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If
the purchase price provided for in any such Option referred to in
Sub-Paragraph (i) of this Paragraph (f) or the rate at which any
convertible Securities referred to in Sub-Paragraphs (i) or (ii) of
this Paragraph (f) are convertible into or exchangeable for, Common
Stock shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution, then, in
case of the delivery of Common Stock upon the exercise of any such
Option or upon conversion or exchange of any such Convertible
Securities, the Exercise Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been
obtained has such Option or Convertible Securities never been issued
as to such Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid, but
only if as a result of such adjustment the Exercise Price then in
effect hereunder is thereby reduced.
(iv) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as
the case may be, Issuable in payment of such dividend or
distribution shall be deemed to have been issued in a subdivision of
outstanding shares as provided in Paragraph (d) immediately
preceding.
(v) Consideration for Stock. In case any shares of Common
Stock, options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions
or concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or
Convertible Securities shall he issued or sold for a consideration
other than cash, the amount of the consideration other than cash
received by the corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of
Directors of the Corporation1 without deduction of any expenses
incurred or any underwriting commissions or concessions paid or
allowed by the Corporation in connection therewith. In case any
Options shall be issued in connection with the issue and sale of
other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated
6
<PAGE>
to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration.
(vi) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities, or (ii) to subscribe for
or purchase Common Stock, Options or Convertible Securities, then,
such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Corporation, and the disposition of any
such shares shall be considered an issue or sale of Common Stock for
the purposes of this Paragraph (f).
3. If any consolidation or merger of the Corporation with another
corporation after the Issuance Date, or the sale of all or substantially all of
its assets to another corporation shall be effected after the Issuance Date or
in case of any capital reorganization or reclassification of the capital stock
of the Corporation, then, as a condition of such consolidation, merger or sale,
reorganization or reclassification, lawful and adequate provision shall be made
whereby the holder of this Warrant Certificate shall thereafter have the right
to purchase and receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore purchasable and receivable upon the exercise of each Warrant
evidenced hereby, such shares of stock, securities or assets as may be issuable
or payable with respect to or in exchange for a number of outstanding shares of
Common Stock of the Corporation equal to the number of shares of Common Stock
immediately theretofore purchasable and receivable upon the exercise of one
Warrant evidenced hereby had such consolidation, merger, sale, reorganization,
or reclassification not taken place, and in any such case appropriate provision
shall he made with respect to the rights and interest of the registered holder
of this Warrant Certificate to the end that the provisions hereof (including
without limitation provisions for adjustment of the Exercise Price) shall
thereafter be applicable, as nearly as may be, in relation of any shares of
stock, securities or assets thereafter deliverable upon the exercise of the
Warrants evidenced hereby.
7
<PAGE>
4. Upon any adjustment of the Exercise Price or the number of shares of
Common Stock subject to the Warrants evidenced hereby, then and in each such
case the Corporation shall give written notice thereof, by first class mail,
postage prepaid, to the holder hereof, which notice shall state the Exercise
Price and/or the number of shares of Common Stock subject to the Warrants
evidenced hereby resulting from such adjustment, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
5. In case at any time:
(i) the Corporation shall declare to the holders of its shares of
Common Stock any cash dividend at a rate in excess of the rate of the last
cash dividend theretofore paid;
(ii) the Corporation shall declare any dividend upon its shares of
Common Stock payable in stock or make any special dividend or other
distribution (other than a cash dividend to the holders of its shares of
Common Stock);
(iii) the Corporation shall offer for subscription pro rata to the
holders of its shares of Common Stock any additional shares of stock of any
Glass or other rights;
(iv) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or consolidation or merger of the
Corporation with, or sale of all or substantially all its assets to,
another corporation; or
(v) there shall be a voluntarily or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written
notice, by first class mail, postage prepaid, to the Holder hereof, of the date
on which (A) the books of the Corporation shall close or a record shall be taken
for such dividend, distribution or subscription rights, or (B) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up shall take place. as the case may be. Such notice
shall also specify the date as of which the holders of shares of Common Stock of
record shall participate in such dividend, distribution or subscription rights
or shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale,
8
<PAGE>
dissolution, liquidation, or winding-up, as the case may be. Such written notice
shall be given at least 30 days prior to the action in question and not less
than 30 days prior to the record date or the date on which the Corporation's
transfer books are closed in respect thereto.
6. The Corporation shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of its issue upon the
exercise of the Warrants evidenced hereby as herein provided, such number of
shares of Common Stock as shall then be issuable upon the exercise of the
Warrants evidenced hereby. The Corporation shall not take any action which
results in any adjustment of the Exercise Price if the total number of shares of
Common Stock issued and issuable after such action upon exercise of the Warrants
evidenced hereby would exceed the total number of shares of Common Stock then
authorized by the Certificate of Incorporation of the Corporation.
7. The issuance of certificates of shares for Common Stock upon the
exercise of the Warrants evidenced hereby shall be made without charge to the
holders of such Warrants for any issuance tax in respect thereto; provided,
however, that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Warrants evidenced
hereby.
8. The Corporation will at no time close its transfer books against the
transfer of any shares issued or issuable upon the exercise of the Warrants
evidenced hereby in any manner which interferes with the timely exercise of such
Warrants conversion.
9. The person in whose name this Warrant Certificate is registered shall be
deemed the owner hereof and of the Warrant evidenced hereby for all purposes.
The registered holder of this Warrant Certificate shall not be entitled to any
rights whatsoever as a stockholder of the Corporation except as herein provided.
10. Upon receipt by the Corporation of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant Certificate, and (in case
of loss, theft or destruction) of indemnity reasonably satisfactory to it, and
upon surrender and cancellation of this Warrant Certificate, if mutilated, the
Corporation, upon reimbursement to it of all reasonable expenses incidental
thereto, will make and deliver a new warrant Certificate, of like tenor, in lieu
of this Warrant Certificate.
9
<PAGE>
11. This Warrant Certificate and the Warrants evidenced hereby may not be
transferred unless such transfer would not result in a violation of the
provisions of the Securities Act of 1933 (hereinafter referred to as the "Act").
Any transfer of this Warrant Certificate and the Warrants evidenced hereby, in
whole or in part, shall be effected upon surrender of this Warrant Certificate,
duly endorsed (unless endorsement is waived by the Corporation), at the
principal office or agency of the Corporation referred to in paragraph 1.
12. All notices, requests or instructions hereunder shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid as
follows:
(1) if to the Corporation:
Natural Gas Vehicle Systems, Inc.
5580 Cherry Avenue
Long Beach, California 90805
Attention: John Bacon, President
(2) if to the holder of the Warrants evidenced hereby:
Paul S. Dopp
58 Lyons Place
Basking Ridge, New Jersey
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt.
13. The Corporation shall issue prior, detailed written notice to Holder in
the manner described in Section 14 with regard to the proposed authorization of
any form of security by the Corporation, including without limitation, any form
of common stock or preferred stock, any increase in the authorized amount of any
existing class of stock, or any debt instrument which contains any form of
privilege or right to convert the indebtedness evidenced thereby.
14. This Warrant Certificate is the only certificate issued to Holder
pursuant to that certain Letter of Intent dated July 1 1996 between the
Corporation and the Holder.
IN WITNESS WHEREOF, Natural Gas Vehicle Systems, Inc. has caused this
Warrant Certificate to be signed by its duly authorized officers and this
Warrant Certificate to be dated July 1, 1996.
10
<PAGE>
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ John Bacon
------------------------------
John Bacon, President
11
<PAGE>
FORM OF EXERCISE
(to be executed by the registered holder hereof)
The undersigned hereby exercises _____ Warrants to subscribe for and
purchase shares of common stock, $.0l par value ("Common Stock"), of Natural
Gas Vehicle Systems, Inc. evidenced by the within Warrant Certificate and
herewith makes payment of the purchase price in full. Kindly issue certificates
for shares of Common Stock in accordance with the instructions given below. The
certificate for the unexercised balance of the Warrants evidenced by the within
Warrants Certificate, if any, will be registered in the name of the undersigned.
Dated:
_________________________________
Instructions for registration of stock
_________________________________
Name (please print)
Social Security or Other Identifying Number:
_________________________________
Address:
_________________________________
Street
_________________________________
City) State and Zip Code
12
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED,
ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER
THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF
COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE
SECURITIES LAW.
NATURAL GAS VEHICLE SYSTEMS, INC.
PROMISSORY NOTE
The Transferability of this Note
is Restricted as Provided in Section 3
Dated: September 12, 1996
$100,000 New York, New York
FOR VALUE RECEIVED, Natural Gas Vehicle Systems, Inc., a Delaware corporation
(the "Company"), promises to pay to Green Fuels, Inc. (the "Holder") the
principal amount of ONE HUNDRED THOUSAND DOLLARS ($100,000) (the "Principal
Amount"), in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, together with simple interest thereon at the rate of twelve percent (12%)
per annum (calculated on the basis of a 360-day year of 30-day months), at the
principal office of the Company, on September 12, 1998. No payments of principal
and/or interest shall be due until maturity.
Notwithstanding anything to the contrary herein contained, the Principal
Amount of this Note or any interest hereon may be prepaid at any time or from
time to time, prior to the maturity of this Note, in whole or in part, without
prior notice and without penalty or premium. Prepayments shall be applied first
to interest due and then to principal.
1. The Notes. This Note is one of several promissory notes made and issued
by the Company (individually, a "Note," and together, the "Notes"), pursuant to
the terms and subject to the conditions of Subscription Agreements and
Investment Representations (the "Subscription Agreements"), by and among the
Company and certain investors. Reference is made to the Subscription Agreements
for agreements of the parties applicable to this Note.
<PAGE>
2. Covenants. The Company covenants and agrees that, so long as any of the
Notes shall be outstanding and unpaid:
2.1 Payment of Notes. The Company will punctually pay or cause to be
paid the Principal Amount and interest on this Note. Any sums required to be
withheld from any payment of Principal Amount or interest on this Note by
operation of law or pursuant to any order, judgment, execution, treaty, rule or
regulation may be withheld by the Company and paid over in accordance therewith.
Nothing in this Note or in any other agreement between the Holder and the
Company shall require the Company to pay, or the Holder to accept, interest in
an amount which would subject the Holder to any penalty or forfeiture under
applicable law. In the event that the payment of any charges, fees or other sums
due under this Note or provided for in any other agreement between the Company
and the Holder are or could be held to be in the nature of interest and would
subject the Holder to any penalty or forfeiture under applicable law, then ipso
facto the obligations of the Company to make such payment to the Holder shall be
reduced to the highest rate authorized under applicable law and, in the event
that the Holder shall have ever received, collected, accepted or applied as
interest any amount in excess of the maximum rate of interest permitted to be
charged by applicable law, such amount which would be excess interest under
applicable law shall be applied first to the reduction of principal then
outstanding, and, second, if such principal amount is paid in full, any
remaining excess shall forthwith be returned to the Company.
2.2 Maintenance of Corporate Existence; Merger and Consolidation. The
Company will at all times cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and all of its rights and
franchises and shall not be consolidated with or merge into any other
corporation or transfer all or substantially all of its assets to any person
unless (i) the survivor of such consolidation or merger is the Company, or (ii)
the corporation formed by such consolidation or into which the Company is merged
or to which the assets of the Company are transferred is a corporation which
expressly assumes all of the obligations of the Company under the Notes.
3. Restrictions Upon Transferability. This Note has not been registered
under the Act, and may not be offered, sold, pledged, hypothecated, assigned or
transferred except (i) pursuant to a registration statement under the Act which
has become effective and is current with respect to this Note, or (ii) pursuant
to a specific exemption from registration under the Act but only upon a Holder
hereof first having obtained the written opinion of counsel to the Company, or
other counsel reasonably acceptable to the Company, that the proposed
disposition is consistent with all applicable provisions of the Act as well as
any applicable "blue sky" or other state securities law.
4. Events of Default and Remedies. An "Event of Default" shall occur if:
4.1 Payment of Notes. The Company defaults in the payment of Principal
Amount or interest of this Note, when and as the same shall become due and
payable at whether maturity thereof, or by acceleration or otherwise, which
default shall continue uncured for a period of thirty (30) days from the date
thereof; or
<PAGE>
4.2 Performance of Covenants, Conditions or Agreements. The Company
fails to comply with any of the covenants, conditions or agreements set forth in
this Note and such default shall continue uncured for a period of thirty (30)
days after receipt of written notice to the Company from any Holder stating the
specific default or defaults; or
4.3 Bankruptcy, Insolvency, etc. The Company shall file or consent by
answer or otherwise to the entry of an order for relief or approving a petition
for relief, reorganization or arrangement or any other petition in bankruptcy
for liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or shall make an assignment for the benefit of its creditors, or
shall consent to the appointment of a custodian, receiver, trustee or other
officer with similar powers of itself or of any substantial part of its
property, or shall be adjudicated a bankrupt or insolvent, or shall take
corporate action for the purpose of any of the foregoing, or if a court or
governmental authority of competent jurisdiction shall enter an order appointing
a custodian, receiver, trustee or other officer with similar powers with respect
to the Company or any substantial part of its property or an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law, or an order for the dissolution, winding up or liquidation of
the Company, or if any such petition shall be filed against the Company and such
petition shall not be dismissed within sixty (60) days.
4.4. Remedies. In case an Event of Default (other than an Event of
Default resulting from the Company's failure to pay the Principal Amount of, or
any interest upon, this Note, when the same shall be due and payable in
accordance with the terms hereof (after giving effect to applicable "cure"
provisions herein) and an Event of Default resulting from bankruptcy, insolvency
or reorganization) shall occur and be continuing, the Holders of the Notes
representing at least fifty-one percent (51%) in the aggregate of the Principal
Amount of all Notes then outstanding, may declare by notice in writing to the
Company all unpaid Principal Amount and accrued interest on all of the Notes
then outstanding to be due and payable immediately. In case an Event of Default
resulting from the Company's nonpayment of Principal Amount of, or interest
upon, this Note shall occur, the Holder may declare all unpaid Principal Amount
and accrued interest on this Note held by such Holder to be due and payable
immediately. In case an Event of Default resulting from bankruptcy, insolvency
or reorganization shall occur, all unpaid principal and accrued interest on the
Notes held by each Holder shall be due and payable immediately without any
declaration or other act on the part of such Holders. Any such acceleration may
be annulled and past defaults (except, unless theretofore cured, a default in
payment of Principal Amount or interest on the Notes) may be waived by the
Holders of a majority in Principal Amount of the Notes then outstanding.
5. Waiver and Amendments. This Note may be amended, modified, superseded,
canceled, renewed or extended, and the terms hereof may be waived only by a
written instrument signed by the Company and Holders of at least fifty-one
percent (51%) in Principal Amount of the Notes at the time outstanding;
provided, however, that the consent of a Holder shall be required to modify the
terms of this Note affecting the payment of Principal Amount of, or interest on,
such Holder's Note or the term of such Holder's Note.
<PAGE>
No delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver hereof, nor shall any waiver on the part of
any party of any right, power or privilege or privilege hereunder preclude any
other or further exercise hereof or the exercise of any other right, power or
privilege hereunder. The rights and remedies provided herein are cumulative and
are not exclusive of any rights or remedies which any party may otherwise have
at law or in equity.
6. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and of indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note, if mutilated, the Company will make and deliver a new Note of like
tenor, in lieu of this Note. Any Note made and delivered in accordance with the
provisions of this Section 6 shall be dated as of the date to which interest has
been paid on this Note, or if no interest has theretofore been paid on this
Note, then dated the date hereof.
7. Notice. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed or
sent by certified, registered, or express mail, postage prepaid, and shall be
deemed given when so delivered personally, telegraphed or, if mailed, five (5)
days after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
Natural Gas Vehicle Systems, Inc.
5580 Cherry Avenue
Long Beach, California 90805
Attn: Chairman
(ii) if to the Holder, to the address of such Holder as shown on the books
of the Company.
8. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflicts of law principles. The Company agrees that any dispute or controversy
arising out of this Note shall be adjudicated in a court located in New York
City, and hereby submits to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York, and irrevocably waives any objection it now or
hereafter may have respecting the venue of such action or proceeding brought in
such a court or respecting the fact that such court is an inconvenient forum,
and consents to the service of process in any such action or proceeding by means
of registered or certified mail, return receipt requested.
<PAGE>
9. Successors and Assigns. All the covenants, stipulations, promises and
agreements in this Note contained by or on behalf of the Company shall bind its
successors and assigns, whether or not so expressed.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
corporate name by a duly authorized officer and to be dated as of the date first
above written.
[SEAL] NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/Martin Richards
--------------------------------
Name: Martin Richards
Title: C.F.O.
Attest:
- ---------------------------------
Name:
Title:
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED
OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR
(ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
SEPTEMBER 12, 1996
NATURAL GAS VEHICLE SYSTEMS, INC.
COMMON STOCK
PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in Section 3
W-1
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged by NATURAL GAS VEHICLE SYSTEMS, INC., a Delaware
corporation (the "Company"), GREEN FUELS, INC., an Indiana corporation, is
hereby granted the right, exercisable at any time from the date hereof until
5:00 p.m. on September 12, 1998, to purchase that number of shares ("Share(s)")
of the Company's common stock, $.01 par value ("Common Stock"), equal to $20,000
divided by the higher of (A) the initial public offering price per share of
Common Stock in an initial public offering ("IPO") of Common Stock by the
Company (the "IPO Price") or (B) $5.00. Upon surrender of this Warrant, with the
annexed Subscription Form duly executed, together with payment of the Purchase
Price (as hereinafter defined) for the Shares payable in cash or by certified or
official bank check in New York Clearing House funds, subject to adjustments as
provided in Section 5 hereof, the registered holder of this Warrant (the
"Holder") shall be entitled to receive a certificate or certificates for the
Shares so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are exercisable at the
option of the Holder, in whole or in part (but not as to fractional Shares
underlying this Warrant), during any period in which this Warrant may be
exercised as set forth above. in the case of the purchase of less than all the
Shares purchasable under this Warrant, the Company shall cancel
<PAGE>
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the Shares purchasable hereunder.
2. Issuance of Certificates.
Upon the exercise of this Warrant and payment in full for the Shares, the
issuance of certificates for Shares underlying this Warrant shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder, including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Section 3 hereof) be issued in the name of, or in such
names as may be directed by, the Holder; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The certificates representing the Shares underlying this
Warrant shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman, Vice Chairman, President or
Vice President and Secretary or Assistant Secretary of the Company.
3. Restriction on Transfer.
Neither this Warrant nor any Shares issuable upon exercise hereof has been
registered under the Securities Act of 1933, as amended (the "Act"), and none of
such securities may be offered, sold, pledged, hypothecated, assigned or
transferred except (i) pursuant to a registration statement under the Act which
has become effective and is current with respect to such securities, or, (ii)
pursuant to a specific exemption from registration under the Act but only upon a
Holder hereof first having obtained the written opinion of counsel to the
Company, or other counsel reasonably acceptable to the Company, that the
proposed disposition is consistent with all applicable provisions of the Act as
well as any applicable "Blue Sky" or similar state securities law. Upon
exercise, in part or in whole, of this Warrant, each certificate issued
representing the Shares underlying this Warrant shall bear a legend to the
foregoing effect.
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial purchase price for
each Share hereunder shall be the higher of the IPO Price or $5.00. The adjusted
purchase price shall be the price which shall result from time to time from any
and all adjustments of the initial purchase price in accordance with the
provisions of Section 5 hereof and subject to Section 6 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall mean the initial
purchase price or the adjusted purchase price, depending upon the context.
2
<PAGE>
5. Adjustments.
In the event that subsequent to the Company's IPO and prior to the issuance
by the Company of all the Shares issuable upon exercise of this Warrant, there
shall be any change in the outstanding Common Stock of the Company by reason of
a subdivision or combination of the Company's outstanding Common Stock, or by
reason of a dividend or distribution of shares of Common Stock, the remaining
Shares still subject to this Warrant and the Purchase Price thereof shall be
appropriately adjusted (but without regard to fractions) by the Board of
Directors of the Company to reflect such change.
6. Merger or Consolidation.
In case of any consolidation of the Company with, or merger of the Company
with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock of the Company), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of his Warrant,
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation or merger by a holder of the number of shares
of Common Stock of the Company for which his Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 5. The above provisions of this
Section 6 shall similarly apply to successive consolidations or mergers.
7. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the surrender hereof by
the registered Holder at the principal executive office of the Company for a new
Warrant of like tenor and date representing in the aggregate the right to
purchase the same number of Shares as are purchasable hereunder in such
denominations as shall be designated by the Holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant.
8. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of Shares on the exercise of this Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated.
3
<PAGE>
9. Reservation of Securities.
The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issuance upon the exercise of
this Warrant, such number of Shares as shall be issuable upon the exercise
hereof. The Company covenants and agrees that, upon exercise of this Warrant and
payment of the Purchase Price therefor, all Shares issuable upon such exercise
shall be duly and validly issued, fully paid and nonassessable.
10. Notices to Warrant Holders.
Nothing contained in this Warrant shall be construed as conferring upon the
Holder hereof the right to vote or to consent or to receive notice as a
stockholder in respect of any meetings of stockholders for the election of
directors or any other matter, or as having any rights whatsoever as a
stockholder of the Company.
11. Notices.
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be delivered personally, by
facsimile or sent by certified, registered, or express mail, postage prepaid,
and shall be deemed given when so delivered personally, sent by facsimile or, if
mailed, five days after the date of deposit in the United States mails, as
follows:
(a) If to the Company, to:
Natural Gas Vehicle Systems, Inc.
5580 Cherry Avenue
Long Beach, California 90805
Attn: Howard T. Phelan
Chairman and Chief Executive Officer
(b) If to the registered Holder, to the address of such Holder as shown on
the books of the Company.
12. Successors.
All the covenants, agreements, representations and warranties contained in
this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, distributees, successors and assigns.
13. Headings.
The headings in this Warrant are inserted for purposes of convenience only
and shall have no substantive effect.
4
<PAGE>
14. Law Governing.
This Warrant is delivered in the State of New York and shall be construed
and enforced in accordance with, and governed by, the laws of the State of New
York, without giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
corporate name by, and such signature to be attested to by, a duly authorized
officer and has caused its corporate seal to be affixed hereto on the date first
above written.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/ Martin Richards
--------------------------------
Name: Martin Richards
Title: C.F.O.
[SEAL]
Attest:
- ---------------------------------
Secretary
5
<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the right to purchase
_______ Shares represented by this Warrant in accordance to the conditions
hereof and herewith makes payment of the Purchase Price of such Shares in full.
--------------------------------
Signature
--------------------------------
Address
--------------------------------
Dated: Social Security Number or
Taxpayer's Identification
Number
6
PROMISSORY NOTE
$50,000.00 Long Beach, California
June 24th, 1996
UPON DEMAND, for value received, Natural Gas Vehicle Systems, Inc., a Delaware
corporation, whose address is 5580 Cherry Avenue, Long Beach, California 90805
(the "Maker") promises to pay to the order of Clock Spring Company, whose
address is 14107 Interdrive West, Houston, Texas 77032-3326, the principal sum
of FIFTY THOUSAND and 00/100 DOLLARS ($50,000) together with interest thereon at
the rate of prime plus 3% per annum.
Maker waives presentment, notice of dishonor, protest and notice of
protest. If Maker fails to make timely payments required by this Promissory
Note, Maker shall pay costs of collection and reasonable attorney's fees.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/Martin B. Richards
--------------------------------
Name: Martin B. Richards
Title: Chief Financial Officer
PROMISSORY NOTE
$50,000 Long Beach, California
January 12, 1996
For value received, Natural Gas Vehicle Systems, Inc., a Delaware corporation,
whose address is 5580 Cherry Avenue, Long Beach, California 90805 (the "Maker")
promises to pay to the order of Mr. W. Murray Buttner, whose address is 1114
Avenue of the Americas, 35th Floor, New York, New York 10036-7790, the principal
sum of FIFTY THOUSAND AND 00/100 DOLLARS ($50,000) together with interest
thereon at the rate of 11% per annum.
Maker gives W. Murray Buttner a senior security interest in accounts receivable
for $50,000 plus accrued interest until loan is re-paid.
Maker waives presentment, notice of dishonor, protest and notice of protest. If
Maker fails to make timely the payments required by this Promissory Note, Maker
shall pay costs of collection and reasonable attorneys' fees.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/Martin B. Richards
--------------------------------
Martin B. Richards
Title: Vice President and Chief Financial Officer
PROMISSORY NOTE
$100,000 Long Beach, California
January 30, 1996
For value received, Natural Gas Vehicle Systems, Inc., a Delaware corporation,
whose address is 5580 Cherry Avenue, Long Beach, California 90805 (the "Maker")
promises to pay to the order of Mr. W. Murray Buttner, whose address is 1114
Avenue of the Americas, 35th Floor, New York, New York 10036-7790, the principal
sum of ONE HUNDRED THOUSAND AND 00/100 DOLLARS ($100,000) together with interest
thereon at the rate of 11 % per annum.
Maker waives presentment, notice of dishonor, protest and notice of protest. If
Maker fails to make timely the payments required by this Promissory Note, Maker
shall pay costs of collection and reasonable attorneys' fees.
NATURAL GAS VEHICLE SYSTEMS, INC.
By: /s/Martin B. Richards
--------------------------------
Martin B. Richards
Title: Vice President and Chief Financial Officer
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
1. Natural Gas Vehicle Development Company, Inc., a California corporation
("NGVDC").
2. Natural Gas Vehicle Development Company Southeast, Inc., a Georgia
corporation which is a wholly-owned subsidiary of NGVDC.
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated April 11, 1996, except for note 17,
which is dated as of October 10, 1996, with respect to the consolidated
financial statements of Natural Gas Vehicle Systems, Inc. and subsidiary
included herein, and to the reference to our firm under the heading "Experts" in
the Registration Statement.
Our report dated April 11, 1996, except for note 17, which is dated as of
October 10, 1996, contains and explanatory paragraph that states that the
Company has suffered recurring losses from operations and has a net capital
deficiency, which raise substantial doubt about its ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
October 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Natural
Gas Vehicles System, Inc. and subsidiary consolidated statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1994 and
1995, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> JUN-30-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 600 <F2> 411 <F2>
<SECURITIES> 0 0
<RECEIVABLES> 2,082 831
<ALLOWANCES> (10) (105)
<INVENTORY> 1,118 1,004
<CURRENT-ASSETS> 3,932 2,003
<PP&E> 5,362 6,180
<DEPRECIATION> (2,373) (2,100)
<TOTAL-ASSETS> 7,310 5,376
<CURRENT-LIABILITIES> (5,158) (2,382)
<BONDS> 0 0
0 0
0 0
<COMMON> (23) (23)
<OTHER-SE> (2,129) (2,971)
<TOTAL-LIABILITY-AND-EQUITY> 7,310 5,376
<SALES> (4,374) (5,683)
<TOTAL-REVENUES> (4,374) (5,683)
<CGS> 3,951 6,171
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 202 622
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 133 448
<INCOME-PRETAX> 884 4,291
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 884 4,291
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 884 4,291
<EPS-PRIMARY> 0.32 <F1> 2.07 <F1>
<EPS-DILUTED> 0.32 <F1> 2.07 <F1>
<FN>
<F1> Refer to footnote 1 of notes to consolidated financial statements for a
discussion of total common shares used in the earning per share calculation
<F2> Refer to footnote 2 of notes to consolidated financial statements for a
discussion of restricted cash included within this balance
</FN>
</TABLE>
